Sunday, June 19, 2011

What Would Happen Without Welfare?

Begin a thought process with me. Let's just look at medicare and medicaid. In 2010, the US government spent $793 billion on these programs. There is a lot more than medicare and medicaid to welfare, but let's just look at this. Now, imagine that instead of the government taking that money from business and people and giving it away that the money instead was left in the hands of those to whom it belongs. What then?

First and foremost, to be sure, many people would be left without health insurance. Even as the extremist libertarian that I am, I can admit that this is a bad thing. All other things being equal, people having health insurance is much better than them not having health insurance. Fortunately for libertarians, though, all other things are not equal in this case. We have to remember that money. What does this other money do? What is its purpose?

The extra money will either be spent or invested. The spent money increases profit margins and the increased investment provides the capital with which to furnish new jobs. So the people who have lost health insurance can now find new jobs because of that capital now being freed up.

But is this alternate scenario worthwhile? Is it better that the money is providing jobs instead of just directly going to pay for health insurance? From the point of view of the person who was taxed, the situation is much better, because now he is getting more for his money. From the point of view of the person who was getting the health insurance, he is now getting the money for insurance plus some spending money for himself. His situation is improved because of the change.

Yes, it is a simplistic analysis, but what do you think of it? Is this a worthwhile idea?

Thursday, June 16, 2011

Did Cash for Clunkers Work?

A microcosm of the Keynesian idea of stimulating aggregate demand would have to be Cash for Clunkers. Here was an industry which experienced a tremendous crash because of the recession. The Keynesian cure would be to give people money to buy new cars. With this new demand, the auto industry would start making new cars, providing jobs, and those jobs would create demand in other industries, and so on and so on. It is the multiplier effect. Spending money prompts production prompts more spending. It is a net negative.

Of course, as with most Keynesian economic theories, it is seriously flawed. Keynesians do not understand capital markets. When a business experiences new demand, there is pressure to expand. That expansion, however, does not come from profit alone. Businesses must borrow money to meet the new demand. It would take too long to wait for profit to fund the expansion. This is where investment enters in. However, recall today that much of our capital is being used up by government. So even though interest rates are low, commodity prices are spiking. We cannot ignore scarcity; there is only so much capital to go around. Government is using all of that capital on its stimulus programs.

So in our current economic situation, what would happen when you try to stimulate demand? If it is too expensive for businesses to expand, the only result can be higher prices. This is where the example of cash for clunkers comes in. Look at what happened to the price of used cars as a result of the programs. But there was some growth in the auto industry as a result, but that has crawled to just 0.4% in the 2nd quarter.

But people might say that the benefits in this case outweigh the negatives. But alas, I did not discuss all of the negatives. The Broken Window Fallacy states that when money is spent on one thing, it is necessarily not spent on something else. Opportunity cost is a very real issue. So because consumption was driven in the auto industry, growth in other industries was necessarily stifled. These other industries, where consumers were actually demanding growth, must now comparatively shrink as compared to the situation we would have been in. We are worse off as a result since the products we demand are not produced as they can and should be. Is government intervention saving our economy? Not likely.

Related Articles
The Double Dip is Upon Us
Private Sector Job Growth: Before and After the Recovery
The Phillips Curve is Wrong, Stupid, and Bogus

Wednesday, June 15, 2011

Did Ron Paul Win the Debate?

Townhall says it was Michelle Bachmann and Mitt Romney.

Fox Nation Readers say it was Michelle Bachmann.

GOP Insiders say that Ron Paul has no chance.

But according to applause at the debate itself, Ron Paul won.

Notice a separation between the elite and the public? And this is all without even mentioning the fact that the popular opinion polls show Paul as the clear winner.

Ron Paul on Stossel

As a libertarian, it is always nice to try to educate people on my perspective. So, because of that, I thought this video of Ron Paul would be most enlightening. Not only does it explain my view of things, it also is a great introduction into Ron Paul's worldview. It is a great guide if you are considering to vote for him for president.

The link is on Hulu, so watch it while you still can.

How Did Suburbs Develop?

The prototypical American city during the Industrial Revolution was very crowded and very dirty. They were hubs of industry. I know that today we think mostly of central business districts like Manhattan, but these cities looked more like the wide, expansive industrial areas that are most epitomized today by parts of Los Angeles (look in Google Maps at Vernon, CA, to see what I mean).

Of course, this does not really answer the question where people lived. Sure, factories provided some housing, but apartments and other high-density dwellings also existed within the city. This close connection in cities between factories and dwellings produced an unsightly and crowded living condition. It should come as no surprise, then, that the rich tended to live outside of the cities to get away from the pollution and the people. Of course, only the rich could afford the commute. The poor, in order to work, had to live in the city.

Then came the trains. Prior to this, the ways of getting around were limited to the horse and buggy and walking. With the trains, people gained great mobility. No longer were people forced to live in extremely high density in the cities. The urban landscape started to gain a more spread out distribution as opposed to the tightly centered model of old.

Suburbia, as we know it, though, could not possibly arise from this situation. Sure, it gave rise to outlying cities, but it was not enough. However, the seed had already been planted. But you still had the problem of transportation to and from the stations. Remember that up to this point all transportation was privately built and maintained. Then came the automobile. With its rise in popularity came the desire for government to control it. Parkways and then highways were built with government money and financed with a gas tax. Finally the modern suburb was born.

Why is government building of these roads such a turning point? Look at what comes along with it. Cars would not need to pay for the pollution that they create. There is no exclusion fee to the road; that is, each car contributes to traffic, yet we do not have to pay for the traffic that we create, hence traffic jams during hours of peak demand.

As for the other aspects, we still have cheap credit and government intrusion into the housing market. Fannie Mae and Freddie Mac are old institutions. But what may be most important of all is zoning laws. The situation we have today consists of a central city that is built to its bureaucratically dictated maximum, hence new development has to occur elsewhere. These other areas also have strict zoning laws, and so development keeps getting pushed further and further out. Yes, prices are expensive, but people are not offerred a choice because of zoning laws. Without zoning laws, do you think it would even be possible for the type of development that we see today? It's wildly expensive to build like this.

So yes, there are a myriad of regulations and programs that contributed to the rise of suburbia. However, they were coming along even before government artificially stimulated their creation. But the scope to which they developed during the 1950s was unprecedented and would not have been possible without a complete distortion of the transportation industry, cheap credit, and zoning laws that essentially dictated its form.

