Now, who said the following? “My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.”

Seems pretty reasonable to me. The surprising thing is that this was none other than Paul Krugman, the high priest of Keynesianism, writing back in March 2003. A year and a half later he was comparing the U.S. deficit with Argentina’s (at a time when it was 4.5 percent of GDP). Has the economic situation really changed so drastically that now the same Krugman believes it was “deficits that saved us,” and wants to see an even larger deficit next year? Perhaps. But it might just be that the party in power has changed.

Niall Ferguson, An Empire At Risk, writing for Newsweek.

The New York Times is filled with inconsistencies like this.  They warn us that deficits are terrible and will destroy us economically – that is, until democrats are in power, then they become the key to our economic prosperity and recovery.  It’s a totally inconsistent economic perspective and it’s just more of the same left/right partisan bullshit, pitting us off against one another.  I’d have more respect for Krugman if he were consistent, but he’s not.

What happens when Republicans are in power?  Wars, eroding civil liberties, increasing presidential power, bailouts to big corporations and banks, and the rich getting richer while the poor get poorer.  What happens when Democrats are in power?  Wars, eroding civil liberties, increasing presidential power, bailouts… It’s the same.

Professor Ferguson just recently gave a lecture in Aspen talking about these issues.  The article is found here.

Harvard professor and prolific author Niall Ferguson opened the 2010 Aspen Ideas Festival Monday with a stark warning about the increasing prospect of the American “empire” suddenly collapsing due to the country’s rising debt level.

“I think this is a problem that is going to go live really soon,” Ferguson said. “In that sense, I mean within the next two years. Because the whole thing, fiscally and other ways, is very near the edge of chaos. And we’ve seen already in Greece what happens when the bond market loses faith in your fiscal policy.”

Ferguson said empires — such as the former Soviet Union and the Roman empire — can collapse quite quickly and the tipping point is often when the cost of servicing an empire’s debt is larger than the cost of its defense budget.

“That has not been the case I think at any point in U.S. history,” Ferguson said. “It will be the case in the next five years.”

….

The affable British scholar tried to keep it light. He used a stage whisper to tell the Aspen Institute audience, “I know you’re not comfortable with the word ‘empire,’ especially just after the Fourth of July, but you are the Redcoats now.”

He said the U.S. is now deeply in the red as a country because of a combination of the Great Recession, the resulting federal stimulus and financial bailout programs, two wars, the Bush tax cuts, and a growth in social entitlement programs.

“By combating our crisis of private debt with an extraordinary expansion of public debt, we inevitably are going to reduce the resources available for national security in the years ahead,” Ferguson said. “Because as a debt grows, so the interest payments you have to make on it grow, even if interest rates stay low. And on current projections, the federal debt is going to be absorbing around 20 percent — a fifth of all the taxes you pay — within just a few years.

….

Ferguson said the financial crisis that started in 2007 has “has accelerated a fundamental shift in the balance of power,” with the U.S. shedding power and China absorbing it.

“I’ve just come back from China — a two-week trip there — and the thing I heard most often was, ‘You can’t lecture us about the superiority of your system anymore. We don’t need to learn anything from you about financial institutions and forget about democracy. We see where it has got you.’”

….

In what he called his “light moment,” Ferguson said, “I think there is a way out for the United States. I don’t think its over. But it all hinges on whether you can re-energize the real mainsprings of American power. And those two things are technological innovation and entrepreneurship.

I’ve been saying the same things on here for a long time.  Our situation is eerily similar to Greece.  As Professor Ferguson points out, the looming crises will jump out of nowhere the second the costs to borrow more money increase due to fears of ballooning debts and deficits.  And that sort of thing happens in an instant.  That’ll set off a chain reaction and destroy this economy driven by borrowed funds.  This is exactly what Alan Greenspan is telling us as well.

This is scary stuff.  Sure scares me.  The recession we’re in now is bad enough, but a much bigger depression around the corner?  Even more unemployed?  The Fed has told us they have no more guns to stimulate the economy.  Interest rates are already at the floor. Ugh.

*Sigh*.  And you guys wants some more bad news?  I’m sure that’s just what you want. 

Japan is in a financial mess just like we are.  Guess who they just recently elected into their House of Councillors?  A pop idol, Junko Mihara.  Here she is.  She’s a lovely lady.  I don’t know much about her music, but I’m sure she’s talented.  I have nothing against her other than, uh… she’s unqualified for a position in government?

You know, imagine if you ran a big corporation which you’d built from the ground up.  You’re wanting to step down to focus on other things.  So you’re assembling a team to manage the company in your absence.  When interviewing potential applicants for key managerial positions, who would you hire?  I doubt you’d hire a woman like this.  You’d say, “There’s nothing here in her resume to indicate that she knows how to run a company.  She’s never studied business.  She doesn’t have an MBA.  She’s never took an economics course in her life.  She has no experience in this sort of thing.”  You’d kindly tell her she’s unqualified and say, “Next!”

But when it comes to those who run our country, we don’t think of it that way.  We look for people we feel we relate to.  We want someone we could sit down at the bar and have a drink with.  Well, would you want your friend at the bar running the country?  Probably not.  But people have all sorts of strange contradictory ideas running through their heads.

From what I can tell, their thought process runs something along the lines, “Celebrities like Junko Mihara have money, so they can’t be bribed off.  They seem to care more than the crooked elites running things now.”  And maybe that’s true, but there’s a lot more to these things than just caring.  They have to know what they’re doing as well.

Well, maybe people understand these situations.  Voting someone like her into office is probably an act of desperation.

Greg and I have a business concept we like to use called the “miracle man.”  When your company is performing poorly, and things aren’t going well, you always look for a miracle man.  Every failing entrepreneur we’ve ever met was always searching for a miracle man.  If only they could get their product into the hands of the right distributor, then it’d all work out and they’d make a ton of money.  If only the right investors found their plan.  If only they could find component staff.  If only… If only… The burden of responsibility and hope was always shifted onto someone other than themselves.  Needless to say, they never progressed.

Miracle men are always an act of desperation.  You’ve given up all hope in yourself and are slowly falling to the ground, arms extended hoping someone will take your hands, lift up you into the skies, and then fly away with you into bliss everlasting.

Miracle men come in all shapes and sizes.  Sometimes they’re religious deities.  Sometimes they’re a real or even an imagined romantic lover.  Sometimes they’re politicians.  What they all have in common is that people place all their hopes and dreams in them.  They also tend to blame them for everything that goes wrong in their lives.

Maybe sometimes we need a little prop and brace when we’re about to fall over.  It’s also nice to have someone help us back on our feet when we’ve fallen down.  But I don’t think we can ever ask someone else to carry us.  Each person has to live his or her own life.

When it comes to politics, people always tend to forget that they’re the ones with all the power, not the politicians.  Problem is, they don’t unite.  Their enemy is the Republicans or the Democrats instead of the banking elites.

Andre,

Your paper talks about the dangers our society faces as we specialize further and further and lose sight of the big picture. Quoting you directly:

“In the late 60s I became convinced, mainly because of the obvious insanity of wars and the apparent saneness of those who believe in it, that “we must have made a mistake somewhere throughout of our evolution.”  In the 70s, I also became thoroughly convinced, influenced by many French writers and by Buckminster Fuller, that the extreme specialization of our elites was leading humanity toward a crisis of an unprecedented nature.”

“As for specialization being the ultimate cause of this state of affairs, it is the hypothesis that I have adopted at the time and which I intended to test with my own formation as a generalist after reading Buckminster Fuller’s  Operating Manual for Spaceship Earth, in which he observes that : “Of course, our failures are a consequence of many factors, but possibly one of the most important is the fact that society operates on the theory that specialization is the key to success, not realizing that specialization precludes comprehensive thinking.”

- Andre Gaudwin, Errare Humanum Est

I have a few comments to share.  Unfortunately, I don’t think they’re really of much use in solving this problem.

I’d like to start by asking us to look at life from the largest possible perspective; how does life begin?  Floating in the oceans carbon and other atoms congeal onto themselves into clumps and strands eventually leading to the first cells.  Over billions of years these cells die and replicate and clump together forming into larger and more complex units, in time becoming all the different forms of life we see on the Earth today.  Humanity is quite a latecomer when you look at things from this far back.  We’ve only been around for a few million years, whereas life on this planet goes back billions of years.

So as I stroll through my backyard admiring the breeze as it rustles the tree leaves, or watch the little ant scurry around the leaf litter, or spy on the water spider from above as it skips across the creek water, I find myself immersed in an ecological system of massive and immense complexity.  This environment I observe is so old I can’t even comprehend it.  Over billions of years everything from the grass, to the bushes, to the flies, to the beetles, and everything else have all formed into an interdependent system of unimaginable complexity.

We as humans evolved in the forests and plains in Africa starting a few millions years ago and are nothing but hairless great apes.  One of the distinctive features setting us apart from other species is our skill in memory, analytical abilities, our hands allowing us to use tools effectively, and our ability to learn and pass on our knowledge through mimicry and language.

What has “knowledge” been for the vast majority of human existence?  It’s been a hands on lesson from our father on how to use a spear.  It’s been remembering the locations of fruit trees and caves.  It’s been various learned motor abilities developed and acquired as we hunted and outsmarted the prey and animals we found around us.

All in all, our brains have been used for relatively simple things for the vast majority of our existence.  We’ve been a rather sparse species and it’s only very recently that our numbers have increased to anything appreciable.  We’ve formed the society and your papers deal with issues we face in that society.

Society… It’s a very novel thing to us humans.  Around 30,000 years ago (rough estimate) we begin to domesticate animals and farm our food.  We learned that we can somewhat control the environment to secure a guaranteed meal.  We start clearing away the forests to make room for farmland and in conjunction with domesticated animals we’re able to build permanent homes.  As we get better at doing this, we start to get some free time and rise above bare bones subsistence.

At this point we begin producing extra things and trading these things one with another.  This eventually leads to cities and the economy as we know it today.

When you trace out the story you see mankind slowly trying to control nature more and more.  At first it’s not very difficult.  Not much brain power is required to farm plants.  You just stick the seeds in the ground, make sure they get water, and voila.  Later you learn they can be fertilized and such, but all in all it’s far from rocket science.  Managing domestic animals isn’t much more difficult.  But we became more and more ambitious as time progressed.

Really the vast majority of the complications are very recent.  They’re rooted in the past few hundred years or so.  Back when we started this little journey of ours we had no idea what we were getting into.  People found themselves in this reality on planet Earth back before all our modern technology.  They were hungry, suffering from diseases and plagues of every sort, constantly being raided by foreigners who would steal everything they’ve worked so hard to build up, and they did what they thought was the best thing to do.  They tried to secure meals for themselves and their children, to provide shelter and security, and look out for those precious to them in a very hostile world.  We owe everything to these people.

What are the principles we learned that led to our modern technology?  Leaving out a lot of details, we first had the Egyptians and Greeks laying out the laws of geometry.  The Arabs I believe invented Algebra.  A lot of these techniques were birthed because of economic transactions through indirect exchange using money, and also the need to calculate things like property taxes.

The first major breakthrough was Newton as he laid out the laws of motion in his Principia.  Later we discovered thermodynamic processes which allowed to us build steam engines.  We also started to master electro-magnetism culminating in Maxwell’s laws.  In the early twentieth century we had the discovery of general relativity and quantum mechanics, the foundations of our modern scientific technology.

As someone who has studied these subjects to a relatively high degree of mastery, I can tell you that they’re far from simple.  Calculus, differential equations, Maxwell’s laws, statistical mechanics, quantum physics, general relativity… these aren’t the most simplistic things on Earth.

But even though these things are so complicated, mankind has striven to reach higher and higher.  But today, as you point out, things are getting almost out of hand.  The division of labor has led to massive specialization.  With all of us working within such a narrow focus we seem to be losing the big picture.  I’d like to talk a little about that.

I can see the problem, but I also see no way around it.  To control this world, which is very complicated and subtle, we are required to specialize.  The human brain is too weak to achieve mastery in every subject.  There’s no way around specialization.  It’s simply impossible for a normal human being to be a master engineer, a doctor, a lawyer, and several other occupations, all at the same time.  The knowledge and skill required are too much.

As time goes on, and our collective knowledge of this universe increases, absent some sort of major biological change to our brains, specialization will become a requirement.  That definitely is a problem from an administrative sense, as you point out.

I personally don’t think any sort of social reorganization or planning can fix this problem.  I don’t think it’s even a problem with our leaders not being educated enough (even though our leaders are far too often idiots).  As much as I like the idea of generalists and attempting to master as much as possible, as time progresses a generalist will be impossible.  There will be too much to know and you’ll be required to skim over everything at such a superficial level it won’t be of any use.

We’re coming awful close to outgrowing our means of communicating knowledge to one another.  Right now we’re still relying on that time old method of mimicry.  We watch someone else do things and learn by example.  Other methods of learning include audible speech and books (or reading from a computer screen), and school lectures from professors and teachers, which are far too slow.  The amount of time we spend in school is getting to be too long.  It already requires say a doctor to be in school for over twenty years before he starts treating patients.  (K-12 plus university training plus apprenticeship) That’s a huge percentage of our entire life span!  As our knowledge increases the time required to teach it all will only increase.

Our next stage of progress will come as we integrate ourselves with our computer technology.  It comes down to this:  nature is complicated and our brains are frail, slow, and not very powerful.  We need to upgrade our brains.

