Liberty Is Now

Social Media and Marketing for Libertarians

2012-03-06T19:09:00.003-08:00

New Book "Pocket Guide for a Young Libertarian"

2012-03-01T18:59:00.003-08:00

Turning American Politics Libertarian

2012-02-12T07:37:00.000-08:00

Question of the Day: What is the Role of the State?

2012-02-07T06:00:00.000-08:00

Libertarians Online - Tour of Websites, Blogs, and Communities

2012-02-01T03:59:00.001-08:00

Ron Paul after South Carolina - Fighting for Liberty

2012-01-22T07:00:00.000-08:00

Interview with OH-3 Congressional Candidate - Richard C. Ehrbar

2012-01-07T15:13:00.001-08:00

Alex Merced discusses Ron Pauls CNN Interview with Gloria Borger

2011-12-23T17:43:00.000-08:00

Alex Merced discusses Ron Pauls CNN Interview with Gloria Borger

Complete Gloria Borger Interview:

http://www.cnn.com/video/#/video/politics/2011/12/23/borger-ron-paul-iowa.cnn

Ron Paul Interview with Wolf Blitzer 2008:
http://www.youtube.com/watch?v=RKBlk1Vpeuw

Ron Paul Google Interview from 2007 (very good):
http://www.youtube.com/watch?v=yCM_wQy4YVg

Why Ron Paul is good for Minorities and the Poor:
http://www.youtube.com/watch?v=RbO5nA4fYTQ

Ron Paul is not Racist:
http://www.youtube.com/watch?v=iGnCw95m5DI

Ron Paul’s “Liberty Defined”:
http://amzn.to/vsva3g

Ron Paul in 1988:
http://www.youtube.com/watch?v=0I2fRcFPzu4

Why The Poor and Minorities should vote Ron Paul

2011-12-17T22:02:00.000-08:00

Libertarian for Congress: Richard C. Ehrbar III

2011-12-10T20:39:00.001-08:00

For Immediate Release: 12/9/11

OSU Undergrad Files Congressional Petition in 3rd District as Libertarian

Student believes liberty message, diverse district, and current political environment are recipe for libertarian victory

COLUMBUS, Ohio - Ohio State University undergraduate Richard C. Ehrbar III filed petitions to the Franklin County Board of Elections on Wednesday as a Libertarian Party candidate for congress in Ohio’s new 3rd District.

Ehrbar filed his petitions after spending the previous months reaching out to numerous areas in and around Ohio’s capitol city.

Located mostly within the Interstate 270 boundary surrounding Columbus, the new 3rd District is a diverse blend of college campuses, businesses, and a large inner city population.

Ehrbar believes the community’s cultural diversity parlayed with the current political environment make the Franklin County district fertile ground for his inaugural campaign for office.

“Our campaign is predicated upon three cornerstones: peace, liberty, and sound money”, Ehrbar said. “Students in the district are concerned with ending the wars and finding jobs; inner city residents are desperate for prosperity and respect for their personal liberties; and small business owners need significant tax relief and freedom from over-burdensome regulatory constraints. Our campaign addresses each of these issues with a constitutional solution.”

With HB 318 still lurking in the Ohio Legislature, the possibility exists that Congressional candidates will have to file petitions once more in order to qualify for the June 2012 primary. Wednesday’s filing deadline may end up being extended until March 2012.

When asked if the uncertainty would impact campaign strategy, Ehrbar replied: “We are already going to be out campaigning for peace, so this just adds a few signatures to the agenda. Our team is ready to put things in high gear. With democrats focusing on primary battles we may get a chance to get a leg up in the race because we can campaign for the general election while they beat each other up preparing for the primary.”

Ehrbar for Congress was launched in late August 2011 in attempts to restore Peace, Liberty, and Sound Money to the American people through constitutional governance. RIchard C. Ehrbar III is seeking to become the first candidate from the Libertarian Party to be elected to the U.S. House of Representatives.

####
Contact information:

E-mail: ehrbarforcongress@gmail.com.
Media inquiries and interviews (for immediate response): 419 806 6120
On the web: www.facebook.com/RichardCEhrbarIIIfor2012U.S.Congress.

Ehrbar for Congress * 1490 Indianola Avenue * Columbus, Ohio 43201

The Problem with the Cell Phone Tax

2011-12-03T22:05:00.001-08:00

Everyone Has a Right to Work... Even Kids

2011-11-13T18:36:00.001-08:00

Buy Alex Merceds Books at AlexMerced.com

The Role of Politics in Society

2011-11-08T17:42:00.000-08:00

Freedom Rising - Libertarian Transformational Seminars

2011-11-07T11:30:00.000-08:00

To Learn More about Freedom Rising go to OneDifferenceNow.org

Buy Alex Merceds books at AlexMerced.com

The Federal Reserve in 10 Minutes

2011-10-23T20:27:00.000-07:00

The Virtue of Choice and Liberty

2011-10-20T04:36:00.000-07:00

Corporate Welfare and Social Welfare

2011-10-13T16:12:00.000-07:00

Monetary Liberty is NOW!

2011-10-10T06:15:00.000-07:00

Opression through Complexity of Institutions

2011-10-05T13:40:00.000-07:00

Tax and Credit Policy can Create Moral Hazard

2011-10-03T19:29:00.000-07:00

Opinion Update: Ron Paul and #OccupyWallStreet

2011-10-02T19:50:00.001-07:00

Can the Free Market Stay Free?

2011-09-28T03:40:00.001-07:00

The Corporate Tax Debate

2011-09-25T09:01:00.001-07:00

Reflection on Econtalk and the Obama Stimulus

2011-09-20T19:59:00.001-07:00

Keynesian Critique: is excess capacity a real problem?

2011-09-07T16:52:00.000-07:00

Economics: The Broken Window Fallacy

2011-08-31T18:15:00.000-07:00

Justice, the Law, Enforcement - a Libertarian point of view

2011-08-27T18:05:00.000-07:00

Libertarian: Must Read Books (Hazlitt, Rothbard, Block, Kling)

2011-08-27T13:18:00.000-07:00

A Visual on the Effect of the Minimum Wage

2011-08-22T18:11:00.000-07:00

Social Security 101

2011-08-20T10:33:00.000-07:00

An Online Tour of the Ron Paul Revolution

2011-08-11T04:54:00.000-07:00

A libertarian analysis of Captain America

2011-07-26T19:05:00.000-07:00

The paradox of political rhetoric

2011-06-23T18:09:00.001-07:00

Recessions and Depressions in American History

2011-06-16T11:43:00.000-07:00

Recessions and Depressions in American History
by Alex Merced

A common narrative of depressions during the period on which the United States was on the classical gold standard (1873-1933)[1] is typically mischaracterized to be the fault of the gold standard itself. When given closer examination it’s easy to see that these downturns had less to do with the lack of an elastic money supply or central bank but more to do with structural changes in the economy and market corrections to speculative bubbles usually due to credit expansion. So what we’ll take a look reoccurring themes of economic downturns during and after the gold standard to see that no matter what is the monetary system the same factors play into recessions and depressions.

Abrupt Changes to the Monetary System

In the history of the United States the monetary system has changed fairly regularly every 40-50 years. First major change is the ending of the First US bank in 1811 at the hands of Thomas Jefferson then only a few years later another major change with the Second US Bank which was then later also put to an end at the hands of Andrew Jackson. From 1936 to 1973 the United States was on a pseudo free banking system (still heavily regulated on the state level). From 1973-1933 the United State adopted a gold standard which was briefly abandoned in the 1933 – 1944 with a FIAT (paper) monetary system. In the 1944 the Bretton Wood Accord resulted in the Bretton Woods system which was a highly specialized gold standard. The Bretton Woods system eventually fell apart in 1971 and since we’ve been on a FIAT monetary system which has been able to sustain itself due to the reality that after the fall of Bretton Woods most nations found themselves which large reserves of US Dollars giving them a stake in the value of the US dollar despite US Domestic policy.

This is all important since the years preceding many of the changes in the monetary system result in economic downturns which is to be expected. When the monetary system changes abruptly it’s reasonable to think that this may alarm the banking sector and they may withdraw from taking too much risk until comfort is developed in the monetary environment, this period of discomfort results in credit contraction. So downturns in the early 1870’s (transition to gold standard) and the double dip recession in the mid 1930s (transition off the gold standard) can be explained by this uncertainty in the environment.

Structural Changes from a Peace/War Economy

If you follow the beginnings and ends of most wars, they are usually also marked by economic downturns which can be easily understood. When an economy must make the transition into a war economy the entire structure of production will have to retool itself to produce the goods needed for the war. This creates a massive demand for credit as factories shift from producing consumer goods to military goods. At the same time as people are sent off to fight in the war, this results in a huge drop of business for many consumer oriented businesses which are also suffering from increases in costs since so much of the productive capacity of the economy is being used military goods meaning the remaining capacity is more expensive to use. So with the reduction in consumer business many people end up decreasing their savings to compensate for higher prices and scarce production which means the available savings to be lent out drops while the demand for it is increasing (factories retooling). When the war is over, the opposite must happen causing another disruption in the economy.

Taking this into consideration we see that World War I is perfectly bookended by recessions in 1913/14 and 1919/20 (note 1913 was also major change to the monetary system with the creation of the Federal Reserve). World War II began at the end of the double dip recession in 1938, yet despite economic numbers this transition and the war period was not a period of great prosperity.[2] During this period of time there was rationing of consumer goods such as meats and fuels was rampant because government had got into the habit of price fixing to keep the inflation numbers from reflecting the economic reality of having less productive capacity to use on the goods people needed domestically. Wartime is not a good time for the economy and economist Robert Higgs has done great work explaining the problems with traditional economic statistics during a wartime economy. In the end, when World War II ended, sure enough a recession occurred in 1945.

So whether it was during World War I which happened during the classical gold standard or World War II which occurred under a fiat paper system except in its last few years when the Bretton Woods System was put in place (1944), we see that economic downturns had no definitive tie to the gold standard as many mainstream economists try to make.

Other Trends

If we take a look at other downturns during the classical gold standard we see that they are very similar to downturns in today’s world. For example the 1929 stock market bubble is quite similar to the dot com bubble in 2000 where expansion of credit from the central bank resulted in a bubble in stock prices.

The panic of 1893 is quite similar to the housing crisis that began in 2008. The panic 1893 occurred due government favor when it came to railroad investment (similar to government with housing in modern times), thus many investors invested heavily in the production of railroads (similar to investment in housing over the last few decades). When the Reading Railroad failed it caused a stock market crash and a collapse of the financial system again very similar to the fallout of 2008.

Conclusion

Economic Downturns as with any other economic event are the aggregated results of individual motivation and decisions. Modern day economist may spend much of their time claiming “when number x goes down economic consequence y occurs”, but what is it about individual motivation and decisions in the economy that cause variable x and y. luckily, economist that spend time looking at these human elements are becoming more influential everyday whether it be a Robert Murphy of the Mises Institute or a Dan Ariely of Duke University, economics is slowly but surely returning to where it began, studying how decision and choice create the world we see around us.

[1] http://www.midasletter.com/index.php/timeline-history-of-the-gold-standard/

[2] http://mises.org/daily/5069/World-War-II-Did-Not-End-the-Great-Depression

The Difference Between Political Theory, Economic Theory, and Management Theory

2011-05-30T11:31:00.000-07:00

Econtalk, Bryan Caplan, Parenting, Equality, Values, Individualism

2011-05-15T12:40:00.001-07:00

Dismantling Keynesian Economics: Savings, Investment, Consumption, and Income

2011-05-06T12:25:00.001-07:00

Lesser of Two Evils?: Taxes versus Deficits

2011-03-04T05:10:00.000-08:00

Lesser of Two Evils?: Taxes versus Deficits
by Alex Merced

Hello everyone, in this months article what I wanted to talk about was the effects of higher taxes versus deficit spending. While from a political view, deficit spending does less political damage; the more important paradigm is economics and liberty as these are the factors that determine the quality of life of you and those to come. First off let's understand how both function.

Increased Taxation

If government is to increase taxation, this means more of a persons earnings must be taken whether through a direct tax like an income tax which is virtually unavoidable, or an indirect tax such a sales tax which to some extent you can control your payment of. Although one must understand what happens when someone is taxes, they are not only being stolen of their money, but since their time was spent to labor for that money or was earned from money you invested that originally came from you or someone elses labor. If more of your wages are taken, it means more of your labor is needed to maintain the same amount of purchasing power. If they decide not to labor more than then you won't have the same purchasing power meaning you have a choice, save less for rainy day, or cut back on your consumption.

The Bottom Line, taxes take away the fruits of your labor and time which you can't get back. Although, the effect taxation is to reduce CURRENT savings/consumption in the time period the tax takes place. (of course there are larger changes in institutional structures, but that's beyond the scope of this article)

Deficit Spending

If government does not want to raise taxes then it has to borrow the money to make up the deficit in it's budget. This money that is borrowed is received generally from bank lenders who are lending out the savings from a previous period, that would otherwise be lent out to other parties usually to invest in growing or starting new enterprises. If the money is not borrowed out the local or global stock of savings, then a financial intermediary like a central bank can be used to increase the money supply and offer to buy this debt from the banks to encourage the banks to make the loan. This increase in the money supply has the same effect of robbing the savings stock by devaluing the currency the stock of savings is denominated in, and also has the effect of encouraging speculation with that savings stock because of the drops in interest rates that is caused by this increase. Even worse, these loans must still be paid off from future tax increases generally on people who had nothing to do with the need to borrow initially.

Bottom Line, Deficit spending pillages savings from the past to be repaid from robbing/taxing the wages of the future.

Conclusion

Whether you find one of these tactics to fund intrusive monopolies of force (government) preferable really depends on WHEN you want to steal from: The Past, The Present, or the Future. No matter what the result is the change in peoples available resources from this financing does change the outcome of economic and social calculation of individuals in any of these periods of time causing material changes to how institutions in society are created, developed, or even destroyed.

Permanent vs Temporary Tax Cuts

2011-02-02T17:42:00.000-08:00

Permanent vs Temporary Tax Cuts
by Alex Merced

Let's take a moment and put taxes into perspective, at the end of the day taxes are a price like any price and thus it should have similar effects on behavior like other prices do. A temporary tax cut is like a sale at your favorite store, to create temporary spur of demand to move stagnant inventory. Sales can be a very useful tool for liquidating inventory that otherwise was not selling at full price, although you generally don't put goods that turnover regularly on sale since there is no benefit to doing so. A permanent tax cut would be similar to when a good is reduced in cost to supply, so the savings then gets passed along to the end consumer which just reflects increased productivity in producing that good.

One may say wouldn't a store have permanent price reductions if demand drops for a particular good, which is entirely possible but once the current inventory is liquidated it's suspect that they may replace the inventory.

Returning to taxes, taxes are just the price one pays for government and similarly tax incentives can be used for governments to compete (especially between states). Although the effects of Temporary over Permanent is most important when it comes to special tax programs to incentivize purchases of goods. For example a tax credit for investment in capital equipment.

A temporary credit would cause businesses to make future purchases of capital goods now instead of later, so at the end of the day your moving purchases that would of already occurred to an earlier date in time, which just results in a slump in that industry in the future from which those sales were taken.

A permanent tax credit would reduce the cost regularly scheduled capital expenditures freeing up resources for other expenses which can be used for more investment although since the credit is permanent there is no incentive to move future purchases to the present allowing purchases to remain more evenly distributed inter-temporally (over time).

So when discussing different types of tax incentives it's important to realize that whether it's permanent or temporary has an effect on human behavior and outcome of such policies.

Interest Rates and Risk

2011-01-07T19:41:00.000-08:00

Interest Rates and Risk
by Alex Merced

In plenty of articles I've written or videos I've created I've discussed how interest raes can cause mal-investment and alter the structure of the economy. The increasing of the money supply and lower of interest rates as described by Mises, Hayek, and Rothbard although how money supply increases occur and how does the mal-investment manifest itself can be different from econom to economy. In this article I want to discuss how central banks control over he money supply and involvement in overnight lending transforms into mal-investment.

What is Mal-Investment?

A mal-investment occurs when actors in the economys behavior is altered by distortion of economic signals such as prices, interest rates, and the visible supply and demand of goods. These signals may be distorted by a variety of methods, sometimes by private actors through corruption or fraud although private actors are limited in resources so their is an actual abosolute limit to their fraud and corruption on top of legal ramifications if caught. More important these signals can be distorted by government regulations, laws, and taxes imposed by this institution which has potentiall limitless resources and little fear of legal ramifications which magnifies it's ability to distort economic signals beyond any private actors.

What is the Role of Risk?

If your familiar with my opinion of economics, you'll be aware of how big a role I think risk plays in a sound economy being one of he most important if not most important signals an economy produces. People always complain of corporate and individual greed which is really just a function of an economic actors perceived risk of entering cerain actions. Government more than an other actor distorts the risk signal through guaranteed loans, insurance schemes like FDIC and Unemployent, and tax and monetary subsidies which distort risk signals which magnify what many may perceive as greed.

So what about interest rates?

Interest rates which are often seen as the cost of capital, or the cost to have someone defer consumption so you can consume now can also be seen as the cost of taking financial risk. For example, if you labor for a wage and take risk with those wages and those wages are losts you may have to borrow money with interest in order to buy food or make rent. This same phenomenon occurs with banks in which rates such as the discount rate and fed funds represent the cost of making riskier investments, so if these rates are low then the banks will be willing to make risker loans as the cost to borrow capital if the risks don't pay off is low. Does this mean inerest rates should always be high so economic actors don't take excessive risks? Not at all.

Taking risks can be very rewarding, although having some cushion to limit the effects of a risk taking is also important which is an importat function of savings. Savings serves as a safe landing pad for individuals and for the financial system as a hole so they can take larger risks to grow the economy, so when the savings landing pad is plentiful the economy and banks are signaled to take larger risks via lower interest rates. When the individuals havn't saved for a rainy day, the economy signals for less risk taking via higher rates.

Central Banks via open market operations will purchase government securities (treasury bonds) and increase the money supply. This increase in the supply which enter via bank reserves appears like savings, although individuals don't truly have rainy day fund but the banks are flush with cash which distorts interest rates and the risk signal it gives out. On top of it, if the central bank can keep rates such as the fed funds rate and the discount rate low, banks will feel the risks of taking risk with these artificial reserves to be low yet the economy hasn't ceated the savings landing pad for such risk taking which ends in the boom and bust cycle.

This one way the austrian business cycle can manifest itself, money supply can increase in particular industry via government guarantees for loans for a particular industry increasing money readil lendable to tha industry creating price bubbles. Local towns may grant tax subsidies for people film a movie in their town creating an influx of cash to temporarily enter the town having a similar effect of the local economy. Although at the end of the day this whole process is a function of Interest Rates and Risk.

Economic Equality versus Economic Liberty

2010-12-15T20:35:00.000-08:00

Economic Equality versus Economic Liberty by Alex Merced

One of the fundamental divides among activist economics is what is the goal when thinking of policy and the economy. Progressives focus on Economic Equality and how policy can manipulate the economy to distribute resources in a more "equitable" or "fair" way as measured through income statistics. While Libertarians and Conservatives are more concerned with Economic Liberty allowing capital to flow freely increasing the odds of that capital to flow into the hands of those with the greatest entrepeneurial ability who can put that capital to use developing the division of labor, structure or production, and into innovations that create more accessibility to scarce goods for all.

It's hard to measure the effects of Economic Liberty via statistics because it's about the quality of products and services improving and their costs dropping. For example, the Iphone may not be a cheap gadget, but because of it there are many other purchases I can bypass such as buying watches, gaming consoles, calculators, and many other things people would spend a lot of their wages on is now in one device for much less than all of those individual goods put together. So while looking at income statistics may show "real wages" havn't grown in decades but quality of life sure has increased since less wages are needed to have access to a variety of benefits since you need fewer devices to do more tasks. This is the result on entrepeneurship and innovation which can be magnified by free flow of capital and information which those who support economic liberty focus on.