Tuesday, June 14, 2011

Anti-Federalist Number 1

The argument presented by "a Federalist" in this paper should seem very similar to what we know now has political unremarkabalness. The Constitution was a very contentious issue, and this essay makes the point that to sort through the document requires much time and patience so that all potential uncertainties could be sorted out. And the Constitution is a very short paper. I wonder what the implications, therefore, would be for a bill that is about 2000 pages long.

The full text of the first paper can be found here.

I am pleased to see a spirit of inquiry burst the band of constraint upon the subject of the NEW PLAN for consolidating the governments of the United States, as recommended by the late Convention.

If it is suitable to the GENIUS and HABITS of the citizens of these states, it will bear the strictest scrutiny. The PEOPLE are the grand inquest who have a RIGHT to judge of its merits. The hideous daemon of Aristocracy has hitherto had so much influence as to bar the channels of investigation, preclude the people from inquiry and extinguish every spark of liberal information of its qualities. At length the luminary of intelligence begins to beam its effulgent rays upon this important production; the deceptive mists cast before the eyes of the people by the delusive machinations of its INTERESTED advocates begins to dissipate, as darkness flies before the burning taper; and I dare venture to predict, that in spite of those mercenary dectaimers, the plan will have a candid and complete examination.

Some interesting facts come out through close scrutiny of this short passage. The first sentence shows that before the Constitution, the country ran as a loose collection of related governments rather than as a singular government. The extent to which that was true is not made clear, but it is interesting to see that there is opposition to a national government that would basically be the master of these more local, state governments.

In that second paragraph, notice the mention of the Aristocracy. The "Aristocracy" is blocking investigation, examination, and inquiry. They have clouded the vision of the people for their own sake. Now of course, the use of the word aristocracy in that time must have had an immensely negative connotation seeing as how the colonies had just freed themselves from that old social order. To call their fellow countrymen aristocrats, this writer is definitely using a scare tactic. He wants to show that this new document, in a sense, is favorable to that old social order. Now, the Constitution would not really establish the old social order, but it would be a far cry from what they had established with the Articles of Confederation.

Despite what is going on around him, the writer is still optimistic. He sees that the document is being rushed through and that people are persuaded to believe the writers, yet he thinks that the people in the end will ultimately win out. Unfortunately for his side, this does not mean abandonment of the document, but even worse would be the complete abandonment of any understanding of the limitations of the document in the present day. Federalist or anti-federalist, basically all but Alexander Hamilton would be opposed to our current political milieu.

Those furious zealots who are for cramming it down the throats of the people, without allowing them either time or opportunity to scan or weigh it in the balance of their understandings, bear the same marks in their features as those who have been long wishing to erect an aristocracy in THIS COMMONWEALTH [of Massachusetts].

Their menacing cry is for a RIGID government, it matters little to them of what kind, provided it answers THAT description. As the plan now offered comes something near their wishes, and is the most consonant to their views of any they can hope for, they come boldly forward and DEMAND its adoption.

The writer again uses his scare tactic of alluding to the old social order. In the second, the use of the word rigid again draws parallels to the action of Parliament in the decades leading to the Declaration of Independence. The writer appeals to those fearful of a strong, rigid government. In a sense, the writer is appealing to anarchy, as you will see right now.

They brand with infamy every man who is not as determined and zealous in its favor as themselves.

They cry aloud the whole must be swallowed or none at all, thinking thereby to preclude any amendment; they are afraid of having it abated of its present RIGID aspect.

They have strived to overawe or seduce printers to stifle and obstruct a free discussion, and have endeavored to hasten it to a decision before the people can duty reflect upon its properties. In order to deceive them, they incessantly declare that none can discover any defect in the system but bankrupts who wish no government, and officers of the present government who fear to lose a part of their power.

Does the label "patriotic," ring a bell? Not to say that every use of the word is just about something like this, but it has been abused, no doubt. The writer, though, does show that at least his side got some concessions by entering the Bill of Rights into the document.

This third paragraph is especially amusing to me. The writer is describing how people who oppose the Constitution are basically stigmatized as anarchists. We all know those dastardly anarchists. What a crazy system, right? Well anyway, the derision and scorn given to these opponents of the document is unjustified, and it is inhibitory to a good discussion about the document. Or, to put it in online debate-speak, the Federalists were using personal attacks and avoiding the heart of the issue.

These zealous partisans may injure their own cause, and endanger the public tranquility by impeding a proper inquiry; the people may suspect the WHOLE to be a dangerous plan, from such COVERED and DESIGNING schemes to enforce it upon them. Compulsive or treacherous measures to establish any government whatever, will always excite jealousy among a free people: better remain single and alone, than blindly adopt whatever a few individuals shall demand, be they ever so wise. I had rather be a free citizen of the small republic of Massachusetts, than an oppressed subject of the great American empire. Let all act understandingly or not at all. If we can confederate upon terms that wilt secure to us our liberties, it is an object highly desirable, because of its additional security to the whole. If the proposed plan proves such an one, I hope it will be adopted, but if it will endanger our liberties as it stands, let it be amended; in order to which it must and ought to be open to inspection and free inquiry.

The writer of this first paper is not even necessarily against adoption of the Constitution. His complaint is first and foremost about the debate that is going on. Sure, the writer has his sympathies with smaller government and a desire for more liberty, but he is not yet sure whether the Constitution secures or infringes upon that. His desire is for a free and open debate. What words of wisdom this is for the political world that we live in today.

The essay then goes on making the same point, but pays special attention to the lawyers who are all for adopting this (lawyers love complicated laws as it makes business for them), and again alludes to aristocracy.

This first essay, more than just describing the state of debate at the time before the Constitution, I believe is a great first post in a live read of the anti-federalist papers. It reminds us to not hold sacred cows and to avoid personal attacks. The path toward wisdom is along the road of open debate. Let us keep that in mind when we go through posts that are sure to ruffle more than a few feathers.

A Few Updates

I'll make this short, sweet, and to the point, so I can get back to posting what I presume to be great content.

  • I will be doing a live blog of the anti-federalist papers. I provided a quote from #1 yesterday and today intend to go through all of the first paper today.
  • The market failure challenge is still going on. I'll answer the contention soon of "insufficient aggregate demand." If you don't know what that is all about, it is basically the assumption that justifies the use of stimulus.