I foresee us transcending speech and books.  I don’t think we’ll have to “learn” things in the future.  We won’t have to rely on education or read books.  Today we’re born with instinctive reflexes which evolution has given us to survive within the environment we’ve lived in for millions of years.  Most of those “skills” nowadays are considered evolutionary baggage and make our social life difficult.  I think that’s all about to change.  We’re entering a new epoch.

Once we learn how to reprogram our brains, and enhance their capabilities with nano-technology, people will be born knowing everything.  New information will be wirelessly uploaded to their minds.  Every man, woman, and child will be fully equipped to deal with life.  You won’t have to worry about whether or not your father taught you how to deal with life emotionally, or read psychologists articles on how to properly console a depressed friend, or go to a trade school to know how to fix an appliance.  You’ll just know these and when you need to do it, it will come as naturally to you as a young boy being attracted to a pretty girl.  The newly created artificial instincts will be there all ready to go.  And just like our computers, we’ll be able to reprogram ourselves to adapt to our ever changing world.

This scares some people.  Honestly, I don’t know if I really care.  I don’t feel we have all that much to lose.  I’ve spent too much time reading books and looking at this place for what it is.  Life is fragile and filled with every sort of trouble imaginable.  You, just like me, have been born into this hell, and most everything we face is because evolution and this cruel universe pushed it on all of us.  I say we go for it.

Yeah, we’ll probably make a lot of mistakes as we go about altering our genetics, reward systems and brains.  We may screw up big time.  We’ll have to be careful because our mama universe is real bitch and she doesn’t give a damn about us.  But we need to go for it.  We’ll probably also end up destroying all the other life on this planet in this “civilization” project of ours.  Even so, life for our ancestors wasn’t a picnic.  It was absolute misery and hell.  The whole struggle for survival model, everyone fighting for food is ridiculous.  We certainly don’t want to go back.  That being the case, there’s only one direction to take — forward.

I think this integration with technology is the only way forward.  There is no philosophy which will fix things.  There is no religion or belief system which will cure things.  There is no economic system which can be designed to fix it.  If people tried to love one another, and we had a more decent economic system without all the corruption, sure it’d be better, but still nothing great.  There’s only one way for us to achieve a universe where people truly are happy and prosperous.  We’ll have to improve our brains and technology which will allow us to be conscious of one another’s situations, have empathy for everyone, not just our immediate family, and gain vastly more control over the forces of nature.

As for right now, we’ve went to control this universe and its required such a degree of specialization that it seems we’ve once again lost sight of our initial goals.  I don’t think this is true however.  It’s a real battle to tie down this bull.  This Earth wants to buck us off like a bad habit.  One little screw up and we’re done for.  It’ll throw us off and won’t think a thing about it.  The fossil record shows that 99% of all other species which have ever lived — extinct.

I feel people like us are here to try to keep the ignorant masses from killing themselves.  That seems to be the current stage of history.  Our scientists are laboring away to fix these problems as fast as they can and they’re making progress.  Problem is, the vast majority of this world is filled with complete idiots.  I mean absolute morons.  They’re destroying everything around them, killing themselves, and imposing misery on themselves and everyone else.  Like a herd of mindless cattle, we have to round them up so they don’t run off the edge.  We have to be the few sane people who get on the television and tell people the truth, warning and protecting them.

When I think about our economy, no matter how much economics I study, I see it surrounded by a dark impenetrable fog.  All the tinkering our government and politicians do operates at a very high superficial level.  They work with these vague statistical aggregates and hope by throwing money around they can fix problems which are beyond anyone’s comprehension.

Take physics for example.  Study some quantum mechanics and statistical mechanics.  Just try to model a gas cloud and a few basic laws of interaction between them.  All the atoms follow relatively simple laws, all behaving in exactly the same way, yet it’s hell to statistically model it.  You end up pages and pages of equations and need computers to predict what’s going on.  Now imagine if every one of those atoms followed its own laws and did its own thing.  Then you have the economy.

Our success economically depends on all the individual actions done by billions of people.  We’re all on this ship together.  If people are dumb, corrupt and do stupid things, the Fed’s not going to be able to fix it by lowering the interest rate and throwing some cheap money around.  Major economic problems hit everyone out of nowhere.  There’s detailed and complicated forces at work which I believe are impossible to predict.  Those with some really good foresight can sometimes see an upcoming disaster, but they’re few and far between.

It’s like chaos theory.  In chaos theory a butterfly flaps its wings in the rainforest and we end up with tornadoes in Kansas.  Economically, we have some guy going in the store buying a candybar and later we end up with an economic meltdown.  Unfortunately, unlike the weather which we can predict for at least a few weeks in advance, our economists can’t even see a disaster two feet in front of us.

The only people I’ve found with some decent insight into this are the Austrian economists.  They don’t pretend that the economy can be so easily modeled and their view on the business cycle seems to me to work.  It’s just my rather amateur opinion.  If it isn’t apparent already, I don’t think very highly of economics in general.  But from my own research it seems that when the central bank starts lowering the interest rate too low the cheap credit starts flowing, that money starts pumping up some bubbles, and then they pop and we have trouble.  There’s ups and downs in the cycle regardless of intervention.  It just seems the government can sweep the problems under the rug temporarily by infusing the economy with cheap money, and over time this builds up until you have a major disaster.  Their interventions can so easily make things worse.  Occasional drug use can bring temporary happiness and mask over your problems for the time being, but it’s addictive and can destroy you quick.  Cheap money is the same.  I think it’d be better if we faced each small economic downturn as it came instead of letting the bubble build up into a mountain and then it erupts like a volcano destroying everything in its path.

That’s not to say I’m against all regulation.  There’s a lot of places for regulation, like the Glass-Steagall regulations for example.  I’m just saying we have to keep an eye on these bankers and cheap credit.  We need to watch out when they have control over the money supply.  They screw us.

I’m sorry to hear about your poor reception with colleagues.  It’s a personal flaw of mine, but I don’t think very highly of people in general.  I don’t know your life and situation, but in my own trying times nobody has ever given a damn.  It’s just how it is.  You just slug it out and keep moving.

I’ve written business plans, laboring away for years on things, trying to raise capital and get things moving.  I’d submit my plan to these investment companies and not hear anything.  Sometimes I’d get one of those auto-responder emails that says, “Thank you for submitting your plan, but … blah blah.”   Try to contact them asking, “What’s wrong with my plan?  Can you give me some feedback?” … Nothing.  Worse yet some of these investment companies charge you like $150 to submit your plan.  Then they won’t even so much as speak with you.  Talk about assholes.  I’d submit my plan to hundreds of places and not hear anything.  (Fortunately they don’t all charge money.  What would be the purpose of raising capital if it costed you a million dollars just to attempt to raise funds?  Who could afford it?)

I don’t know about you, but the sheer and utter frustration of having the biggest thing in your life, what everything your life depends on is based, being completely ignored … oh, makes me angry.  Real angry.  Sure can make you bitter about life in general.  I try to stay positive but I have to say, it can really get to me.

When I woke up I laid in bed for a moment and was thinking about these problems some more.  Then funny enough, as I went for my normal walk outdoors I was listening to Ludwig von Mises Human Action on my mp3 player.  I just happened to come to his chapter on the market economy and within it there is a section dedicated to economic competition.  I thought, “What great timing!”  He discusses the same issues and makes some great points.  I figured it’d be a great thing to just reproduce the contents of that chapter here and bold various important points.  So, here it is.

5. Competition

In nature there prevail irreconcilable conflicts of interests. The means of subsistence are scarce. Proliferation tends to outrun subsistence. Only the fittest plants and animals survive. The antagonism between an animal starving to death and another that snatches the food away from it is implacable.

Social cooperation under the division of labor removes such antagonisms. It substitutes partnership and mutuality for hostility. The members of society are united in a common venture.

The term competition as applied to the conditions of animal life signifies the rivalry between animals which manifests itself in their search for food. We may call this phenomenon biological competition. Biological competition must not be confused with social competition, i.e., the striving of individuals to attain the most favorable position in the system of social cooperation. As there will always be positions which men value more highly than others, people will strive for them and try to outdo rivals. Social competition is consequently present in every conceivable mode of social organization. If we want to think of a state of affairs in which there is no social competition, we must construct the image of a socialist system in which the chief in his endeavors to assign to everybody his place and task in society is not aided by any ambition on the part of his subjects. The individuals are entirely indifferent and do not apply for special appointments. They behave like the stud horses which do not try to put themselves in a favorable light when the owner picks out the stallion to impregnate his best brood mare. But such people would no longer be acting men.

Catallactic competition is emulation between people who want to surpass one another. It is not a fight, although it is usual to apply to it in a metaphorical sense the terminology of war and internecine conflict, of attack and defense, of strategy and tactics. Those who fail are not annihilated; they are removed to a place in the social system that is more modest, but more adequate to their achievements than that which they had planned to attain.

In a totalitarian system, social competition manifests itself in the endeavors of people to court the favor of those in power. In the market economy, competition manifests itself in the fact that the sellers must outdo one another by offering better or cheaper goods and services, and that the buyers must outdo one another by offering higher prices. In dealing with this variety of social competition which may be called catallactic competition, we must guard ourselves against various popular fallacies.

The classical economists favored the abolition of all trade barriers preventing people from competing on the market. Such restrictive laws, they explained, result in shifting production from those places in which natural conditions of production are more favorable to places in which they are less favorable. They protect the less efficient man against his more efficient rival. They tend to perpetuate backward technological methods of production. In short they curtail production and thus lower the standard of living. In order to make all people more prosperous, the economists argued, competition should be free to everybody. In this sense they used the term free competition. There was nothing metaphysical in their employment of the term free. They advocated the nullification of privileges barring people from access to certain trades and markets. All the sophisticated lucubrations caviling at the metaphysical connotations of the adjective free as applied to competition are spurious; they have no reference whatever to the catallactic problem of competition.

As far as natural conditions come into play, competition can only be “free” with regard to those factors of production which are not scarce and therefore not objects of human action. In the catallactic field competition is always restricted by the inexorable scarcity of the economic goods and services. Even in the absence of institutional barriers erected to restrict the number of those competing, the state of affairs is never such as to enable everyone to compete in all sectors of the market. In each sector only comparatively small groups can engage in competition.

Catallactic competition, one of the characteristic features of the market economy, is a social  phenomenon. It is not a right, guaranteed by the state and the laws, that would make it possible for every individual to choose ad libitum the place in the structure of the division of labor he likes best. To assign to everybody his proper place in society is the task of the consumers. Their buying and abstention from buying is instrumental in determining each individual’s social position. Their supremacy is not impaired by any privileges granted to the individuals qua producers. Entrance into a definite branch of industry is virtually free to newcomers only as far as the consumers approve of this branch’s expansion or as far as the newcomers succeed in supplanting those already occupied in it by filling better or more cheaply the demands of the consumers. Additional investment is reasonable only to the extent that it fills the most urgent among the not yet satisfied needs of the consumers. If the existing plants are sufficient, it would be wasteful to invest more capital in the same industry. The structure of market prices pushes the new investors into other branches.

It is necessary to emphasize this point because the failure to grasp it is at the root of many popular complaints about the impossibility of competition. Some sixty years ago people used to declare: You cannot compete with the railroad companies; it is impossible to challenge their position by starting competing lines; in the field of land transportation there is no longer competition. The truth was that at that time the already operating lines were by and large sufficient. For additional capital investment the prospects were more favorable in improving the serviceableness of the already operating lines and in other branches of business than in the construction of new railroads. However, this did not interfere with further technological progress in transportation technique. The bigness and the economic “power” of the railroad companies did not impede the emergence of the motor car and the airplane.

Today people assert the same with regard to various branches of big business: You cannot challenge their position, they are too big and too powerful. But competition does not mean that anybody can prosper by simply imitating what other people do. It means the opportunity to serve the consumers in a better or cheaper way without being restrained by privileges granted to those whose vested interests the innovation hurts. What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms.

Catallactic competition must not be confused with prize fights and beauty contests. The purpose of such fights and contests is to discover who is the best boxer or the prettiest girl. The social function of catallactic competition is, to be sure, not to establish who is the smartest boy and to reward the winner by a title and medals. Its function is to safeguard the best satisfaction of the consumers attainable under the given state of the economic data.

Equality of opportunity is a factor neither in prize fights and beauty contests nor in any other field of competition, whether biological or social. The immense majority of people are by the physiological structure of their bodies deprived of a chance to attain the honors of a boxing champion or a beauty queen. Only very few people can compete on the labor market as opera singers and movie stars. The most favorable opportunity to compete in the field of scientific achievement is provided to the university professors. Yet, thousands and thousands of professors pass away without leaving any trace in the history of ideas and scientific progress, while many of the handicapped outsiders win glory through marvelous contributions.

It is usual to find fault with the fact that catallactic competition is not open to everybody in the same way. The start is much more difficult for a poor boy than for the son of a wealthy man. But the consumers are not concerned about the problem of whether or not the men who shall serve them start their careers under equal conditions. Their only interest is to secure the best possible satisfaction of their needs. As the system of hereditary property is more efficient in this regard, they prefer it to other less efficient systems. They look at the matter from the point of view of social expediency and social welfare, not from the point of view of an alleged, imaginary, and unrealizable “natural” right of every individual to compete with equal opportunity. The realization of such a right would require placing at a disadvantage those born with better intelligence and greater will power than the average man. It is obvious that this would be absurd.