Although, those who support Economic Equality measure their policies via aggregate macroeconomic income statistics. Just because numbers such as "real wages" grow or "the income distribution" narrows doesn't mean that an increase in the quality of life has occured because quality of life is not tied to how much you make, but what you can buy with it (oh yeah... and if it makes you happy, which is not measurable) which is constantly being imporved by productivity gains and innovation from entrepeneurs. So instead of the hyper focus on labor wages, they'd be better of focusing on fostering entrepeneurship in individuals like the Economic Libertarians.

Understanding Inflation Advocates

2010-11-23T04:07:00.000-08:00

Understanding Inflation Advocates by Alex Merced

There are two fundamental questions that come up people discuss monetary policy, and peoples views on these two questions which shape what they think policy should be. These questions are:

- Do you expect inflation or deflation as tomorrows problem?

- Do you prefer inflation or deflation?

In terms of these two questions I expect price inflation down the line from the inflation of the money supply which we've seen primarily in bank reserves which I believe has grown beyond the ability for the fed to absorb later on so it's essentially racecar that's revving it's engine before a big race. While I think all manipulations of the money supply have an effect of causing mal-investments in the economy by creating shortages and surpluses of money, if I had to say which is the lesser of two evils I would say deflation. Jorg Guido Hulsmann makes a great case for deflation in his book, Deflation and Liberty.

Although how about the people who prefer inflation, to Austrians such as myself it may seem bizzarre that someone may genuinely think that devaluing peoples savings, and destroying the purchasing power of people on fixed incomes can somehow be good policy. So I thought I'd take a moment to explain some of the inflationists thought process as I understand it.

Why does Price Stability really mean predictable inflation?

Last I checked stability meant constant, so price stability to me would initially mean constant nominal prices but in the world of monetary policy it really means low predictable inflation, generally from 2-4%. Why someone would think this is good policy is primarily psycological. The idea is to create an environment where people feel wealthy cause they think their assets are constantly increasing in value, but really the value generally is constant but it just appears different priced relative to a larger money supply. This approach has some merit to it, but it's based on manipulating the misinformation of peoples views on price increases. As people learn and understand inflation on a larger scale, this should quickly lose any effectiveness as we've seen as people have become more knowledgable in economics the last few years.

This psycological factor is really just a function of the accuracy of peoples education, the 1870s were arguably the most robust period of growth in US history yet it was a period of deflation and generally referred to as the Long Depression. The problem is if people see their assets dropping in nominal prices but don't equate that with increasing purchasing power this can have negative psycological effect, but this only makes the argument for better economic education because growth occured in the 1870s even though people felt negative about their asset values in this era.

There are different ways for deflation and inflation of prices or money supply to occur (depending on which definition your using) which lead to different phenomena. Although the best way to refute someones views on an issue and open them up to yours is to show you understand and empathize with their view more than they do. Knowledge is power, Creativity is power manifest.

Liberty: The Soul of New York

2010-11-14T08:12:00.000-08:00

Liberty: The Soul of New York by Alex Merced

Many don't the associate New York as a bastion of liberty, with it's vast state controls over wages and rents, and it's cumbersome taxes and regulations on local business. No one thinks of New York as a home of freedom when it's the home of most detrimental of Federal Reserve District Banks, the New York Branch which carries out the asset purchases that destroy our currency and prosperity as it diminishes away. New York is often considered a shadow of the land that was once this nations capital as business flees to greener pastures domestic and abroad, although it wasn't always this way. New York has been the home of many of the greatest individuals in American history who've done a lot to further the cause of Liberty, Peace, and Sound money. New York was home to the greatest U.S. president (Martin Van Buren), and the greatest economist (Murray N. Rothbard).

The Little Magician - Martin Van Buren

Most presidents revered in history are those who against the principles of Liberty and Small government grew the power of the executive branch and breeded conflict into war, Martin Van Buren was none of these things often charachterized as weak by historians. In my view, his willingness to seek peace and stick to principles was his greatest strength. As Andrew Jacsons vice president he helped prevent a conflict with france, and then avoided two more conflicts with Mexico and Britain as president. While someones nationalists senses may say Van buren should of entered these conflicts, the preservation of life that occurs from his willingness to take pause and clarity is something we must appreciate.

While the economy entered a massively painful restructuring from Andrew Jackson rejecting to renew the charter of the Second US Bank, instead of preventing this restructuring Martin Van Buren finished the work towards free banking that Andrew Jackson began. His willingness to allow the needed corrections to occur to have a sustainable economic environment is possibly his greatest achievement, leading to multiple periods of Growth AND Deflation (late 1830s-early 1840s and the 1870s). While no good deed goes unpunished, Van Buren was not re-elected even being rejected by his former president, Andrew Jackson, for his unwillingness to spill american blood to annex Texas. He later on joined the abolitionist party, The Free Soil Party, in which he later carried on a nother failed bid for the presidency.

The Greatest Economist - Murray N. Rothbard

Murray N. Rothbard who was born and raised in the Bronx, is one of the most influential economist in the last century. While he may not be as revered by establishment economist as such enemies to liberty like John Maynard Keyenes, Rothbard was instrumental in the revival Misesian Austrian Economics most pivotal was his treatise on the topic, "Man, Economy, and State". To this day, in his short life the amoung of work done in economic thoughts, history, theory, and more dwarfs what most eonomists accomplish in a lifetime. He leaves behind a veritable library of work for the Liberty minded fellow to strengthen their convictions and sharpen their arguments to a free world.

A Quick Thank You

2010-10-30T13:58:00.000-07:00

A Quick Thank You
by Alex Merced

I'd like to take a moment to thank all my favorite places to get liberty news and resources on the net and encourage you all to check them out.

Communities:

RonPaulForums.com - I spend so much time on this forum It has probably become my #1 way to be connection to the heart of the liberty movement. It's great to see how all of us since the days of the Ron Paul 2008 days have stuck at it and havn't given up the good fight.

CampaignForLiberty.com - The logical next step for the movement after the 2008 campaign had ended, this has served a sgreat source for information and local mobilization.

Youtube Channels:

ProteanView - an independant mind with insightful opinions, always nice to hear his take on the days events

LibertyInOurTime - A youtube playlist where someone is uploading every piece of audio and video from the mises institute, it's now very hard to do a political youtube search without stumbling upon the mises institute, great work.

SchiffReport - With the regular videos discussing the financial markets and the economy, this channel keeps me in tune with what going on the world and everytime I think I've learned what I could learn Peter Schiff always shows me I'm still only a student.

Other Websites:

Mises Institute - The Home of real economics and libertarian thinking on the internet, if you havn't become familiar with this site you have done yourself a great injustice.

Reason.Tv - Great videos about how to increases liberty and why government just well... doesn't work

So thank you all, hope you guys enjoy these sites.

The Money Problem

2010-10-22T19:48:00.000-07:00

The Money Problem
by Alex Merced

While people like me definitely see the virtue of a gold standard, even a gold standard in any of it's historical incarnations still have one fundamental problem, they are a monopoly. I can discuss how the gold standard restrains government which promotes peace and limited government, or that the problem with previous attempts at the gold standard was allowing fractional reserve banking which many see as fraud.

Although, all of this is only a band aid on the greater problem of money traditionally being a monopoly product of a government, and like any legally protected monopoly results in drops of quality and increases in prices, in this case the increases cost being the extra labor needed to earn enough money to retain purchasing power as the currency is devalued by it's monopolistic issuer.

Money, like any good needs to be allowed to have a market and competition. While many think you have competitions between nations, politics of government leads to a race to the bottom like you see now where every government compete to see who can provide the worst product instead of the best like when enterprise competes.

An important aspect of developing such a market is the ability to use multiple currencies and goods as legal tender, instead of the ultimate legal control of legal tender laws which even on it's worst day force people to have some level of demand for some currency. If people could have multiple goods that they could use as legal tender, they could diversify their monetary portfolio like one diversifies their stock portfolio.

For example, if the US dollar were to collapse owning other currencies and goods would be meaning less since they can't be legally used to tender debts. So at the end of the day, a sound money is great but would probably naturally occur in a competitive market for currency separated from politics (business issued money, not government issued).

The Difference between Gold and Real Estate

2010-10-16T07:11:00.000-07:00

The Difference between Gold and Real Estate
by Alex Merced

Is there a gold bubble? This seems to be the questions that media pundits are pushing more and more now, so I thought I'd like to discuss some of the fundamental differences between Real Estate and Gold as far as it's bubbliness (I'm making up words). Many people critique gold proponents saying that saying that gold will continue to go up is like the real estate proponents pre-bust saying real estate will always go up so here are somethings to think about.

Asset Mobility

Gold is a very mobile assets, I can have it stored and I can carry it around with me no matter where economic activity is moving people geographically. Homes on the other hand are not easily mobile, I just can't pack up my house and take it with me wherever I go. In this case if economic activity moves somewhere else geographically it's hard for me to sell it so I can pursue where growth and jobs are because others are doing the same driving down demand for my particular house. This is a problem that's non-existent with gold.

Supply

During the height of the housing bubble there was a lot of housing construction going on which increases the supply which lowers the price of any good, and despite all the inflation from the central banks these last few years the supply is still repricing itself versus the money supply. You can't manufacture gold, it can only be mined and the amount that can be mined is essentially fixed so this kind of inflation of the gold supply is not possible as it was in housing so it's relationship versus the money supply is a one sided relationship mainly changing when money supply changes since the gold supply grows slowly and stable.

Liquidity

Gold is fungible (one ounce of gold is generally no different than the next), which makes Gold much easier to trade in markets and base futures, Funds, and other investment vehicles on. This creates a liquidity in the gold market when combined with it's other features makes it a very appealing store of value. Houses on the other hand is a heterogeneous good, meaning every house is a unique product which must find a particular buyer which can be difficult depending on several geographical factors outside of the house itself (neighbors, local schools, local economy).

Growing Demand

More and more of countries we thought were part of the third world are becoming industrialized so the access to medical professionals like dentists are increasing and so is the demand for luxuries like jewelry both which use large amounts of gold. Not only is there a growing consumer demand, but also many central banks are beginning to purchase gold and strengthen their reserves as the US Dollar undermines it's reserve currency status which central banks will most likely hold indefinetly reducing the supply of gold effectively for other uses. Houses on the other hand have shrinking demand since there is a glut in the supply from the excessive construction during the boom, and many people rather rent or share living space till economic prospects allow people to expect the ability to maintain a bigger home.

Overall, in the future some of these factors may change, this the current state of things and as long as this is the case I'll continue hold and purchase gold and other natural resources.

The Difference between Debt and Equity Financing

2010-10-09T07:40:00.000-07:00

The Difference between Debt and Equity Financing
by Alex Merced

One thing we emphasize here at LibertyIsNow is the relationship between economics and liberty, and without understanding the two neither can see progress. So today I thought I'd briefly introduce an important concept that will shape much of the debate going forward. Financing just means getting the money you need to make some purchase whether it be car, home, or to start a business. There are two types of financing, Equity and Debt financing.

Equity Financing

Equity Financing is done by selling ownership in something to get the money to buy it. For example let's say I wanted to buy a bike and didn't have all the money make the purchase I can ask my friend for the money and we agree we'll share the bike on certain days. Since we both have ownership in the bike, we both have interest in bikes well being because if the other crashes and destroys the bike we both lose our investment. This is similar to the purchase of Common and Preferred stock of companies.

Debt Financing

Debt Financing is done by borrowing the money, which means the borrower retains sole ownership of what is purchased yet has an obligation to pay the lender the original money borrowed, often with a little extra called interest (the reason they would lend it to you in the first place). In this case if I borrowed money from my friend to buy the bike, he could care less about the condition of the bike cause whether I crash the bike or not I am obligated to pay him back his principal and interest. This is similar to the purchase of bonds from a company.

Most of the world is a debt based economy, we borrow to buy cars, homes, and start businesses. This preference for debt financing is a symbol of many things culturally because people could just as easily share in ownership of cars and homes through equity financing and not have to suffer the burden of debt. This cultural characteristic also ties further importance since it ties people down much more to the value of the currency since debts don't adjust with money supply changes like asset prices do. Was this aspect of our culture something that naturally manifested or has it been pushed to extremes by policy decisions promoting lending and borrowing, something we'll be looking into over the next few posts here at LibertyIsNow.

What does a Strong Dollar Policy Mean?

2010-09-30T20:32:00.000-07:00

What does a Strong Dollar Policy Mean?
by Alex Merced

We always hear that the US has a "Strong Dollar Policy" yet all we see from the federal reserve is constant pump priming and quantitative easing. The purpose of the devaluation of currencies by different nations is to increase exports by leveraging the relative purchasing power of foreign consumers from the devaluation. The fundamental problem with this is that the increase in exports will cause the currency to appreciate again meaning more devaluation must occur. What's going on here is not one country selling another country goods it wants or needs but instead selling what they have by discounting those goods via currency devaluation. It might as well be a liquidation sale but to discount these goods they are also marking up all goods for people domestically which erases any gains from those exports and if probably even makes things worse.

The way to a strong dollar is not to have policy based on a strong dollar but to focus on what anyone should focus on, producing value for others through enterprise and innovation. A country's people and currency prospers from the demand for it's production through exports and consumption from imports (the latter is only sustainable if the former exists). Because of mal-investment in education and housing as I've discussed before we're seeing drop in the skills necessary to bring back the innovation needed to restore demand for our production. Due to the industrialization of other countries who's moved further in the process of capital accumulation, their citizenry are now consuming global goods more and more reducing the demand for our consumption especially since we produce little they want. Little by little we are bringing ourselves to irrelevance in the global economy and until we understand that the creative forces needed to correct this can only be achieved through Liberty and a Free Market which Market prices we are doomed become an afterthought.

A Bipartisan Action Plan

2010-09-18T22:39:00.000-07:00

Bill Clinton Visits the Daily Show

2010-09-17T09:59:00.000-07:00

Bill Clinton Visits the Daily Show
by Alex Merced

(This is in Reference To This interview on the Daily Show)

In former President Bill Clintons appearance on the popular satirical news show "The Daily Show" I had to say I was very surprised at Clintons candidness. Clinton, shockingly enough somewhat understood the problems that are preventing the economy from moving foward much better than any Keynes following demand sider I've heard so far. I'm not saying that all of the suddent Bill Clintons an ally or fellow traveler, on the contrary he's very far from what I would remotley call a friend of Free Markets. In that I'd like to respond to many of his points and clarify some of his mistakes.

Worker Mobility

This is actually something I discussed on my series on labor economics, you can read what I wrote about worker mobility here. While Cliton ackowledged that the problem isn't the lack of jobs but the lack of qualified and geographically available labor (the local people don't have the rights skills, and the ones that do are stuck in houses they can't sell). Although what he doesn't venture into is why we have this gap in mobility and skills, cause it then dims the picture on his major policy recommendation... government guaranteed loans.

It's cause of the implicit government guarantees on Freddie/Fannie loans, and the explicit guarantee on Ginnie debt that was the major catalyst for many of these people stuck in these homes which they now can't sell and are less valueable than the loans they took due to price bubbles caused by government guaranteed loans. Easy

It cause of the government guarantee of Sallie May debt that so many people can more easily and painlessly pay lavish tuitions at schools and walk away with degrees in which they learned very few if any practical skills in recession (My Bachelors is in Popular Culture Studies) and not skills that offer versatility in a changing job market (copywriting, data analysis, marketing, visual arts, programming/web design).

I'm not saying there is no value in a degree in something like ethnic studies and popular culture, but the risk in entering and succeeding in those fields is similar to that of joining the NBA. Essentially, like anything else easy money makes it easy for people to take more risk than they would usually take, if people had to pay higher rates on their loans or didn't get other types of financial aid they'd be more prudent in developing their skills (they'd still minor in their interest, but more than likely major in something like marketing or visual arts which is used in ALL industries). I can attest to this since I would of probably stuck with my original major, Computer Programming, if I was not on a scholarship. Actually I probably would've went to a local community college and transferred later on which would be the more prudent decision.

Bottom Line, since students were willing to take more risk in which skills to invest their education dollars you had a mal-investment or bubble in degrees which could not yield a return on the investment which results in a over supply of labor for some things and shortage of supply for other things. This is essentially mini occurances of the Austrian Business Cycle (easy credit leads to mal-investment which leads to market corrections).

So what would one expect if Bill Clinton had his way and Government Guaranteed loans were made for Small Businesses (it already happens under SBA, Clinton only wants to expand SBA). You'd have more small businesses starting which for sure would create jobs, but only some of those jobs would be sustainable since many of these new businesses might have risky business models that were made possible by this government guarantee (the bank wouldn't loan to a risky model naturally, so the entrepeneur would have adjust his model). The sustainable jobs that are created would've existed anyways since these companies have sound business models that would be able to be capitalized normally. Of the businesses that normally would have not gotten loans only a small chunk might survive which doesn't justify the mis-allocation of investment in the ones that don't survive which then taxpayers foot the bill for.

Construction Jobs

Clinton goes on to talk about green infrastructure and construction jobs because construction is where the most unemployment is (cause the bubble was in housing construction, so many people forgoes developing other skills to participate in the glut of construction demand at the time). Although using the same mechanism of guaranteed loans to create construction jobs is the reason so many people were concentrated in those jobs and are now unemployed in the first place. The 25% unemployment in construction workers isn't a signal that this is an industry that needs stimulus, it's a result of the mal-investment from the housing bubble and sustaining it will make that number bigger in the long run when the bubble re-occurs and even more of the workforce if over-concentrated in construction.

Bottom Line

Tax Cuts for Small Businesses and deductions for particular expenditures is the equivalent of easy credit as far as human behavior, so the solution from the republicans isn't appetizing as well. Although, instead of trying to understand why the situation is what it is, Cliton uses the current state as justification that there is need of more the current government subsidies to different industries.

In Order for the economy return to a sustainable functioning economy, participants need the incentives to make sustainable decisions and that incentive is called "Risk". Loans, Deposits, Insurance, or anything else should not be guaranteed by taxpayer money, and if those moral hazards are removed then people at all levels will be more prudent which means lowering taxes and giving them their money back would make a whole lot of sense since the population will have the right environment to make the right decisions.

Creating Infrastructure for Private Regulation

2010-09-12T17:13:00.000-07:00

Creating Infrastructure for Private Regulation
by Alex Merced

Everyone on both sides of the aisle have empathy for consumers who are defrauded, swindled, and are tricked into entering trade under false premises. The debate isn't should there be mechanisms to protect and put oversight on the consumer market that'll help prevent these kind of problems, but what should the mechanism be?

Those typically on the Right believe in the markets ability to take care of itself, and that firms that participate in fraud will eventually fail since they'll cannibalize their consumer base, and only legitimate reputable firms will exist when all is said and done that regulation of any form shouldn't exist cause it inhibits the level of competition that'll keep prices reasonable for consumers and allow pressure to keep firms honest.

Those typically on the Left believe that even if this is true, the market will leave massive collateral damage in the wake of weeding out these fraudulent firms. They advocate regulating industries into "best practices" via government run regulatory monopolies also known as regulatory agencies. While this may have some effect on prices and the amount of competition, they feel the amount of confidence that consumers will have will outweigh the costs since consumers will feel safer to spend more.

The Problem with both of these positions

- The amount of collateral damage from having no mechanism for oversight can and will deter market confidence for sometimes long periods of time, which can create a society that is skeptical beyond necessity. This can actually inhibit the amount of investment and consumption in the economy.

