Month: October 2010

I was reading the intro to a book on Happiness the other day, and he asked: if you knew you were going to die in 15 minutes, what would you do? I thought about it, and decided I would do whatever I was going to do anyway.

In a very real sense, everything you do matters, but it also doesn’t matter at all. It is the relative motion that matters. For me, I feel like I have been swimming upstream without break my entire life. I don’t say that to complain, simply as a statement of fact: that’s how I feel.

Yet, I have kept going. I have not faltered. I have fought my battles, and constantly struggled to do what is right, and further to the best of my ability what is Good in this world. I have never let up.

So whether my time comes soon or many years from now, I think I will face it in the spirit in which you get a cavity filled. It’s not something I look forward to, but it is something that is necessary. If I am right, then life is better and easier on the other side. If I am wrong in my metaphysics, then I will never know it.

Either way, I have no regrets. I have done with my time what I can. As Camus put it, “Judgement day is every day.” If you remember that, then I think you can go out calmly.

In one of the Federalists–I think it was 51, but don’t quote me–Madison commented that if we were all angels, we would need no government. As I think about it, that is in fact the task: coverting ourselves en masse to angels. This is the only path forward to sustaining liberal orders, and preventing the emergence of autocratic world government.

In the end, the doctrine of Goodness is one trending towards benign political anarchy. No need for a UN, standing armies, or even police. This is the goal. I have provided one means.

Viewed as a strategic thrust in its totality, Demand side economics is about the State making purchasing decisions for the public. It is about funding projects whose economic utility is between uncertain and nil. Is it really the lack of a road or dam that slows economic progress, when no one wanted to use the road anyway, and when access to power already exceeded what was needed?

Ponder this: as we sit in our collective chairs this Sunday, looking at the future, no few American consumer and businesspeople have money THEY DON’T WANT TO SPEND. Why not? The future is uncertain. It’s unclear what effect Obamacare–if unrepealed–necessary tax increases, and possible discretionary energy tax hikes will have on our economic life, especially if the Democrats somehow hold on to one or both chambers of Congress.

In the real world, people understand that your savings is your cushion against the unexpected. It is your cushion–with insurance–against unexpected loss, injury, unemployment. It is also your nest egg, to be used in old age, or to invest in a business. Keynesians want that nest egg. They have literally engineered an internally consistent economic theology in which you are better off giving your money to the State now, in exhange for the guarantee of benefits. They take your money, and give you unemployment benefits, health benefits, retirement money, and every other little thing your heart could desire. They just WANT YOUR MONEY. Give it to them, and nobody gets hurt. Don’t give it to them, they will take it through taxes and inflation. One way or the other, and they get it.

This is the goal. What would rational economic thinking look like?

Let us look at the glut situation. You have too many cars. What do you do? Sell them at a loss, reduce production, and INVENT SOMETHING NEW that people actually want to buy. Come out with a new model, such that the sex appeal or fundamental value is so powerful that people spend their money on it. This creates profit, which gets reinvested, which causes job growth.

The problem is that innovation cannot work to produce growth if no PRIVATE capital is laying around, and the surest way to KEEP–not get, but KEEP–private capital in circulation is by not confiscating it in the first place through taxation or onerous regulation that bulks up costs that can’t easily be passed along.

There can be no question that Supply Side Economics (aka common sense) works. The people who practice it always run deficits because they increase their SPENDING. It happened under Reagan and both Bush’s. It didn’t happen under Clinton since he had an activist conservative Congress for 6 of his 8 years. Even they, though, did almost nothing to address the debt.

We need to be clear: nothing short of a revolutionary fix is going to make the some $600 billion we pay (or soon will) annually in interest go away. How in God’s name do people worry about Halliburton, when they could be thinking about the people who get this money, year in, year out, guaranteed by the US Taxpayers? Halliburton, as big as it is, is chump change.

Again, my fix makes all this go away, eradicates the vestiges of Keynesism and what for lack of a better term I have called “Monetary Mercantilism”, and puts on a just economic footing as a nation–and potentially as a planet–for the first time EVER.

First off, the term “Supply Side” economics did not exist until Keynes hoodwinked several generations of American economists and politicians that you could spend you way into prosperity. Obviously, it doesn’t work, but academics and pol’s have always been quite content simply to have a scape-goat for their failures.

I want to look at this in a bit more detail, though. The stupidity will shine through–or darken the room, as you prefer–soon enough.

Here is the argument: a recession is called by the systemic glut caused when people save rather than spend their money. Companies have made something–say cars–expecting to sell them, and horror of horrors no one wants to buy them, at least at the price they are charging. How exactly this happens, I don’t think he’s quite clear. Let’s say it is a “loss of confidence”.