When you look at nature, everything is always diverse and different.  It’s a survival technique.  For example, every one of us has a slightly different DNA sequence, slightly different immune system, different temperaments and personalities, and so on.  Evolution tries out all kinds of combinations and those best suited to survival live on.  I think our social system is also based around this diversity.  Our species is evolving (albeit very slowly) into a complex social structure, with different people preparing for different roles; kind of like how termites have a soldier class which defends, whereas others are workers and take care of the queen.  I think in time our social structure will have a biological underpinning where each person enjoys his or her role in society and wouldn’t have it any other way.  Society is just such a new thing for mankind that the complex system has yet to fully evolve and develop.

Economic competition as opposed to central planning takes advantage of this same diversification strategy.  If you’re living under a regime of central planning, and those plans enforced fail, all hell breaks lose.  Take when the Soviets implemented unorthodox farming techniques, hoping to make their seeds survive the cold by freezing them.  Some of their quackpot scientists theorized that they’d be more likely to endure harsh weather and didn’t want to believe genetic research going on at the time.  This led to massive crop failures and starvation.  But if they’d had a more “anarchic” farming model, with each farmer doing his own thing, that diversity would’ve protected them from this.

I think people’s personalities are different so that society can progress in this way.  Adventurous types would have been willing to try the new farming model and would’ve failed.  More cautious personalities would’ve looked at it all with skepticism demanding proof before attempting it.  That being the case, their crops would’ve came out just fine and society could fall back on them for food.  This diversity allows society to try new things yet not be destroyed when something fails.

So whatever type of person you are, embrace your uniqueness.  Love who you see in the mirror, regardless of how you look, your personality type, your dreams, etc.  It’s ok to be you.  I think nature made us the way we are for a reason, even though most of us are too shallow minded to see beyond our own personality type.

We live in a world where everyone’s divided.  You’re less of a person if you don’t hold a college degree.  Anyone who doesn’t believe our religious inclinations is a “heathen” and immoral.  We’re scared of people with different sexual preferences and ethnicities.  We need to let go of all that.

Mises points out that the free market tends to push us into positions where we’re better suited to serve the consumer.  Each of us being unique, we’re each better suited to serve one area of the economy than another.  Even though in this model we’re pushed around by consumer demand, I’d far prefer this to state planning with the government telling me where to work and what to do.

As for the arguments I made about difficult barriers to entry, Mises believes this tends to push investment and capital resources into new areas which would be more productive to society.   Unfortunately, as he also points out, creating something new requires “brains and ideas”.

Read the Bloomberg article here:

http://www.businessweek.com/news/2010-06-17/greenspan-says-u-s-may-soon-reach-borrowing-limit-update1-.html

Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon face higher borrowing costs on its swelling debt and called for a “tectonic shift” in fiscal policy to contain borrowing.

“Perceptions of a large U.S. borrowing capacity are misleading,” and current long-term bond yields are masking America’s debt challenge, Greenspan wrote in an opinion piece posted on the Wall Street Journal’s website. “Long-term rate increases can emerge with unexpected suddenness,” such as the 4 percentage point surge over four months in 1979-80, he said.

Greenspan rebutted “misplaced” concern that reducing the deficit would put the economic recovery in danger, entering a debate among global policy makers about how quickly to exit from stimulus measures adopted during the financial crisis.

….

“The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy,” said Greenspan, 84, who served at the Fed’s helm from 1987 to 2006. “Incremental change will not be adequate.”

….

“The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.”

….

“Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis,” Greenspan said. “Our policy focus must therefore err significantly on the side of restraint.”

None of this is news to you if you’re fluent in Austrian economics.  Greenspan sees the writing on the wall.  The United States’ position is just like that of Greece and we’re currently on a trajectory to dive right off the cliff, just like they did.

It’s not a time for huge deficits, and no, the economy has not recovered, as all the propaganda is telling us.  It’s time for major spending cuts, to stop borrowing money from foreigners, quit printing money and set out on the road to paying off our credit cards and debts.  No monetary juggling is going to pull us out of these problems.  Deficit spending’s not going to help either.  We need a total change in state and federal government budgets.  We need major spending cuts.  In fact, we’ve already hit our peak debt limits.  Most Austrian economists say we’ve passed the point of no return already.

Greenspan’s nervous.  He’s calling for major fiscal restraint and cuts in spending.  I’m with him.  That’s exactly what we need.

Paul Volcker’s been telling us this same sort of thing for quite a while too:

http://www.usatoday.com/money/economy/2008-01-16-volcker-nytm_N.htm

Former Federal Reserve Chairman Paul Volcker thinks the U.S. central bank is to blame for allowing bubbles to inflate asset markets, and says that current Fed chief Ben Bernanke is in a tough spot.

…

“Too many bubbles have been going on for too long … The Fed is not really in control of the situation,” the Times quoted Volcker as saying, seemingly clear criticism of both Bernanke and his predecessor Alan Greenspan.

A slumping U.S. housing market following years of rampant price rises has sparked a global credit crunch and could tip the economy into a recession.

Critics blame the ultra-low interest rate policies of the final Greenspan years — when the U.S. central bank steered overnight federal funds rates to 1% and held them there for a prolonged period of time — for fueling the housing bubble.

Bernanke, who was also a Fed board governor between 2002 and 2005, inherited the problem to an extent.

Greenspan has long been criticized for being very aggressive in cutting interest rates when growth was threatened, but slower to raise them when it picked up and the risks flipped toward higher inflation.

Volcker, a towering man known widely as ‘Tall Paul’, is credited with breaking the back of rampant 1970s inflation by aggressively tightening monetary policy, for which he was greatly criticized in some quarters at the time.

“It’s no fun raising interest rates,” Volcker said.

I hate to prophesy doom and gloom, but I think there’s a very rough road up ahead.   Here’s an excerpt from an Austrian economist:

http://mises.org/daily/2728

Austrian Business Cycle Theory

According to Ludwig von Mises and his followers, the boom-bust cycle is not inherent in the free market, but is rather caused by the government’s interference in the credit markets, specifically its manipulation of interest rates. The government causes the boom period when it injects new credit into the system (pushing down rates), and then the unsustainable, non-economic investment projects put into motion necessitate a bust at some future date. (Here is a reading plan for this topic.)

The following chart illustrates the Misesian explanation. Note the chart does not include the recent September cut.

Real Yr/Yr GDP Growth (blue, right) vs. Real Effective Fed Funds Rate (red, left)

Generally speaking, the chart indicates an inverse relationship between the two series. This accords with the commonsense view that cutting interest rates provides a stimulus while hiking them is contractionary. However, what the Austrian approach provides is the understanding of the real forces behind the boom-bust cycle. In other words, most financial commentators think that today’s interest rates affect today’s economic growth, end of story. But if a previous boom period has led to massive malinvestments, there must be a bust period to liquidate the various projects (for which there is an inadequate capital structure to complete).

To put it another way, many commentators seem to believe that if the Fed held interest rates low indefinitely, then we’d never have high unemployment, just rampant price inflation. And yet, the recent experience shows that this is dead wrong. The Fed didn’t cause the recent problems by “responsibly” hiking interest rates. No, rates had been steady at 5.25% for some time, and then the housing bubble burst and the mortgage market faltered, thus “forcing” the Fed to take action.

Looking back at the chart above, we can see why the worst may be yet to come. In (price) inflation-adjusted terms, the early-2000s levels of the actual fed funds rate is the lowest since the Carter years. And many readers may recall the severe recessions of 1980 and 1982 that followed that period.

Conclusion

In the Austrian view, the boom-bust cycle is caused by the Fed’s maintenance of artificially low interest rates, which causes businesses to expand, hire workers, buy other resources, and so forth, even though these projects are not justified by the true supply of savings in the economy. The greater the “stimulus” the worse the malinvestments.

From 2001–2004, the Fed kept (real) rates at the lowest they’ve been since the late 1970s. One of the consequences that has already manifested itself is the housing bubble. But a more severe liquidation seems unavoidable. The recent Fed cut may postpone the day of reckoning, but it will only make the adjustment that much harsher.

Charts like the one provided in that article give a nice look at how interest rates influence economic growth.  You can see that when the economy starts to constrict the Fed is dumping interest rates and the economy spikes back up.  But cheap money, like cheap pleasures in life, has nasty side effects.

Many economists don’t even believe in bubbles.  It’s all in your imagination.  Take the praised Eugene Fama of the Chicago School.

http://www.newyorker.com/online/blogs/johncassidy/2010/01/interview-with-eugene-fama.html

JOHN CASSIDY: Many people would argue that, in this case, the inefficiency was primarily in the credit markets, not the stock market — that there was a credit bubble that inflated and ultimately burst.

EUGENE FAMA: I don’t even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means. I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.

CASSIDY: I guess most people would define a bubble as an extended period during which asset prices depart quite significantly from economic fundamentals.

FAMA: That’s what I would think it is, but that means that somebody must have made a lot of money betting on that, if you could identify it. It’s easy to say prices went down, it must have been a bubble, after the fact. I think most bubbles are twenty-twenty hindsight. Now after the fact you always find people who said before the fact that prices are too high. People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.

CASSIDY: Are you saying that bubbles can’t exist?

FAMA: They have to be predictable phenomena. I don’t think any of this was particularly predictable.…

Well, (it’s easy) to say after the fact that things were wrong. But at the time those buying them [subprime-mortgage-backed securities] didn’t think they were wrong. It isn’t as if they were naïve investors, or anything.

*Sigh*

And while you’re out struggling to buy your first home, the academics are sitting in their ivory towers claiming bubbles don’t exist.  Nobody saw it in advance after all.  Well, Austrian economists did!

He’s an efficient market hypothesis (EMH) advocate.  He thinks that prices instantly adjust to news so that at any given time prices reflect all there is to know.  Bubbles can’t form.  What is a bubble?

If you want to hear an Austrian economist’s perspective on Fama, you can read this article here:

http://mises.org/daily/4056

Economics is a strange subject.  So many people have a different take on everything.  I don’t have a lot of respect for the subject.  I think most of what’s out there is bullshit.  If people really understood the economy we wouldn’t be having this worldwide recession.

Someday on here I’m going to write a post on what I think about economics in general.  I have a whole shelf of economics books I’ve read.  I’ll just write up what I think of them.  Unfortunately I get tired of studying it because most all of it doesn’t work.  You labor for years mastering various economic school perspectives and think you understand things, then you don’t.  It was all wrong.  *pulls hair out*  How many other posts have I promised to write on here?  Instead I just typically rant… Oh well.

Economics isn’t like Physics which actually does work.  If it was, the world would be a much better place.

Then I was pleased to find that two top Austrian economics professors have already produced an introductory course and its posted on YouTube.  The video lectures are found below.

I wish they’d gone into more depth and included more, but this is definitely a good introduction.  If you wish to learn more you’ll have to read Ludwig von Mises books, as well as those of Fredrich Hayek and Murray Rothbard.

Unlike a lot of other schools of economic thought, these guys saw the housing bubble way in advance.  When it comes to the business cycle, I think these guys have more credibility than any other school.  They’re never talked about, and if you take economics in college you may well only hear Mises, Hayek and Rothboard mentioned in passing, but you won’t be taught any of their work.  When Krugman wrote his article for the New York Times, “How Did Economists Get It So Wrong“, you won’t hear any talk about Mises or Hayek.  And what’s strange is Friedrich Hayek won the 1974 Nobel prize in economics yet nobody is interested in his work.  His theories perfectly predicted everything but you won’t hear his name mentioned by anyone.  I guess considering the article is “How Did Economists Get It So Wrong”, Hayek doesn’t belong

Maybe Austrian economics seems less scientific because it lacks all the complex mathematical models and econometrics (which don’t even work).   I don’t know.

From what I’ve seen, most rich Wall Street investors and wealthy entrepreneurs hold views similar to the Austrian school (not necessarily exactly), especially when it comes to the business cycle and the effects of government policies, such as deficit spending.  Take Robert Kiyosaki for instance.  He made fortunes investing in real estate during the Fed inflated boom.  He’s known for his books like Rich Dad Poor Dad, and writing mindset books for entrepreneurs.  He understands this stuff (though his books don’t share technical details) and knows the correlation between Fed interest rates and housing prices.  He recently wrote a new book called Rich Dad’s Conspiracy Of The Rich.  Here’s an article about the book:  (here)

“Robert Anton Wilson, in his book Everything Is Under Control, reported that “a random telephone survey of 800 American adults in September 1996 found that 74 percent – virtually three out of four citizens – believe that the U.S. government regularly engages in conspiratorial and clandestine operations.”

Robert Kiyosaki – the author of Rich Dad’s Conspiracy of the Rich – agrees with the 74 percent surveyed in 1996.  As Kiyosaki writes in his book:  “So has there been a conspiracy?  I believe so, in a way.”  He goes on to explain why he believes so, citing the lack of financial education in the school systems, the Federal Reserve Act, and Nixon’s 1971 dismissal of the gold standard.  And most interestingly, Kiyosaki believes that 401(k) retirement vehicles placed the retirement money of average people in the hands of Wall Street.