Monday, June 13, 2011

Cramming Legislation Down Our Throats

Sorry I haven't been around much this past week. The quarter just ended and I am busy grading papers and also had my graduation. I will get back to posting regularly soon. In the meantime, though, I will provide this quote from the anti-federalist papers #1. In case you are unaware, the anti-federalists were those who were opposed to the ratification of the Constitution.

Those furious zealots who are for cramming it down the throats of the people, without allowing them either time or opportunity to scan or weigh it in the balance of their understandings, bear the same marks in their features as those who have been long wishing to erect an aristocracy in THIS COMMONWEALTH [of Massachusetts].

Does that sound familiar to anyone?

Monday, June 6, 2011

Do we Need Government to Pay for Scientific Research?

One of the major arguments for taxing and spending is government research. Universities throughout the country host research labs that get all or most of their funding from the National Institute of Health, which gets its budget from the United States governments, which gets all of its money from taxation. This research searches for cures for cancer, treatments for heart disease, sources of complex diseases, etc. This scientific research is very good and is instrumental in our life expectancy today, but do we need government to pay for it?

Tax proponents always ask if government will not pay for it, then who will pay? Scientific research costs too much and the profits that would come from it would take too long to make the investment worthwhile. Look at cancer research. Most of the research does not pay off and even if it does who is to say that the profit gained from selling the treatment will offset the cost of researching the drug?

In all fairness, the progressives have come up with a very good argument. Unlike their other arguments about fairness and equality, this one has some merit. However, an analysis of the situation will show that private funding of research would be more targeted, more efficient, and quicker than our current system. In the current system, researchers vie for funding by submitting proposals to the NIH. The people who decide on these proposals see whose names are on the proposal and decide whether or not to fund the research. Besides the obvious potential for corruption, this system does not ensure efficiency. Once the money is gone, it is gone forever. There are no assurances that the money will not be wasted. The money cannot be taken back once it has already been disbursed.

The current practical problem is a serious one, but would the private alternative be any better? What about the claim that research would not pay off? That argument is bogus. As we have seen from oil companies who explore for oil, they will wait for decades to search for new sources of oil. Offshore oil platforms take many years to build and even more years to finally get the newly drilled oil on the market. If oil companies can wait years to find oil, then pharmaceutical companies can also wait years for treatments of diseases and discoveries of new technologies. The reason that they do not right now is because government is paying for all the research. Furthermore, this research would be more efficient and faster because the company funding the research would ensure that the money is not wasted. The government has no means of doing it, and even if it did it would be subject to corruption.

Now this is not all to disparage researchers. I myself hope to be one in the future as I see it as a way to affect many lives positively. The problem is not with the researchers, it is with the corrupt system that does not have any guarantees on the money that it disburses; our money that the government steals from us. Private companies have shown that they will invest in projects that will take years to pay off (and it is not just oil companies who do this, by the way), so why do we need government funding this? They have proven themselves to be slow and inefficient. The time has come to let private hands control the future of health and technology.

Related Articles:

Thursday, June 2, 2011

The Double Dip is Upon Us

As you know, for a while I have been very doubtful about this recovery. The government figures were great. Unemployment was finally starting to fall and home prices were at least starting to steady. But then came the news yesterday that home prices in major metropolitan areas were starting to fall again, and today the news came that employment numbers were bleak. This double dip is on.

But how could this be? Stimulus and TARP were supposed to be the answers. Without TARP, our economy would have fallen to shambles, and without the stimulus programs, spending would have fallen and destroyed the economy. Let us not even imagine what would have happened had we allowed devaluation to prosper and did not engage in quantitative easing.

The only reasonable conclusion is that the public was swindled. TARP was not necessary. Stimulus was not necessary. Quantitative easing was not necessary. Even Cash for Clunkers was not necessary. Speaking of Cash for Clunkers, look at what has gone on in the used car market. has posted about this problem many times. This post I believe explains the problem most clearly.

And if it happened to Cash for Clunkers, should we not expect the same things to have happened for these other programs? Is it any surprise that the price of gas is starting to rise? Is it at least possible that trying to stimulate demand and devalue the currency resulted in higher prices for most goods? We raised demand and provided a greater supply of money. Why should any of us be shocked by this?

This recession has been going on for years now, and it looks like it is only going to get worse. Stimulus and TARP and quantitative easing propped up those businesses that should have failed. We have capital being squandered by companies that have no right to be holding onto it. By giving money to those that ran their businesses into the ground, we effectively hurt those businesses that knew what they were doing. The housing market should have shrank. Instead we lent it more money and tried to get it to grow. We are not allowing our economy to correct to the demand of consumers. Until that happens, how can we ever expect to grow and see employment rise? Until we stop trying to fix the problem, the problem will not be fixed.

Related Articles
Private Sector Job Growth: Before and After the Recovery
Whom Should we Blame for High Gas Prices?
Why is the US not Growing as Fast as it has?
Inflation is a Problem and it is Here Now

Wednesday, June 1, 2011

The Market Failure Challenge: Day 5

The challenge is on and attackers are coming from left and right. The last post has 24 comments on it and rising. This has become a fairly popular challenge, and yet I feel that a good argument has not been leveled.

The interventionists have so far centered on the argument of rising prices. Specifically, they say that rising prices are an example of market failure and that speculation is unnecessary and extraneous to the market.

But obviously, this is nonsense. Rising prices are a hallmark of the free market; without rising prices we would have no way of conserving resources. This system works best when the currency is not manipulated. What happens when the currency is devalued is that the price of all goods goes up in general. Furthermore, investors begin to speculate about the actions of the currency manipulators. This action tries to help conserve resources, but we would be better off without the currency manipulation. Investors stabilize the price of goods, and this is a great thing for all of us. The best example of this would be crops.

Without investors, we would have produce priced very low when they are in season and priced very high when they are not in season. Investors come by and conserve some resources so that we have a steady price level year-round (at least compared to the situation without investors). But people bemoan the actions of investors. They say that they just hold goods from the market to raise prices and sell for a profit. What a mischaracterization! Producers do the exact same thing. Imagine if water was priced as low as possible during the spring. We would be left with no water the rest of the year! Because the prices are higher during the spring, it guarantees that we have water until the next spring. And this is a bad thing because they make a profit?

"It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest." Let's not be angry that people make profits. Without those profits, what would be the point of those companies conserving resources for us all?