- Centralized oversight from government monopolies are heavily subject political conflicts of interest and regulatory capture, and since there is no alternative it becomes the equivalent of no oversight but with the added danger of a public that thinks they are being protected and behaving as they are. (Imagine jumping out of plane thinking you are wearing a parachute, but really they gave you a backpack of bricks, you feel perfectly safe till you hit the ground)

- Overconfidence is just as bad as no confidence, not only is fraudulent firms a problem but also is overconfidence by consumers to trade without doing their due diligence.

- Government enforced monopolies which use police/legal force to force best practices only make it more expensive and difficult for new start ups to compete against larger more established firms who might become more fraudulent feeling safe from competition and also grow too big because of this protection allowing them to capture regulators.

So Then what does Ideal Oversight look like?

Ideal oversight would come from a market of regulation, where competing firms compete to earn fees from consumers for regulatory services such as product reviews/rankings, product disclosures, and consumer education. This offers several benefits:

- Avoid regulatory capture since consumers can switch regulators when one regulator becomes too corrupt

- Since participation by the consumer and the firm is voluntary, consumers don't feel unduly protected unless paying for regulatory service and by trading with firms approved by that regulator.

- This allows for oversight with minimal collateral damage, doesn't move the barrier to entry since compliance with any of these regulatory companies is voluntary (if you don't, you don't have access to their members as customers)

As with anything the answer is not to have something or to have central provision of it, but to have market provision of the service or good. Although there is one way the government can help in fostering such a market in private regulation, by helping establish a model for consumers and regulators to find each other and disclosure of information. While I am against all government intervention, this is more a method to transition from the current monopoly to a regulatory market. To understand my proposal we must understand the logic of the securities act of the 1933.

The Securities Act of 1933

In the 20's most of the communication technology we take for granted today didn't exist or was in it's earliest stages. A investor looking for an investment had no internet in which to pull a particular companies financials or information to base a decisions off of, only what a broker chose to provide them who had a conflicting interest in getting them to like any particular investment cause of commissions.

So the logic of the act of 33 wasn't to prevent companies of varying quality to make their securities available to the public, but instead to require that the sale of the securities be made through a disclosure of information we now know as a prospectus. Also, these prospectuses must be registered with the Securities Exchange Commission to make sure all proper disclosures are made.

The basic idea of disclosure is one of the most interesting parts of this act, it wasn't about making the decision for a customer in what's good for them in the way the FDA does with drugs or more modern financial regulation may do but instead empowering the consumer to be able to carry out their responsibility of making a decision.

As technology involved, access to information has evolved with the internet and now the SEC has their EDGAR database in which anyone can look up all this disclosure information for any company. Although again, this was not perfect for many reasons...

- The SEC is a public monopoly that use legal/police force which tends to make consumers feel unduly safe so while there is more disclosure retail investors have less incentive to read it feeling the SEC has broad enough jurisdiction

- Consumers will deal with any firm since they assume that all firms are registered with the SEC, instead of looking for an approval sticker or id of some kind (although Broker Check was made to address this, they'd be more willing to use such a service if they were educated to use it)

If the SEC was established not as a monopoly but as a model for what other firms can do as a regulatory business, other firms would approve on many of the shortcomings of the SEC in order to take their market share. A Market would develop and the competition would eventually allow a phasing out of the SEC and the expense for the government... of course government doesn't like competition with their agencies or phasing out power which is just the problem with governments themselves (thus why I'm an anarcho-creatarian).

How do we apply this to today?

The Government could establish a model, an online platform where regulatory businesses can put up all their information and allow consumers to subscribe to their services. The government could of course put stipulations similar to registering a prospectus to putting your company on this platform and take assessments on subscription fees to help fund the platform so it doesn't use taxpayer money.

This platform can categorize all these private regulators by industry, geography, and by services offered. Education materials can be made available on this platform on how to use the services from these regulators, and profits from assessments can be used on ad campaigns (similar to Got Milk commercials).

This should be done in a non-coercive way, regulatory companies are not obliged to post on this service although they stand to benefit from air of legitimacy they'll get and marketing from ad campaigns. Also other companies should be free to create their own competing platforms so this way eventually the government can either close the platform as it loses market share to more innovative platforms or sell it to buyer of their choosing.

This would handle many issues of oversight, regulatory capture, consumer confidence, anti-competitive, and other issues prevalent with the mainstream right and left views of regulation.

Real Estate, Canada, and the Economy oh my!

2010-09-03T09:13:00.000-07:00

Real Estate, Canada, and the Economy oh my!
By Alex Merced

In this article what I’d like to discuss is the problems with the logic put forth as the justification for all the government intervention in the economy primarily in real estate. So first let’s discuss the reason why the government thinks it’s prudent to prop up housing prices.

Small Business is the driver of job growth, most small businesses expand based on loans backed by assets such as houses, so by propping up house prices it helps businesses borrow and expand to create jobs.

As usual, mainstream economists and politicians babble out half truths based on bizarre assumptions. Yes, it’s true small business drive economic growth (analogy: who’s going to grow more, an adult or child, similar logic), and yes it’s true small business usually need personal guarantees and collateral to get loans as they establish credit for their company.

So now that we see on what we agree, let’s talk about the weird assumptions. First off, housing aren’t the only assets that can be used as collateral, this emphasis on housing has caused some business owners to not have a diverse portfolio of assets with which to secure a loan for their business. If their wasn’t so much incentives to invest in housing some of their investment capital would go into other assets such as securities, commodities and other things that can be borrowed against and hedges the business owner in case of a dip any particular asset class.

Also, it’s weird to assume banks won’t realize that if prices are propped up and that they'll just be completely ignorant to the fact the prices are unsustainable and the collateral obviously insufficient for the kind of loans people took out before prices collapsed. If anything, having this knowledge and not being able to determine it’s true market value due to intervention would make banks even more hesitant and worried to make the loan fearing the eventual depreciation of the assets.

If prices were allowed to fall, eventually other prices in the economy would drop and the lower amount of money you can borrow against real estate at current prices would still have a similar purchasing power over time.

INTERESTING FACT: Canada allows for short term mortgages with recourse, and doesn’t have many of the incentives to invest in housing as the US yet has higher home ownership rates than the US.

While it’d be hard to say definitely why, I would theorize that due to all the investment incentives artificially placed on the US market drove speculators to have an unhealthy advantage in buying lots of property. So while many investors accumulated large swaths of the American real estate supply, this had pushed up the price so much deterring the ability for other non-speculators to participate. Once again, Canada shows how it surpasses the US with less intervention. Another similar scenario is in the early 1900 when both countries had no central bank and the US had frequent bank panics yet Canada did not, the major different being the US imposed severe branching restrictions on its banks while Canada did not. So while many focus on Canada’s universal healthcare to claim it as a “socialist” country, it’s much more free market than the US in terms of banking and real estate and has had more sustainable and stable economy for it.

Accumulation of Capital and Knowledge

2010-08-28T10:38:00.000-07:00

Accumulation of Capital and Knowledge
by Alex Merced

While I've discussed capital accumulation a couple of times before I though I'd re-explain this concept and it's implications again since it's so pivotal in understanding many of todays fundamental political questions such as...

Why do the rich grow wealthier at a faster rate than the none rich, why do the smarter get smarter faster than the none-smart?

Capital Accumulation

The basic premise is this, every input creates output, so the more inputs I have the more output I can create. While innovation and new technology will help magnify the effect of this process let's suspend disbelief and that technology is no longer progressing forward how can a society still become more prosperous?

Example:

Smith has $100 with which he can buy a machine that he can create enough goods that he'll generate $20 each week when bringing those goods to the market. So in 5 weeks he'll have recovered his cost and buy another of the same machine and begin to generate $40 and now it'll only 2 1/2 weeks before another machine can be bought.

So even though the machines weren't getting any better or efficient, accumulating the capital of this machinery allowed Smith to generate more wealth in a smaller period of time. It's this process that explains why people with more capital, or "rich" people may be able to accumulate more wealth at faster rates. Those who aren't rich are either earlier in this process of wealth accumulation if they are making these investments, or may be stuck in their circumstances due to lack of investment spending, because they chose to consume instead.

If smith instead bought $100 worth of apples and ate or consumed them, the end results is that smith has nothing left. So consumption in itself does not create more for smith, he must make an investment in order to ensure he can continue his consumption habits. In this case he could save $50 worth of the apples for later or sell them for $100 (assuming he can find a buyer) and consume the other $50.

Notice the difference...

In the first scenario Smith consumed $100 of apples and now has nothing

While in the second scenario Smith consumed $50 of apples and invested/saved the other $50 of Apples is still left with $100 in the end even after consuming $50 meaning a total of $150 of wealth existed for Smith throughout this scenario.

(NOTE: It's with this realization that one should look very suspect at statistics like Gross Domestic Product which assume the creation of value for Consumption spending is the same as Investment Spending, and that all Government spending is equally valuable whether it's on investment or consumption since it only measures the dollars committed not the dollars returned from expenditures. In either of the above examples the GDP of smith would be $100 yet it's obvious he was better off in one example over the other.)

(NOTE 2: The Reason GDP would only be $100 for Smith personally either way cause the only purchase he made was the $100 of apples, and GDP ignored the $100 returned from selling half his apples until he spends it. So GDP is always ignoring return of expenditures, which is this example are vastly different.)

Knowledge Accumulation

Now if your reading this it's safe to assume your interested in accumulating knowledge, and knowledge accumulation works very similar to that of the example above.

For example, when you were a child in Kindergarten or First Grade you were learning the basics of communication such as the alphabet and how to read, and it takes long time develop those basic skills. Yet, as you get older and you master these fundamental pieces of knowledge your able to attain other pieces of knowledge at greater rates in smaller time frames, or else no child would be able to handle the difference in workload from 1st grade to college. The more you participate in this process the faster and great it becomes. The smart get smarter faster cause they've invested more in previous knowledge to attain future knowledge in the same way smith had invested more in previous capital to purchase future capital.

Conclusion

Many find this magnification of wealth growth to be a sign of inequity, although it's actually the result of the process that creates prosperity, knowledge and wisdom. To demonize capital accumulation and say capital must be taken from the rich and given to the poor is like saying we must take knowledge from a genius and give it to someone who may be referred to as "stupid". We should not fault those who are later in the process of capital accumulation for other being in the early stages of it, their participation in this process does not prevent other from participating in it.

Also, it's this process that separates developed countries from underdeveloped countries. It's not that technological innovations and practices are kept secret from these developing nations, but they are earlier in the stages of capital accumulation making growth seem slower relative to countries further along in the process. Yet if countries further along in this process take it for granted and consume all the fruits of these investments they may find themselves falling behind quite quick.

The New Revolution: Anarcho-Creatarianism

2010-08-25T19:45:00.000-07:00

The New Revolution: Anarcho-Creatarianism

by Alex Merced

Many people call themselves many things yet come to the same conclusions, but many of us come to those conclusions for many reasons, for example...

Conservatives find themselves wanting to preserve traditional values of the United State which happen to be Life, Liberty, and the Pursuit of Happiness

Libertarians value Liberty as an End in itself so policy that leads Liberty is the goal

an Individualist values the individual above all collectives

Anarchist find freedom from coercion and oppression as the utmost value while they may disagree how to manage resources once this is done (Anarcho-Capitalist versus Anarcho-Socialist)

Although while I agree with many of the views and conclusions of Anarchist, Libertarians, and Conservatives I can't say I really fit any of these philosophies in it's purest sense. At the end of the day my arch virtue, my chief principal is Creativity. So if I spent a moment and try to figure what you would call someone who's life doctrine focuses around Creativity and the term I came up with is...

Creatarian (Someone who holds the doctrine of Creation)

Although this word alone only explains the ends which is creativity/creation which also explains my disdain for it's antithesis, Destruction/Violence. Although what institution embodies violence more than government, which at the end of day is a monopoly on violence over a given people, so to emphasize this realization I figured I'd add the Anarcho pre-fix to emphasize this. Although I guess if you valued creativity and believed in government you'd be a Creatocrat (Rule/Strength by Creation).

Why have a Doctrine of Creation?

Well, I've always been someone who's loved creativity, loved music, art and anything that gives me new experiences. Creativity is Creation, and there is nothing greater than to create and bring something new into this world whether it be a song, an idea, or even a child. New is a beautiful thing, and if you live you life pursuing the creation of relationships, ideas, hope and anything else it can only lead to an enriching life. Vice Versa, living a life of destruction can only lead to life of misery as you live your life destroying relationships and hope around you.

So what are the views of an Anarcho-Creatarian?

(I'm now writing the Anarcho-Creatarian Manifesto, it'll be released soon)

Liberty: If you are an An-Creat you do value Liberty but not as an ends but as a means because having and valuing Liberty not only allows you the autonomy to be creative but also the mental autonomy, if you think it terms of liberty not only are your actions free'd so is your mind to generate endless ideas on how to create in the world around you.

Life: To give life is creation, to take it is destruction. Also, While people due to their liberty have the autonomy to live a life of destruction they cannot destroy the creations of another (homesteading).

War: Violence, especially war are acts of destruction and the aim of an An-Creat is to reduce destruction in the world and induce creation without violating anyones Liberty (since Liberty is pivotal to a Creative Environment)

Economics: An-Creat desires a strong economy because it fosters incentives for creativity and provides for more leisure and resources for society to pursue creative endeavors. So An-Creat is a strong support of real free market economics (Austrian Economics) in pursuit to these ends.

When the Anarcho-Creatarian Manifesto is created further issues will be illustrated and discussed, and hopefully this will begin the development of Creatarian Philosophy and Ethics.

I have Created a Facebook Page Anarcho-Creatarian if you want to join this new movement as it develops please search and join the page.

A Response to Alan Harvey's Demand Side Podcast

2010-08-24T08:47:00.000-07:00

A Response to Alan Harvey's Demand Side Podcast
by Alex Merced

This is a Response to THIS episode of Alan Harvey's Demand Side Podcast

As an anarcho-capitalist aspiring austrian economist, one may ask why would I bother consuming such media such as the Rachael Maddow Show or Alan Harvey's Demand Side podcast which are the antithesis of my own personal opinions and belief structure. Of course, in order to be effective in debate one must be able to empathize and understand the opposing view or debates end up being a shouting match without any progress towards any consensus.

Much of the time our opinions across many spectrums come from similar values and virtues so a consensus can be achived by merely repositioning an issue in a way to reflect that. When Values and Virtues underlying our opinions on an issue differ greatly then of course conclusions will vary in a non-reconcilable way, so being able to recognize this helps one realize that the current debate is useless that the debate must be shifted a step back to a more fundamental ones of which values, goals, and principles should take priority before moving foward. This is important cause if you and your opponent to agree on the underlying assumptions then you debating two completley different issues.

So listening to the views and ideas of your opponents help identify these important variables in debate. Although aside from this reason while I often disagree with the conclusions Maddow comes to, I do appreciate the research and ability to identify problems or symptoms of other problems even if her insinuated solutions are often worse than the problem. As far as Alan Harvey I can't say the same, he's staunch defender of the Keynesian stronghold and it's amuzing to listen to a show that positions itself to the LEFT of Krugman who is pretty far left as it is.

So what is it I want to respond to? Well in his most recent podcast he was makings some critiques of Reinharts and Rogoffs new book "This Time It's Different". While I'm not here to defend the conclusions of this book, since I have no read the book as of yet I do want to address many of the bizzarre insinuations on behalf of Harvey in his critic.

#1 The Government can Never go Bankrupt

For the most part, to an extent this is true. If a government has control over it's money supply it can always increase the money supply in order to tender it's debts. For example if you can always just print money to make your monthly credit card payments, no matter how much debt you have you won't technically go bankrupt. Although this is not a good thing, cause this means politicians have no incentive to make difficult political decisions and will generally lean towards spending as a solution (which a keynesian would say is good, cause they believe consumption is THE economic driver).

Although this is not the only problem since an ever increasing money supply leads to inflationary pressures and mal-investment as an increased money supply leads to less saving since interest rates drop yet more investment in capital intensive long term projects which will have no consumer base when completed since there is no savings to purchase them (how many high rise condo were planned but never completed in las vegas). So overall even though the government won't go bankrupt this has been little solace for Zimbabwe and their inflationary problem (everyone in Zimbabwe is a Millionaire... but they still can't buy a cup of coffee). Although if you bring up the inflationary argument it leads to Harveys next ridiculous statement...

#2 that for Developed economies there is little relationship with debt from inflation

The argument Alan Harvey is trying to make is that high debt levels have little to do with inflation if the economy is advanced enough. I would disagree that the size of the economy just eliminates the relationship but that it has more ability to mitigate the conditions that lead to dire consequences in the short run. A larger economy with lots of imports and trade deficits such as the US sends it's dollars abroad as the money supply increases, mitigating the supply increase (although this would still devalue the dollar vs other currencies since people are essentially selling off the dollar to buy foreign goods, but it prevents the domestic flood of dollars). So while a large economic importer economy like the US has this mechanism to deal with money supply increases the result of this is that business and industry follows the money abroad (why be in the US if US dollars are going abroad?).

Although if perpetual money supply increases are perceived then foreign exporters will begin to refuse to take dollars cause of expected supply increases, increasing their currency risk. If enough foreigners refused to take dollars there would be nowhere to soak the growing supply of dollars which would be the trigger for hyperinflation. Although we've been able to buy time cause the US is currently the reserve currency of the world so for the time being for foreign exporters will take dollars despite the currency risk but already many countries are divesting from the dollar.

So will the debt essentially lead to overnight price inflation... maybe not but it eventually will and in the meantime we'll just have to watch all our industry leave first.

#3 Bad Economics Times cause runaway government debt, not the other way around

Once again, on the surface like most Keynesian talking points is very plausible and has a sort of logic to it. The argument that Havey puts forth is that much of thes stimulus spending and deficits wasn't the cause of the 2008 recession but a response to it, which is totally true. Although he tries to pidgeon hole the correlation between government debt and economic difficulties in one direction where the former is caused by the latter. In all reality you have a feedback loop, a viscious cycle.

Government Spending on things like oh say the Iraq War leads to deficits -->
Which Leads to increases in the money supply -->
which leads to lower interest rates -->
which leads to mal-investment -->
which leads to a boom -->
which leads to a bust -->
Government then increases Spending as response... and the cycle begins again....

So yes the current recession wasn't caused by the stimulus but can definetly be tied to Greenspans monetary policy and Bushs deficit spending which sowed the seeds for the mal-investment in the housing sector which allowed for a lack of worker mobility an over commitment of labor in construction which I don't have time to get into. So yes bad economic times can prompt government spending, but government spending can also lead to tough economic times. The answer to this feedback loop is to break the cycle and not spend similar to what was done in the recession of 1920. To anyone who's been following this in depth can see we're making the same mistakes we did in 1929.

Conclusion

At the end of the day Keyensians love to flip-flop causality sometimes just out of the academic challenge of doing so, but if the question is which begets which (production -> consumption) or (consumption -> production) it's easily visible with the following the anology.

(Production -> Consumption)

I baked a cake (production) so now I can eat the cake (consumption)

versus (Consumption -> Production)

I eat the Cake (consumption) so now I can abke a cake

As you can see in the second example the person ate a cake which did not exist, so it's essentially a non-sensical statement since cake MUST be baked first for a cake to be eaten. Consumption is the result of production processes being developed in an economy, although if you focus on getting everyone to consume like Keyensian economics does without disregard if the work people do actually produce (work programs, public sector jobs). Production must occur in order for their to be something to consume and if not then you'll just find people fighting over more fiercly over a shrinking pie in which everyone has developed an insatiable appetite (Imagine an all you can eat buffet that never gets replenished).

Bottom Line... as much as I try to empathize and understand, the flaws in Keynesian Economics are too obvious and too many to ignore.

Private Charitability

2010-08-21T16:30:00.000-07:00

Private Charitability
by Alex Merced

One of the main justifications for many public services, especially ones that provide for the poor and needy is that the private sector can't or won't provide these services in enough quantities. Although, I would argue that when you coerce resources from the private sector to appropriate for these programs it shrinks the private sector meaning more people will need to participate in these welfare program which creates a self-destructive cycle. This does not this mean there is no way to provide for those who may need a helping hand without throwing a wrench in the mechanisms of capital accumulation and investment that lead to the prosperity we so enjoy.