The first chapter of the book is entitled ‘Can Obama Save the World?’  Kiyosaki’s answer is no.  And apparently, Obama doesn’t want to even if he could.  For he appointed Summers and Geithner, both of who played a part in repealing the Glass Steagall Act.  In other words, it’s the same old same old.  Nothing has changed.  Which means that the average person needs to understand how taxes, debt, inflation, and retirement affect them.  Kiyosaki sums up the chapter by stating that once one understands the new rules of money, then one can “opt out of the conspiracy of the rich.”

From there, Kiyosaki moves on to explain how we got where we are.  He points the finger at the Federal Reserve Bank, which inflates the money supply, which destroys the value of savings and retirement plans.  And he makes it very clear that the rules of money changed dramatically when the U.S. went off the gold standard in 1971.  For up until that time, “technically, prior to 1971, the U.S. dollar was a derivative of gold.  After 1971, the U.S. dollar became a derivative of debt.”

Kiyosaki proceeds to discuss what he calls ‘The Invisible Bank Robbery.’  He says “since money is invisible, a derivative of debt, bank robberies by bankers have become invisible.”  Two ways these invisible robberies occur are:  fractional reserve banking, which is nothing more than banks lending money they don’t have; and deposit insurance, which “protects the bankers – not savers.”  Then he asks a very pertinent question:  “why should an insurance company like AIG receive bailout money in the first place?  Isn’t bailout money reserved for banks?”  His answer is gloriously simple:  “because it owed the biggest banks in the world a lot of money and didn’t have the cash to pay up.”

After allocating the first half of his book to talking about the conspiracy, Kiyosaki utilizes the second half of the book describing how to fight back.  And although he acknowledges that the Fed is the culprit, he does not advocate abolishing it.  For as he asks, “What would replace it?  How much chaos would that cause?  And how long would that take?”  Instead, Kiyosaki advocates using the new rules of money to one’s advantage.

….

Kiyosaki then states that he thinks the present financial crisis will only get worse, not better.

….

And in his summary to the book, he reminds his readers that “knowledge is the new money.”

Kiyosaki has made millions through real estate, all because he knew the economics of what was going on.  Now he sees that the bubble is popping.  He’s warning everyone and letting people in on the game that the rich are playing.  His mindset is, “Well, I know this system is terrible and unjust, but I’m not going to live a life of poverty getting screwed.  Here’s how it works and here’s how you can protect yourself and your money.”   And in his case, exploit the same loopholes the rich are using.  Is it unethical?  I don’t know.  It’s a gray area to me.

I’ll say this though.  When it comes to economics, I find the subject very disappointing, no matter which school of thought you use.   Austrian economics isn’t perfect, it’s just the best I’ve found.

The reason I prefer Austrian economics to all others is their love of liberty, protection of personal property, and sound money.

A major problem with Austrians is that they’re almost always negative about the economy.  Some argue that, “Sure they’ll predict an oncoming crash — they’re ALWAYS predicting an upcoming disaster and never anything else.”  That’s not really true.  Austrians are predicting booms in various foreign countries.  They just seem negative all the time because the politicians in most nations don’t believe in or follow true free market policies anymore.  Their central banks are always expanding the money supply inflating bubbles.

Even so, the Austrian theory of the business cycle being induced by artificially low interest rates set by the central banks which brings about a spending binge, various booms, then a subsequent bust from all the mal-investments, seems pretty sound to me.   Keynesians, like President Obama, during a recession see the problems completely differently, thinking it’s a lack of demand and that we need more spending.  They’re completely opposite perspectives and bring about completely different tactics to addressing the problem.

What pisses me off watching the news is they make the debate about government regulation (progressives and democrats) versus low taxes and no regulation (Republicans).  Neither side ever deals with the real problems inherent in the banking system and the Federal Reserve.

It’s not so much about regulating them as shutting down fractional reserve banking, stopping the excessive flow of printed money, and restoring the soundness of money by backing it with a gold standard.  The gold standard is to keep the government from printing more money and debasing the currency.  It’s to protect us from inflation, bankers loaning out money out of thin air, and wild government spending. Proper free market mechanisms would be superior to any regulations that could be imposed centrally.  But Keynesians don’t see it that way.  They have all kinds of reasons why the money supply must always increase.

I think Keynesian economics, and their belief in fractional reserve banking, has left us all buried in debts which were cooked up out of thin air.  Bankers have come to dominate the world.  Such policies are also a big reason behind dominance by the big corporations.  Low interest rates and cooked up money from the Federal Reserve give the Fortune 500 corporations access to cheap credit, which they use to expand their empires.

Keynesian policies and the Federal Reserve also destroy our savings, making it harder for entrepeneurs to save up their money and build up their businesses.  It’s an indirect form of eliminating competition.  It gives them access to cheap funds, and naturally since you’re just a start up entrepeneur without an established track record, you don’t get access to the cheap funds.

Keynesian policies of spending cooked up money keeps the status quo.  Once the big corporations profits begin to drop the Fed and politicians say, “Uh oh.  Consumption is down.  The economy is contracting.  We need to rev things up!  Lower the interest rates.  Get people spending borrowed money!”   The corporations make a killing yet we as a nation get buried in mountains of debt and the prosperity they promised us (and which they were counting on the pay off the debts) never comes.  Just look at Japan.  Read about how pissed they are, and after decades of Keynesian policies leaving them buried in mountains of debt, huge stimulus after huge stimulus, they now are saying, “We want a leader who will cut government spending.  This Keynesian stuff doesn’t work.”

In fact, officers at the Fed right now are mad that we’re not spending more.  They’re currently working on policies to inflate away everyone’s savings – a sort of forced spending.  This is the sort of invisible robbery Kiyosaki is talking about.  Got to love ol’ helicopter Ben.

Austrian economics is common sense economics.  We all know that America is in the mess its in now because we’ve been living too lavishly, living beyond our means.  We’ve buried ourselves in mountains of debt and things aren’t going to turn around if we take one last trip to the buffet and gorge, stuffing ourselves with as much Chinese imported goods as possible, purchased on credit.  We have to begin producing things again.  We need to get our factories back.  We need to stop juggling money around and start producing real products and services.  No more paper money fortunes.

Austrian economists have a respect for currency and money that you won’t find anywhere else.  They hate the paradox of thrift and believe that savings has to be the fuel behind all real investment.  They don’t fear deflation.  In fact it’s praised.  Deflation indicates the purchasing power of the currency is increasing which I think is a good thing.  Their theory of pricing is way better than what you find in most economic texts with their abstract concept of “utils”.

I wish the lecture on banking was more detailed but oh well.  It should’ve been 3 or 4 lectures instead of just one.   To learn more about that you’ll have to read Murray Rothbard’s Case Against The Fed and America’s Great Depression.

Some accuse Austrian economists of abandoning scientific method, which is nonsense.  Watch the lecture on Praxeology and you’ll see the real argument.  One of professor Hoppe’s examples is great.  He asks, “If I were to set the minimum wage rate at $1,000,000 an hour, I know that unemployment will be very high.  How do I know this?”  Then he shows how stupid it is to think that every economic statement has to be empirically verified or falsified.  It’s more akin to geometry where you begin with a set of intuitive axioms and build on top of those, assuming the axioms as true.  Those axioms are rooted in the nature of human action.

Anyways, here’s the lectures. These guys are both economics professors who hold the Austrian perspective.  Professor Hülsmann is from Université d’Angers in France. Professor Hoppe used to be a professor of economics at the University of Nevada Las Vegas (UNLV) before his retirement in 2008. There’s eleven lectures total.  Enjoy 

Mises and the Austrian School (by Jörg Guido Hülsmann) – Introduction to Austrian Economics, Lecture 1 of 11

Value, Utility and Price by Jörg Guido Hülsmann

Division of Labor and Money by Hans-Hermann Hoppe

The Theory of Banking by Hans-Hermann Hoppe

Capital and Interest by Hans-Hermann Hoppe

Praxeology: The Austrian Method, by Hans-Hermann Hoppe

Business Cycle Theory, by Jörg Guido Hülsmann

The Economics of Deflation, by Jörg Guido Hülsmann

Theory and History, by Hans-Hermann Hoppe

The Foundations of Welfare Economics, by Jörg Guido Hülsmann

Law and Economics, by Hans-Hermann Hoppe

Before I studied economics I used to wonder why every year people asked their employers to give them a raise.  Why?  People will tell you that the cost of living increases every year.  But that only begs the question: why do costs go up every year?  Why does everything become more expensive?

It all has to do with the government and the banking industry screwing around with the supply of money and deficit spending.  Unfortunately after all is said and done, we the people are always getting the short end of the stick.

In short, our economic system can be summarized as followed:  Scientific technological advances bring down prices whereas our monetary and economic systems continue to erode our currency, destroying its purchasing power.  The two are in continual struggle.  In 1950 one man working and the wife staying home could provide for the entire family.  Now in 2010, both work, have no time for their kids, and STILL can’t pay all their bills, all while suffering under a mountain of debt.  How did this happen?  It’s our government following bad economic policy.

Now there’s intricate Keynesian arguments as to why economists think they can screw around with the money supply and bring about prosperity to us all.  I’ve read several of their textbooks and don’t buy into any of it.

Liberal news pundits and the New York Times make no sense to me when it comes to finance and fiscal policy.  I’m with them when it comes to civil liberties.  I too think the wars need to end and we need to bring the troops home.  I worry for college students getting buried in debts before they’re old enough to even know what they want to do with themselves.  But what I can’t ever understand is their fiscal policies.  They say that government spending can cure an economic recession.  I’d like to go on one of their shows and bring up the following point – I wonder how they’d respond.

Me: “So you advocate that government spending will cure our economic problems.  Ok.  Let’s assume I had a large-scale counterfeiting operating going on in my basement.  Say I was printing billions of dollars down there and spending the money in my community.  Now if I started all sorts of pet projects which were to my own benefit, and hired all kinds of people, and this brought about economic prosperity to my community by providing jobs and income, why would this be a bad thing?”

Them: “Well you would receive a benefit not available to everyone else when you spent the printed money.”

Me:  “Wait wait wait liberal news pundit.  Doesn’t this printed money put funds in people’s hands?  Wouldn’t the money multiplier get to rolling and then the funds circulate throughout the economy benefitting everyone?  Wouldn’t it be just like the government spending money and the magical helicopter dropping funds down on everyone, so they’d have funds to spend and rev up the economy?”

Them:  “You know people can’t be counterfeitting money.  That’s just silly.”

Me:  “Is it?  It’s not different from what Keynesian textbooks tell us brings prosperity.  The government is not some holy sinless entity, they’re just people too.  But instead of dodging the question, like you are, I’ll explain WHY this is bad.  What would happen is my community here in Missouri would benefit but others would simply experience inflation.  I’d spend printed money in local stores, who most likely import their goods from a whole network of providers in various locations, and whoever got the money further down the line would only experience increased costs yet receive no benefit.  The early receivers of the printed money get all the benefit.  My community would prosper but others would be impoverished.  It would be unfair.  And by the way, you all love to say how corrupt Washington is.  How we need to throw the whole lot of them out.  Why is giving them an open checkbook to spend printed money on whatever projects they want going to benefit us?”

Them:  “It will put money in people’s pockets.”

Me:  “Not necessarily.  That all depends on who gets the government contracts and projects.  In theory we COULD benefit from this situation, but we also could lose very big.  Also, who is this “people” you’re referring to?  “People’s pockets”.  There is only individuals.  Whoever receives the printed-money contracts get the benefit, everyone else necessarily loses and experiences increased costs.”

When I give this analogy, I’m not exaggerating at all.  This is the exact situation when it comes to the government spending printed money in the economy to stimulate things.  This is exactly what President Obama is doing, and the ones who are “stimulated” are whoever get the contracts.  As the new money diffuses into the economy, those further down the monetary line all lose out.  But I hope within this entry to explain what people like president Obama think and why they do what they do.

I don’t feel we benefit very much from government “stimulus” projects.  I think the contracts are awarded to all the politicians’ buddies, political favors, etc., and we just get stuck with inflation.  But in theory I admit we could possibly benefit.  It’d be near impossible to plan though.  There’s practically an infinite number of complex relationships between businesses, so knowing how those funds will flow once you get the process started, and who will get their hands on the money early, and who will get the short end of the stick, would be impossible to know.  If I was guess who would benefit though, I’d guess the politicians and their buddies, lobbyists, and campaign donors, who would be on the top priority list.

And I suppose that the money could land in just the right person’s hands, who then come into the capital he or she needs to get some business going, or invent some new technology, or whatever, and this new technology or production method brings down the costs of something I buy, making my existing money stretch further.  I think the likelihood of this happening is so low as to not even be worth considering.

There are proper places for the government.  They need to protect the environment.  They need to handle the electricity.  After all, could you imagine every company needing its own set of power lines to send us power?  We’d have power line poles everywhere and it’d be so ugly.  They need to fund the police and provide a limited means to the poor.  We need schools.

Even so, I just can’t understand Keynesian economics.  I read textbook after textbook and they never answer that simple question of counterfeitting I just brought up.  If this printed money brings about economic prosperity, counterfeitting shouldn’t be illegal, but praised.  Here’s an excerpt from one textbook talking about deficit spending:

“Suppose the president of the United States asks for your advice.  The economy he confronts is the recessionary one of Exhbit 3, and his goal is to bring the economy to equilibrium at full employment.  What do you tell him?

How about presidential persuasion?  You could advise the president to invite the economy’s most influential producers to a White House breakfast and there explain the importance of increasing aggregate expenditures.