Saturday, May 28, 2011

The Market Failure Challenge

Based on a challenge I started at the Caracas Chronicles blog post about the Road to Serfdom, I thought I would introduce a fun challenge to this blog. Point out a potential market failure, and I will respond to the claim. My contention is that there is no such thing as market failures, and so this is an open invitation for anyone to try to point out a supposed market and show that I am wrong.

Let's see what comes of it.

Friday, May 27, 2011

What is Causing the High Gas Prices

Reading around the blog, I was looking for posts about oil markets. Specifically, I was looking for posts that tried to answer the contention that speculators are responsible for higher gas prices. The claim is often made that rising gas prices are due to speculators keeping the price of oil high in order to make money. Well, I found some answers to the contention, and I thought that I would post them here.

The first and easiest answer to find is that most of the rise in the price of oil is due to the Federal Reserve. Of course, blaming monetary inflation is not an uncommon phenomenon among Austrians, but it makes sense. Oil is traded in dollars, so when the supply of dollars goes up or is expected to go up, the price of oil goes up. This would be a direct result of inflation. With more bills and the same scarcity, the end result is a higher price.

What I found more interesting, though, was the indirect result of this inflation. Because of the inflationary policies of the Federal Reserve, nominal prices will tend to rise and the average real value of a bill decreases. This means that when you invest a fixed amount at the current time and expect payment in the future, you will get less in real terms than you expect because of inflation. This drives investment in commodities markets because their value will rise in nominal terms when the supply of bills increases. This kind of commodity speculation is not useful, but how can you blame investors for wanting a hedge against inflation? They are just trying to protect themselves. Commodity investment is supposed to be about predicting demand rises and supply shortfalls so that we can conserve those scarce resources better. When investment is driven by a fear of inflation, what is the purpose to the average consumer? But again, blame the government policies for that, not the speculators who are merely trying to protect themselves.

And probably my favorite explanation of all is the short and sweet one provided by someone called the Anti-Gnostic.

–Trillions in new dollars seeping out of reserves?
–Record levels of deficit spending?
–Supply chain disruption/uncertainty?
–Environmental restrictions?
–Competing consumption by government military operations?



Must be the speculators.

Wednesday, May 25, 2011

A Collection of John Stossel Videos

John Stossel is a famous libertarian who used to work for ABC on 20/20 but now hosts his own show on Fox Business Network. While I believe that he does not go far enough in his views, the videos that he makes to expose everyday people to libertarianism are great. Stossel has been great for the libertarian cause overall in persuading people away from ignorant, progressive thinking into more informed, libertarian viewpoints. Here I present a collection of his videos that are well made, even for a libertarian who knows the arguments like the back of his hand.

And how about John Stossel with the crazy The View ladies?

Tuesday, May 24, 2011

Surplus Value

About 150 years ago, an intellectual "short-person" emerged named Karl Marx. He looked at the world around him and decided that he did not like it. He molded his worldview into a school of economics. Since that time, free market economists have had to combat with his fallicious theories with facts. Since that time, everyday people have been persuaded by Marx's fallacies because they appeal to the egalitarian views they hold. One of the most hazardous theories that Marx believed was that of surplus value.

For Marx, surplus value is anything that management and supervisors took for themselves from the value of a product. So say a company sells 500 apples for $1 each. The managers and supervisors may take $50, the laborers may take $25, and the other $375 were used to pay for land and capital equipment like water, soil, and other equipment needed to raise the apples. Marx argued that the supervisors and managers took that extra $50 even though they did nothing to contribute to the value of the product. This $50 is the surplus value built into the price of the apples.

This is an image from a Communist website that shows exactly what I described above. In this case, the surplus value is $54. Marx argued that the retailers did not deserve that money because they did not do any work. Marx, as with most of his analysis, falls flat under scrutiny.

First, the critique of surplus value is only valid if we assume that the management and supervisors do not do anything. As we know, this is nonsense. These people organize labor so that it is more productive and efficient. This allows the workers to produce more for their labor. Furthermore, we have to consider that surplus value also goes to investors, and investors provide the capital that furnish a job. After all, without the money that was invested up front for the seeds and the soil and the water, then the employee would not even have a job.

So when people talk about things like a fair wage, they use the surplus value argument as justification. Just remember when discussing this topic with Communists that investors and management are important and provide a valuable service. This is all it takes to dismiss the infantile notion that the management steals from the laborers, nevermind the fact that laborers agree to work for these wages. If they thought that they could make more without the management stealing from the value, then they would be working for themselves.

Related Articles
How Can Goods be Allocated Without a Price System?
Free Trade and Protectionism: Spontaneous Order Always Wins Out
Why Wisconsin is the Future of Labor Unions in the United States

Monday, May 23, 2011

Supreme Court Orders Release of California Inmates

In a lawsuit that has been in the system for many years now, the Supreme Court today decided that the California Prison system needs to release 30% of all inmates. In case you were wondering, this includes at-risk releases.

The state of California has long had a problem with its prisons. For 20 years they have been overcrowded, and over time the problem has just exacerbated itself. The source of this problem, though, it the ridiculously high cost of housing an inmate in a California prison. Other states can keep an inmate for a fraction of the cost, but the state, for some reason, pays much more.

Obviously, the repercussions for the state could be horrible. Crime would project to rise and the streets would seem to become less safe. But what can be done? Why not contract out the service? For-profit prisons do not have to deal with public employee unions and are much more efficient. Furthermore, we can stop imprisoning non-violent offenders. How long does a kid in possession of marijuana really need to serve? Is he hurting anyone? It would seem that prison would actually make him more dangerous than the pot smoking would do. Who is that system helping?

Still, this is a sad day for California. As if things were not bad enough for the state, now it has to deal with what looks to be rising crime rates. And this comes a few weeks after the city of Los Angeles said it would cut police forces. Like a good company gone bad, is it just time for California to go bankrupt and start over again?

Thursday, May 19, 2011

The Problem with Following Income Trends

Greg Mankiw is at it again. This time, he is posting data on his blog about how income inequality is increasing around the world. In other words, he is trying to say that the rich are getting richer while the poor are getting poorer. This is nonsense, and I once did a post at Debate Politics. I essentially argued that following data by looking at income classes is flawed because the composition of these groups change with time. The oft-maligned rich are not the same people from year to year. My post shows the pervasiveness of this phenomenon.

It seems to me that many people have gotten in the habit of following income trends by comparing classes over time. This is a deeply, deeply flawed method.