There are many mechanisms outside of government to provide help such as religious organizations which often do community outreach and charitable work which benefits everyone even if you don't hold the same religious views of the institution. Also, people even independent of religious institutions start charitable organizations in the form of non-profits or even for profit groups.

The problem nowadays is that many rules keep religous organizations and charities from raising funds and actually using the funds to help society. The issue is not only does this make it hard for these funds to be raised and used but in many instances demotivates people to start these organizations in the first place. I know many people with great ideas and intentions just intimidated by the idea of filing the right tax forms and any laws they may violate accidentally for not meeting some health regulation or local ordinance in helping the public.

So essentially, government increases the amount of poor and needy by taking resources from the private sector but then prevents the private sector from giving as much of a helping hand as it could by having complicated red tape and tax laws.

Does this mean we have to wait to shrink government before the private sector can expand it's charitable efforts? No, you should still do your best to give to charities and volunteer your time cause it's a great way to learn lots of skills and meet the right kind of people to enrich your life and your career and of course the lives of others. For example me and my girlfriend put together backpacks and supplies for homeless kids for school for the coalition for the homeless.

As we put together these backpacks I got very into it and started throwing in more goodies than was on the original list of what the kids needed such as geometry sets, USB drives, different books on topics like economics. My girlfriend thought I was being competitive with her bag which I probably was and I was thinking why can't competition be harnessed to maximize the results from this event.

If the average person spends maybe $20 on this effort buying the cheapest supplies, how can we encourage them to do a little bit more? How about a contest, have local businesses submit a variety of gift certificates that whoever puts together the most generous backpack will receive. So now this gives an incentive for people who wouldn't normally participate to participate and those who would to spend a little bit more. Similar to the X Prize sometimes putting forth a prize for one winner will stimulate investment in many individuals.

So if I were calling the shots I would get government out of the charity business and simplify the tax code and regulations to make it easier for the private sector to be able to handle the load. Although if government must be involved how about giving out the money as a rebate for charitable work or as prizes like the X prize foundation.

One example of a rebate, if you mentor a homeless kid you get a rebate for the investment if he makes honor roll or gets accepted into college. If a town builds a community center it operates with a budget surplus a rebate for the costs of intially setting it up. What we must avoid most of all is subsidizing programs running budget deficits and programs which yield no results for this offers little to no benefits to the benficiary or society and only lines the pocket of political entrepeneurs.

Labor Economics #4 - Unemployment Insurance

2010-08-15T17:45:00.000-07:00

Labor Economics #4 - Unemployment Insurance
by Alex Merced

These days unemployment insurance has become more of an issue than it has in recent times. The debate on this issue seems to be misguided. To really understand the unemployment insurance issue, or the issues regarding any kind of insurance you must understand what insurance really is.

Many government advocates always discuss the role of goverment in providing a safety net for those who can't afford to pay for one themselves, this is the purpose of insurance. An insurance company pools the resources of those who have more to write contracts to cover the costs of unforseen risks for premiums that are far less than the cost of not having the insurance contract. This creates a mechanism to handle risk that doesn't deplete resources in the economy since the premiums from unrealized risks pay off the costs of those contracts which are exercised. (although due to corporatist/monopolist partnerships between insurance companies, government power has dimished the accountability of Insurance and other industries to it's consumers. an issue for another time...)

This is why many Anarcho-Capitalist such as myself see a stateless world as one where many insurance companies and similar institutions arise and compete to fill the place of the social safety net in the absence of government, with arguably much better results. One of my favorite writings on the subject is Robert Murphys "Chaos Theory".

Unemployment insurance specifically can be a useful service to help make the transition between jobs for individuals much easier, and in the grander scheme of things ease the pain when resources shift from one industry to another as the wants and needs of people change. The issue becomes what is best way to provide such insurance to individuals, the government or via private enterprise?

The Forgotten Role of Insurance in Risk

In assessing this situation is what is lost is that insurance has much great role to play than just the benefits received when exercising a insurance contract. Insurace also serves as a mechanism to internalize many risks and costs, and incentivize prudent behavior.

Let's use the example of car insurance. The premiums you may pay for your car insurance factor in many different variable; your driving record, your age, education, the model of the car, even the color to assess the risk of you getting into an accident or having your car stolen. If you buy a Red Ferrari, the chance somone may want to steal your car increases and so does your insurance premium which creates a financial incentive to choose safer car which will less likely be stolen. Also, if you were to get into an accident and file a claim the next time you purcahse insurance your premiums will be higher which again creates an incentive to be a safer driver. Overall, the premium mechanism is arguably vital to having a safety net like car insruance not cause moral hazard.

Let's pretend the government provided quality car insurance free or at a uniform fee versus what you would've paid in the private markets. The incentive to not buy the ferrari or drive safely are now diminished, cause you either didn't pay or didn't have a differential in what you would pay depending on your behavioral choices.

So it's not only about the benefit, but cost to have the benefit that helps regulate the abuse of the benefit. So now let's apply this concept to unemployment insurance.

The Moral Hazard of Unemployment Insurance

Under the Government provided system of Unemployment the employer pays the costs of insurance, very similar to the situation in retirement and healthcare created out of ERISA. The Premium the employer pays is based on a percentage of the taxable salary of the employee (which is an incentive to give smaller salaries), and is not keyed into in any way other risks such as...

- Does the Employer run a sustainable company that is fiscally sound (if not, the risk is greater)
- Does the Employee have a stable work history (if not, the risk is greater)
- What is the background/education/skills of the Employer/Employee
- What is the Turnover Rate of the Employer (higher, the greater the risk)
- How difficult is it find a similar job

Since there things are not priced into the premium, the premium may be below market or above market depending on the employer and their employee. Since the employee doesn't pay the premiums directly, they have no incentive to take a sustainable job at a company that's well run, because the unsustainable company will probably pay higher salaries which makes it harder for good companies to compete with reckless companies in purchasing talent. The reckless company may go out of business a year later but the unemployment benefit as a percentage of the higher salary may outweight the smaller salary at the sustainable job which makes it hard for modest growth sustainable companies to compete.

This is similar to deposit insurance and the savings rate, the more reckless banks will generally have a higher savings rate but since depositors don't pay their deposit insurance directly they will deposit their money in the higher savings rate bank which more than likely has some liquidity problem causing a whirldpool of good resources into bad places.

All this doesn't take into consideration the political ramifications of having government run unemployment insurance, as we see now with congress using unemployment as a fierce political issue to buy votes by extending the benefits well beyond what has been payed into them and was promised.

The Virtue of a Private Unemployment Insurance

If people could and would purchase their own private unemployment insurance, or employers voluntarily provided it from priavate insurance companies all the factors that weren't calculated into the premium now would. The insurance company would investigate the employer and the employee to assess the risk they both present in the risk of the employee becoming unemployed. So more risk, would equal high premiums leading to a lot of good incentives such as...

- An employer running a sustainably well run company who can't afford lavish salaries will be more competetive. The higher salary at the reckless company would also carry higher premiums, internalizing the risk of which is the more sustainable job. This would also be an incentive to be sustainable, cause it'll be hard to attract talent if working for the company generates high insurance premiums.

- The company would be incetivized to have a pleasent and safe work environment, cause not having one would increase their turnover rate which would increase unemployment premiums.

- The employee would have an incentive to be more prudent in choosing jobs, and to pursure more education and skills. Having a stable work history and lots of credentials and skills will only help them lower their unemployment premiums.

- If working in a niche industry that may take a year or two to find a similar job, the employee can choose to buy benefits beyond what's currently mandated (6 1/2 months) this allows the freedom for those who need more to get more and those who need less to get less.

The Bottom Line

Unemployment Insurance like insurance against any unforseen risk is a healthy institution to have, but the role these institution play in the economy is far greater than just providing benefits but also pricing in the risks of every actor into premiums internalizing many otherwise external costs. When government gets involved in the insurance business it often distorts this mechanism causing the externalities of these risks to remain external causing moral hazard and an economic drain from the increased claims from this moral hazard.

Labor Economics #3 - The Minimum Wage

2010-08-14T16:02:00.000-07:00

Labor Economics #3 - The Minimum Wage
by Alex Merced

One of the most sancrosanct bastions of Labor laws is the minimum wage, and if you want to go beyond this article in learning about it listen to Roger Garrisons lecture on topic from Mises U 2010. Essentially what I want to demostrate through a brief example is...

1. The Minimum Wage actually transfers wealth from the those at the bottom, to the people marginally above them, so it transfers wealth upwards instead of downwards like it intended.

2. The Minimum Wage Creates Unemployment

So let's imagine a world with 300 people in Labor force working at the current wages.

100 People working at $8/hr ($800 spent)

100 People working at $7/hr ($700 spent)

100 People working at $6/hr ($600 spent)

of course, the lower paid workers are the lower skilled and lower educated workers who may be payed more in the future if they learn skills and information on the job. What happens right now is that the economy can allocate work for the entire labor force at these wages, but what happens if we establish a minimum wage of $7/hr. Now our workforce looks like so...

100 People working at $8/hr

185 People working at $7/hr

15 people unemployed

The minimum wage law did not make these employers magically have more resources, so the $600/hr that was was going to the 100 laborers at $6/hr in the first scenario can now only afford to continue to employ 85 out of the 100 laborers leaving 15 unemployed since there is no more resources to employ them. Essentially the lower you are on the wage ladder the more negatively affected you will be by an increase in the minimum wage, it's those in between the bottom wage and the new minimum wage who benefit at the cost of those at the bottom.

(NOTE: One may ask why wouldn't the labor force reduce the wages of the $8/hr workers to keep the $6/hr workers? The answer is simple, the $8/hr workers add more value which is why they are payed a higher wage in the first place so if you had to choose between possibly causing a valued worker to quit from a pay cut or laying off workers who add the least value you'd choose the latter.)

So this example shows how it causes unemployment, and how increases the wealth of a few at the cost of not those at the top but those at the bottom. So what happens to these unemployed people, they still have to find work so they may move to another location with a lower or no minimum wage in which they can enter the labor force at their skill/education level. Although, if these uneducated/unskilled people migrate from all the places with a minimum wage to this one bastion of freedom with no minimum wage it causes a huge concentration of uneducated/unskilled people in one place.

This explains why the places that are the most free sometimes seem to have some large concentration of uneducated people (a very gross and misplaced charachterization of many souther red states), not because freedom is backwards but because these free places are the only places that will welcome with open arms those from other locations who've been kicked out by wage laws, forbidden to enter the labor market and develop the skills to later make higher wages.

"Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"

- Statue of Liberty

Labor Economics #2 - Labor Geographic Mobility

2010-08-14T06:12:00.000-07:00

Labor Economics #2 - Labor Mobility
by Alex Merced

There is usually a decent job somewhere out there waiting, but the ability for someone to take advatage of that oppotunity also has to do with their willingness and ability to move to where the job is located. Like all capital, labor can be mal-invested for many reasons and this problem occurs out of the laborer actions themselves. Capital usally naturally moves to where it's needed, but if it does not in the form of labor or can't it can slowdown growth or a recovery. While many people will always be hesitant to move due to family, friends, and the life they'd leave behind I want to explore how policy can and usally makes this problem well... more problematic.

Problem #1 - Housing

In the US in particular they've made the pursuit of something they like to call an "Ownership Society" where more and more of the population owns homes. Although ownership of the land or house that you live in, can make it quite encumbering to make changes and follow the demand for labor leaving someone stuck in a bad labor market. So while well documented are all the bad loans, derrivatives, etc. from all the housing incentives in the US, less talked about in the media is reduction in mobility caused by pushing for more housing ownership by more and more people.

Problem #2 - Employer Benefits

If your someone who really enjoys the benefits that your current job provides you you may forgoe a better opportunity elsewhere (I guess it wouldn't be better if you didn't choose it). So one thing the government can do to make things worse is to make more and more services that you may have purchased individually intrinsically attached to employment such as what was done with healthcare and retirement in ERISA in 1974. So if legislation and at the time much higher tax brackets cause an overwhelming incentive for employer to take care of you instead of you yourself, then it'd be difficult to cut ties with an employer in order to keep those non-monetary benefits.

Problem #3 - Local Wage Laws and Taxes

Sometimes Labor doesn't need to move where the demand is, the demand can move to where the labor is. A good example of this is where people start web start ups in cupertino cause it's know for having a base of technology oriented labor. Although some businesses may not move their offices or operations to somewhere with a huge supply of labor with certain skills if the taxes are too high or labor laws too penalizing which actually tend to be the places that give labor the kind of government benefits where they wouldn't want to move from (I'm looking at you California), this is a bad combination of mobility reduction.

The interpersonal reasons why one may move or not move somewhere are endless, but government policy can often create harfmful manipulations of these incentives.

Labor Economics #1 - Sticky Wages

2010-08-13T13:44:00.000-07:00

Labor Economics #1 - Sticky Wages
by Alex Merced

The next few posts I'll be writing will be a series on some aspects of labor economics which will mainly center around wages and upward mobility. In this initial part of the series I'm going to address one of the main Keynesian buzzwords, "Sticky Wages".

John Maynard Keyes (read "Where Keynes went Wrong") makes the admission that it's plausible that an economy can self correct by allowing all prices to adjust downwards if the money supply is reduced for whatever reasons, but contends that there is a problem cause wages are "sticky" so this would make it difficult for businesses to adjust their inventories and prices to maintain the current labor supply since wages won't fall in line with everything else so unemployment ensues. This unemployment will then cause further contraction of the monetary supply causing the economy to just spiral downwards as Keyenes expounds on ideas first proposed by Irving Fisher which really are just echoes of antiquated mercantilist thinking.

What I contend is not to deny that wages move slower than the prices of consumer goods, but if anything this should be a reason to want deflation not inflation. First let's look at the structure of production to explore why wages would move slower in either direction.

Let's say my structure of production looks like so...

Labor+Materials+Tools = Consumer Good

Deflation Scenario

So if the Demand for the consumer good increases I have three choices on where I can costs in this simplified scenario. For many reasons I may try to cut costs as much as possible in Materials and Tools since they are homogenous instead of giving up my trained skilled labor which is heterogenous. I may still have to ask my labor to take some level of a cut in pay but only after I exausted my ability to lower the other prices. So essentially I may have been able to cut my costs enough to get a drop in price in the good of 10% yet from cutting costs elsewhere only had to cut labor costs by 5%.

So if this is going on across the economy essentially laborers will have gotten an effective pay raise cause goods have dropped in price more than their wages did. Given if you look at editorials in times like 1870's or late 1830's when you had this sort deflation without massive unemployment (actual growth in the 1870's) going on, yet psycoligically many people felt things were bad cause they saw the nominal numbers going down so there is something to be said for the psycological state of people.

Inflation Scenario

So let's say the demand for my goods has increased cause the money supply has grown for whatever reasons. Since demand is increasing all over the economy, the demand for the same materials and tools I use will increase over different industries and firms that use those same tools. This widespread demand increase will cause an increase in the price of my materials and tools which I'll have to pass on to the consumer yet this increase will be larger than any raise I may give to my laborers in a attempt to prevent too much of an increase in the final goods price that would effect it's demand.

So basically due to increases in costs primarily in capital goods the price of the good has gone up 10% and wages went up 5% which if this is a widepread phenomena results a pay cut for the laborer. Again, psycologically they feel good cause they see their nominal wages going up without realizing their real wages are going down. This is essentially the story in any bubble or boom, except due to problems with CPI calculations inflation is usually understated.

Conclusion

If sticky wages are a real phenomena then deflation would be the much better environment for real wages and for the laborer. Although what is usally proposed by Keynesians and other types of leftist is to push for more inflation which actually hurts real wages yet psycologically breeds consent of the labor class since they only think in nominal terms. In order to have the benefits of deflation yet without the psycological pessimism, it would be a proper use of an economic figurehead such as a president to explain this phenomena to manage expectations and sentiment.

Elaborating on the Austrian Time Preference Theory

2010-08-12T19:44:00.000-07:00

Elaborating on the Austrian Time Preference Theory
by Alex Merced

I write this article after listening to Robert Murphys lecture Capital and Interest from Mises U 2010

While Listening to this having heard explanations of Time Preference theory plenty of times, I started having flash backs to an Austrian Scholars Conference lecture where Robert Murphey was actually giving a critic of the ATPT based on his dissertation, basically challenging the idea that a future good is always less valued than a present good. This made me start to think, I do understand ATPT, but I'm not sure if it fully explains why this preference exists fully other than a sort of hedonistic view of human nature to want to satisfy all it's wants now. Then again Patience is a virtue, and one can look at virtues as efforts to fight human nature.

First off let's recap the ATPT for those of you unfamilar...

Austrian Time Preference Theory

The Bottom Line: Present Goods are always more valuable then Future Goods

Example: Pre-Sale Tickets (future good) are cheaper than tickets at the door (present good)

This is an important theory for explaining the Austrians view on Capital and the Interest from Capital. For example I have a $100,000 and I have these two choices which would I make.

Buy $100,000 of Bonds and invest them in Bonds that yield 5%

or

Buy a $100,000 of fishing supplies expecting to catch enough fish to make $110,000 (10% yield)

So you see here the capital I have I'll put towards the fish equipment cause In the end I'll have a greater yield from my investments, this is how capital naturally gravitates towards it's most productive purpose. If my calculation was correct I can now buy another $100,000 of fishing equipment and next year catch enough fish to make $220,000. As you can see the more I go through this process the more capital I accumulate and the better my life gets even though no new science or technology has been developed, cause I've accumulated capital and can continue to re-invest that capital for interest.

This is what seperates developed countries from developing countries cause they may only be able to afford $20,000 of fishing equipment so a year later they'd only have $22,000 so it'll take some time and re-investment before the capital accumulation brings them to the developed level.

So where time preference theory comes into play is in the issue of why would someone pay me $110,000 for the fish if they can instead get the same fish by buying the Fishing Supplies for $100,000 and save themselves the $10,000. The reason is cause they have a time preference, they don't want to have to wait for a year of fishing to save $10,000 so they rather pay the extra $10,000 to have the fish now. So as we stated, the current good, these fish I've already fished is worth more than the future good, the fish they'd fish if they made the same capital investment.

Ok, so that should sum it up, so now for my addition...

Is it a "Time" Preference or a "Tangibility" Preference

I think the time preference exists not cause there is a time bias, but because there is a tangibility bias. A future good isn't as tangible as a current good so provokes less of a reaction. This Tangibility preference can not only be applied to intemporal scenarios but also other scenarios of differeing subjective values.

Example 1:

"The Stimulus Bill has saved the Jobs of Teachers and Public Sector Workers"

or

"If the Government had not gotten involved new jobs would've been created from capital reformation"

You ask the typical person which statement seems more plausible, they'd more than likely say the bizzarre keyensian statement I put up first. Why, it's more tangible to them cause they see the jobs that would've been lost, but they can't see the jobs that were prevented from being created. Now of course an Austrian is trained to understand opportunity cost so the increased tangibility from that understanding may have them choose the second statement.

Example 2

"Spend 10% of Income on Your Loved Ones"

or

"Have 10% of your income taxed which hypotheically benefit your loved once objectively just as much"

Which one you'd think a person would subjectvely value more, the first statement cause the results of this same expenditure is tangible, this would probably be true if the tax money got spent in the same way at the same time cause of it's tangibility. Although a left wing Keynesian might actually value the second statement cause they've been trained to value the benefit to society of impersonal expeditures like in the second statement so them it'd be more tangible.

