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.

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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.

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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.

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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. 

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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.

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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.

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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?

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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?

Murray Rothbard on Welfare

Murray Rothbard is a distinguished economist who for many years wrote about anarcho-capitalism and the economic problems our nation faces. He published many great books, and this is an excerpt from one of his books called For a New Liberty. This section is about poverty and welfare and what exactly the problem is.

Almost everyone, regardless of ideology, agrees that there is something terribly wrong with the accelerating, runaway welfare system in the United States, a system in which an ever-increasing proportion of the population lives as idle, compulsory claimants on the production of the rest of society. A few figures and comparisons will sketch in some of the dimensions of this galloping problem. In 1934, in the middle of the greatest depression in American history, at a nadir of our economic life, total government social welfare expenditures were $5.8 billion, of which direct welfare payments ("public aid") amounted to $2.5 billion. In 1976, after four decades of the greatest boom in American history, at a time when we had reached the status of having the highest standard of living in the history of the world with a relatively low level of unemployment, government social welfare expenditures totalled $331.4 billion, of which direct welfare amounted to $48.9 billion. In short, total social welfare spending rose by the enormous sum of 5614% in these four decades, and direct welfare aid increased by 1856%. Or, put another way, social welfare spending increased by an average of 133.7% per year during this 1934-1976 period, while direct welfare aid increased by 44.2% per annum.

If we concentrate further on direct welfare, we find that spending [p. 143] stayed about the same from 1934 to 1950, and then took off into the stratosphere along with the post-World War II boom. In the years from 1950 to 1976, in fact, welfare aid increased by the huge sum of 84.4% per year.

Now some of these enormous increases can be accounted for by inflation, which diluted the value and purchasing power of the dollar. If we correct all the figures for inflation by putting them in terms of "constant 1958 dollars" (i.e., where each dollar has roughly the same purchasing power that the dollar could command in 1958), then the relevant figures become as follows: 1934 — total social welfare spending, $13.7 billion; direct welfare aid, $5.9 billion. In 1976 — total social welfare spending, $247.7 billion; direct welfare aid, $36.5 billion.

Even if we correct the figures for inflation, then, social welfare spending by the government rose by the vast amount of 1798%, or 42.8% per year over these forty-two years, while direct welfare aid rose 519%, or 12.4% per annum. Furthermore, if we look at the figures for 1950 and for 1976 for direct welfare aid, corrected for inflation, we find that welfare spending went up, during the intervening boom years, by 1077%, or 41.4% per annum.

If we adjust the figures still further to correct for population growth (total American population was 126 million in 1934, 215 million in 1976), then we still get an almost tenfold increase in total social welfare expenditures (from $108 to $1152 per capita in constant 1958 dollars), and a more than tripling of direct public aid (from $47 in 1934 to $170 per capita in 1976).

A few more comparisons: from 1955 to 1976 — years of great prosperity — the total number of people on welfare quintupled, from 2.2 to 11.2 million. From 1952 to 1970, the population of children eighteen years old and younger increased by 42%; the number on welfare, however, increased by 400%. The total population remained static, yet the number of welfare recipients in New York City jumped from 330,000 in 1960 to 1.2 million in 1971. Clearly, a welfare crisis is upon us.1

The crisis is shown to be far greater if we include in "welfare payments" all social welfare aids to the poor. Thus, federal "aid to the poor" nearly tripled from 1960 to 1969, leaping from $9.5 billion to $27.7 billion. State and local social welfare expenditures zoomed from $3.3 billion in 1935 to $46 billion, a 1300% increase! Total social welfare expenditures [p. 144] for 1969, federal, state, and local, amounted to a staggering $73.7 billion.

Most people think of being on welfare as a process external to the welfare clients themselves, as almost a natural disaster (like a tidal wave or volcanic eruption) that occurs beyond and despite the will of the people on welfare. The usual dictum is that "poverty" is the cause of individuals or families being on welfare. But on whatever criterion one wants to define poverty, on the basis of any chosen income level, it is undeniable that the number of people or families below that "poverty line" has been steadily decreasing since the 1930s, not vice versa. Thus, the extent of poverty can scarcely account for the spectacular growth in the welfare clientele

If anyone ever tries to argue with you that we need more welfare spending, that people are starving and dying, merely point out this excerpt. Welfare rolls have expanded exponentially while prosperity has increased. It is an amazing farce that the welfare situation grows worse while we grow richer. It is impossible, and the only explanation is the corruption of our government that is trying to buy votes.

Monday, May 2, 2011

Why is The Los Angeles Times Dead

The Los Angeles Times is the premier newspaper for its city. It has been around for more than 100 years and used to have the prestige of the New York Times or Wall Street Journal. The last decade has been less than good for the paper. Good describes the retrogression of the giant as follows.

"The Times, one of America’s great daily newspapers, was famously acquired in a 2007 leveraged buyout by Chicago real-estate tycoon Sam Zell, and in the ensuing annus horribilis, the paper was hacked down, dumbed down, and finally flushed down the bankruptcy hole in late 2008."

Good is completely off the mark. The reason that the newspaper is hemorrhaging money left and right is because of our current milieu. The newspaper is yesterday's news. The paper cannot keep up with such instantaneous information sources. Furthermore, good writers no longer need newspapers to launch their careers anymore. The talent can start their own websites to get the name out.

But how bad is it that this once great paper has lost its prestige and profitability? Well it is bad for the people who own them and write for them, but for everyone else it is great. Where before most people used to get their news from newspapers, they can now get it from the radio, television, and maybe most important of all, the internet. The old newspapers represented an institution where very radical opinions could get silenced in favor of the status quo. How extreme could your views of government be under such a condition? A prestigious newspaper could not allow it or risk losing readership. With blogs that is not the case. People can write whatever they want no matter how extreme it may seem. This creates a world of new, exciting content, though it is less verifiable.

And this is where the old newspapers fit in. While blogs make for great reading and experimentation, big news companies will always be the source for verified information. This is not to say that newspapers never get it wrong; they have before and they will again. It is just that these giants are less prone to outright lies and fabrications. Newspapers today should focus less, then, on their written publications which virtually have no place in our modern world and should instead focus on their on-line content. They should be the place to go to for up to the minute news and to make money should either advertise, start a subscription service, or a combination of the two.

The old world of newspapers is dead. To survive, they must adapt to the demands of consumers while still retaining their element of quality. That is their niche, and to that they must adapt or fail.