"A substantial fraction of workers ages 25 to 55 (about 40 percent between 2002 and 2003) experience large changes in earnings from one year to the next (defined here as changes in earnings of 25 percent or more)."

That right there should be enough to dismiss any claims of income trends using census data, but let's go deeper. In case you were wondering about household income:

"Large changes in household income from year to year (defined here as changes in income of 25 percent or more) are less common than large changes in individual earnings. Still, about 25 percent of U.S. households experienced such large changes in income between 2004 and 2005."

It's the same problem with following household income by class! Of course, I like to point out the flaws that household income is unreliable because the composition of the household changes with time, divorces are at about 50% which makes this statistic even more unrealiable (unless this data is somehow corrected by excluding that, but anyway, this isn't my only criticism of following household data).

Now let's look at people who have gained more than 25% and those who have lost more than 25%.

All sourced here. Link

I then went on to show the problem that immigration creates for income trends.

Here's another problem: immigration.

Brink Lindsey - "The share of the total population born in foreign countries has jumped from 5 percent in 1974 to 12 percent in 2004. Relatedly, people of Hispanic origin have climbed from 5 percent of the population in 1974 to 14 percent in 2004.

The huge wave of Hispanic immigration over the past generation has been good for the immigrants and their families, and good for the country as a whole. But this big influx of relatively low-skilled immigrants has to have depressed median income compared to what it otherwise would have been. Unfortunately, I’m not aware of good studies that quantify the effect."

Quoted at Reason

Book available from Amazon

Mankiw, you have fallen prey to one of the oldest tricks in the book. This is something that real economists like Thomas Sowell have known and talked about for many years. Maybe he is worth a read.

Tuesday, May 17, 2011

The College Bubble Video

Is college really worth it? Ask the National Inflation Association. I know it's really long, but I really recommend the video.

Monday, May 16, 2011

St. Louis Fed Inflation Charts

If you've never played with FRED at the St. Louis Fed website, you are really missing out. Let me explain because I know that sounds a little strange. FRED allows you to look at economic data from the Federal Reserve. They have all kinds of data, like consumer price index, wages, GDP, etc. It is all very interesting. So today, as an example of the great things you can do with this program, I will post some intriguing graphs that I made with the program.

So then, it looks like inflation and unemployment are related. The red graph is CPI showing the percent change, and the blue line is total nonfarm employment percent change. So then, it looks like whenever CPI falls that unemployment rises and when CPI rises employment rises. I just have a few issues: 1991 and 2008. In these times we see the opposite being true. In 1991 when CPI rose unemployment fell anyway, and in 2008 when CPI fell unemployment did not really experience a change. In fact, rising CPI right after shows decreasing employment.

So there are a few flaws, but it generally looks pretty good, right? Well, if you have been following this blog you know that CPI understates inflationary changes and so I am not a fan of it.

This graph, I believe, is much more informative. It shows the percent change of M1 (a money stock) and percent change of total employment. Notice a trend? I see huge spikes in M1 during recessions and tremendous falls in employment anyway. Furthermore, look at the period between 1900 and 2000. When M1 was rising employment was rising. However, when M1 was decreasing, unemployment did not change. Is that a big problem? You bet, as the same problem is evident between 2000 and 2005.

Finally, a very simple graph. It shows inflation in food prices each quarter. Notice how food has rarely bee cheaper, and how the rise in food prices today is relatively high? And this is still using a CPI method that understates inflation. Should we be concerned? I think the graph shows that this is very worrisome.

Now I know that I presented some controversial conclusions, but my main point was to show what you can look up with these graphs and how useful they can be. They are fun, but just remember that correlation does not prove causation, the post hoc fallacy, and that government measures are seriously flawed and able to be tampered with. The only good conclusions in economics can come from a priori reasoning, so while this is enjoyable, remember that the basis of truth in economics comes from good reasoning, and empiricism can never show you causation, only theory can.

Related Articles

Saturday, May 14, 2011

The Phillips Curve is Wrong, Stupid, and Bogus

What you see here is a famous image among economists. Keynesians applaud and laud it, Austrians abhor and loathe it. Simply stated, it is the theoretical argument that with more inflation in an economy unemployment will be lower. This is why Keynesians like things like quantitative easing and low interest rates. These things increase inflation. The correlation that they base this approval on, though, does not prove causation.

  • The Monetarist Objection

The Keynesians have a problem. Like most of their analysis, they focus too much on the short term while completely ignoring the long term. In the long run, people adapt to the inflation, and things begin to adjust to the way they were before. In the end, there is no net change in the economy. This is because inflation does not really change any fundamentals in the economy. The distribution of goods has not changed, and so equilibrium will again be reached. Inflation does not create any change, so in the long run, inflation will not create jobs.
  • The Austrian Objection
The Austrian opposition to the Phillips Curve runs a little deeper than the Monetarist opposition. Austrians do not deny that the Phillips Curve is true in the short term. However, Austrians also mention the damage that is done by inflation to the structure of production. In fact, this was the subject of one of my previous articles. So even though you will lower unemployment in the short term, you will create problems for consumers in the short term also, which means that when equilibrium is reached in the long term, everybody will be worse off because of the inflation.

So that Ben Bernanke guy, he's nothing more than a snake oil salesman. Beware the man in the fancy suit. He speaks only to deceive. 

Greg Mankiw Attacks Libertarians; Alludes to Somalia

Greg Mankiw is at it again. He posted this video on his blog. Let's go through the video, shall we?

The post is here:

  • The beach
The video starts with a couple about to vacation at some nice beach. They then are shocked to learn that it is public! After all, isn't that socialism?! Alas, public beaches are not all that great as the video makes they seem. They are frequently polluted to the point that they are closed. Furthermore, they are very crowded! Those of us on the West Coast know just how insane these beaches can be during the summer. Beaches are supposed to be an example of the benefits of public ownership? Please. Try again.

  • Somalia
The video then makes an abrupt shift and makes the classic progressive claim that if libertarianism is so great, then why is Somalia in such bad shape? Easy, Somalia is not in a state of anarchy. It has not had a functioning government over the entire country, but there have been rival gangs trying to control the land. That is not anarchy; it is essentially multiple governments trying to claim sovereignty over the nation.

  • Greg Mankiw
I realize that he was not a part of the video, but he is a joke. What kind of serious economist would post this kind of tripe on his blog for serious discussion? This video should be laughed at and disregarded in the time it takes to say fake economist.