If the companies can’t sell the cars, then they can’t maintain their current levels of employment. If they don’t do that, then they law people off, such that the ability of the overall public to consume is reduced, causing the glut to be even worse. Money is needed to eliminate the glut, keep those people employed, and keep the economy moving.

Keynes offers two solutions. First in the long term he wants direct State control of personal and corporate savings, such that it can be allocated in a “rational” way by smart people like him, what he termed a Salariat, modelled on that found in the Soviet Union.

Phrased alternatively, he wants a Command economy, at least when it comes to private capital. He wants to be able to control not just the rate of savings, but the ability of people to move their (own) money in and out of the country. He wants a hermetically sealed system, of precisely the Fascist sort, which is why Mussollini thought so highly of him, in the only almost honest exposition of his real objectives, in his piece “The End of Laissez Faire”.

Secondly, if the private sector lacks the will or ability to spend, then the government has to take up the “slack”. Since by definition the economy is in a slow down, the government will have to use deficit spending to inject cash into the system. Tax revenues will be down, and any surpluses already spent. This money is spent. It really doesn’t matter what it is spent on–with his “multiplier” effect, it will sooner or later eliminate the glut.

What has happened, then? Our government has taken the money of the taxpayers, and in effect paid off the debts of a particular industry–say cars–with borrowed money we will now owe interest payments on.

Reasonable Questions: How is it that we have not made our situation worse? What is to prevent that same industry from again running up a glut?

Ponder what was done: the taxpayers still owe, in reality, all that money to the automotive industry. We didn’t really pay them back. The situation at Point A (pre-loan) remains, on the books, the same. No final solution has been achieved. And not only has the problem not been solved, we now have to pay back MORE than we otherwise would have had to, since we have to pay interest on our national debt. And as anyone with credit card debt knows, you can make the minimum payment literally FOREVER, and never touch the principle. And in point of fact, some part of our current debt dates back to the 1930’s. Our net national debt has never reached zero. The Treasury Bonds, when they reach maturity, are just rolled over. It is precisely equal to paying credit card debt YOUR ENTIRE LIFE. In so doing, you eventually pay back 3-4-5 or more times whatever the initial principle was.

And to the point, if there was a glut initially, it was due to failing to adhere to business fundamentals. Price–as any competent, sincere economist (in short supply, admittedly)–is an informational signalling system which indicates the current demand for whatever supply you intend to make. Within a free market, no long term misallocation of production resources is possible. As sales decline–say everyone owns a car already–then production will decline. As sales increase, production will increase.

Quite obviously, it is sheer lunacy to say that the health of our economy depends entirely on consumer spending. It depends on job creation, which is the result of people perceiving business opportunities, and having the available capital to take advantage of them.

Capitalism is a system for converting innovation into wealth. It is a system for developing new markets, new products, new distribution systems, and improved efficiency. When it works properly EVERYONE saves money, such that in the long run EVERYONE becomes a Capitalist. The lifeblood of economic health and freedom is small business.

What disrupts this process is not savings, but the theft of savings as a result of monetary policy. Keynes–socialist bastard that he was–well understood this. Consider this quote, from 1920:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Let me be clear: I don’t think Keynes was so stupid that he encouraged governments to intentionally, overtly engage in inflationary spending. He was quite clever and always thought a few moves ahead. This trait–and the culturally congenital stupidity and moral cowardice of most modern economics–is what has enabled his patent nonsense to continue being preached as gospel.

But take the case of the Great Depression. Irrefutable are the following facts: the Federal Reserve consciously pursued inflationary policies in the early 1920’s, and deflationary policies from about 1928 to 1933. Inflation, to be clear, cannot happen unless someone gets something for nothing. As Keynes admits, it “enriches some”.

Also irrefutable is that there was a run on our gold, by parties unknown, which led to a devaluation crisis that in turn led to the closure of some one half of American banks. In essence, our currenty was theoretically backed by some percentage of gold. The amount doesn’t matter. Let us say that we had agreed to only print $100 per ounce of gold. People back then had the choice of taking money and redeeming it for gold. They wouldn’t do it, unless they thought the gold was worth more than the cash. In other words, unless the government had inflated the money supply.
In that case, you could get $200 face value of gold for $100 dollars.

This sort of thing is what causes runs on currency. All currency trading is, is trying to figure out which nations are inflating the most. You keep the lower inflation currencies, and sell the higher inflation currencies. In a highly revealing detail, Keynes–privy to much inside information around the world–made millions off of daily currency speculation. He understood currency manipulation like the back of his hand. He engaged in it daily for most of his adult life.