So in conclusion, I feel time preference is a preference that exists but because of the tangibility of intemporal value. I would expect that a Austrian who is trained to think intertemporally would prefer future goods on occasion, cause it's more tangible. For example we prefer the future value of recession that the current good of stimulus spending. While it's a bit more complicated than simply jobs now versus jobs later a lot of Austrian theory actually emphasizes long term benefits over short term.

If you agree, we can still call this the ATPT, it'd just now stand for the Austrian Tangibility Preference Theory

The Federal Reserve, Price Stability, and CPI

2010-08-12T09:58:00.000-07:00

The Federal Reserve, Price Stability, and CPI
by Alex Merced

While here at LibertyisNow.com I've been discussing several economic and philosohical concepts regarding individualism and Liberty, no war is won over night yet strewn across many hard fought battles. The battle at hand is similar to the battle fought by Andrew Jackson/Martin Van Buren against the entrenched banking and government interests protected by a central bank. Aiding in the battle against these interests was treasury secretary under both presidents Levi Woodsbury who I'm now currently researching to write a book on his role in this time period and in the panic of 1837. Any primary sources you can direct me too on these subjects please send over.

So to understand the battle ahead let's go back understand why the fed was created, what was the feds purpose, and their performance.

Why the fed was created?

In the early 20th century the country was subject to very regular banking panics, a large part due to branching restrictions on banks known as Unit Banking. Although you can take a look a look at the Canadian banking system at the time which didn't have these restrictions (and no central bank) did not have the same problem with banking panics as we did. In this interview on EconTalk, economist Charles Calomaris discusses this part of history in building the context for the recent financial crisis.

Part of what really made these banking panics frequent and regular was that agriculture was a bigger portion of our economy that it is now. So in farm towns, between harvests you'd have panics at the local bank. So there were two options on how to deal with this problem:

1. Lift the Branching restrictions to allow banks to diversify their deposits geographically
2. Create a central bank to inject liquidity into these banks between harvests

As documented in the book "Creature from Jekyl Island" by Edward G Griffith many prominent bankers got involved in the creation of the policy that followed to address this problem. Bankers did not want to the extra competition that would come from having banks branch out, so the central bank was the favored route since it preserved bankers local monopolies.

In beginning (1913) the Federal Reserve only lent to banks through it's discount window where banks could bring "high quality" collateral (usually in the form of government bonds/treasuries) in order to get overnight loans to meet their reserve requirement, which is a fixed percetage of their liabilities they must have deposited at the Federal Reserve (currently 10%). This was for the most part the extent of the Federal Reserves actions till later on.

In 1920 a large Recession took hold in the economy during the end of Woodrow Wilsons administration and the beginning of Warren G Harding. As Harding took office, his Secretary of Commerce (Herbert Hoover) and his Secretary of the treasury (Andrew Mellon) did not see eye to on what actions should be. Herbert Hoover advised that Harding should conduct protectionist high wage policies and also advocated spending increases to which advice Harding ignored and allowed deflation to take hold and unemployment had started going down. The federal reserve had taken little action, cause at this point they had not yet entered something called open market operations.

Come 1924 the Federal Reserve was having problems covering it's operation costs with only the proceeds from loans of the discount window, so it began the purchasing and selling of government debt better known as open market operations. These OMO's had great effects on interest rates and mid-decade began to push interest rates down from these actions which arguably triggers the Austrian Theory of the Business Cycle which I explain in this video.

This leads to the recession of 1929, yet now the president was the former Secretary of Commerce Herbert Hoover. Now that he was the one calling the shots, he conducted the expansionist schemes he wasn't allowed to under Harding and Coolidge. Having increased spending to historical highs, enacting the smoot hawley tariff, and establishing informal cartels in most industry to prop up wages; the economy had only worsened unlike in 1920 which saw a relatively speedy recovery.

As things get worse, a Charismatic contender from the opposing party comes along calling Hoover out and extravegant spending and intervention. This candidate, Franklin Delano Roosevelt, wins handidly and yet increases the spending and intervention well beyond his predeccessor (sound familiar).

At this point the rest is history, but now you have a foundation in where the Fed came from, now let's talk about their dual mandate.

The Federal Reserves Dual Mandate

The Federal Resere has dual Mandate to Carry out...

1. The Pursuit of Price Stability
2. The Pursuit of Full Employment

So let's see their score card since 1913...

- Recession in 1920 w/ double digit inflation
- The Great Depression in the 1930's one of the most dire economic event in history
- Major Rationing and Price Controls during World War II
- Intense Stagflation in the 1970's
- High Interest Rates in Response to Inflation in the 80's
- Dot Com Bubble at the turn of the Century
- Housing Bubble in 2008

Let's also sprinkle on a series of mini recessions in between all of that... although to be fair many of those recessions may be over-pronounced due to how GDP is calculated and the effects of deflation, for example the 1870's was known as a long depression but was actually one of the most robust periods of growth in the country. So when looking at a recession one must take a look with a critical eye.

Although, one can clearly see even if the federal reserve was the benevolent overseer of the economy with which it's avocates paint it as, the concept of price stability is a flawed one. Often price drop due to productivity increases as I explain in this article on deflation, this is a great thing that you can now buy the same goods for lower prices and have more to spend elsewhere in the economy. Although when the fed conducts policy for price stability it uses a method called inflation targeting, which very often is keyed to s statistic called CPI, the Consumer Price Index.

What is the Consumer Price Index?

By current day definitions, we look at inflation as an increase in the prices around us and the Keynsian/Monetarist Orthodoxy believes that a moderate amount of inflation is necessary so the federal reserve should target it at some arbritrary number like 3%. So how do we know how much price inflation is? We use CPI which takes a basket of goods and measures it's month over month price increase, so if CPI is up 3% then the basket of goods has increased in price 3%.

So what is in the basket of goods?

We take all the goods that an AVERAGE purchase purchases using the AVERAGE price from many urban cities

There are many obvious problems with the calculation of this number

- Who is this average person? How do we know what goods they buy?

- If we did know what good, don't those good change over time, so the basket of good must change over time as well which you might remember in any science class is a problem, cause if you constantly change your control variable your information is useless.

- Don't prices even differ in the same city, and what about replacement goods, if a price goes up of one good I may just replace it with another good essentially negating the effect of the price increase in my daily life.

- Also how about regional cultural difference, I imagine the prices in New York will be higher than prices in Detroit, and also the brands of goods and specific good will change due to regional cultural difference.

This all hints at the fundamental problem with all Macroeconomic indicators they destroy valuable information needed to understand why certain phenomena occurs. If I see an increase in CPI, sure this tells me certain prices have gone up but without further inspection I don't know which ones and where.

So in General, the Federal Reserve acts like all prices go down and up together uniformly and adjust the money supply to get CPI to hit their target which ignores so many regional factors that it ends up causing regional and microeconomic problems... but as long as those aggregate numbers like CPI and GDP look good, right?

For example, what if CPI drops and it's actually due to productivity gains in technology (cheaper laptops), it'll show up in CPI as a drop in price which doesn't fit the Federal Reserves definition of Price Stability so they put money into the economy to push the price back up to hit their inflation target and essentially erase that productivity gain. If this had not occured, the savings for people from that productivity gain could of been use to buy other goods which would allow more sectors of the economy to grow. Instead all prices have gone up, and generally wages move slower than consumer prices so if prices are increasing wages arn't increasing fast enough to keep up for a net loss. Vice Versa, in a deflation prices more down faster than wages move down, for example if prices dropped 20% and wages drop 11%, you're actually able to buy more stuff which will then again re-stimulate the economy.

Of course the Federal Reserve would never let prices drop for political reasons which I explain in the Deflation article I linked to earlier.

How about maintaining Full Employment?

Another bizzarre goal, cause for a economy to have a healthy transfer of resources from growing industry from a matured industry you'll have some frictional unemployment. For example as the industry for audio cassette manfuacturers died down unemplyment had to come from that industry before those jobs got replace with jobs manufacturing Compact Discs and other goods. So it's not neccessarily imperative to force the economy to constantly have little to no unemployment, (usally they have an arbritrary target). So by injecting money into the economy resources get diverted from transitioning industries into something else which may or may not be sustainable such as New Internet Start-ups or New Housing Construction, get the picture. It's not that the money wouldn't of been invested, it just would've been invested somewhere else that was sustainable. So if jobs get create in an unsustainable industry instead of an sustainable industry their may be an increase in jobs and consumption until it's realized that the job was unsustainable (AKA a recession).

Bottom Line:

While historically it has been shown that an economy can thrive without a central bank (early 1900's canada) or thrive during deflation (1870's USA) we still insist we cannot exist without a Central Bank who's mandates contradict basic economics who operate based on statistics that tell them very little about what is actually going on it the world. Maybe it's time we start taking economics and history a little bit more seriously...

Big Government (or any Government) Will Never Lead to Prosperity

2010-08-11T19:26:00.000-07:00

Big Government (or any Government) Will Never Lead to Prosperity
by Alex Merced

What we constantly get told in some form or other, is that you need government for things to work... but in all reality things work in spite of government. It's like when your a kid and you want something, all the rules in the world won't stop you from trying.

For Example, two countries that are catching up very quickly if not surpassing the US and Europe in economic power are China and India, arguably their governments are bigger and more coercive in scope of control. You can take the economist approach and see that spending as a share of GDP is vastly less than the US, but what I want to take a look as is the rules they govern with, not so much the spending.

China: By having it's non-democratic central government, the current leadership in China has LIBERALIZED a lot of it's economic policy and up until recently has focused on having a savings economy. While it's intervention in the supply of savings has and will cause problems, it couldn't of done it without somewhere to invest those savings in which the US more than glad to play the role which arguably leads to more problems for the US as the Spending economy. Another aspect to take a look at is Hong Kong, once the best bastians of Free Marketeering on the globe which played it's role in sparking the economic growth in the region if not being the Seed that grew into it.

India: This country is known for some of the largest amount of red tape and barriers to entry of any country, with buildings filled with stacks of pending applications for all sorts of things. Yet no one can honestly make the argument that the excessive beuracracy has led to it's quickening growth. So while the same type of Liberalization we see in China isn't in india, a system of corruption and bribery has developed to supercede the beuracracy and foster a freer market... essentially a black market for merely "permission" to enter and participate in commerce.

People will never be diverted from purposeful action no matter what the rules, every rule in the US either eventually is found to have loophole or has some built into it initially. What keeps people honest is their respect for boundries which comes from their own self developed ethical framework. So if we care about what people do in their social and business lives we may affect more change by discussing principles to live life by than about which rules we should establish that people will ignore if their principles allow.

Capitalism and Democracy

2010-08-11T10:25:00.000-07:00

Capitalism and Democracy
by Alex Merced

Detractors to Capitalism often will make satire of the idea of "the invisible hand" as if Free Market Capitalist believe there is an actual invisible hand. The Invisible hand is a metaphor for much more beautiful and plausible idea; that the actions and choices of every individual under no coercive influence can best manage scarce resources. I mean to anyone who calls themselves anti-establishment, how can this not be a beautiful idea, the lack of central power, the freedom from a top down world. Detractors will then make arguments about "Market Failure" essentially making claims that the market doesn't achive impossible and often impracticle goals such as EQUAL income distribution.

Proponents such as myself are always glad to point out any problems that do exist tend to often if not always come from the results of barriers to entry through prohibitions and costly regulations that inhibit the amount of choice and diversity that makes a market works to it's best ability. Essentially to believe in Free Market Capitalism is to believe in a sort of Market Democracy where instead of decisions being the votes of all individuals but by the purposeful actions of all individuals.

Detractors will claim that you can't trust people to make the right decisions with their resources and their lives, so of course you need a coercive foce such as government to correct these "failures". In order to choose who sits in government to make these corrections detractors will be proponents of a democratic process... believing that the choices of all individuals will put best people in power, basically a market for government power. My questions then becomes, if you don't believe peoples decisions individually can manage resources then how can you claim that those same individuals decisions on who to manage will be any better?

The counter arument would be "Like the markets, we believe it should be a regulated process", thus comes all the campaign finance rules, ballot access measures, and other regulations of the democratic process. Although, if this is a market process these regulations should achieve the same results we see in the market limiting choice thus limiting the ability for individuals to truly take actions that make the market mechanism work at finding the most valued result.

Bottom line...

If you can't believe in Markets, how can you believe in Democracy?

Capitalism, Socialism, and Voluntarism

2010-08-09T06:51:00.000-07:00

Capitalism, Socialism, and Voluntarism
by Alex Merced

People blame all the worlds problems on it's systems of resource management, for in the end that is all that Capitalism and Socialism are, systems to managing scarce resources. Quality of life, happiness, joy; these are all things that are not quantifiable, and independent of how resources are managed. Someone in the most tyrannical despotic land can still find joy and happiness cause it's internal and has to do with ones perception of the world around them. So even if we agreed which system of resource management is better, does this mean people will be happy? Probably Not.

If you operate in a system that is objectively seen as "better" by others yet you subjectively see as "corrupt", "tyrannical", "immoral", and many other adjectives; you'll be unhappy since you feel forced to comply with something to which you not consent. This is the overriding issue than that of economics; that of consent. As long as their is a government imposing any system of any type on a entire population there will be despair and unhappiness from those who do not consent to participate. The road to happiness is that of your choosing.

This is the true Anarchist position, whether you call yourself a Anarcho-Capitalist or an Anarcho-Socialist or one of the many of other breeds of anarchist, your still advocating a system. The root of what makes anarchist different is the belief that participation in any of these systems should be voluntary, if everyone consents to play by the rules then any system is arguably workable like any board game is playable with those who are willing to follow the rules. No system can work when imposed on unwilling participants.

Arguably there is a case to be made that multiple communities running different systems that people volunteer in would actually have a positive synergy. If you had one voluntarist community of capitalist they would foster it's citizens competitive and innovative spirits and prices. If there was a neighboring voluntarist socialist community it would offer a place for those who don't want to or can't compete in the competitive capitalist system, yet can still benefit from the innovations of the capitalist society and not mis-manage resources as much cause of the prices set by the capitalist society.

Instead of focusing on which is better and who is right, how about we focus on individual liberty and how voluntarism and liberty leads to beautiful synergy.

Summarizing Jorg Guido Hulsmann's Lecture on Deflation

2010-08-07T07:51:00.000-07:00

Summarizing Jorg Guido Hulsmann's Lecture on Deflation

by Alex Merced

Listen to his Mises U Lecture on Deflation

One of my favorite topics and debates is the Inflation/Deflation debate, of Hulsmann has written extensively about putting him in my top 5 misesians (Murphy, Block, Woods, Hulsmann, and Salerno). This year his lecture was recorded much better than last years, so I was able to gleem much more of the finer points. Ok so let's sum up his argument about why growth can occur during deflation...

Three Examples Of This Good Deflation in the US:
1839-1843: Had Deflation in which unemployment remained near full employment
1870's: Where you had sustained deflation, and the most steady and robust growth in American History
1920's: Where the country went into recession, and allowing it deflate led to a speedy recovery unlike 1929.

(NOTE: In his lecture Hulsmann consciously decided to stick to the current mainstream definition of deflation as drops in the price level, not the typical austrian definition as a drop in the money supply, there is a difference.)

How do Prices Drop from Productivity Gains:

A pully system makes accomplishing a task easier by extending the distance of which I must exert force. So for example to pick something up 3ft I may have to use a force of 10, but if I use a pully and pull 10ft worth of string and only need to use a force of 3, so now with a force of 10 I can pull the block up 9.3ft. As you can see, by extending the distance the productivity has increases, and the structure of production works the same.

For Example Let's Use Hulsmanns Example of the Farmer

Structure One - The Farmer Plows the Field by Hand

Structure Two - Someone Raises the Horse -> The Farmer Uses the Horse to Plow the Field

Structure Three - Someone Mines Steel -> Someone Assembles Parts from Steel -> Someone Assembles the Parts into a Tractor -> The Farmer Uses the Tractor to Plow the Field

So looking at these three it should be obvious structure one would be the most expensive structure of production. In this scenario the farmer would either lose a lot of time plowing the fields himself, or money having to hire many worker to plow for him, so the end good would be more expensive. Although, in structure three, the farmer may be able to plow the whole field by himself in little time with the tractor so his goods would be cheaper. So as the structure of production grows, production becomes more productive, which means the goods can be cheaper, this is the kinda of productivity based price deflation we see in technology all the time.

Next Point: What if deflation occurs cause changes in the supply or demand for money? (IE people want to save more)

In an Equity Based Economy (people + businesses pay cash, little to no debt in the economy) - Producers who do not anticipate the price deflation with lose money when they can't sell their goods at the previous market price. In order not to lose money again the producer will renegotiate the costs up the structure of production making the whole structure nominally cheaper to adjust to the deflation to maintain the same profit margins. If the producer does anticipate, he may stay out of the market to not lose money and wait till some people have in order to negotiate the costs of structure of production. At the end of the day, after adjusting the structure the producer and all the higher stages of production will still have a similar margin of profit after adjusting.

In a Debt Based Economy (people+ businesses incur debt to purchase goods) - This is more painful since the debt's nominal value doesn't automatically go down with prices, so it's difficult to service the debt on the slimmer profits. Although, just like the structures of production, if the lender and borrower both want to continue on they'll renegotiate the principal (original money lent) of the loan probably at a higher rate of interest so it can be serviced in the equilibrium price level. Although not all lenders have the foresight to renegotiate so there will be a period of massive bankruptcy of borrowers and lenders purging the non-sustainable debt leaving the economy with a sustainable foundation. In the end though, new market entrants will surface with the lower costs of business to continue the structure of the production.

Final Point: Why do the elites and powerful fight so hard against deflation?

People need resources to gain power, those who are most powerful and elite in society more than likely have incurred lots of debt in the process of attaining that power. If deflation takes hold, while it doesn't change the overall structure of the economy it does ravage the elites and powerful as they go bankrupt not being able to maintain their large debts, and brings upon a proverbial political power shift to those who saved and acted responsibly under their reign of power.

Conclusion

Not only does deflation not destroy an economy, it actually can make it more robust as seen by historical evidence linked to at the the top. Deflation truly threatens the elite who's policies and reign causes the massive inflation that the deflation corrects, so it plays a very healthy role in making sure young fresh responsible people move up the power ladder while the old corrupt irresponsible power of old is punished for their mis-use of power and leverage.

A Respone to Peter Kleins Lecture on Entrepeneurship

2010-08-06T08:34:00.000-07:00

A Respone to Peter Kleins Lecture on Entrepeneurship
by Alex Merced

This is a Response to Peter Kleins Lecture on Entrepeneurship

In this lecture Peter Klein does a great job discussing different aspects of defining the entrepeneur, so to sum up two of the main definitions discussed.

Mises - The Entrepeneur is those who employ certain means for uncertain rewards, and an Entrepeneur Promoter is someone who is eager to change the structure of production by employing those certain means, (something to this effect, listen to the lecture for a better explanation from Klein)

Schumpeter - The Entrepeneur is someone Who introduces something new to the economy and destroys the current equlibrium leading to a new one. (For example, If you introduce DVD's, the need to produce VHS's will change, so now the economy must adjust.)

Both Views on Entrepneurship get at the same point, that the entrepeneurs action will change the structure of production, though mises view is more equilibrating (the entrepeneur is aiming to satisfy exisiting demands with good and services) while Schumpeter is disequilibrating (the entrepeneur destroys current demands and creates new one). Both are valid and seemingly accurate views depending on how you define many of the term associated, although understanding multiple frameworks sure helps to notice trends that may not be as visible in another framework.

I don't know where I originally got the definition that I've always used in my thought process and in my book, "Economics and Liberty: a Pocketguide for Beginners", but I'd like to spend sometime refining it and creating another framework that may be useful in assessing different situations.

Capital - The means of pruduction, a party can have title to the ownership, control, and liability of capital, and can give title of each to another party.

The Enterprise - An entity which has control and title to the liability over a pool of capital from entrepeneurs and investors.