Related Articles
Investment and Unemployment Correlation
A Response To: It’s 2026, and the Debt Is Due

Tuesday, May 10, 2011

Walking On Down to a College Degree

It is the dream, it is the end goal. Without it you are nothing, with it everything is easier for you.

Down this road have traveled the great minds of generations. A walk down this road brings the hope for a future: cleaner, brighter, better. Walk away from the road and life is bleak. A desertion of youth and joy awaits those who turn their backs to the world of academia.

This is the story we all know. I tried to get my myself into the head of those who think this way. College is overrated. For most, it is a tremendous waste of money and time. Why do we spend anywhere from $40,000 to $200,000 for 4 years of our lives to learn things that are of no use to our careers? Sure, I enjoyed studying the ancient Roman Empire and the history of Britain during the Industrial Revolution, but there is absolutely no reason that I should have been required to take these "extra" classes. At least, though, these classes helped my writing skills and argumentation skills. But what does a class in the history of hip-hop do?

This piece of paper, or at least one very similar to it, awaits me next month. It is the culmination of 4 years of study of chemistry, biology, physics, math, and other subjects. As I earn this degree, begin to work, and expect future degrees, I wonder what the future holds for those with other majors. A BS in molecular, cell, and developmental biology is something that I hope will serve me well in the future, but what of those with degrees in communications, Chicano Studies, performing arts, and other such soft majors? What future awaits them? Where do they go from here?

Four years gone and tens of thousands of dollars later, where is the benefit? This view of the intrinsic benefit of college needs to end. A degree is only as good as the knowledge associated with it that will be used by the person who earned it in the future. Four years of studying the history of Russia is worthless to the future middle manager. 

Related Posts

Boehner Says that Trillions Need to be Cut before Raising the Debt Ceiling

John Boehner, talking like a politician, has been speaking the past few days on the talk show circuit about the debt ceiling debate. Democrats want to raise the debt ceiling to continue the unabated government spending, while new Republicans typically are not interested in raising the debt ceiling. Behold, the great moderate! Boehner says that the debt ceiling needs to be raised to sustain the reputation of the United States, but he wants trillions in spending cuts. Not billions, trillions, is what he has in mind. Only if serious spending cuts are enacted will Boehner agree to raising the debt ceiling.

Despite the great fanfare that such a proclamation should entail, I am less than skeptical. Frankly, I expect nothing to come of it. Republicans are not interested in such spending cuts. They say they are, but they have no idea how to tackle the issue. These people are politicians first, and public servants second. These spending cuts will mean that social safety net programs will have to be scaled back. That is a tremendously unfavorable position to take. But if trillions are to be cut, this is the only way that it can be done. Do we really expect a political party, whose main goal is to get its members elected, is going to allow this loser of an issue to go through? This party full of brilliant political strategists is going to let their members crash and burn and get portrayed as great satans while the Democrats use the opportunity to look like knights on white horses?

There is no way that it is going to happen. The party that gets serious about spending cuts is the party that loses the next election. That is simply the fact of the matter. Yes, trimming the budget is the best thing that could happen to the nation, and it definitely needs to happen. However, just looking at this issue from a political standpoint, no one is going to take it up. Sure, there are the lone voices that take up the issue and have their small contingency that supports them, but is a party as a whole going to support the issue? Not in my lifetime.

Related Articles
Should we Allow the Government to be Shut Down?
A Response To: It’s 2026, and the Debt Is Due
Thomas Sowell's Plan to Cut the Budget
A Response To: Is Anyone Listening to the S.&P.?

Friday, May 6, 2011

A Top 5 List of Worst Presidents

Coming from a libertarian, I may sound a little biased on my assessment, but nevertheless these lists are always entertaining. Keep in mind that my goal was to find those presidents who contributed most in our progression from classical liberalism to our modern progressive state. Yes, I expect you to find this list to be very controversial, but what good is a blog if not for unadulterated opinions?

So now, without further ado, here are your 5 worst presidents of the United States of America:

5. Lyndon Baines Johnson
When it comes to being a typical progressive of the 1960s, very few fit the mold better than LBJ. He will probably be most remembered for his Great Society programs, which were intended to end poverty in the United States and bring wealth to all. In reality, all it did was expand the nanny state, bring huge debts to future generations, create dependence on welfare, and contribute to the breakup of the family (since parental support could now come from the government instead of parents).

Not only that, but Johnson was famous for his ramping up of the Vietnam War. It was a war that we had nothing to gain from, killed many innocent civilians, and forced many young men into a war they disagreed with. Even if you do support the Vietnam War, you should at least be a little uneasy about a draft.

4. Dwight D. Eisenhower
How exactly do I reason putting a Republican on this list? Before he even got into office, Eisenhower was a part of one of the grandest but most unknown usurpations in American history. The Republicans at the time were controlled by the Old Right - what used to be the makeup of the Democratic Party before FDR and the progressives took it over. The Old Right was comprised of classical liberals, and intended Robert Taft to be the nominee to take the presidency in 1952. Eisenhower and the New Right were much more aggressionist in terms of their foreign policy and saw a greater role for government in the economy. With the "Fair Play" proposal that basically removed pro-Taft delegates from voting blocs, Eisenhower took the nomination and eventually the Oval Office. Read more about "Fair Play" here.

Once he was into office, the real problems started to surface. Not only did he keep us in the Korean War, he also started to get this country involved in Vietnam. Furthermore, he began the foreign relations policy of containment. That is, the US would step in to stop Communism from spreading across the globe. Not only was it unnecessary because Communism is a political philosophy that is necessarily doomed to failure (as evidenced by the fall of the Soviet Union). This doctrine would lead to the death of many young men in unnecessary wars over the years.

Finally, Eisenhower's crowning achievement, the Interstate Highway System, would lead to the current transportation nightmares we have today. The system basically marked the death of private transportation companies and would mean the public transit, roads, and rail that we have today. This system is far less efficient and costs much more than our old private systems did. Most people love our roads, but they might just love them more if they had been built by private developers.

3. Franklin Delano Roosevelt
How much really needs to be said about FDR? Does the obvious really need to be stated? His New Deal was by far the worst economic policy ever bestowed upon this nation. Roosevelt, in order to win the presidency, campaigned on doing the opposite of what his predecessor Herbert Hoover had done. Hoover invested in public works programs, provided some public relief, tried to limit work hours, had set wage restrictions, etc.