How does Keynes, then, get private savings into the hands of the government? How does he force inflation which favors a few at the expense of the many, without making his intention (the above quote was from a best selling book he wrote, and quite public) obvious?

Let’s look at a foreign example, then a domestic one. Watch the movie “Life and Debt”. Jamaica, following England freeing her from direct control, was in an economic mess. They needed money for development. The IMF came in with loans, but required all sorts of stipulations, including the prevention of any trade barriers, State support of any industries, and a demand that their currency be devalued.

We always see this infernal demand for currency devaluation. What is happening, is that whoever and spends that money–usually the government–and whoever gets that money–usually a power elite–benefits. Everyone else suffers. The reason that is always offered for the loans is that it “enables exports.”

Reading most of the jackasses posing as serious thinkers and wearing the suits of economists, one would think that no self sufficient economy could ever be possible. Jamaica was always destined, from Day One, to being an economic subordinate and dependent. Yet, they had many indigenous industries–farming, dairy and the like–that were absolutely wrecked, moving them from self production to importation. Now, most everything they consume comes from other countries.

Their money won’t buy hardly anything. Theoretically, when you devalue your currency through inflation, you make your exports cheaper. For example. China seems to have done this. The problem, though, is that life for the ordinary citizen gets much harder, since inflation prevents true entrepreneurialism from taking root. It prevents the emergence of private capital. China as a whole–once you get past the top tier of their Class System–is facing hard working conditions, with increasingly little to show for it. They are being used, in effect by their own government acting as an imperialist power, to make a very few very rich.

This is the flip side of inflation/currency devaluation: it also makes it easier for people holding other currencies to buy up your country. Remember, the IMF forced you to allow this as part of the agreement.

And remember too that loans come due. The loans dont’ work. They peter out. And yet you have to repay them. What do most countries do? Another round of inflation, combined with another deal with the devil.

Let’s look at a so-called “Keynesian Stimulus” here in the US. Money is printed and spent. It is spent, say, on green jobs, whose intrinsic value is a matter of utter indifference. As such, in “stimulus” conditions, normal pricing signals are completely absent. While the money is flowing, you do well. You take that money and invest further in infrastructure and head counts. Then at some point the money runs out. If you’re lucky, you might have a viable business. Much more likely, though, you are grotesquely overvalued, and what you have built will wither on the vine and die. The system eliminated the normal fail-safe mechanism from the equation, resulting in nothing but waste. Money is now owed, but it is now gone, and over time a multiple of what was owed will be paid, since the debt will never to ended.

How is this money paid? In the end, with inflation. With a truly stable currency, there would be NO inflation. On the contrary, unless stolen by the State and a power elite, the purchasing power of our money should–would–be steadily increasing. I make this full case on my other web page, here: http://www.goodnessmovement.com/Page14.html

In the end, Keynes wanted all private capital to disappear, for all wealth to be dependent on the ability of the government to outlast everyone, in that it could create money, and with that power destroy any and all other money and wealth–and power–that could stand against it.

People need to grasp these realities. Moral midgets like Paul Krugman continue to hawk this salt water as the one and only solution for thirst.

I was pondering last night, with a vague ache, that I have feared for the end of the world since learning of nuclear weapons. I was in high school at the height of the arms race, and feared often it would get set off.

More generally, though, I think many of us fear strip malls, too. We fear television. We fear packaged frozen chimichangas.

What do I mean by this? This: we fear banality. I remember growing up thinking “is this all there is?” Another cherry slurpee at Circle K? Another movie with Clint Eastwood shooting someone? Gilligan’s Island?

Then you finally score with the girl, and it wasn’t quite what you thought it would be. Somehow looking at all those girlie magazines you had conjured something–different. And the girls, of course, are always compromising, compromising, compromising. They think their love fantasies will be met if they just give the boys what they want. And they are almost always disappointed. None of us grow up with honor. We grow up with Sweet-Tarts, and playing video games, and cops and robbers. We are rude to our parents, who fall all over themselves trying to diagnose our moods.

We go to air conditioned moview theaters, and watch insipid humor, or insipid, morally meaningless violence, while eating popcorn and sipping on carbonated syrup.

We tend to marry for convenience, in something that might feel like love, but is really something else, and that first marriage fails at least as often as it succeeds. We have to find ourselves. We have to try new things, meet new people.

Then it is the same crowd, themselves recently dispossessed of someone else, so they, too, could “meet new people”.

Ennui, mid-life crisis: what to do? Take up yoga? Skydiving?