Entrepeneur - The person who assumes the liability of the enterprise and makes decisions on how the capital is put to use for production. The Entrepeneur may give titles over their capital to the enterprise for which he assumes liability.

Investor - A Person who gives title to control and liability of their capital to an enterpise yet keeps title over ownership, giving them claim to interest/profit from that investment.

In this framework, what truly seperates the entrepeneur from an investor is liability and control for production decision. This framework I like cause it treats liability as property like anything else, and like a car you must find somone else to take title to it. In this framework it's easy to see how a C Corporation is illegtimate since instead of transferring title of the liability, liability has non title owner but the legal structure of the C Corporation.

I still got to to refine a this all little bit more, but thoughts and critics are welcome.

A Response to Peter Kleins Lecture: Corporations and the Free Market

2010-08-04T06:50:00.000-07:00

A Response to Peter Kleins Lecture: Corporations and the Free Market
by Alex Merced

Listen to Peter Kleins Lecture here

You've might have read in previous posts on Liberty is Now that I am one of the Libertarians who criticize corporations role in the free market. Although Let me make a few quick bullet points as far as where I do agree with Kleins lecture:

- I do agree that Limited Liability is not in itself illegitimate, through mutual contractual agreements one can delegate liability without special legal entities. Although, I think of liability as something you own, so through a contract your can transfer title to that liability, but unlike a C Corp it can't be completely separated from ALL owners, at least one owner will have to take title to the liability which is why a Limited Partnership I think is more akin to what is possible in a free market than a C Corporation.

- I agree several mechanisms prevent CEO's and other firm managers from being lazy, and making sure they are competitive, but this is not really from where I attack C Corporations.

The Premise of my Critic:

That due to the separation of management and liability unique to C-Corps that publicly traded companies are inherently unsustainable cause everyone in the checks and balance chain has short time horizons for example:

- The CEO and other Officers don't necessarily have ownership (though a lot of them do), although the overriding incentive is to keep their job, which means to please to shareholders proxy, the Board of Directors.

- The Board of Directors once again may or may not have ownership, but the overriding incentive is to keep their directorship and to do this they need to please the shareholders.

- Due the ease of getting in and out of an investment in a public company, investors tend to have short time horizons and will want short term gains, they don't care about the long term since they'll soon enough sell it and move to the next investment. So if Directors and Officers make decisions for the long term sustainability of the company that adversely affect the short term dividend and growth outlook be sure the shareholders will act to change the board.

Counter Point: Wait, won't a lot of this money be managed by professional money managers who should know better?

- Money Managers for Mutual Funds and Pension Funds also don't necessarily have ownership and are judged by their performance on the short term. So to keep their jobs, their time horizon is kept quite short, which is characterized by the number of pension funds that ran surpluses during bubbles but didn't change the allocation to more prudent variations to lock in those gains in order for the manager to keep their job. Now, most pension funds are under funded for the benefits they need to pay out.

Why is the Limited Partnership Better for Corporate Governance?

The General Partner - The people at the top of the totem pole making the highest decisions regarding the business has unlimited liability, so with that being the case, they have a stake in the long term sustainability in the company.

The Limited Partner - Has legitimate limited liability, yet can't liquidate their shares at a whim, they will need to find a buyer and get the approval of the general partner. Since the shares are less liquid, the limited partner wants the company to have a stable sustainable value so the value persists till he can find a buyer for their shares, meaning the investor now has a stake in the long term of the company.

Other Factors to Consider for Corporate Governance:

- To Moral Hazard of Public Unemployment Insurance on employer and employee incentives, versus the sustainable incentives of privately purchased unemployment insurance

Employee: If the employee has to pay higher premiums for more unsustainable jobs, then he might take a lower wage sustainable job cause he'll bring home more wages after the premiums, which will incentivize talent to go to sustainable firms not high paying unsustainable firms. Also if you work in a field where jobs are scarce, private plans can allow you to purchase more coverage beyond the 6 month standard at no cost to the tax payer. Employees can also lower their premiums by becoming more skilled and educated, since these would lower the risk of job loss.

Employer: If the employee won't work for the employer cause premiums are too high, this is an incentive for employer to develop a sustainable job atmosphere and company to lower those premiums.

- The effect of Corporate Tax Laws many of the incentives for bizarre corporate expenditures is that they are tax write offs, and it's better that the company spend it on golden curtains and high priced furniture and than let the government take the same money from them in taxes.With simple tax reforms, corporation would have an incentive to be more frugal and let that money trickle to the bottom line for larger dividends to investors.

Addendum to Robert Murphy's Lecture by Alex Merced

2010-08-02T18:31:00.000-07:00

Addendum to Robert Murphy's Lecture
by Alex Merced

This is just some comments to add my two cents to Robert Murphys Responses to Critics of Austrian Economics.

Critic: How come unemployment wasn't the worst in the states that had the worst housing busts if it's a mal-investment problem?

RPM: The data actually is more in line with the Austrian Theory if you widen the time frame for calculation from the peak of bubble.

My Response: Just cause unemployment doesn't follow the size of the local busts means nothing, the mal-investment is only the seed who's roots implant itself all over the economy in different ways. Since wages increases due to the bubble, industries grow in areas not related to the bubble industries cause all industries suffer a mini bubble from the consumption boom from the high wages that originate in the bubble industry and spread elsewhere (how I'll explain in my response to the next critic). Another factor for differing state data is state and local legislation and culture which might magnify or dampen the effect of the bust.

Critic: If Mal-Investment is the problem during the bust why do consumption and investment move together during the bust and boom, why isn't their unemployment during the boom?

RPM: Murphy does a great refute explaining how people who take on these new higher wage jobs in the bubble sector don't realize it's bubble sector so they consume with the assumption that they'll make those wages forever. He also makes an amazing point that you don't have unemployment during a boom cause no one is losing their jobs but instead leaving their jobs for "seemingly" better ones, while during the bust people are losing their jobs and try to find another at a similar level so it takes time before they adjust their expectations. (I elaborated a little on RPMs response, listen to the lecture itself, it's really good)

My Response: The Only thing I would add it that when people leave their jobs for higher wage jobs in the bubble sector, to attract replacement labor all other sectors will raise their wages making it seem like the economy as a whole is doing well. Although, these wage rises are not cause of productivity gains, but because labor supply issues so this puts more pressure on the price inflation seen on the bubble as businesses charge more for their goods and services to pay these higher wages. So this wage competition aspect of the bubble is what helps systematize the bubble and dig it's root into the rest of the economy, cause now all jobs are paying unsustainable wages to compete with the bubble sectors wages.

Critic: Can the ABCT occur absent of central bank, and during a 100 percent Gold Reserve system?

RPM: Murphy Wrote an article which I read, which he brings back up here during the lecture. Basically he doesn't come down on either side of the question but instead makes Rothbardian arguments for both sides. Read the article to see both his arguments.

My Response: What I want to say that the Austrian business cycle as it's commonly thought about can't happen in a 100% reserve gold standard system cause of one crucial element... expectations. One thing that drives bust from low rates is the expectation of those rates persisting or the money supply continuing to increase. In Murphys example, someone comes upon a huge cache of gold, but this is a one time injection of money and yes there will be price adjustments to all goods from the increased money supply, but I doubt mal-investment will occur because the expectation that he'd continually find huge deposits regularly isn't a logical expectation. Under our current system, it's very logical to conclude the fed will continue to prime the pump, so these expectations drive the bubble behavior. In the end, with 100% reserve banking there is no way to expect a predictable trend of money supply growth to allow the bubble expectations/speculations to be held long enough for a large systematic collapse.

How do you read the Economy?

2010-07-27T20:08:00.000-07:00

How do you read the Economy?
by Alex Merced

Many people always ask me, since I'm so critical about using any type of statistics to measure whether the economy is doing well or bad, how would I measure the performance of the economy? I wouldn't, while I believe some economic environments are better than others, I don't really buy into measuring the economies performance as a whole for many reasons including;

1. Regional Differences in culture and resources
2. Does the country really have it's own economy? Aren't the borders just arbitrary lines? So what makes such a drastic difference being on one side of the line other than the governments?
3. Aggregating data smooths out outliers in the data, unlike somebody's grades those outliers can be very important economic events that effect peoples quality of life, which statistics erase with vast amount of aggregated data.

Albeit, even using that macro data, many Austrians have still been able to see standard free market principles hold up, but it seems fruitless. There is so much value in joy versus despair in peoples lives that can't be measured by wages, GDP, unemployment numbers which aggregate too much information to mean anything despite their sometimes questionable methodology.

Although, one of the things you can infer from data is how well is the market doing it's job, creating innovations and getting them widespread adoption. Happiness, that's our job, a good or bad economy is still world where you can be happy if you try. Although, it doesn't hurt to have new gadgets and tools to make my day to day life easier and free up my time to pursue that happiness... and that's the roll of a free market.

So if I'm assessing the economic environment on any level I ask myself many questions;

What is the most recent big innovations? (example: smartphones and e-readers)

What is the adoption of that product?

If the adoption is high, is savings increasing to provide capital to develop the next innovation?

If savings isn't increasing, is there another innovation or good that I'm missing?

I ask these questions because it's that adoption of new technologies to me is a much better sign of growing standard of life than most wage, employment, and GDP statistics. I know people who are perfectly content to stay unemployed in their parents basements with their gadgets, and they're happy. Not everyone can be rich, nor should they, the only benefit to being rich is having a say in what gets produced, which ends quick if you choose wrong.

So letting the market sort out the best people to wield power over capital, and allowing real incentives for people to save when there is no innovation to adopt is important to keep this real growth in the standard of life important.

Rights and Principles and their roles in society

2010-07-18T20:05:00.000-07:00

Rights and Principles and their roles in society

by Alex Merced

The big debate between Hamilton and Jefferson in the founding years of our country surrounded where our rights come from. Hamilton argued that rights came from the government, that without the government to protect us there'd be chaos, so it's up to the government which rights it's citizens have. Jefferson argued for natural rights, that rights are independent of government and are intrinsically connected with free will and humanity.

If one where to subscribe to the Hamiltonian view which is usually championed on the left end of the political spectrum you'd then have conflicts with many of the "rights" movements that come from people on the left such as fighting for the right of other people in other nations. If people rights come from government, how can you fight for rights of people in other nations for which their government has not granted them? Although, those people who fight womens rights in middle eastern countries due seem to understand that peoples rights are beyond what the government they live under saids is right and wrong. This would leave us to believe that the natural rights point of view to be the more consistent with peoples view of "rights violations"by government, cause a government could only violate rights if they were independent of government.

Natural Rights

Aristotle, Locke, Jefferson, Paine, many important individuals in the formation of Natural Rights as a philosophy and I recommend reading their work to understand it's origin since my take will be slightly different. If Natural Rights are intrinsic to being human, it can only encompass what an individual has true absolute control over which is their mind and their body, no decree or law can change the way you think or how you use your body but only set guidelines on how to punish you for using your natural right over your mind and body. People don't have absolute control over anything external to the individual, so things like property rights and the non-aggression theorem would be difficult to wrap in this theory of intrinsic human rights. Although, if you only organized society based on natural rights it'd be difficult for those who choose not to use their rights over their mind and body with non-aggression avoid tyranny from those who would use it from aggression, so this is why a framework of logical external principles come into place.

Principles

To me, property rights and the non-aggression axiom are not true natural rights, but frameworks of principles to help humans use the rights over their internal individual selves in the external world of other individuals with their own individual rights and help determine how establish who has a claim when the rights of two or more individuals collide.

conclusion

The differentiation between internal and external is important, cause government can take away external factors from an individual but they cannot take the internal without taking their life which is the source of all their rights, cause once your life is gone you have no ability to exercise your individual rights at least in the mortal world as we know it.

The Difference Between Inflation and Increasing Price Levels

2010-07-17T08:10:00.000-07:00

The Difference Between Inflation and Increasing Price Levels
by Alex Merced

One of the biggest debates right now is the inflation versus deflation debate, and much of this debate hinges on the events in consumer goods prices, but can inflation occur even if prices drop? Can prices go up even if inflation hasn't occurred? Yes, and to understand this you need to have a proper definition of inflation As your baseline.

Inflation - Inflation is an increase in the money supply, not the mere act of rising price levels. The Money supply can increase and prices react in all sorts of ways across different sectors of the economy, no matter how they react the fundamental relationship between the demand for goods and the supply of money has changed and it will have it's effects on the economy.

Hyperinflation - Hyperinflation has more nuanced definition, it's not just merely that prices are increasing at super speeds, but that the faith in the money as a medium of exchange has broken. A good money requires people to believe that if they accept it that they can in turn use to trade with someone else, cause the seller usually has no interest in the money itself other than for trading. Although if the supply of money is expected to grow at large rates for the foreseeable future less people will accept the money due to the fear of the loss of purchasing power from the growing supply. If people have believe that the money in itself is stable measure of value they have no reason to stop using no matter what happens to prices due to innovation gains or natural increases in demands.

Cause of Hyperinflation in a Fiat World - So in a sense hyperinflation occurs when people lose faith in the money, not when prices are allowed to merely rise. In todays Fiat money world, if a governments budget gets larger than it's tax base it must participate in deficit spending. If the government can borrow domestically or from other countries the effect on the supply of money is minimal, but if it cannot find the demand for it's debt from willing lenders then it's central bank will create the demand by increasing the money supply, although this punishes the original domestic and foreign lenders by giving their investment purchasing power risk.

Because of this risk, those lenders in future financing will decide to lend less if not at all meaning the central bank will have to further increase the money supply at even larger quantities. Once a governments budget gets to the point that the only way of financing is through these liquidity injections with no end in sight, less people will begin willing to sell their foreign currency for the domestic currency, meaning foreign goods will begin rise in price dramatically. So as the world begins to lose faith in the domestic currency, the amount of the currency needed to exchange for goods cause of the wavering faith in the currency will see it's hyper inflationary crash. Thus it's crisis of faith in a currency, not a crisis in consumer good prices.

Price Increase and Decreases - While increased in the money supply (inflation) will have upward pressure on prices and a decrease in the money supply (deflation) prices can still go down and up in either environment for a variety of different reasons. Prices of technology go down in an inflationary environment cause of innovation in technology allowing to make the same good at lower prices, although inflation can erase much the nominal drop in price. Another you may see a drop in prices is a drop in demand which may be for a variety of reasons such as better alternatives, credit crunches, and more. Prices can increase in a deflationary environment cause demand for new goods is large, or special programs make credit available for certain goods such as housing or college tuition. Although all these price and increases/decreases would affect the consumer price index (CPI) although they have no fundamental bearing on weather the money itself is a stable medium of exchange. So essentially programs like fannie, freddie, and sallie may help create price bubbles it's really the money supply increases from the central bank that will lead to the destruction of the currency.

So how do I assess todays environment? - Well take the true monetary definition of inflation/deflation one must ask which one are we in? It really depend on which measure of the money supply you use, if you use the numbers like M1,M2, M3 which go beyond the base bank reserves and measure the circulating credit then it would appear as we've been spinning towards deflation. Since there's less credit available there is essentially less money available meaning demand will be limited causing price drops which clearly have been seen in goods such as clothing and other luxuries, although this doesn't really paint a picture of what's going on when the government finances it's budget.

If you take a look at the monetary base (bank reserves/dollars), this number has exploded has doubled and tripled at certain points. When the central bank injects liquidity to help finance the governments budget, the entry point is the monetary base and while credit hasn't been created on top of this base yet, it's still a sign to lenders of the future risk of their investments in US Treasuries (government debt). With many of the politically difficult to remove expenditures of the government budget, deficits seem to be perpetual and the amount of willing lenders has decreased to the point where the central bank is the largest holder of that debt. So while you may not see runaway prices increases you are seeing the faith in the dollar as stable medium of exchange eroding with only the fact that it's the reserve currency of the world, which is something that will take some time for the rest of the world to divest from, but it won't take forever.

Bottom Line: While credit contraction will have downward pressure on consumer prices, the increasing monetary base in order finance a growing government deficit will erode the faith in the currency to cause the inevitable hyperinflation.

Understanding Social Policy

2010-07-11T07:37:00.000-07:00

Understanding Social Policy
by Alex Merced

You may have seen my recent video discussing how people are socialized by institutions, and how all institutions fall into three categories. I then followed up about how this framework can be applied to understanding and combating institutional discrimination. I thought I'd recap much of what I said in a written article for those who prefer these ideas written.

Intersocial Institutions

Definition: These are institutions that are made of people with similar interests, goals, or other unifying interests that are not spiritual. Since these are not spiritual they cannot use to the fear of violence in the afterlife to accept customs, traditions and practices.

Examples: Family, Friends, Clubs, Jobs, etc.

How it enforces Customs: A intersocial institution can only use the fear of being no longer allowed to participate in the institution to keep members in line. These Institutions are voluntary and since they don't threaten violence only removal from the institution, it's the least influential and least destructive to individual liberty of the three types on institutions.

How to Reform: If certains customs or beliefs of the institution are discriminatory or offensive, one can choose to not to participate in these institutions and encourage others to withdraw as well which would destroy these institutions from within. No further coercive method is needed since these insitutions can only survive through voluntarism.

Spiritual Institutions

Definition: These are institutions organized by institutions that exploit the existance or belief in of spirituality.

Examples: Churches, Religons, Youth Groups

How it enforces Customs: A Spiritual Insitution uses FUTURE VIOLENCE as a threat to get participants to participate in it's customs and traditions. The threat that in the afterlife one may live the next life as an inferior being or be casted into eternal damnation are threats of post-life violence. Due to peoples TIME PREFERENCE* this threat of violence is typically less influential than the threat of violence from government.

How to Reform: If certains customs or beliefs of the institution are discriminatory or offensive, one can choose not to participate in these institutions and encourage others to withdraw as well which would destroy these institutions from within. No further coercive method is needed since these insitutions can only survive through voluntarism.

Governmental Institutions

Definition: Tese are insitutions created by a government which is monopoly of violence, and everyone who's governed by this government may or may not consent to be governed, so withdrawl from these institutions is not an option.

Examples: Internal Revenue Service, Department of Education, Federal Drug Administration

How it enforces Customs: A government insitution keeps all people participating through the threat of CURRENT VIOLENCE. If people choose not to obey laws, they are threatened with penalties, incarceration, and inevitably violence to comply. Due to time preference, this CURRENT VIOLENCE is a much stronger influencer than the FUTURE VIOLENCE of the spiritual institutions, on top no one chooses to participate in a governmental institution but are subject to it due to their location or other arbritrary factors

How to Reform: If certains customs or beliefs of the institution are discriminatory or offensive, one can't choose to withdraw so unlike intersocial or spiritual institutions which can be reformed by voluntarist means, a government institution can only be reformed by using the insitutions own power to reform it which means one must climb the power structure and then change the rules. Since this is the only way to reform this institution, it makes it the slowest institution to change and the more influential in keeping discriminatory and collectivist social structure in place for prolonged period of time even after attitudes and values have changed.

Conclusion: While Intersocial and Spiritual institutions both have their roll in discrimintation, violating liberty, and other social problems; they are fairly easy to deal with due to their voluntarist nature. The government on the other hand cannot be dealt with by voluntarist means and is structured in a way that can only serve to keep the status quo in place much longer than it is in the minds of individuals. This is why Libertarians and Anarcho-Capitalist focus so much on abolishing this particular type of institution versus allowing individual to reform the others through voluntarist means.

* Time Preference is a theory developed by Austrian Economist such as Carl Menger and Ludwig Von Mises that states people value present goods over future goods. Alex Merceds views on Sociology/Anthropology are based on an Indivudalist Philosophy (Isaiah Berlin, Murray Rothbard) with an sociological application of Time Preference theory to different threats of Violence.