It would be marvelous if all it took was a little presidential sweet talk to get producers to add another $80 billion to investment.  But even producers who voted twice for the president couldn’t justify a penny more investment when the economy is already in equilibrium at Y = $800 billion.  Where, then, do you find the $80 billion?

Enter Government

If nobody else will do it, government can.  How does government get into an $80 billion investment business?  It designs a public investment package that totals $80 billion.  In ten minutes the president can probably come up with projects that would completely close the recessionary gap.

There are always more superhighways to build, more public housing to construct, more pollution control facilities to finance, more space shots to make, more health care schemes to fund, and more defense to procure.  In fact, the least of his problems would seem to be finding suitable projects to absorb the $80 billion.

What about Congress?  Would it go along?  Members of Congress have been sensitive to voters’ concerns back home, and among their concerns in times of recession are jobs.

The government now becomes an integral part of the economy’s aggregate expenditures.  What was once AE2 is now AE2 = the $80 billion increase representing the government purchases of goods and services.

Suppose the president asks you the brief the White House staff on your $80 billion recommendation.  You prepare Exhibit 3, panels a and b, which shows the economy struggling along without the $80 billion of government spending on goods and services, and how the economy fares with the government spending.  They would see the difference immediately.”

So what do we do when a recession kicks in.  First we invite all the big corporations in and say, “Guys, you have all this money.  Just spend a little of it.  Invest in some new technology.  C’mon guys, have a little heart!  The economy’s at stake!”

Then the Fortune 500 CEOs cross their arms, shake their heads, and say, “Sorry Mr. President.  We can’t justify a penny more in spending.  It’d hurt our bottom line.”

Oh woe is us.  What can we do?  Is a recession inevitable?  Nah!  Who you kiddin’?  All it takes is 10 minutes of President Obama’s time to whip up some spending projects, throw some money at it all, and boom, problem solved!  I’m glad the economy is so easy to manage.  All we have to do is give the politicians an open-checkbook of $80 billion in spending, or whatever their Keynesian math models predict is needed to bring aggregate supply and demand in “equilibrium”, and they go to town.

How will they get the money?  Well, let’s increase taxes.  Uh oh, people don’t like taxes.  Well, they don’t understand the beauty of Keynesian economics.  *sarcasm* If they understood the money multiplier, the paradox of thrift, and monetary velocity, they’d be giving the government 80% of their paycheck without question.  I’ll attempt to explain all this.  First I need to explain aggregate supply and aggregate demand and their equilibrium, which is what all their policies strive for.  Then we’ll discuss the income multiplier, and the tax multiplier.  Based on these assumptions I’ll show you why they think government spending, such as making bombs and munitions, fixes economic problems.

In short, aggregate demand and aggregate supply are very similar concepts to supply and demand on the microeconomic scale.  I’m sure you all know the basics of supply and demand.  For example, if you flood a market with a product, the price drops as people no longer want it, and want to spend their money on other things instead.  Even if it was rare and expensive before, once the supply is made abundant its price falls.  Prices and money are our system to manage and allocate scarce resources.

Ok, so what is aggregate supply and aggregate demand?  Its an abstract attempt to apply the same concept to the economy at large.   The aggregate supply represents the total quantity of goods and services that firms in the economy are willing to supply at different prices.  Its curve relates the “price level” to “real GDP”.  The aggregate demand curve  represents the total quantity of goods and services demanded by households, firms, foreigners, and government at different prices. Its curve relates the “price level” to aggregate quantity demanded.

Now I immediately want to pause and say that I don’t think you can even do this.  This is some abstract basis which they construct, ignoring the fundamental concepts which drive supply and demand.  Then they go and apply it to all products and services at large.  The law of supply and demand only applies to individual products and services.  It can’t be applied to this abstract “aggregate” supply and demand.  I think they’re wrong from the very get go.

Let’s ask ourselves, “What is supply” and “What is demand”, as taught by microeconomics.  Well to create a “demand” curve, you first choose a product.  Say ice cream sandwiches.  Then you list out all these different prices starting with 0.01, 0.02, 0.03 …. 1.00, 1.01, 1.02, …. 3.00, 3.01, 3.02… 10.01, 10.02… and so on.  Then you say, “How many people will buy a box of ice cream sandwiches from the grocery store if they see it there and it costs a certain price.  That’s what a demand curve is.  What is a supply curve?  That’s more complicated.  Basically you take various companies, look at their production methods, how much they’d have to spend in labor costs, raw supplies, and other costs, and then determine how many boxes of ice cream sandwiches companies would be willing to provide at different costs.  Where the two intersect is basically the “market price”.

That makes perfect sense to me.  I’ve ran companies and I’ve sold products to people.  This is all pretty straightforward.  I understand all the different companies, people earning wages, then spending those wages buying products from other companies.  I see the circular flow of it all.

But I don’t get these abstract aggregates.  Think of all the different products and services in an economy.  Some are old and some are brand new.  Technology changes.  Their prices and producers are changing all the time.   It’s insanely difficult just to predict what the demand will be for a SINGLE PRODUCT based on what price you choose, yet we’re going to do so for some aggregate of all products in an economy?   Huge corporations have teams of guys working on answering one question:  How many bottles of Tide will we produce this quarter? If you can simply call what the price of any commodity will do, such as oil or corn, you could earn a killing trading commodities.  But everybody knows you can’t do that, and people who try to make money this way are simply gambling.

Yet somehow these two curves embody the intersection of all products and services supplied, their subsequent demands, and for all possible prices no doubt.  What a weird concept.

So what do these aggregate curves even mean?  I don’t even understand what these curves are really.  I’m guessing they don’t know what these charts are either.  In fact, with economic students I’ve heard from, if you bring up this very question you fail your exams.  They don’t like you to question the mathematical abstractions.  You’re “uninformed” if you do so.  Well, whatever.  The only way I can describe these curves is to vaguely show what numbers they use to calculate them.  That’s about all I can do.

But before I do that, let’s look at what these charts and curves look like.  AS stands for “aggregate supply”, and AD stands for “aggregate demand”.  Notice they intersect.  That’s the “equilibrium”.  When you look along the left side you see “Price Level”.  This is how inflation and price increases come into the picture.  Various economic policies can shift these curves around, and they hope to bring about full employment without inflation.  So, let’s take a look.

(1)

(2)

(3)

(4)

Ok.  So how do they generate these curves?  What are we even looking at?  If we don’t understand what the curves even represent, we’ll have a hard time following their arguments.  Well, let’s first discuss aggregate demand using the Mundell-Flemming model.   Here’s the general equation:

Y = C + I + G + X

What do the variables stand for?  Don’t fall asleep on me.  Bear with it for a few minutes.

Y is GDP.  C is consumption (income minus taxes) . I represents investment as a function of the interest rate (an increase in the interest rate decreases investment).  G is government spending.  X represents net exports.

So it’s a sort of aggregate expenditure based on how much money people have after paying their taxes (people spending money), interest rates (which determine investments), government spending (as opposed to personal spending), and exports and imports from foreign countries.  They interrelate the quantities mathematically and form a curve.

I still don’t think this explains “demand”.  This is way too abstract.  That’s really the problem.  Even so, I do get where they’re going with it all.  I don’t agree with it though.

Now let’s discuss aggregate supply.   We’ll talk about long run aggregate supply.   Here’s the general formula for it:

Y*t = f ( Lt, Kt, Mt)

Y is once again GDP.  T represents time.  L represents the quantity and ability of labor input available to product processes.  K represents the available capital stock (machinery, buildings, infrastructure).  M represents the availability of natural resources and materials for production (land).

So aggregate supply is a mathematical formulation of your workers, a valuation of their skills, factory buildings and equipment, and your natural resources such as timber, coal, and stone.

There’s various short-term aggregate supply models, but those are only intended to project the economy in the short-term, and I’m not one to be very interested in short term economic projections.

In order to give this philosophy a fair chance to explain itself, I’ll simply quote a section directly from a Keynesian textbook explaining aggregate supply, aggregate demand, and how they change.

“Explaining Aggregate Supply

Look at the economy’s aggregate supply curve in panel a.  [ Note:  If the graphic looks crappy, it's because I had to draw it in Paint so you'd have something to look at].  Three distinct segments are apparent.  The horizontal segment shows that real GDP can increase up to point a without affecting the economy’s price level.  The upward-sloping segment of the supply curve depicts, from point a to point b, a positive relationship between real GDP and the price level.  The vertical segment marks the full-employment level of real GDP.  All resources are fully employed, so the real GDP cannot increase.

THE HORIZONTAL SEGMENT

Why the horizontal segment?  For any level of GDP in this range — that is, far below full employment — there are ready supplies of unused resources.  All these idle resources can be put to work before there is any upward pressure on prices.  For example, the economy can increase aggregate supply — the production of goods and services — say from $5 trillion to $6 trillion GDP, without prices going up.  Producers can hire more workers without having to raise the wage rate.  They can use more capital without having to pay higher interest rates because unused capital in the form of unused plant machinery is already available.  As you see in panel a, any increase in real GDP within the range $0 to $6 trillion can occur with the price level remaining unchanged at P = 100.

THE UPWARD-SLOPING SEGMENT

What about aggregate supply beyond $6 trillion?  It becomes upward sloping.  Increases in output are linked to increases in the price level.  Why?  Because unused resources become less available at higher levels of real GDP.  Faced with the difficulty of finding ready resources, firms resort to offering higher prices for them.  For example, to get more labor, firms are willing to pay higher wages.  These higher wages increase the cost of production, which in turn raises the prices of goods produced.  Beyond $6 trillion GDP, the price level beings to rise above P = 100.  The higher the level of GDP — say, $6.5 trillion — the greater is the economy’s absorption of the dwindling unused resources, and the more intense the upward pressure on the price level.  At GDP  = $6 trillion, P = 110.

The upward-sloping relationship between aggregate supply and the price level can be explained in another way.  Instead of dwindling unused resources pushing up prices, increasing prices can pull up resource costs.  Suppose the price level increases from P = 110 to P = 115.  As the spread between prices and costs widens, producers earn higher profits.  Higher profits attract new firms into production and stimulate existing firms to produce more.  The higher production levels tap into unused resource availability, driving resource costs upward.

THE VERTICAL SEGMENT

When resources are fully employed, aggregate supply reaches an impassable limit.  Full employment is shown in the panel (above) at $7.5 trillion GDP.  At that level of real GDP, producers may try to hire more workers, but how can they?  They can bid away already employed workers from each other by offering higher wage rates.  But what one producer gains in output by hiring a worker away from another, the other loses.  In the end, competition among producers for already employed resources can succeed only in raising the economy’s price level.  Its aggregate supply remains unchanged.  In our example, real GDP stays constant at $7.5 trillion.

Explaining Aggregate Demand

The aggregate demand curve shown in panel b is downward sloping.  For example, as the price level increases from P = 100 to P = 110, aggregate demand of households, firms, foreigners, and government falls from $8 trillion to $6.5 trillion.  Why?  Because increases in the price level affect people’s real wealth, their lending and borrowing activity, and the nation’s trade with other nations in such a way that the demand for goods and services produced in the economy declines.

THE REAL WEALTH EFFECT

Consider the effect of a price level increase on the value of people’s wealth, and the effect of changes in the value of wealth on aggregate demand.  Suppose your own wealth consisted of $100,000 held in the form of cash, bank deposits, and government bonds.  You know that, if needed, these holdings can be cashed in, allowing you to buy $100,000 of real goods and services.  In fact, that is how you view your wealth.

But suppose while you are holding these financial assets, the economy’s price level increases.  Videotape recorders that formerly cost $400 now cost $480.  Automobiles that formerly cost $16,000 now cost $18,500.  With prices rising everywhere, what happens to the real worth of your $100,000?  It can no longer buy the same quantity of goods and services, can it?

That is, the real value of your $100,000 wealth decreases.  You feel yourself becoming less wealthy.  And you’re not mistaken!  To replenish the value of your real wealth, you would save more and consume less.  In other words, when the price level increases, the quantity demanded by most people for goods and services in the economy falls.

THE INTEREST RATE EFFECT

When prices rise, people find that they need more money just to by the same quantity of goods and services.  How do they acquire that additional money?  Many borrow.  This increased demand for borrowed money raises the cost of borrowing, that is, the interest rate.

Consider the effect of a higher interst rate on aggregate demand.  Few people buy homes with cash.  Typically, high-priced items like homes and automobiles are purchased with borrowed money.

Suppose mortgage rates increase from 10 percent to 15 percent per year.  Monthly payments on a home with a $100,000 mortgage, carrying a 20-year loan at 10 percent, are $965.03.  At 15 percent, these monthly payments jump to $1,316.79.  Wouldn’t that difference cut many prospective home buyers out of the market?

Students, too, feel the pinch of higher interest rates.  Wouldn’t the number of students attending college be affected by higher interest rates on student loans?  Even the quantities demanded of restaurant lunches, concert tickets, and designer jeans are linked to the interest rate.  Many pay for these items with Visa, MasterCard, or Discover cards.  These plastic cards allow people to build up interest-carrying debt.  If interest rates on these cards rise, people tend to cut back on these purchases, depressing the aggregate quantity of goods and services demanded.