To my mind, this is another cataclysm, a soft one, a creeping one, a moral one. Evil easily enough creeps into this world. It has legs in this world, of people who longer know themselves or one another because they have been led by the hand through their lives by a sybaritic desire for easy pleasures, and simple decisions. They don’t exist, because they have never been asked to exist.

This is what political radicalism offers for many. It is the root of Nazism, Fascism, Communism. It is the root of black magic and actual sacrificial cults, of genuine Satanism, which I think we will find in our midst at some point, shocking the media and rest of us alike. But we will know, on some level, that all was not perfect in our land, the plastic facades and glittering showrooms notwithstanding.

We need to do better, and this starts with honesty and courage. It starts with taking the harder path because it is the right path. It starts with refusing the easy ride offered to you by a smiling stranger in his car, leading, he says, to a sense of purpose without effort, belonging without identity, and growth that results from no decision of yours.

We can survive. We can even thrive. We can build heaven on Earth. But first we must tell ourselves the truth about who we are and what we have built. We have built peace. We have built a generally kind, overly tolerant people. But inside I think many are alone, lost, despondent, and vulnerable.

Once a product has been created, it can move wherever it wants, in a free market. In a Command economy, decisions are made centrally as to what is going to be produced, and where it is going to be allocated. From there, local bosses can make specific decisions.

The Federal Government really doesn’t have the power to create money. It can BORROW money from the Fed, but it can’t, technically, create it. For appearance sake, our actual cash money and coin is printed by the Treasury, but it is placed into circulation by the Fed.

Banks are required to keep a certain amount of their “Reserves” (it’s not clear to me they don’t loan everything out every day, then “top off” using Federal Funds money to stay solvent at midnight; that process could continue forever if they borrow it at 0%, the current targeted rate, and loan it out at virtually anything higher than that, provided the Fed didn’t stop them) at the Fed. To get cash, they just convert ledger money to cash money. That ledger money still flows, sooner or later, from money the Fed created, either as paid out by the Treasury, or as it flows out of the big banking houses they finance directly with Open Market Operations.

Thus, ultimately, money creation and direction is in the hands of a very small elite, not elected by the People, and not accountable to any of our elected representatives. This is a Command economy. It is not different in principle from a small committee determining how much wheat will be produced this year, and who gets an allocation.

This situation is categorically antithetical to free markets, and to the transparency any self respecting, self governing people would expect of those who are empowered to do things, supposedly on their behalf.

I read yesterday that the Fed is considering a policy of “quantitative easing”. In no article I read did anyone discuss the actual mechanics of what is involved in this.

The Federal Reserve, our nations central bank, can write checks in any amount to anyone. The money for the purchases is created in the act of writing the check.

The “System”, itself–which is really a cartel–consists in banks WHOSE NAMES WE DON’T KNOW WITH CERTAINTY, as I understand the issue. Take JP Morgan Chase, which is certainly one of the members (a special stock is issued to member banks, which is non-transferable and non-negoiable; in essence, it simply represents a ticket to the party). They are a bank which makes investments in many things. They buy overseas securities, they fund smaller banks, they invest in industries, and all the other things banks do. Their charter may be slightly limited in some ways, but that is my understanding.

Quantitative easing must necessarily consist mainly in what are called Open Market Operations, which consist in the Fed buying securities (or whatever) issued by someone. They bought up a bunch of Euros, when Europe was in the worst throes of their Greek crisis.

When the Fed talks about quantitative easing, what they mean is, in effect, giving money to banks like JP Morgan Chase, to be used however they want. JP Morgan prints some bonds, say, then the Fed buys them. Both sides are in effect printing money.

So if they pursue their recently stated policy, then they will give money to very large banks, which those banks can then use however they want. In theory, they could lend it to Americans needing capitalization, which is why some fear inflation. This money wasn’t there, now it is there, so there are dollars chasing dollars, which decreases the value of each dollar.

But they could equally go buy up some African country, or buy gold, or short Wall Street, or whatever they want to do. There is, as far as I know, no regulation on this, outside of the normal restrictions on normal trading activity.

So, in effect, JP Morgan votes JP Morgan free money. If things work out, they invest it, make a handsome return, then pay the Fed back. If they lose it, they ask the Fed for a “cash infusion” to perk things back up, since they are “too big too fail.”

This system is fundamentally fraudulent and undemocratic. It is not Capitalism at all, since they neither invented anything nor saved any money up. It could be argued it is in fact a type of Imperialism, in which countries and companies are not invaded, but who nonetheless transfer their property and liberty to someone who did nothing but write them a check from money they created for themselves.