The LGBT Community - Why We Should Embrace Them

2010-07-02T07:43:00.000-07:00

Everyone here in the movement call ourselves by many names such as Paleo-Conservatives, Calssical Liberals, Libertarians, and Anarcho-Capitalists but we all have some major things in common. Primarily, we believe that each person should be valued based on their own unique individual charachteristics, and no single charachteristic alone defines a person such as race, creed, gender, etc. This is why believe in free markets, because a free market is where individuals are free to be individuals and judged as such which gives us so many advantages in prosperity, but I don't write today about free markets or economics.

While we champion individualism and detest collectivism whether it manifests itself in divisive forms such as racism and homophobia or in the supposedly uniting forms in the forms such as different group movements we feel it still promotes the same collective thinking that ignores the individual and complexity of the individual. The only way to fix this is to get people to embrace individuality, and to understand this we must educate on how collectivism causes the very things these collectivist movements are fighting against.

So for example, an individualist would have problem with "Hate" crimes laws cause it implies that one murder is worse than another murder cause of intention, a murder in itself is a horrible offense on anyones individualism since it destroys the individual no matter what the motivation. So an individualist will criticize those who lobby government for laws to promote "equality" among groups. This institutionlizes the idea of different groups or collectives in one of the most dominant institutions in existance, Law, when most of the time much of intergroup hostility comes from collectivist thought and other Laws.

My question is... do these critiques and judgements prove counter productive?

I am proud to think of myself as one of the anarcho-capitalist who is doing as much as possible to reach out the LGBT community to show them how individualism leads to the tolerance and acceptance that any social movement strives for. I have even created the facebook page for The Martini Party, a group for LGBT people and advocates to coalesce around Liberty and Individualism.

I find that lot of people in the movement choose not to reach out to the LGBT community cause they feel like other social movements they intrinisically want to go to government for every problem, but the reason they do this is quite understandable if you take a moment, let's pose a quick analogy to set the stage:

Imagine a bunch of kids playing on the playground having a great time, the last thing they would want is mother to come in to supervise and direct playtime. A child comes and wants to play with the other kids, but whatever reason the kids will not let them play so the kid goes to mother to tell the kids to let them play. All the kid wanted was to play with everyone else, but because they didn't mothers restrictive nature was conjured.

If we don't want the Feminist, Civil Rights, and the LGBT community to embrace government and to instead embrace individualism we need to embrace them in return. If we don't make conscious effort that we want them to come play, then mother will be continued to be asked to fix the problem. Like socialism only would work with the creation of this "new socialist man", individualism and a state-less society can only work if we build a "new individualist man" that is tolerant, creative, and adaptive without no central power. If we create this coalition by embracing these communities in an individualist way by being good friends, co-workers, and overall caring; then we can see our movement advance fowards.

Another thing that seperates the LGBT community is that they have legitimatley been outcasted from society, especially trangendered people which has led the prostitution and drug use among the community, that wouldn't have to be the case if we just all embraced one another. Women and Racial Minorities have already got over the largest walls in the path tolerance and now only need to shed away the construct of race and gender to move foward, but the LGBT community still has many preliminary walls to get over before they can truly shed the collectivist contructs of sexuality and just be themselves, and embrace their unique and beautiful individualism. Meaning, if we want any community to shed collectivism we need to break the outer cultural collectivism that forces them into these groups and let them be individuals and part of society.

For those who don't understand the altruistic motivations here's some political ones:

- The LGBT community due to the level hostility they get have really built a tightly wound parallel culture, media, and world that dwarfs the kind of grassroots infrastructure our movement has, having that on our side definetley has it's merits.

- This would be a blow to the heart of the Collectivist coalition, and be a big triumph for liberty and individualism, and a step towards world free of coercion and violence.

I have lot more to say on this, but I think I got the main point across, in order to build our ranks we need embrace individuals, and not just passivly but activly to show them love, tolerance, and cooperation that exists in an individualist world.

- Alex Merced

Regulating Enterprise

2010-06-30T07:59:00.000-07:00

Regulating Enterprise
by Alex Merced

Time and time again we hear in the news that we need stronger regulation on Oil, Housing, and Banking to prevent all the problems we've seen over the last few years. Today, I'd like to make the argument that the problems with all three of these sectors has everything to do with government intervention in the market and that the best regulation would be the natural regulation of natural risk in the markets. In the name of populism much of this natural risk has been removed from these enterprises in the name of "promoting business", "job creation", and "economic growth".

The initial problem with this rhetoric is that growth is always good, so rushing growth or artificial growth must be good too. For example, if I want to bulk up quicker I could begin to take steroids, although while that is growth it's not sustainable since I haven't built the discipline and lifestyle needed to maintain that bulk, so I become dependent on the steroids to maintain it.

So let's take a look at three types of natural risk that effect the entrepreneur when they are making the decision to enter an enterprise, and on how to run the enterprise. We'll see that these policies remove the aforementioned risks and like steroids prevent the kind of discipline needed to create sustainable businesses and growth.

Risk # 1 - The Ability to Raise Capital

Arguably, if an entrepreneur can't raise the money then he may never start the enterprise at all. Why would raising capital be difficult? This could be for a variety of reasons that all have to deal with he viability of the business and if potential investors/lenders see a demand for product/service, are the potential liabilities addressed, are the margins too thin, is it profitable in the short term? If government were to intervene to make capital easier to raise for such enterprises, it's easy to see how more of them would exist despite these typical investor concerns.

Oil - Oil is a very difficult business without government aid, because investors aren't typically very optimistic about the chances of finding oil when doing exploratory drilling. So to encourage investment into oil in the 60's and 70's tax shelters were created for oil investment in the form of Direct Participation Programs, and during a time of 70% tax rates one can see how a tax haven can be quite a benefit, you'd actually profit from the tax savings alone. So capital was being sucked into oil cause of the tax benefits, not cause of the merit of the enterprise... actually you'd lose money if they found oil cause it'd create a paper gain which you'd pay taxes on. So the capital raising issue was now done away with for Oil drilling at the expense of driving capital away from technology, medicine, alternative fuels that would've meant that the BP spill might've never happened cause the oil rig would've never been there since we would have divested from oil long ago.

Banking - Banks can be a risky proposition with tight margins. The problems being if the bank takes too much risk then depositors begin to take money out to move it to a safer bank, which would cause a bank run since banks don't have enough money to cover all their deposits in the FRACTIONAL RESERVE banking system we have now. On the other hand, if they practice safer banking practices and keep their depositors then their margins are very low and the growth of the company is low which is not what investors want to hear. So if we could prevent investors from worrying about risk that the banks taking, then the bank take on the risk necessary to get all the investment they need, so FDIC/SIPC are born. By creating a mandatory deposit insurance depositors feel at ease and become less concerned with moving their deposits, allowing banks with those deposits to get bigger and bigger by taking on more risk, while making hard and near impossible for newer banks to compete for those deposits without taking more risk as well.

Housing - Houses are a great investment but a house can take a long time to turn over, especially these days. If you factor in all the maintenance costs it can require a lot of upfront capital and not much in return in the mean time. Countless institutions were created to encourage investment in housing:

- Fannie and Freddie were created to buy mortgages from banks, so banks could keep making more and more mortgages which solves the demand/turnover issue that made investment in development weary.

- Housing which by all means is a capital good doesn't get taxes as a capital gain when sold for a profit, maximizing it's after-tax return versus stocks or bonds which are more liquid.

- REITS which are just real estate company shares get special Subchapter M tax treatment getting the same tax exemptions that mutual funds get.

- Mortgage Tax Credit

- Tax Shelters like the ones created for oil were created for housing, which actually allowed you invest non-recourse loans (loans in which they CAN'T garnish your wages or repossess your assets if you don't pay)

... a lot lot more...

Risk # 2 - Liabilities

Liability is a huge issue to any investor or entrepreneur, the more likely the chances of being sued or a disaster occurring that would incur lots of liabilities the less appetizing the reward becomes versus the risk. So if the liabilities aren't mitigated through government intervention, needless to say a lot of these risks would drive entrepreneurs and investors to more safe sustainable ventures where they can make a similar return. Even if the if they do decide to go into the enterprise, liability will keep the entrepreneur disciplined or else lose his hard work and more.

Oil - Everyone has heard about the liability cap set on Oil companies, on top of it you had tax incentives to drill farther off shore then drilling on shore (less royalties needed to be paid the father out you drilled) which combined makes the risk/reward calculation on drilling offshore a no brainer.

Banking - Once again you had very huge liability in the case that a risky investment didn't pan out, or if depositors suddenly began withdrawing money despite the the cover of FDIC. To prevent the liability of these scenarios the Federal Reserve was created as the lender of last resort, originally created in 1913 to address problems from severe branching regulations in the early 1900's. So with FDIC and keeping depositors feeling safe and the Federal Reserve coming to the rescue when excessive risk catches up with the banks... owning a bank is great idea, especially since it's the bankers who are the entry point of new highly powered money.

Housing - The major liability in investing in housing is well... not being able to sell the house or the person you lend to not making their mortgage payments. Fannie and Freddie combined with loose monetary policy from the fed really fed the demand so that these houses were more liquid and that mortgages could be affordable to the least qualified of borrowers. If you don't have to worry about these factors well... then why not invest in housing.

Risk #3 - Attracting Talent

In order to grow a large and ever growing enterprise one must attract the talent to do so. The problem if your business isn't very sustainable cause of excessive liabilities or low margins then compensation becomes difficult to afford for good talent. Also, the best talent seeks to be somewhere that the job seems safe and secure so if you decide to run a high risk business this may detract talent cause the risk of unemployment becomes to penalizing and the cost of private unemployment insurance would lower your wages you'd make more paying a much smaller premium for a safer company. In this Free Market environment the best talent would gravitate towards sustainable enterprise unless government reduces the risk of working for risky unsustainable enterprise.

For All Industries - Government Mandated Unemployment insurances creates non-variable cost for working for anyone, so it doesn't matter how safe the job is the payment into unemployment is the same, so then you might as well work for the high risk taking high salary company. Worse comes to worse you will not get a fraction of a larger salary for the next 6 months, so you get rewards for taking the riskier job since you benefits key into what you made before becoming unemployed.

Conclusion

If the government makes it easier for capital to gravitate towards riskier business, makes it easier to take more risk without incurring large liabilities, and allows these firms to easily make grabs at all the greatest talent around the globe... what do you expect to happen? Overpriced Housing, Overleveraged Banks, Oil Spills

Greed is not alone powerful enough to cause these kinds of problems, but with the helping hand of government big business can have all the roadblocks removed from becoming... "too big to fail" or better put "too big to succeed"

What Does a Free Market Banking System Look Like? by Alex Merced

2010-06-18T20:34:00.000-07:00

1. No Federal Reserve: The Central Banks fixing of Interest causes malinvestment causing long term projects to be undertaken employing many, but those jobs are lost when those projects are shown not to be in line with the actual savings to complete the project(half way built houses) or to purchase the finished products (empty condo units).

2. NO FDIC/SIPC: There would still be private deposit insurances, and the costs of insuring deposits at a bank that takes on excessive risk will keep prudent investors in safe banks, also since the cost of insurance is spread out among many insurance companies depositors won't have to wait years to make their claims.

3. No Central Regulator: Instead of a government funded regulation monopoly which is subject easily to regulatory capture, consumers would pay for private firms who'd represent their pooled interest and establish rules for banks who want to deal with these firms clients. Since these firms are paid for by the consumer, not the government (political conflicts of interest), not by the industry (industry conflicts of interest), the interest of the clients/investors will be in line with that of the firm/regulator. This also allows for different regulatory frameworks to co-exist so people wanting to take on more risk can go to different regulator allowing more risk and allows alternatives if one regulator becomes corrupted by regulatory capture. These firms would require banks to meet their requirements, they'd rate securities, and other services which the investors might want.

4. A return to Sound/Constitutional money: Gold and Silver would be money once more and banks would be able to create their own money substitutes (redeemable pieces of paper), and can only participate in fractional reserve banking with depositor consent eliminating the fraud concerns.

Although in this environment we still have one issue: While even with private deposit insurance and private regulation a bank can conceivably go bust and frightened remove deposits from all banks, to prevent this government can use it's enumerated power to set standards...

The Government would establish standard units (ex. $1 = 1/40 ounce of gold) and standard reserves terminology, so consumers, businesses can determine the quality of the bank that issued the note/dollar...

Class 1 Banks: Reserves of 75% - 100%
Class 2 Banks: Reserves of 50% - 75%
Class 3 Banks: Reserves of 25% - 50%
Class 4 Banks: Reserves of 0% -25%

So if a Class 4 bank were to go bust people won't rush to pull money out of higher class banks. Also, Gresham's Law (bad money will crowd out good money) will kick into place...

Good Money - Class 1 Banks - People will put their savings in the Class 1 banks since to keep such high reserves a bank would have restrict withdrawal but the extra safety would be great for long term savings such as retirement. Lower yields, but higher purchasing power.

Bad Money - Class 4 Banks - In order for these banks to survive they need liquidity, so these banks would work like the banks of today issuing credit cards, checking accounts, way to get money instantly and quickly. Higher Yields but lower purchasing power.

While there'd be no rules that these banks would fall into these roles, it'd be logical that they would over time. Also businesses can ask for different quality of money, a store that only accepts class 1 money would have lower prices than that accepts all the way to class 4 money yet people who don't want to be subject to all the inflationary pressures of class 4 can have the option to only bank with class 1 banks and use the money at stores that only accept class 1 dollars.

Overall, a monetary/banking system like this is transparent, the only role of government is to set some standards and maybe a reporting system to have a database which private companies can develop systems to check class status of banks and notes, yet no government rules on how these standards should dictate behavior, that would be left to the people and private regulators.

This, is a free market system, transparent, versatile, and flexible

Keynesian Fried Chicken

2010-06-18T17:17:00.000-07:00

Hello,

My Name is John Maynard Keynes and here at KFC we've spent a few minutes studying the health orthodoxy which has always taught people to eat less and exercise more. I have come to realize that while this makes perfect sense, it results in a "Paradox of Health". What happens is that since you eat less, you have less calories to burn so you exercise less. If you exercise less you have less energy you need to replenish so you eat even less. The natural conclusion is that your eating habits will spiral down till you eat nothing, starve... and die.

So If this is the case then we need to make sure your eating habits are spiraling up. The major tragedy in todays society preventing this is the calorie counts on food products, because producers apparently in my imagination will generally produce foods with calorie counts too high for people to eat, so we should make the calorie count on all products 0 (despite the actual calorie count), this will encourage people to eat more since they will be less pre-occupied by calories. Of course lowering the calorie count will only go so far since peoples stomachs can only expand so much today.

In this case, the government should get directly involved and take any food beyond what people can eat today and give it to people who have room in their stomach. Of course, you might wonder, "what will people eat tomorrow if people eat all the food today?", well who cares about tomorrow you might be dead then.

Now this policy will cause massive growth in peoples stomach meaning people will be able to eat more and there will be less the government needs to take and redistribute... but in the occasion that a massive starvation occurs, it is governments job to eat any foods that's left for the people because if they don't eat it, the paradox of health will take hold.

What causes people to change their eating habits, it's their animal spirits taking hold, either the pig who can eat eat eat or the Camel who can survive long period of time without eating cause of storing food in it's humps. We must make sure through stimulating eating by low calorie counts and redistributing food that the pig spirit remains.

Now many have criticized me as a hypocrite since I've been eating relatively little, and my refrigerator is filled with food. Some claim that I have only made these theories to justify the government taking food from some to feed my posse of musicians and artists who I have random orgies with since they can't find food for themselves. Remember, ignore them, cause if you don't listen to me the world will die of starvation.

Sincerely,

John Maynard Keynes

High Wages: Sexism, Racism, and Wealth Destruction

2010-06-16T03:58:00.000-07:00

How Goverment Destroy Retirement Savings: Taxation, Inflation, and Low Interest Rates

2010-06-16T03:57:00.000-07:00

How Inflation has Destroyed the Nuclear Family

2010-06-16T03:55:00.000-07:00

Why Feminist Should Care About Inflation

2010-06-16T03:54:00.000-07:00

Intro to Economics: Youtube Playlist

2010-06-06T09:04:00.000-07:00

I've created a series of videos to learn basic Economic concepts in the Austrian Tradition, check them out right here:

Intro to Economics Playlist

Alex

Reading List for learning about Recessions, Depressions, and Financial Crisis'

2010-05-28T17:19:00.000-07:00

Hey Guys,

To really appreciate the importantce of understanding economics, and austrian economics primarily in the fight for liberty one must understand history. Why? It's when the economy is at it's weakest that the biggest losses of liberty is justified, so understanding what causes a recession or a depression is important in understanding what leads to liberty lost.

As Far as Understanding the Current Crisis, I would recommend reading the following, in the following order:

Tom Woods - Meltdown: This is probably the best introduction to the current crisis available, it's a quick read yet is able to get a whole lot of information across as well as a solid foundation in austrian economics for any beginner. This is a must read and provides you with the intellectual understanding of history and economics to go toe to toe with any enemy of liberty.

Johan Norberg - Financial Fiasco: While not a book with any ties to austrian economics, this is a great book to fill in the play by play of the events surrounding the Financial Crisis. In this book you learn who were the key players, and go in depth into all the mechanisms that are mentioned by Tom Woods in Meltdown, great follow up read to Meltdown. So while Meltdown paints the big picture very clearly, Financial Fiasco paints all the details of what was the perfect storm.

Charles Goyette - The Dollar Meltdown: After reading the previous two books you will definetley be left with the question... "so what's going to happen to the dollar?". Charles Goyette does a great job of focusing on how the crisis, the response to the crisis effected the US currency and how to prepare for the inevitable currency crisis that will come out of those events. You also learn some great history of money and how inflation has brought many nations to their knees.

After reading those three books, you should have pretty in depth knowledge of the crisis, the response, and what's to come but in all three books a portion is spent revisiting the great depression. While these books serve great introductions to great depression, a part of history clouded by many misconceptions, what are some goods sources to learn more about the great depression?

Robert P. Murphy - The Politically Incorrect Guide to the Great Depression and the New Deal: I just got my copy signed by Murphy himself at the recent Mises Circle in NYC which was a treat. This is a great book that addresses every misconception about the great depression, and can even serve as a great introductory book into economics.

Murray Rothbard - Americas Great Depression: While I've only read certain portions of this book at the moment, this is widely recognized as the source for history of the Great Depression. This is a larger and more advanced book written by one of the greatest economic minds to have ever lived so I'd recommend reading Murphys book before tackling this tome to the great depression.

Enjoy!

Alex Merced

Utopias Role in Debate and Policy

2010-05-23T12:21:00.000-07:00

The Fallacy of the Military Industrial Complex

2010-05-16T20:17:00.000-07:00

Liquidity: The Destructor of Economies and Liberty

2010-05-08T17:39:00.000-07:00

Liquidity: The Destructor of Economies and Liberty
by Alex Merced

I always believed and still believe that innovations that make our day to day tasks simpler and easier is the key to raising the standard of life. Although, in making investment more convenient we have sown the seeds of our own destruction. The primary deterrent to anyone saving or investing capital has always been liability, the risk that the bank may go under, or that they won't be able to get out of their investment in a good time at a good value. In trying to accommodate to this fear we have focused on created several institutions to separate these liabilities from investment. Although, when separating liability from those who rightfully should own that liability you distort the economic calculation between risk and reward which will always yield unintended consequences.

Through different legal structures and mandatory insurance programs people became more and more willing to invest their capital, but they also became less concerned with what they were investing it, and with who. On top of this through trading markets and derivatives we made it possible for investors to get their return on their investments in short and shorter a period of time, creating more demand for investment.

Due to these "innovations" the time horizon for investors became less and less as "liquidity" increased. Is there any inherent problems with these innovations? Trading Markets and Derivative products in themselves were great innovations, yet the underlying separation between ownership of enterprise and liability caused by the underlying corporate structure caused a level of moral hazard that was heightened by the amount of liquidity provided to any investment. The check's a balances built into structures like a Limited Partnership were gone, and along with it much of the prudence and calculation that makes investment and it's benefits sustainable.