Firms’ demands for investment goods are sensitive to the interest rate as well.  A firm contemplating an investment in new machinery may calculate making 15 percent profit on the investment.  If the interest rate is 10 percent, the 5 percent spread between profit and the interest rate may be sufficient inducement to buy the new machinery.  If the interest rate rises to 15 percent, the firm’s demand for new machinery disappears along with the spread, contributing to the decrease in quantity demanded.

THE INTERNATIONAL TRADE EFFECT

Suppose the price level in the United States rises while price levels elsewhere in the world remain unchanged.  Wouldn’t we tend to buy more foreign goods and reduce the demands for our own goods?  After all, when prices for domestically produced goods such as wines, lumber, and automobiles increase while other nations’ prices remain unchanged, wouldn’t French wines, Canadian lumber, and Japanese automobiles become more attractive?  Our demand for imports would rise, and our demand for domestic goods would fall.

At the same time, the French, Canadians, and Japanese would find our now higher-priced exports less attractive.  Many wouldn’t buy them.  The quantity demanded of our goods and services, then, would fall.

Shifts in the Aggregate Demand and Aggregate Supply Curves

….

SHIFTS IN THE AGGREGATE DEMAND CURVE

The aggregate demand curve relates the quantity fo goods and services demanded in the economy to varying price levels.  A change in the quantity of goods and services demanded at a particular price level, however, is represented by a shift in the curve itself.   [ ... ]  What could cause such shifts to occur?

Suppose the government decides to overhaul our economy’s infrastructure.  It programs major construction on highways, bridges, railroad lines, airports, research hospitals, public housing, and other facilities that are in the public domain.  These programs represent new investment demands that shift the aggregate demand curve to the right, from AD to AD’.

Or consider what would happen to aggregate demand when incomes abroad increase.  Canadians, with higher incomes, buy more U.S. imports, shifting our AD curve to the right.  If we decide to consume more goods and services ourselves — even when prices remain unchanged — aggregate demand increases.

What would cause a change in our consumer behavior?  A tax cut could do it, or perhaps changes in our expectations of future income.  After all, if we expect to have more money in the future, we may feel more comfortable about buying more today by borrowing or saving less.

Just reverse the direction of change in these factors, and the aggregate demand curve shifts to the left, from AD to AD”.  For example, a cut in government spending, a decrease in income abroad, an increase in taxes, or an expectation that future income willf all would all tend to lower aggregate quantity demanded at every price level.

SHIFTS IN THE AGGREGATE SUPPLY CURVE

One of the principal factors accounting for a shift in the aggregate supply curve from AS to AS’ in panel b is an increase in resource availability.  Simply put:  More workers, more land, more capital, and more entrepreneurial energies — no matter what the price level — result in greater aggregate supply.  The prices of these resources affect aggregate supply as well.  If wage rates or interest rates or rents decrease while the economy’s price level remains unchanged, profit margins will expand, making producers more willing to supply greater quantities of goods and services.

Anything that reduces resource availability or increases the prices of resources would, of course, have the opposite effect; that is, it would shift the aggregate supply curve from AS to AS”.”

So when they were talking earlier about needing an $80 billion dollar stimulus to get the economy rolling, they used this aggregate supply and demand curves to calculate that.  They try to spend money (using G in the aggregate demand equation) to push their AD curve as far to the right as possible hoping to place it just at the price level = 100, which means there’s no inflation.  A sort of perfect macroeconomic equilibrium.

I’d like to point out some very important consequences of this model.  Take for instance their calculation of aggregate demand.  Government spending is considered more productive than private spending when it comes to stimulating an economy.  It has a greater effect in raising GDP during a recession.  They also believe that cuts in government spending can seriously hurt the economy.

It’s amazing how credible economists from different sides can recommend completely opposite policies.  Some economists, such as supply-siders, are telling you to cut government spending to stimulate the economy in a recession, whereas Keynesians tell you to increase it.   That’s why you’ll watch your television and see economists recommending completely opposite policies.

For a long time I wondered how a Keynesian could come to such a conclusion.  Why would a politician, spending money on literally anything (remember from earlier, the President can come up with spending programs within 10 minutes which can fix the economy — it could even be digging ditches, it doesn’t make a difference), close the recessionary gap?

You may be wondering, “What is a recessionary gap?”  Well, I’ll try to explain it.

There’s an intimate relationship between companies investing in inventory which they intend to sell to customers, and people saving money in their bank accounts.  Take a shoe manufacturer.  Say the new year is starting and they’re trying to determine how many pairs of shoes they need to produce that quarter.  They do their estimates and believe they need to produce 20,000 pairs of their running shoes.  They do so but are only able to sell 12,000 pairs, giving them an excess of 8,000 pairs of shoes unsold.  When businesses overshoot demand, producing too much, this leaves them with excess inventory and a deficit in cash-flow, and oftentimes they have to let go of some of their staff, leading to unemployment.

Now what do these unwanted inventories lead to?  Well the next quarter rolls around and the shoe company orders less leather and twine than they did the previous quarter.  This leads to unemployment in other supplier companies.  So it has a chain effect down the line.  If a big corporation which orders supplies from a lot of different companies screws up, badly judging market demand, they can cause havoc on a whole lot of people.

This is a nasty cycle in capitalism.  A lot of people can be laid off from their jobs just because corporate management misjudged market demands, either producing the wrong product or too much of a product.  And it’s not easy to know how many of your products will sell either.  We live in a very precarious world.

Another cause of the business cycle, Keynesians contend, is people saving money.  If people don’t spend their money in the marketplace it just sits idle in their bank account.  Money has to flow.  After all, if people don’t spend the money they earn the businesses in town won’t earn any money either, and then they won’t have money to pay their staff and make payroll, leading to unemployment and pay cuts.  So to Keynesian economists, you saving money is a dangerous thing.  They don’t like it.

They believe in the paradox of thrift.  The more money people try to save, the less people will be able to save because it will only decrease their potential earning ability.  Their income will have to decrease because the companies they work for will earn less money.

This brings us to talks of the income multiplier, which a huge part of Keynesian economics is based.  First we need to know the “marginal propensity to consume”, which is a percentage telling us how much people are spending, and how much they’re saving.  Say they spend 80% of all their take-home pay, and save 20%.  The Marginal Propensity to Consume (MPC) would be equal to 0.8.  The Marginal Propensity To Save (MPS) would be 0.2.

I’ll quote from this same textbook, talking about the income multiplier:

“Let’s follow through the impact on the level of national income of one such technological change, say, a $1,000 investment.

Suppose John Flygare, the owner of a tennis shop in Evanston, Illinois, reads and article in Sports Illustrated describing a new machine that restrings tennis rackets in half the time it formerly took.  The new technology costs $1000.  Suppose John decides to make the investment.

Let’s trace the sequence of events that follows that $1,000 increase in investment.  First, a new order is placed for the machine.  John’s decision to invest represents a new order for Bradley Hastings, the machinist and inventor of the restringing equipment.  He produces the machine, sells it to John, and ends up with $1,000 increase in income.  Of course, John ends up with a new machine.

What do you suppose Bradley does with the additional $1,000 income earned?  Since we suppose MPC = 0.8, we know, then, that he increases his consumptive spending by $800.  Let’s suppose he spends $800 on a custom-made water-bed.

Think about what follows.  The carpenter, Jay Malin, makes the bed and warns $800, which represents for him an addition to income.  Once again, real output and real income are created simultaneously.  And, of course, Jay will do with his new income what Bradley did with his — spend part, and save the rest.  With MPC  = 0.8, $640 of the $800 is put to consumption spending.

….

The initial $1,000 change in investment spending sets in motion a chain of events that creates — in successive rounds of income earning, consumption spending, and saving — a $5000 change in national income.  And, as you see, it creates also water beds, violins, computers, healthcare, auto repair, space heaters, and a host of other real outputs whose total value is $5000.

Note that as economic activity progresses through the successive rounds, the additions to national income become smaller and smaller.  For at each round, some of the income is set aside as saving.  The lower the MPC (or the higher the MPS), the greater the sum set aside.”

So based on how much money people save, and how much they spend, determines the effect that the money circulating throughout the economy will have.  So now we come to the income multiplier equation.

First we started off with $1000.  That money was given to a 2nd person who got 800, or 0.8 x 1000, and that money went to a third person who got $640, or 0.8 x (0.8 x 1000) and so on. Or…

$1000 + (0.8 x $1000) + [0.8(0.8 x $1000)] + …

Written more generally we get:

$1000 + $1000(MPC) + $1000(MPC^2) + $1000(MPC^3) + … + $1000(MPC^n)

So basically we multiply $1000 times:

1 + MPC + MPC^2 + MPC^3 + … MPC^n

If you know your algebra, this is the same thing as :  (1 / 1 – MPC) and we get the relation

(1 / 1 – MPC) = 1 / MPS  = the multiplier

In this case we get 1 / 1-0.8 = 1/0.2 = 5.  So our multiplier is 5.

But say people only saved 10% of their income instead of 20%.  The multiplier would be 10!

1 / 1-0.9 = 10

Or what if people spent 99% of everything they earned, only saving 1%?

1 / 1-0.99 = 100

And strangely, if we spend everything and save nothing we get:

1 / 1-1 or 1 / 0 = infinity

So if we spend everything we earn the Earth explodes and we instantly become gods transcending all space and time.  Keynes was really onto something here.

The ultimate way to economic prosperity, to Keynesians anyway, is for us all to spend everything we have and we could literally exponentially increase economic output.  The corporations sure love this one.

But this same multiplier also works in reverse.  When the interest rate rises, for example, this may send investments from $100,000,000 to $75,000,000 and the multiplier will work in reverse.  It’s not a loss of $25,000,000 in GDP, but $125,000,000 because our multiplier is 5.

And why is government spending always superior to private spending?  It all has to do with the income multiplier.  If the government takes $10,000 from you and spends it, they didn’t save any of that money.  They spent it all!  So naturally we’ll get the full effect of the money.  But if you would’ve had the money you probably would’ve saved 10~20% of it, and that’s no good.  The money’s not as potent.  GDP doesn’t grow as much as it could have.

And you guys want to know the ultimate way to get GDP rolling strong?  To get our economy out of the slumps during a recession?  Crank out bombs and tanks!  I’ll quote from the text:

“WAR INDUCED CYCLES

Are we destined always to go to war?  From time immemorial, wars have been viewed as innate to the human experience.  Admittedly, the evidence is frightfully confirming.  Whether or not wars can be avoided, economists have long observed a link between wars and business cycles.

Does such a link make sense?  Think about it.  Wars create instantaneous demands for all kinds of goods and services.  once the decision is made to go to war, supporting the war effort becomes high priority.  Armies need to be staffed, fed, clothed, housed, transported, equipped, and mended.

That requires considerable spending.  You can see the income multiplier working overtime.  In each of our major wars — the 1861-65 Civil War, the 1914-19 World War I, the 1939-45 World War II, the 1950-53 Korean War, the 1964-75 Vietnam War — miltary production spurred the economy into rapid expansion.  And in at least some, if not all, of them, the end of war brough ant end to the economy’s war-induced prosperity.”

That’s probably what ol’ George Bush and Dick Cheney were thinking too, but somehow our economy is sucking pretty bad right now and we have wars going with Iraq, Afghanistan, Pakistan… Probably soon we’ll be fighting Iran.  Somehow it’s not working.  What’s wrong?

Take a moment and pause for a second and reflect on these Keynesian policies.  Think of the founding fathers and history in general.  This goes against EVERYTHING that history has taught us.  It’s completely against all traditional wisdom.  We’re being told that high taxes is prosperity.  Wars are prosperity.  Saving money is evil and harmful.  The more the government spends on your behalf, the more prosperous you will be.

Remember the whole “no taxation without representation” stuff?  We’ve had the lowest taxes of any nation on Earth, and we’ve constructed a free society, completely opposite of everything this Keynesian stuff is recommending, and we became the most powerful nation on the planet.  Thomas Jefferson would throw a fit if he saw this.  He’d be screaming his head off.  “Is this what I risked my life for?”  They formed a republic with very little government intervention, and now these policies are telling us that the government is the key to all prosperity?  If we submit all of our money to taxation and government spending, and let them spend our money for us, we’re bound to succeed?

Our banking system has become based around these same theories.  Apply the concepts of the multiplier to banking and you get fractional reserve banking and money flowing out of thin air and us all getting buried in debts.

And everything is pro-war and pro-taxes.  All these Keynesian policies give the politicians more and more money to spend, which is why I personally feel it’s so popular in Washington.  Economy is lagging?  Lower interest rates to the floor!  Banks run wild!  They then do their aggregate demand and supply calculations, criss-cross and come up with how much money they need to spend.  Then come one come all.  Politicians line up!  It’s time to dole out printed money and tax funds!  Don’t worry, you can spend the money on any project whatsoever.  Line up all the unemployed, shave their heads, put them in pink bunny outfits and tell them to dig holes; it all has the same effect on the economy.  Missile contracts to Halliburton?  Special science studies for Exxon Mobile?  New fighter jets for Lockheed-Boeing?  Spend spend spend!

I roll in my bed at night wondering to myself, “What even is this?  You guys aren’t serious?  You ARE serious aren’t you?”  *Gaping mouth, eyes wide open*

They don’t even think in terms of efficiency.  As long as the government spends the money, prosperity is on the way.  The multiplier will work wonders.  Thrift?  Who needs that?  Just keep increasing taxes and government spending.  That’ll take care of the recession!  To them money is magical.  Paper flowing around creates value out of nothing.