I was thinking about the growth of Imperial Rome. I listened a very long series on this topic several years ago. The net of it was that they constantly expanded their borders to defend from barbarian attacks. They would get attacked from the north of Italy, so they conquered that. They got attacked by the Carthaginians, so they took over Carthage. They got attacked by Carthages neighbors, so they expanded there. They got attacked from Spain, so they expanded there.

In the end, they had at their height an Empire that ran from south Germany to North Africa, and from the Iberian peninsula at least to eastern Turkey, and I’m not sure they didn’t get farther than that.

Of what benefit was all this? In the end, they still had barbarians on the frontiers, particularly the Parthians and the Germans/Goths. If memory serves they lost Caesars in both Iran and the Rumania area. They had the power to exact taxes, but they had in turn to keep up the roads, garrison the towns with soldiers, and provide a criminal justice system.

If they raised taxes to the point where they were making good money, they got revolts, which required more soldiers, which cost more money. They did forge a long term peace in the regions under their control, and as conquerors they were very enlightened. They allowed natives to do things their own way, and developed a legal code so advanced our own system is largely based on it today.

But of what concrete benefit was that to the average Roman? Yes, the elites lived well, but the ordinary Roman did not. They still had urban poverty. And to the point they lived under a tyranny, in which the Caesar could do substantially whatever he wanted, which made rebellions for power all the more common.

As I heard the history, the real reason for the decline of Rome was their frequent civil wars, which killed so many regular soldiers that their ranked had to be refilled by barbarians, resulting in a steady decline in loyalty and quality. Over time, the barbarians did most of their fighting, and Alaric, who sacked Rome, had been a Roman soldier himself. He was a commander, if memory serves.

Then the Roman Senate become the Holy See, and the Roman emperor the Pope, in effect. In that role, they held enormous power for more than another thousand years.

I guess I’m thinking out loud about the benefits and costs of Empire. Was it all worth it? How would our history have been changed if they had contented themselves with a life in Italy? They set up administrative structures which arguably enabled the creation of the Islamic Empire. Their Republic was the basis for our own.

They built roads which in some places continue to be used to this day. They provided aqueducts, some of which stand to this day. They gave us our law. They enabled Christianity to blossom.

I’m not quite sure where I’m going with it. It will come to me at some point, but not in the next five minutes.

Edit: I think where I was going with this is that I was thinking about the French in Vietnam. I don’t remember what resources they coveted, but I think it was rubber. Assuming it was rubber, we have this situation where the French are killing Vietnamese rebels so they can run slave plantations such that they can get the rubber for next to nothing. The rubber, itself, is cheap. But they have to supply huge quantities of military aid to make it happen. Aside from the moral question, this makes no economic sense. Why would it not have been cheaper for them simply to support the Vietnamese in making their own rubber, and then buying it?

So much misery flows from not factoring in all the costs of decisions. As Henry Hazlitt said, when dealing with economics you always, always, always have to look at the effects on EVERYONE, and at all time phases, from the short, to the middle, to the long term. It is quite easy to achieve a desired effect in the short term–what we might term the linear outcome–but much harder to make a desired reaction self sustaining over the long haul.

This is the principle difference between Leftists and Liberals on many levels. The former believe that peace, prosperity and social order can be imposed. Liberals understand human social systems as formally complex, and work therefore not to build political orders, per se, but moral orders that can be expressed politically.

The converse, then, is that Leftists seek to build political orders that can impose “morality”.

What effect did the “Bringer of Light” have on his world? His legacy: intermittent war from 1945 until 1980 (don’t forget the war with China and the invasion of Cambodia). 35 years of many his countrymen hiding in the shadows, assassinating their fellows directly, or by attacking civilians intentionally in terror attacks. Deaths that no doubt approached a million or more, if you count lost troops, civilian deaths, mass executions, deaths by starvation, and which clearly do get into the millions if one considers that it was the destabilization of Cambodia as a result of the war that enabled Pol Pot to take power.

For that, what? A crappy economy, a secret police that is worse than that of the French, and “independence”. He should go down as one of the greatest criminals of the20th Century, which is a substantial “accomplishment” when one considers the other names on the list.

This fact becomes particularly galling when one considers that he almost certainly could have accomplished BETTER ends had he used a counter-colonial policy of non-violence. The French, sooner or later, would have bowed to public pressure. The colonies never really paid out more in benefits than they required in men and resources to keep, for any of the colonial powers. It was pride that kept them at it.

Yet, he was a Cultural Sadeist. He relished power. He liked being the “Bright Shining One”. And so he led his nation to the slaughter, uselessly.