When FDR came in, he did exactly those things but on a much grander scale. His make work programs kept our labor from being unproductive. He sapped away capital that could have been used for private companies and instead used it for wasteful government projects. He instituted farm subsidies which meant less food and higher costs in a nation filled with starving people. And his programs never got us out of the Depression! Not until the end of World War II, when he was out of office and his stupid programs were disbanded did this country finally experience a recovery.

Speaking of World War II, Roosevelt dragged us into that war. Now, I am not going to apologize for the Japanese attack on Pearl Harbor. It was a shameful attack and many people were killed because of it. However, Roosevelt had established that he had taken a side in the war long before that December day. The Lend-Lease program lent war supplies to the Allies for zero interest, without extending that same benefit to the Axis Powers. Is it any surprise, then, that the Axis would view the United States as less than a neutral country?

A world without imperial Japan and Nazi Germany ruling the world is a better one, but it would have been impossible for such a scenario. Nazi Germany would have been crushed by the weight of its own economic policies and imperial Japan would have fallen when Germany fell. I do not want to minimize the contribution of our brave soldiers during that war, but I also want to recognize the role that Roosevelt played in getting us involved in that war.

2. Woodrow Wilson
If there was ever any doubt about the future direction of the United States at the turn of the century, Woodrow Wilson shut the book on the issue. As per his Wikipedia article, "In his first term, Wilson persuaded a Democratic Congress to pass major progressive reforms including the Federal Reserve ActFederal Trade Commission Act, the Clayton Antitrust Act, the Federal Farm Loan Act and an income tax

The Federal Reserve Act is what instituted this nation's third and current central bank. In its existence, it has overseen the devaluation of its currency such that it has lost over 95% of the value it had at the beginning of last century. It was the primary culprit in the Great Depression, stagflation, and our current recession, and Woodrow Wilson was its biggest proponent.

The Federal Trade Commission Act and the Clayton Antitrust Act further established the future role of government as overseers and regulators. Instead of allowing private businesses to set the rules, the government would set the rules and interfere with the private decisions between individuals and companies. The Clayton Antitrust Act, specifically, would be used to bring forth spurious lawsuits against businesses that had lost political favor. Antitrust laws have nothing to do with ensuring competition; if it did then where is the example of a trust that actually made things worse for consumers? I am still waiting for anybody to name one (that is, without government sponsorship).

The income tax, more than anything else, is responsible for the size of today's federal budget. Before the income tax, the federal government relied on excise taxes and tariffs to fund their programs. With the income tax, the federal government now had enough money to bully states into supporting their programs and could completely usurp the bounds of federalism. It transformed this country from a collection of states allied together for protection to a central government controlling the population from the top. 

Finally, there is World War I. While history is solidly convinced that the US was completely neutral before Germany began unrestricted submarine warfare, this truth is not as cut and dry. Britain had a blockade of Germany that prevented the US from trading with the country. Wilson said nothing about the affair. When Germany, as a result, tried to take countermeasures to break up the blockade, Wilson then became vocal. A bias was clear. Even worse than this, Wilson instituted a draft to enter into the war. The war would cost many American lives, but bring the US very little benefit (through trade the US did benefit, but not via direct military involvement). The US could have profited greatly from the war, but by getting involved in the fighting, any benefit was lost, especially since a draft was used.

1. Abraham Lincoln
How in the world can Abraham Lincoln be on this list? He freed the slaves. He was the first Republican president. He preserved the union. This simple analysis ignores the world of change he introduced to the country. The history classes ignore the real man. Instead, the historical analysis is more like hagiography than a real account of his terms as president.

The first and perhaps most important point to make is that Lincoln was an aggressor in the war. He attacked a sovereign nation and invaded their lands. Some make the case that the states cannot secede from the union, but where does it state that in the Constitution? There is nothing that states that when a state joins the union that it is permanently bound to the union. Instead, Lincoln forced those states to stay in the union and asserted the supremacy of the central government. Because of Lincoln the concept of states' rights was on an inevitable descent toward obscurity.

Secondly, Lincoln began the program of state spending on transportation. Before Lincoln the state had largely stayed away from such issues. After Lincoln, the state would become associated with transportation such that today no one can even imagine private companies building roads and railways. But that is what happened before the Civil War. As unbelievable as it may seem to our modern sensibilities, private ownership of roads and rails did not mean the death of our economy.

Finally, and perhaps most significant of all, Lincoln was the first president to ever institute the draft. The draft would be responsible for the conscription of millions of young men over the years, and would result in the death of many of those men who were opposed to the war. There were there because their country essentially forced them to be there. Lincoln started this terrible tradition, and not only that, he instituted it in a horrible fashion. The rich could opt out of the draft by paying someone else to go for them. This left the poor to go to war to make a living. As if a draft was not bad enough, Lincoln used a completely inequitable system to implement it.

Even though he freed the slaves, Lincoln cannot escape the judgment of starting this nation on the path toward Leviathan. More than anyone else, he is responsible for the trend toward our modern progressive government.

Thursday, May 5, 2011

Why is Inflation so Bad?

I intend to have a much more detailed answer to this question some time in the future, but for now I thought that I would try to answer the question in a somewhat limited fashion. The word inflation has a few different meanings. Today when most people hear the word they think about a general rise in prices, or about stagflation in the 1970s. It is easy to see why this definition is popular today. Price inflation hurts and it is obvious. It makes food and gas and all goods more expensive, and we feel the pinch directly. Back in the 1800s, though, the word inflation had a very different meaning. Rather than price inflation, it meant monetary inflation, that is, a general rise in the supply of money. Now this is interesting, because today monetary inflation happens and it happens to a great extent. No one is going to deny that fact. However, central banks think that they can get away with it because price inflation is not all that high. They think that they have fooled us.

I will not go into how price inflation is bad, because that is obvious. Monetary inflation, on the other hand, hurts us in a more indirect way. The easiest way to see this is with simple economic analysis. By the laws of supply and demand, we know that when supply has increased, price will decrease, all other things being equal. So when we have a higher supply of bills, therefore, the value of each of those bills will be lower. Now, some will point out that the all other things being equal stipulation is not always true, and granted, it usually is not true. However, the fact remains that the value of the bills is lower than they otherwise would be without that inflation. There is no way around that fact. Therefore, monetary inflation makes us poorer than we would be, and that is always true.