Just load up the Huffington Post.  All the economists on there recommend this stuff.  And you know, I don’t even understand how progressives (as they call themselves) can even believe this stuff.  They’re all against the wars, they tell us to pull out because it’s costing us too much money, then they advocate Keynesian fiscal policy.  They don’t even get it.  They should be pro-war, like the Republicans.  But they’re not.  They don’t even understand the economics of the very policies they advocate.   I guess maybe they feel the government should spend that money on something else, yet they still feel it’s not a drain on the society but an economic accelerator?  I don’t know.

And ALL of this stuff is based on these weird abstract concepts of “aggregate supply” and “aggregate demand”.  They don’t even make sense.  A supply and demand curve for all products and services combined?  What?  What even is that?  No wonder they come to such crazy conclusions.

I sometimes consider abandoning all of my science research and dedicating myself fully to the study of economics.  It’d be very fulfilling to one day write the most comprehensive and damning economics textbook ever written, fully blasting Keynesian economics to bits and hopefully to eternal oblivion.  I think it’s an evil that’s destroying free society as we know it.  I had planned to write about all that’s wrong in these theories, but as you can see this entry is already a beast.  I’ll be surprised if anyone reads it all the way to the end.

This is why people didn’t see the housing bubble as it happened.  This is why they don’t see the student loan bubble.  This stuff is just wrong.  It’s wrong at so many levels.  It resembles economics, but then based on faulty assumptions they build an edifice of bullshit that doesn’t even work at predicting events.   It should just be intuitively obvious from history studies that this stuff is wrong.

“Economics conditions were a third important cause of the outbreak of the war.  The huge reparations imposed upon the Germans, and the French occupation of much of Germany’s industrial heartland, helped, as we have seen, to retard Germany’s economic recovery and bring on the debilitating inflation of the 1920s.  The depression of the 1930s contributed to the coming of the war in several ways.  It intensified economic nationalism.  Baffled by problems of unemployment and business stagnation, governments resorted to high tariffs in an attempt to preserve the home market for their own producers.  The depression was also responsible for a marked increase in armaments production, which was seen as a means of reducing unemployment.  Despite the misgivings of some within the governments of Britain and France, Germany was allowed to rearm.  Armaments expansion, on a large scale, was first undertaken by Germany about 1935, with the result that unemployment was substantially reduced and business boomed.  Other nations followed the German example, not simply as a way of boosting their economies, but in response to Nazi military power.  The depression helped as well to produce a new wave of militant expansionism directed toward the conquest of neighboring territories as a means of solving economic problems.  Japan took the lead in 1931 with the invasion of Manchuria.  The decline of Japanese exports of raw silk and cotton cloth meant that the nation as a consequence was unable to pay for needed imports of coal, iron, and other minerals.  Japanese militarists were thus furnished with a convenient pretext for seizing Manchuria, where supplies of these commodities could then be purchased for Japanese currency.  Mussolini, in part to distract the Italians from the domestic problems brought on by economic depression, invaded and annexed Ethiopia in 1936.  Finally, the depression was primarily responsible for the triumph of Nazism, whose expansionist policies contributed directly to the outbreak of the war.”

Just look at that.  It’s glaring.  Economics is the key to understanding so much about life.  It’s not just about investing and earning money.  It literally runs the major events of history!

First off you see that if some system is imposed on people which is completely unfair, leaving people oppressed, you always get wars.   The indemnities imposed on Germany brought us Hitler and the Nazis.   When the good ol’ boys started carving up the nations after World War I, splitting up the “spoils”, that too got half the world pissed off.

Then we have international trade.  Nations start to trade with one another but then one of them starts to win, and domestic businesses start to go under, losing to their international competitors.  This then leads to unemployment and lost jobs, and when people lose their jobs and have no money to buy groceries and pay their bills, they get angry.  Tariff walls are thrown up, hoping to protect domestic businesses from foreigners to keep jobs alive.  But this causes big international corporations to lose substantial profits, and they start complaining to their leaders, “What are you going to do about it?”   International tensions build.

Then there’s the business trade cycle.  To this day, much of the business cycle remains a mystery.  But as we all know, it has its cycles, sometimes giving prosperity, and then other times dipping down leading to unemployment.   Then the Keynesian economists start telling governments to spend on war munitions in order to boost the economy.  Nations throughout the past century have followed this sort of advice and what do we get?  Let’s look at Nazi Germany.  Watch as the production of military armaments leads to a spiral of destruction.

The Germans were blamed for all the problems of World War I, and had to pay for all the damages sending their economy into a tailspin.  Huge taxes were imposed on the people and that money was shipped off to the victors of the first World War, to pay for damages.

So their people are broke and don’t know how they’re going to make it.  The high taxes run off businessmen who find it more profitable to do business elsewhere.  This leads to increasing unemployment and the government doesn’t know what to do.  Prior to the first World War they were the pride of the world.  They were on top of their game, leaders in science, politics, and philosophy.  Now those same people  find themselves incapable of even buying groceries to get them through the week.

Naturally everyone’s angry.  The people know they’re better than where they’re finding themselves, and they’d had enough.  The people press their leaders to do something.  But what could possibly be done in such a situation?  They’re already broke because of the high war indemnities imposed on them.  This leaves only one option.  They begin printing money and giving it out to people in the form of unemployment insurance.   It’s very unfortunate, but you can’t do things like this without serious economically destructive ramifications.  Next thing you know they’re rolling wheel-barrels of currency to buy a loaf of bread.  And the more money they print, the less incentive businessmen have to stay because their profits and savings are being destroyed, so unemployment only gets worse.

This unfair and unjust weight on Germany led the people to accept a radical leader like Hitler, who promised change.   Then they start producing tons of military armaments to get their economy out of their recession, and this scares all the other nations so they too start cranking out weapons.   And then the tension builds, everyone watching everyone else.  Everyone’s nervous.

With a stockpile of tanks, missiles, and other weapons, the greed sets in.  This happens by necessity.  Politicians tend to be greedy opportunists.  After all, why would someone like Mayor Bloomberg spend millions of dollars of his own personal money on his political campaign just to be a city mayor, if there wasn’t all sorts of inside deals being made making it worth his while?

Big business starts talking to these greedy opportunist politicians and the weapons are put to terrible use.  Countries start invading their neighbors to take their stuff.  Off goes Mussolini to take Ethiopia,  Japan takes Manchuria, and on and on.  The people go along with Mussolini because they too were in a depression.  Japan’s reasons were also economic.  They needed supplies.

Kaboom!  The whole world’s at war!  Everyone trying to protect their interests and take someone else’s stuff.

This isn’t a game.  I can’t stand that economic theory, saying you can boost your economy by government spending on military munitions.  Yeah, when a recession kicks in just go and start stockpiling tanks and building bombs.  See where it takes us!  Convert all your factories over and start making missiles and machine guns.  Even if it does help alleviate unemployment (and I don’t think it really does), look at what it leads to!   We can’t live like this.  We can’t.

Several months ago I was talking to a friend of mine from Scotland, and I was saying that we need a one world government.  He told me he wouldn’t want such a thing, unless it was his government running the show.   He’s like most people.  Nationalists.  Everyone’s attached to whatever nation they live in, unable to grasp these problems.

These cycles will continue to exist and will never be eradicated without a one world government.  International competitors will beat out domestic companies, leading to lost jobs and unemployment.  Nations will continue to have their individual armies, pointing their guns at one another.  Complex trade wars with tariffs and currency manipulation will continue to go on.

I could talk all day about how important economics is.

Ever think of moving to Missouri?  It’s really nice.  I love it here.  And man will you be impressed when you come and take a look at our schools!  Your kids’ mouths will drop as you tour our campuses.

Olympic sized swimming pools, recording studios,  fencing programs… yep, I’m not kidding.  Sounds like a private country club for the rich, but no.  It’s Missouri’s bloated public schools.  Apparently a belief has set in that schools are not about educating kids in government, economics, mathematics, and science, but are instead social clubs.

“School officials say the cuts are necessary to keep the district from plowing through what little is left of the $2 billion it received as part of a groundbreaking desegregation case.”

2 BILLION!!!  That’s not million.  That’s BILLIONS.  We’re talking Bs here.  Not Gs.  Not Mils.  Bs!  One city!  One school district!  And what did they spend it on?

The district went on a buying spree that included a six-lane indoor track and a mock court complete with a judge’s chamber and jury deliberation room. But student achievement remained low, and the anticipated flood of students from the suburbs turned out to be more like a trickle.

Who needs an imagination.  I’m sure the kids could never imagine what a court proceeding would look like without a complete mock courtroom and judge’s chamber.  Back when I was in school, we had a field trip and visited the courthouse.  Man, those were the days!

Hard to remember the old times.  Back then I remember the gym coach blowing the whistle and us all running outside around the lawn, and then playing soccer, kickball, and baseball out there.  Today?  No way.  That’s totally old fashioned.  Who goes outside?   They need an indoor six-lane track!

“This year alone officials expect to overspend the $316 million budget by $15 million and if nothing changes, the district will be in the red by 2011.”

And no matter how much money we pump into our schools, the kids test scores keep dropping.

Kansas City is among the most striking examples of the challenges of saving urban school districts. The city used gobs of cash to improve facilities, but boosting lagging test scores and stemming the exodus of students were more elusive.

So after blowing all the money, now our schools crawl to the Federal Government for more cash.  But uh oh, Obama’s administration has blown all that money.  There’s trillions allocated for the nuclear missile program to blow up the non-existent Soviet Union.  Trillions for the wars in Afghanistan and Iraq.  Trillions for Wall Street and the banker bailouts.  But schools?   Healthcare?   Nah.

Close the schools down guys.  Don’t have insurance?  Can’t afford it even though unemployment is rampant?  Sorry!

Kansas City isn’t far from where I live.   Our government politicians, school administrators, the whole lot of them.  All complete failures.  No priorities at all.

One of the youngest speakers at a forum, 9-year-old Richard Fisher III, had tears in his eyes as he begged administrators to keep his school open.

“Why do you want to close down our school?” asked Fisher, still clad in his blue and white school uniform. “We learn, play and have fun.”

There’s nothing more to say.

That’s unemotional Jason talking, and I need to apologize.  I need to be careful how I say things, and clarify things more.   I always fail in this area.  I say things unemotionally and don’t think about how it may hurt people.  I wasn’t implying that people who aren’t earning any money are not valuable in any sense at all.   I was referring to value on a per transaction basis.  What I was saying is kind of subtle.  I meant you only earn money WHEN you provide value to someone, and a lot of that depends on the circumstances. It’s really a complicated issue.  I should finish up that conversation.

There’s a lot of talented people who are great at what they do, yet due to all kinds of circumstances find themselves in a difficult situation.  Take the freelance computer programming industry for instance.  Years ago I could land all kinds of deals for companies, writing software projects for them.  Nowadays it’s rare for me to land a small to middle size deal.  Why?

Websites such as rentacoder.com have sprung up, where you can hire software developers from India, and other foreign countries, and they’ll do the work for dirt cheap.  And I really mean dirt cheap.  A job I would charge $1000 for, they’ll do for $45.  Obviously it’s impossible for me to compete.

Does this mean I’m not valuable?  No, not at all.  I could write software code far better than most all of them over there.  After all, I’ve been doing it for over 10 years.  But, they’re getting the deals because they offer to do everything for so cheap.  I used to make all kinds of money doing middle sized projects, but nowadays, not so much.

Ah well.  *Shrugs*  What can you do?  I’m just not the type of person to sit around and whine about things.  If we were in a warzone, I’m the guy who sits in the corner, not saying anything, looking out the window.  The other guys in the squad start talking about wanting to be home, missing their family, and complaining whether the war is legitimate or not.   I’m the guy who glances over, squints and says to myself, “Well, we’re not at home.  Won’t be for a while.” … *takes drag off cigarette.*  “Might not ever make it home.  Well, I sure as hell know I’m not dying here.”   Then I put out the cigarette on the floor, cock my assault rifle, stand up, and walk out the room.   No use whining.  Whatever may have led to this, for now we’re in the warzone, and need to stay alert and start making our action plan.

The other day I was talking with my older brother, who owns a PC repair shop.  We talked about how it sucked that there’s no way for him to compete with the big companies when selling people new computers.  When you study the economics of monopolies, you find that within any industry where prices drop due to the quantity ordered, a natural monopoly is formed.

Take Dell computers for instance.   They get their hardware and software cheaper than my brother ever could because they order everything in such huge quantities.  I sometimes walk through Wal-Mart in amazement when I see whole computers for $350.  How in the world can they make money?  Thing is, if they got their hardware at the same prices we do, no, it would be impossible.  Windows alone would cost almost $200, and the monitor would be another $100, and we haven’t even got to speakers, or even the computer, much less a year subscription to an anti-virus service!  But they bulk order everything and get huge discounts.

Obviously this is very unfair.  But what do you do?  It’s just one of those markets with an impossible barrier to entry.  My brother will never be able to sell new computers and compete.

Is my brother not valuable, because he can’t sell the computer for as cheap as Dell?  Not at all.  I’m sure the computers he would build customers would be just as good as a Dell, if not better.  It’s just he’s not given the opportunity.