You couple this with the fraud of fractional reserve banking, and the leverage it allows, the end result you have is self-destructing economic whirlwind. As an economy is destroyed, liberty dissipates with it as people begin to look and blame each other for the lack of resources.

The answer to all this is a sound belief in ownership of property, and the liability that should come with it or else in a world without this basic principle, Liquidity will eventually be the catalyst of the economies destruction.

Where Supply Side and Demand Side Economics Went Wrong

2010-04-30T03:42:00.000-07:00

C Corporations and Moral Hazard

2010-04-27T19:23:00.000-07:00

C Corporations and Moral Hazard
By Alex Merced

When confronting todays economics problems one thing we can agree across philosophies, theories, and economic frameworks is that Moral Hazard is rampant in the current system. The question then becomes how do you eliminate the moral hazard to return more realistic expectations in economic calculation.

The mainstream view on the left and right is that this moral hazard is created by "irrational" behavior cause by "too much" capitalism, so regulation must be enacted to reform this behavior and bring transparency to the market. As far as to handle the regulation issue, I've discussed how free market regulation can exist.

Now to Austrian Economics aficionados like myself usually take a different approach and believe that this moral hazard took generations of distorting economic calculation to create. This has been done via institutions like the federal reserve, IRS, and FDIC. Although I take it a step farther and say that the modern legal corporate structure is fundamentally flawed to a free market working, cause it separates or moves liability from two major players in enterprise, the executives running the enterprise and the Shareholders.

So let's see the effects...

Shareholders: Since Shareholders in a C Corporations have no direct legal liability or tax liability by virtue of ownership of these shares it makes disposing of these securities a decision made with very little cost except the opportunity cost of future gains that weren't realized if they continued to hold the shares. This makes the shareholder willing to sell the shares at a moment notice when the price goes up, and makes the value of company in itself in the long term a very slight consideration. Unlike this, Limited Partnership shares still separate legal liability as a Limited Partner but you retain the tax liability and you can't just dump the shares at a moments notice, this incentive creates a culture where investors do their due diligence and are concerned about the long term outlook of the company in case it takes time to find a buyer of the share.

Executives of Company: The executives and the Board of Directors are beholden to the shareholders... yet the make up of the shareholders is constantly changing due to shareholders having such a short time horizon as explained above. If the shareholders are not pleased with the short term returns from their investment, they can pressure the removal and change of these executives. Although if the company is built on unsustainable policies for short term growth, the executive doesn't own the capital in the enterprise so the concern of losing their position is a greater incentive to not change these policies to something sustainable. In a limited partnership the General Partner runs the company and must have a 1% interest in the company itself creating a dual incentive since their own capital is tied up in the venture and they have unlimited liability. While they are still beholden to the limited partner, the limited partners do have an interest in sustainable corporate governance because of the liquidity of their investment.

So essentially the C Corporation has opened a greater array of investors to the capital markets, but at the cost of moral hazard and short term thinking that results from the "Liquidity" of these investments. What I conclude is that if we're going to have a more SUSTAINABLE foundation and capital structure we need more active people running these enterprises, meaning they need more active investors which will never happen with the current C Corporation structure of liability. While some advocate creating artificial liability in the C Corp, why bother when you already have a business structure proven to create more sustainable businesses in the Limited Partnership.

Bottom Line, abolish the C Corporation.

US Economic History from 1913 to Today in 10 Minutes

2010-04-27T18:38:00.000-07:00

An Introduction and Reading List for Austrian Economics

2010-04-26T19:50:00.000-07:00

Does Wall Street Contribute to the Economy?

2010-04-25T14:10:00.000-07:00

Does Wall Street Contribute to the Economy?
by Alex Merced

One of the complaints I keep hearing about is that Wall Street doesn't contribute anything to the economy. Well, Wall Street, which is just a moniker for the "Finance" industry has done a great job of facilitating it's function in the economy. The function of the finance industry to facilitate financing (lending and investment), and the only way it does this is not only by creating and selling securities as the detractors would like to believe. Derrivatives, Prorietary Trading, and all the other fun politically unpopular stuff that Wall Street does helps create liquidity and demand. If these securities arn't liquid (which really just means has lots of demand), then it makes it hard to sell new securities for new companies cause the amount of investors becomes less. So yes these trading markets where firms and investors make money for themselves do serve this financing function, but does that mean everything is working as it should... no.

Risk and Reward help dictate how investors align their capital over time, and we have seen that investors, company executives, and everyone has seen their time horizons shrink demanding profits and returns on their investments quicker than ever before. When peoples time horizons shrink, more risk must be taken to achieve their goals in this time horizon, so one must study how culturally time horizons have shrank. Here are many factors I would consider:

1) The advent of C Corporations seperated those with Capital at Risk from those making the business decisions. Even in a Limited Partnership the General Partner who ran the business had to at least have %1 stake in the venture but now in a C Corporation the CEO is beholden to shareholders who are looking for short term gains since their securities can easily be sold at a moments notice. In a limited partnership, Limited Partners with Limited Liability can't just sell their shares on the fly so they have a stake in long term stability of the company and invest based on long term outlook instead of short term price fluctuations. C Corporations truly separated the liabilities of failure and liquidity from investors and executives and allowed them to operate in a short term gain framework.

2) Growing Government with low interest rate policies have put inflationary pressures on the returns needed by investors, plus the taxation that comes later on from these policies. So just to preserve the purchasing power they currently had investors had to make more gains faster, and of course Broker/Dealers are going to facilitate finding a way to do so.

So we need to return to free market values with realistic time horizons, but as long as we seperate liability from capital via legal institutions like the C Coporation (SIPC, FDIC, and the Federal Reserve don't help either), and tolerate growing government in distorting economic calculation to finance it's operations the Finance Industry won't have the capacity to return functioning in a sustainable manner, and no amount of regulation can make up for natural risk and reward.

Free Market Regulation Explained

2010-04-25T07:44:00.000-07:00

Free Market Regulation Explained
by Alex Merced

Everyone always assumes that as free marketers that we advocate there be no regulations at all, but the truth is we think there should be no government monopolies of regulation or violence used in enforcing it. Then the response always is, if the government can do it then people won't. Although there are plenty of ways regulation can be done for profit in a way were the regulators have consumer interest more in mind than they do now. You've probably already read plenty of articles of the effects of government regulation as far as eating up resources and raising the barrier to entry reducing competition for the very firms your trying to control so let's take a different approach.

The intended or perceived intention of regulation is consumer protection, and we've seen that this is not always the result for one key reason, any entity is beholden to the people who fund it's operations in this case government. People think of the government as a intermediary of the people but while they are publically elected they are politically motivated. Since they truly hold the DIRECT power to fund these regulators, the regulators are beholden to them and their political goals (Bush, Dodd, Cuomo, Frank w/ lending regs) instead of pure consumer protection. So as politics distorts the mission or purpose of a regulator, consumer protection falls by the way side.

This is also an issue with private sector SRO's since they are usally funded directly by the firms in the industry they are regulating so they are beholden to those firms. If these's SRO's such as FINRA etc. enforced the rules closely on their biggest constitutents (Goldman Sachs) it'd greatly effect the inflow of cash for their operations so once again consumer protection falls by the way side.

The bottom line, a regulator will always be beholden to those that pay their bills, so if you want them to protect the consumer they must be paid by the consumer directly. Even then, a regulator isn't infallible so allowing a market of regulators that consumers can volunteer to pay into and firms can volunteer to deal with to get to those consumers will allow the correct incentives and pressures for the regulatory firm to advocate on their customers behalf (such as for-profit lawyers, you hire them to protect you. Also this structure is similar to AARP or other groups you pay memberships for).

This market of regulators shouldn't have any type special power handed over the government, since we've seen that ever mixing private/public institutions ends in disatrous results (Fannie, Freddie, FINRA, Sallie Mae, etc.). Industry firms will try to strike deals with as many of these regulatory firms as possible to have access to the consumers who hired them as their intermediary, and the industry firms that strike these deal will voluntarily be monitored by these regulatory firms who will then promote and recommend these firms monitored by them to consumers who pay for the regulatory firms services. Everyone who participates in this protection is doing so voluntarily but cause of the pressure created directly by consumers.

Another way to regulate in the free market is through review publications as we see in entertainment magazines that review the music and movies we enjoy. Musicians and Entertainers operate with the pressure of getting good reviews or have their success effected by it, although if one reviewer were to write good reviews for bad movies his audience would shrink and more over to another reviewer putting pressure to remain honest. Also, if one reviewer opinion is drastically different than other, this would also call into question the quality of his review. Although these review magazines are paid for directly by consumers, so they are beholden consumers.

Although in the case of securities rating agencys, giving them psuedo government power by keying legal regulation into their ratings created a perverse incentive to cater to their clients (the buy side) into rating things highly so they can legally leverage them. If there wasn't these coerced limits by government regulation, these rating agencies wouldn't of had the same pressures to rate the Mortgage Backed Securities AAA.

Even without the free market of regultors and review publications there is the ultimate free market regulator, consequence. If consumers and providers feel there are consequences to their risks, and there is nothing mitigating this consequence (FDIC, SIPC, Federal Reserve) then the risk will typically prevent them from taking "Irrational" risks, and those that do will suffer the consequence and serve as a warning to others.

At the end of the day, protection of the individual is the responsibility of the individual. If the individual does not take the time and isn't willing to directly be involved in their own protection the protection they do get will never truly be on their side and the world around them will stagnate from the results. To fix the world you need more aware and active individuals, willing to pay for their own protection, willing to get involved in protecting themselves and truly understanding every individual decision they make.

Individualism, Creativity, and Innovation

2010-04-24T07:40:00.000-07:00

Individualism, Creativity, and Innovation
by Alex Merced

Premise 1: That creativity comes from tapping into your inner child

Kids say the darndest things don't they? It's this innocent nature that we admire in kids, when they are young before society begins socializing, limits, values, artificial barriers in their minds. Even then, during their adolescents they typically rebel against many of these constructs until one day the fight becomes to much and "they grow up". It's when one loses the ability to think beyond the barriers given to you that creativity dissapears and only your ability to see what is seeable is there, and you lose the ability to see what is not there.

Think of all the people you consider creative, arn't they generally playful and childlike and then think of all the frumpy people you consider an "adult" and put their creativity into perspective. So in economics the idea of seeing the unseen is called "opportunity cost", the unseen costs of every action you take. To be able to appreciate opportunity cost you must have this childlike nature to see beyond the barriers given by society, you must be creative.

This is why I feel I see such a stark difference from when I see Austrian economist who are generally very light-hearted and humorous versus Keynesians who are usually more cynical and serious. Yet, it's the Austrians who are more equipped to see the unseen opportunity costs, and realize what could have been to look to the future to see what could be. Keyensians, on the other hand focus on only known results to draw conclusions, and only draw self-destructing solutions based on actions that have "visible" results even if the results don't accomplish anything.
(For example, deficit spending has the visible result of increasing GDP but it doesn't fundamentally fix the real, unseen problem of diverting capital).

Another place I noticed this was on a recent interview with Ron Paul on Hardball where the serious and cynical Chris Matthew interviews the optimistic and light-hearted Ron Paul and discusses how Paul remind Matthews of his childhood hero, Barry Goldwater, but then he grew up. This was a sad and depressing statement that shows that at some point he gave in to the barriers that society imposes and became an "adult", while Ron Paul was able to this day in his 70's retain that childlike innocense that allows children to see things for what they are not how society wants them to be.

Do an experiment, give the facts to a child on a issue, and ask for their response.

Premise # 2: Collectivism kills Creativity, while Individualism births it

Creativity must come from an individual with little barriers of the mind as possible, although to think in groups and collectives as done in a collectivist framework would mean imposing more barriers in order define yourself into this "Collective". To see why this would be the case watch this video on the difference between Individualism and Collectivism:

Premise # 3: Innovation comes from Creativity

Innovation results from finding news way to do the same things, which will results in needing less time and resources to survive and spend more time on leisure and personal interests which is a true increase in the standard of life which can be numerically measured. Although innovation requires two things:

1) Investment: These Innovations require capital to develop and distribute, without investment there is no way to develop the most useful innovations.

2) Creativity: You can have all the capital for investment but if there is no ideas to invest in, it's useless, so you need creative people to see the unknown whcih can be developed.

So creativity is pivotal in the process of Innovation, so creating a individualist framework for inviduals to grow up with actually would increase the rate of Innovation and increase the quality of life of these individuals who use these innovations.

Premise # 4: Government Destroys Innovation

Government with it's coercive monopoly on violence accomplishes two things that destroy innovation:

1) They destroy investment through taxation and borrowing which puts incredible constraints on the available investment capital.

2) They destroy creativity by imposing values of the ruling class on society, and creating standards that only impose even more barriers of the mind.

Without creativity and invesment, innovation can occur and this only hurts individuals in their pursuit to impove their individual lives.

How the Government destorys real democracy

2010-04-22T06:31:00.000-07:00

When we think of democracy or a democratic process we really think of several individuals acting on their preferences and values, and when this happens large commonalities would steer society. So while any value or preference held by a large number of values and individuals would steer the ship, this only works if everyone else is free and able to voice and act on their opinion, and more important able to form one.

The democratic process occurs in several places, not just government. Eveytime you participate in market transactions and purchase a good or service you are expressing your value or preference for that good or item. When a large group of people purchase the same product, be sure that it will effect whether more or less of that product will be produced. Although our money isn't the only resource we have demonstrates our values and preferences. An individual ca also donate their time to join different groups such as religious groups, activist organization, militias, or any volunteer association.

So you can DIRECTLY effect the the dialogue of values and preferences in society through how you allocate your money and time. Although the less money and time you have then the less your able to DIRECTLY participate in this true democratic process.

- As resources are used for the Government Agenda, taxation occurs and resources are taken from individuals meaning they have less money to DIRECTLY participate

- As the money have shrinks cause of taxation they may have to work more time to make up it allowing them less time to volunteer and DIRECTLY participate

Several laws create other ways in which your money and time is taken from you, which reduces you ability participate democraticly such as the issue with sugar tariffs and corn subsisidies which create for an unhealthy culture and higher healthcare costs. Since the cost of health is higher, once again more time must be worked to make up the rising costs of healthcare meaning less time to participate in the democratic dialogue outside of government. Other rising costs in healthcare, energy, food, and more also put more pressure on your time and money.

After these effects take place then people begin to become dependant on Government as the sole method of expressing values and preferences in society since only a few have the time and money to do it elsewhere. People begin to proclaim the acts of elected officials as "The Will of the People".

First off, the people is made of several individuals all with slightly different views, so there can't be any collective "will of the people". Accepting this, each individuals votes for their elected official for different reasons, so while an official may win an election it's impossible to tell if they had a majority vote cause of a particular view or in spite of it. More than likely they pieced together a majority vote based on several different issues and sometimes votes just to spite the opposition. So winning an election does not determine, "The will of the people".

The only way to have a true to democratic process is for people to have the time and resources to participate in the community, and this can only happen by rejecting government as the sole tool for democratic action and accepting sound economic principles (Austran Economics) for people to have the time and money to participate.

The Effects of Public Policy on Private Activity

2010-04-21T05:49:00.000-07:00

The Effects of Public Policy on Private Activity
by Alex Merced

One of the problems of people who advocate for a growing role of government is that they operate in a mindset of unlimited resources, or that a growth in government has little to no effect on their current resources. The reality is that the economy has a static and generally decreasing amount of resources, so when the economy is being productive innovations will help us use less of these resources to accomplish our day to day tasks. This is the benefit of a free market or private activity, the innovations that allow the shrinking pie to be spread even further.

For these innovations one needs investment, capital, and ideas. Capital gravitates towards ideas, cause good ideas will serve as a magnet for even more capital, but again there is a limited amount of capital to gravitate towards these ideas. So essentially, to survive in a world of growing scarcity you need innovation which needs investment which is maximized by freeing up capital for investment.

So where does the government fit in on all of this?

Since there is limited resources not all of society will get fair slice of the pie, or even slice at all. Overtime though this percentage should shrink as innovations will free up these resources travel to more and more people in a variety of ways. Although people generally grow impatient for this to happen and will call for programs to watch for the welfare for those who are unable to get a piece of the pie. Although these programs themselves must take resources from this pie/economy to watch for the currently small amount of people outside of it.

The government has two ways to move resources from one place to another:

1. Government can tax the people and redistribute those resources to the outsiders, although the people are taxed this means the people have less resources to invest or consume, and since the potential consumption of a potential innovation is diminished the amount people are willing to invest in it is reduced.

2. Government can borrow the money but there is limited amount of loanable funds, so if the government borrows these funds then they can't be borrowed to invest in innovations also hampering the innovation process. Even worse, to pay this debt with interest the government must tax later resulting in the effect previously mentioned. So borrowing has a worse effect than taxation since it reduces current lending and future consumption.

The result:

In the end, after taking these resources out of the economy, the economy has less resources to support the population that it was able to support before (it's productive capacity has been reduced) and now even more people fall outside of the economy creating a demand for growth in the social programs previously established. The growth in demand will increase the size of these programs and increase the size of resources that must be taken out of the economy creating a cycle that drives more and more resources into these "public" programs and away from private production.

So while the public sector has gotten larger and larger, the world has survived in spite of this cause the innovation that has occured has minimized the impact of this resource drain. Innovation is the key to battling scarcity and in this case you want resources free to gravitate towards ideas meaning the public sector must be dismantled.

The Illusion of a "Standard" of Life

2010-04-19T18:02:00.000-07:00

The Illusion of a "Standard" of Life
by Alex Merced

Government constantly uses the concept of a "standard" of life in justifying it's policies in the name of improving this standard. Can there really be a standard, this is only possible if you believe in objective values and that certain things all people will value the same cause of some sort of intrinsic worth. The reality is every experience, good, service, etc. is subjectively valued so even if you standardized the resources available (which we know an unsustainable practice) you still have varying levels of quality of the life individuals from how they value their own lives. Individuals will all subjectively value those identical resources differently and subjectively value the experiences they get from them differently as well.

There is no way to standarized how people value goods and services, and there is not accurate way to measure these valuations much less aggregate them. The quality of someones life can be vary to low or high whether someone is rich, poor, or in whatever condition they are in it's realtive to their preferences and understanding of the world around them. With all this in mind, it's impossible to construct any policy that can truly create real value other than pushing arbritary numbers higher. On top of it, these numbers (statistics) don't quite capture the resources wasted now, or the resources that'll be lacking tomrrow cause of the artificial upward pressure put on these numbers by government. (such as GDP, College Enrollments, Construction Projects)

The only way for someone to improve the quality of their life isn't to push some imaginary floor of quality but to free a persons autonomy to pursue the things they value and prefer as long as it doesn't interfere with anyone elses ability to do the same in a direct manner (indirectly, every action can arguably affect everyone). So policy shouldn't be geared to improving a standard life that can't truly be measured but to pursue the liberty for individuals to try to find happiness.

I've seen poor and rich be misrable, and I've seen them both be joyous, and no government can replace the journey that is the one to fulfillment, self-discovery, and happiness.

A Response to a Question from an Anarcho-Socialist

2010-04-18T16:40:00.000-07:00

I follow a variety of youtube channels, podcasts, and blogs from all over the political spectrum and this video poster in particular is a anarcho-socialist. While I agree with him on some of tendencies of the interaction between man and women and socialization, we definetley disagree on the merits of a free market system. In recent video he posed the following question:

And then I posted the following Response:

The Story of Your Enslavement

2010-04-18T06:44:00.001-07:00

Best Explanation of the Financial Crisis Yet

2010-04-17T08:38:00.000-07:00

This video not only nails on the head several economic concepts, but very accuratley retells the story of the financial crisis spread this video around!!!