Though this seems bad, this is not the most sinister effect of monetary inflation. A more thorough analysis of the issues requires looking at the practical way that government have gone about instituting that monetary inflation. In the United States, at least, the monetary inflation comes about when the Federal Reserve purchases treasury bills (that is, the debt of the United States). The Federal Reserve, in essence, is lending money to the United States, but that money is newly printed (in effect). The government then goes out and spends this money, usually with new construction jobs. These jobs use up capital like machines and raw materials and labor. Now, inflationists like to say that this has no effect on interest rates. They are right, this aspect of the Federal Reserve does have no effect on interest rates. They then go on to say that capital markets are not affected. On that point, they are dead wrong. The new construction projects undertaken by the government necessarily use up capital, and this means that capital goods are more expensive for everyone. So even though interest rates have not gone up, businesses now need to get a bigger loan in order to cover the costs of their projects. Even if the price of capital goods has not gone up in time, they are necessarily higher than they otherwise would be. But why is this bad? Because government is necessarily less efficient than the private sector. They undertake projects based on what is politically favorable; they do not base it upon consumer demand. So the cost of the things we want, essentially, go up because the government is building things that we do not want as much. That makes us worse off.

So do not be fooled by Ben Bernanke prattling on about how prices are not rising, so his actions are not affecting us. He is lying. Monetary inflation is hurting us, both directly and indirectly. We are less wealthy than we otherwise would be without the inflation, and goods are more expensive than they otherwise would be because the price of capital has gone up. Just say no to monetary inflation. It is a recipe for destroying wealth.

Related Articles
Inflation is a Problem and it is Here Now
Annals of Well, Duh, but not so fast Paul
Whom Should we Blame for High Gas Prices?
Gallup's Economic Confidence Index is Terrible

Los Angeles has Stupid Parking Laws

Westwood, Los Angeles, CA. The City of Los Angeles today started posting warnings on the cars of those who were parked in the driveway slightly in the roadway. This is standard practice in the area especially for those buildings with very wide driveways that can fit 5 cars or more. This allows the building to maximize parking space while not getting in the way of the sidewalk or the street (the cars stick out as much as a car parked parallel to the curb). In an effort to raise revenue, the city will now ticket those who are parked in this manner.

Westwood is known far and wide for having parking issues. People park many blocks away from their apartment because spots are so scarce. What is the city's solution to this issue? Increase parking spots? Allow private builders to build parking structures? On the contrary, the city of Los Angeles sees that it is better to decrease the available parking in the area so that the city's revenue problems can be resolved. As if this city is not unlivable enough with rents going as high as $1000 a month for a single bedroom and $500 a month for room sharing, the bureaucrats decide to make the cost of living even higher now. The buildings are old and decrepit, the streets are cracked and have huge potholes, there is trash everywhere, there is no place to park unless except between 11 p.m. and 5 a.m., traffic in the area is miserable, and the rent is tremendous! Instead of trying to fix these problems, the city has decided to exacerbate them in an effort to raise revenue. This city is a joke, almost to the point where someone should tear it down and try again.

I'm sure that Los Angeles is not the only city where this happens. Any other examples of this kind of absurdity?

Related Articles
Why is the Los Angeles Times Dead
Larry Elder Interviews William Ayers
Why not Express Lanes?

Wednesday, May 4, 2011

Minimum Wage Creates Unemployment

Early into his presidency, Obama liked to talk a lot about how he wanted the minimum wage to be raised and to index it to inflation thereafter. He said that those who get paid minimum wage are not making enough to live on, and that we need to raise minimum wage in order to raise the standard of living of those earning the lowest incomes. But is Obama looking out for the little guy, or is he just playing politics as usual?

Let me put on my conspiracy theory hat for a little bit here. As we all should know, minimum wage increases unemployment. That is because companies do not care what the minimum wage is; all they care about is how much an employee is worth. If that worth is below the minimum wage, the potential employee is illegal to hire. A company is not in business to lose money, which is what the company would need to do in order to hire the employee. It should be clear, then, that minimum wage does not raise average wage, but merely puts out of employment all those who are not worth minimum wage. But that is not the conspiracy theory portion, that is just good economics. Now what follows is based on no evidence, but is merely an examination of the full implications. My conclusion from those implications is the conspiracy theory. Now, since raising the minimum wage will raise unemployment, all those who will necessarily lose their job as a result will now need money coming from somewhere. The main source of relief is government aid: welfare. Now which party typically defends welfare and tries to expand its rolls? The Democratic Party. So those who are receiving the benefits are more likely to vote for those who will keep the money coming in. Raising the minimum wage, then, is a way to secure more votes for Democrats. It is not about relieving the economy, as I have already shown in my post entitled Unemployment Lingers On. Obama must know this, he is not a dummy. He is a politician first and foremost, and this is what they do. Politicians do not care about us, they care about getting votes, and this would be a great scheme to secure votes for his party.

The minimum wage sounds great to most people. After all, how can we defend lowering the minimum wage? How inhumane of us! However, popular opinion has never been something that can be reasoned with, despite all the facts that go against that opinion. The only answer is mature discussion and education. That is the only answer to pandering, and it will take a lot of it to defeat something that has such an appeal to emotion.

Tuesday, May 3, 2011

Jim Gourdie Talks About California's Pension Woes

Jim Gourdie at Conservatives on Fire had a post the other day about the career outlook of California prisonguards. In the write-up, Gourdie cites an article in the Wall Street Journal about how getting a good education and bettering yourself is not the path to go. Instead, you would be better off to get into a good public sector union and live off of the government for the rest of your life. As he says, it may not be a glamorous job, but it pays well and you get a lot of vacation time.

Gourdie laments this by talking about the way it should be in a free economy. Salary would be dictated by supply and demand so as to direct people to the jobs that the consumer needs done most. Public sector jobs distort that and leads to the situation we have now where a long line of people wait to get a job that is overvalued. The unions only serve to exacerbate the situation and increase the economic problems of the state. Is it a surprise, then, that California is on the verge of bankruptcy?

Read the original post here.

I happen to agree with Gourdie. I would go further and say that private prisons are the way to go. It is better to contract out our prison service to private companies who will be more efficient and pay market-dictated wages. It would help California's budget and get people to train for the jobs that the marketplace does demand. Of course, it is a pipedream in California, the progressive paradise, but a libertarian can dream, can't he?