The argument for the monopoly arrangement goes something along the lines:  well, you like the cheap computers don’t you?  If we all go through a handful of big companies to get our computers, we all get our systems for cheap.  The consumer is much better off.

But then we come to the socialist argument.  Ok, so society goes through a handful of mega corporations for all their computers, and nobody else can compete.  Well then, why does a small handful of owners reap all the profits?  Michael Dell reaps more and more money, and eventually takes over the computer market and nobody can possibly compete.  It’s not necessarily even talent which keeps these mega companies on top any longer, it’s just that they can order in such bulk, the barrier to entry keeps any other company out of the market.

These are the kinds of situations where I’m ALMOST a socialist.  I agree it’s unfair.  I also don’t think it’s good to break up the monopoly, because sure, we could break up the big computer companies, and make them all compete with one another, but then we can’t get computers for cheap.  Prices for a new PC double.

But say we go the socialist route… Ugh, here comes the can of worms.  Who owns and controls Dell?  Does it become owned by the state?  The employees there, in some democratic fashion?  Ugh, I don’t like either of those.  If it’s state controlled then nobody has the profit incentive any longer, and service quality goes downhill.  When you go to order a new computer the website will be horrible, like the government websites.  You won’t even be able to find your way around, and then you’ll go to order a new system and it’ll take six months before you get it.   Politicians will start borrowing money from it, making cuts because they need more money for their war machine.

If it’s democratically controlled by the employees, you get dumb people moving into decision making when they have no idea what they’re talking about.  The workplace would become like the government, with different party factions and standstills.  There’d be no nimbleness.

This is where Paul Samuelson’s income inequality arguments become valid, even though his textbook didn’t even bring up any of these arguments, because it sucks so bad.

Day by day it’s getting to where big corporations buy all their stuff in larger and larger bulk quantities, making it impossible for the small guy to start up his own business and compete.   These are the kinds of arguments Republicans don’t ever consider.  They act like it’s all about hard work and effort, and anyone who doesn’t succeed didn’t try hard enough.  That’s not the truth, though it does contain a germ of truth.  Effort does matter to an extent, but it isn’t the entire picture.

The big mega corporations are owned by the finance overlords of Wall Street, along with the super rich entrepreneurs.  That means all the profits flow to a handful of people in the society, the “owners”, and all of us have to work to earn petty wages.  Nobody can ever compete with them because they’re locked in.   This is a huge factor in income inequalities in this country.

Sure the monopoly makes prices cheaper, but it also leads to where all the profits go to a handful of people, and none of us make enough money to even buy the cheap computer!

This argument alone troubles me every day.  I walk in Wal-Mart to buy a gallon of milk, and think how there’s literally one or two guys who reap the profits from the entire store, and nobody can compete for those profits because they could never buy in such bulk quantities.  Where I live, the Wal-Mart is owned by two guys.  They pay their workers dirt.  Always cutting benefits.  Working people more and more.  Squeezing every last bit of efficiency out of the poor souls there.   And those two owners earn millions a year, and never even show up to the store.  Fat cats who live in a mansion, sipping champagne, driving their expensive cars.

So how can you fight back?  Minimum wage laws?  Labor Unions?  Taxing the rich?   Well, here’s what happens in the real world.   Here, let me search one of my economics texts.  Ah, here it is.  This is an economics textbook from the late 1990s, so it’s a bit dated, but it’s talking about Germany.   The principle it’s talking about still applies today.

“The Market is Mightier Than The Sword

A half century ago, German troops marched triumphantly into Eastern Europe to trigger World War II.  German focused economic activity there soon followed.    The idea was to use Eastern European resources, mainly its labor, to bolster German industrial output.  Germany’s ambitions were thwarted, and its economy was destroyed.

Fifty yeas later, the German economic recovery from the war is regarded by many economists as nothing short of remarkable.  Some refer to it as an economic miracle.  Its standard of living ranks among the highest in Europe, and Germany’s industrial capacity makes it one of the most powerful nations on the continent.

Here’s the irony:  Germany’s economic success has created the climate for a new invasion of Eastern Europe!  [Note:  He's talking about immigrants flocking there in droves, looking for good jobs.]  Admittedly, the causes and circumstances are entirely different, and unlike the old, the new invasion is welcomed in Eastern Europe.  At the same time, it is causing a growing uneasiness at home.  Why?  What has happened?

If you combine Germany’s robust economic growth rates with its strong labor unions and the government’s willingness to tax, the resulting high wage rates and taxes make producing elsewhere — where wage rates and taxes are lower — look awfully attractive.  The average German wage level of $30 an hour (nearly twice that of the United States and Britain) plus six weeks vacation and an extra month’s salary as a Christmas bonus may explain the large emigration of Germany’s leading industrial firms.  This exodus of German capital — including Volkswagen, Mannesmann, Audi and Henkel — employs several million East European workers.

The consequences of this extraordinary exodus on employment at home has been troubling, creating more than 12 percent unemployment.  German workers are wondering whether they will be able to hold on to the dwindling number of jobs and to the wage rates and fringe benefits they have become so accustomed to.

A survey by Germany’s Chamber of Commerce and Industry showed that 28 percent of its 6,000 leading industrial firms plan to move their production out of the country over the next three years.  Nearly two-thirds of these companies cited high labor costs as the principal reason.  Germany’s central bank, the Bundebank, records that investments abroad by German companies nearly doubled in 1995 and rose another 40 percent in 1996, and it predicts the trend will accelerate unless measures are taken to stem wage costs.”

When I go to the Huffington Post online, and read some of their articles, I always hear them advocating the unions and how minimum wage needs to go up up and up!

Problem is, without tariffs, the business owners, out of greed, will relocate to places like Mexico and set up shop there.  Especially if the workers require very little skill to operate the machinery.  They’ll just exploit cheap labor there, and then sell the same products here in the US.  Why pay the high labor costs?  Thank you NAFTA!

That’s what’s happened here in the USA.  Blue-collar factory jobs have relocated to places like Mexico, where the corporations can get cheaper labor.  Factories where our grandpas used to work, and earn a good middle-class living, are now relocated in foreign countries for cheap labor.  Those jobs just don’t exist anymore.

I agree, in principle, that minimum wage should go up, taxes on the mega wealthy should be implemented, and so on and so forth.  Problem is, if the corporations can relocate, you’ll run off all your jobs, and then won’t have anything but flipping burgers at Burger King!

(Lol.  Sorry for the side note here, but it’s funny how any time I want to think of the most god-awful job you could possibly get stuck working, I always think of Burger King!  That’s where I worked when I was 16.  Oh my god, I hated that job so bad.  I can only imagine having to make such a place my career.)

And tariffs are icky business too.  Especially with us here in America.  We import everything!  Borrow borrow borrow, and buy things other people make.   Really, economically the more people can trade with one another, including foreign nations one with another, the better off we all are.  It provides a greater division of labor and specialization.

This is also why I think we need a one world government, and one currency.  Then we could actually do policies such as taxing the rich, minimum wage increases, forcing the fat cats to provide huge benefits to their employees, etc., and it not lead to unemployment.  But for now, such things just aren’t in our best interests.

Then again, sometimes I get to thinking about Big Brother, and them micro-chipping us all like dogs, tracking us with GPS.  A one world slavery empire ruled by an all powerful government enforcing the will of the big corporations on us all!  Puppet leaders, all bought off by moneyed interests. Ugh, that’s just as scary, if not more so.

*Sigh*  Why is the real world so complicated?

Thinking on immigration, I get mad when I read articles in the New York Times, acting like immigration doesn’t matter.   Floods of uneducated immigrants really do take away low-end jobs and raise unemployment.  Whether it’s right or wrong, I’m not really to say.  But I hate it when they act like people like me are idiots, when we state that increased numbers of workers pushes down wages in those areas,.  It’s simple supply and demand, and common sense.

That same economics text I was quoting from earlier had this to say about immigration:

“The U.S. Constitution guarantees citizens the right to move freely within and between all 50 states.  An economics graduate from Purdue University can gather her belongings in West Lafayette and head for the Phoenix labor market, where wage rates are thought to be higher, without having to consider passports, visas, or immigration quotas.

But a graduate of McGill University in Montreal, Canada, with Phoneix on his mind, may get only as far as the international border at Plattsburg, New York.  Without a work permit issued by the U.S. Immigration and Naturalization Service, the McGill graduate stays in Canada.

Are the U.S. immigration laws extraordinarily restrictive?  Not really.  All governments tend to be selective in admitting immigrants, designing laws to meet domestic concerns.

The supply curve of labor, then, depends not only on the supply conditions in the labor market but also on the government’s immigration policy.  A move to the less restrictive immigration policy, for example, could shift the supply curve of labor in the receiving economy to the right, creating downward pressure on the wage rate.“

Hear that?  ALL governments tend to be selective in admitting immigrants, designing laws to meet domestic concerns.  Golly Gee!  That’s because floods of people taking away wages, and not having to pay taxes because they’re not citizens causes problems!

I must also say that this is from a Keynesian textbook!  Honestly, I think liberals have no conception of money or economics.  At all.  When I read the New York Times, they say such bullshit, all the time.  Same with the Huffington Post.  The crap they spew all the time is against common sense economics.

Progressives and liberals (How I hate those labels), are good about civil liberties, and ending wars, but have no concept of money.  No common sense.  They live in la la land.  They have these vague moral feelings, where they think everyone deserves everything, and we have to help every little cause, no matter the cost.  Republicans are war mongers, and have no respect for personal liberties.  They could case less if you lack medical insurance.  Rep. Grayson said it best.  The Republican idea of healthcare is don’t get sick.  And if you do get sick, just die.

I don’t like any of them.  Probably the guy who holds beliefs closest to my own would be Ron Paul, who is a libertarian/constitutionalist (…more labels), but I don’t agree with him on all things either.  I think college education should be provided to all as a right, and also medical care should be provided to all as well. I think the CIA and FBI are up to no good most of the time, and it’d be good to shut most of it all down.

Just the other day I read how Big Brother was collecting blood samples from every newborn baby.  They had built up a database of 5,000,000 new babies’ DNA, all stored in a big computer database.  Geez!  It just never stops.

I’m a duck out of water.  I waddle around, not fitting in anywhere politically speaking.

There’s a lot more to say about providing value, and monopolies.   Maybe sometime I’ll write about all the different types of monopolies, how they form, and different ways to think about them.  I only wrote about one type here.  This stuff really fascinates me.  I love economics.

There’s so much to monopolies, oligopolies, and the study of the big corporations and their control on things.  I’ll write more on it sometime.  I just barely scratched the surface.

When I talked about controlling value, this is the kind of stuff I had in mind.  The Dell corporation controls the “value” of new computers.  They build a high wall around that industry, and guard those profits from anyone ever entering.   The control of value, and all its effects, I think is the most fascinating subject there is.  In a sense, I suppose you could call it a study of power and control, but power is a bigger thing which includes more than just controlling value.

That’s what runs this world.  Control of value.

“. . .  The depression in the United States was also more severe than in the European democracies.  Industrial production shrank by about two-thirds.  The structure of agricultural prices and of common stocks collapsed.  Thousands of banks were forced to close their doors.  Unemployment rose to one-third of the total labor force.  An attempt to alleviate distress was contained in a program of reform and reconstruction known as the New Deal.  The chief architect and motivation of this program was Franklin D. Roosevelt (1882-1945), who succeeded Herbert Hoover in the president on March 4, 1933.

The aim of the New Deal was the preserve the capitalist system, by managing the economy and undertaking programs of relief and public works to increase mass purchasing power.  Although the New Deal did assist in the recovery both of individual citizens and of the country, through programs of currency management and social security, it left the crucial problem of unemployment unresolved.  In 1939, after six years of the New Deal, the United States still had more than nine million jobless workers — a figure which exceeded the combined unemployment of the rest of the world. Ironically, only the outbreak of a new world war could provide the full recovery that the New Deal had failed to assure, by directing millions from the labor market into the army and by creating jobs in the countless factories that turned to the manufacture of war material.“

Now I don’t think you have to be an economist to realize just how stupid this is.  Actually, I think you’d HAVE to be an economist to think something so ridiculous.

So we have a depressed economy and want to know how to turn things around.  What should we do?  According to mainstream economics, we find everyone who’s unemployed, and then tell them to produce bombs, tanks, machine guns, and missiles.  Even better, quit manufacturing things we need and use everyday.  Convert your factories toward the production of war munitions!   Then find a foreign country and fire away.  Prosperity is then on its way!

Can’t find work?  Come to the loving arms of your government, ready to strap you with a machine gun, helmet, and ship you off to a foreign land to kill the yellow man.  I was BOOOOORRRRRNNNN IN THE UUUSSSAAAAAA.  I WAS BOOOORRRRRNNNNN IN THE USSSAAAAA YEAAAHHHH.

This kind of thinking is mainstream thought, and is in our history books.  It’s right here written on this page, right here on my desk.  No matter how many times I read it, I can’t believe it.  It’s taught in our universities.  I even saw a woman on CNN Finance talk about this years ago.

This is wrong.  So wrong.  On so many levels.  You know, I’d write about what REALLY happened, but I’m too angry.  This is poison.  People gobble it up, and spout it out, even though there’s obviously something very wrong here.  How come the Iraq and Afghanistan wars aren’t producing unlimited prosperity to our nation?  Huh?  Why is unemployment shooting through the roof even while we have wars, wars, and more wars, and the printing presses running full boar?