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“Anarchy” really is a viable system of social order

January 8, 2010 Leave a comment

Nearly everyone I talk to has no idea (or more precisely doesn’t care) what anarchy means, what an “anarchist” supports.  Most associate anarchism with the Sex Pistols song.  Bad move.

Anarchy simply means the absence of monopoly government. 

Government is defined (even by Statists) as a monopoly provider of law and order services in a given geographic region.  There is no appeal process beyond the State.  It is defined as the “last appeal entity” in any jurisdiction when a dispute arises.

Anarchists believe in the power of voluntarism, spontaneous order and competition. 

Societies can order themselves through co-operation, not coercion.  Religions, social groups, charities – they all organise themselves cooperatively.  The govt organises society through compulsorily acquired property (theft through taxes) and through the use of monopoly force (via the police).

Spontaneous (not consciously designed) order can occur through the price mechanism.  Governments do not use the price mechanism to allocate resources; they use the political process and their own decision-making criteria, divorced from the price mechanism.  If a service is already being delivered by the private sector (such as coin production) the govt has to crush that industry in order to control that market.

Competition simply means a number of entities competing to provide the consumer the same product or service.  Govts should “compete” to provide law and order.  If a citizen doesn’t like a particular brand of “law and order” he should be able to sell up and move freely to a neighbouring state providing better law and order.  Hence, states should be as numerous and as small as possible.

My first introduction to anarcho-libertarian ideas was through this book by Robert Ellickson entitled Order Without Law: How Neighbours Settle Disputes.  After reading this brilliant book, I (naturally) asked myself “If neighbours can settle disputes efficiently themselves, why can’t all of us – society at large – do the same thing?  We are all essentially neighbours, and when we get into disputes all conflicts are essentially analogous to neighbourly disputes.  So why are there monopoly providers of so-called ‘law and order’ when we could probably (in the vast majority of disputes) do a much better job ourselves through voluntary arbitration/mediation services, appointed by disputants themselves (and through private insurance and security service providers in the case of protection of property and person)?”

I then went on to read Murray Rothbard, and found that he had posed the same questions.  Then I read Hans Hermann Hoppe and the Sun came out, shining brightly.  Hulsmann and de Soto simply added to the brilliant sunshine.

I now divide up the world into those ignorant fools who haven’t read these works and those Chosen Few who have.

Murray Rothbard begged for anarchists to be given a country, a region, to try out these ideas, to see whether they would work.

Well, as it happens, an area of the world is trying out these ideas, by default.  A “lawless” region of Africa has “fallen” into a state of true anarchy.  That region is a  secessionist area within the Ivory Coast.

And you know what’s happening? 

It is flourishing!  Check out what’s happening here.

And, ironically, when the central bank of Zimbabwe completely abandoned its attempts to control the monetary system and allowed “anarchy” to reign, with any currency (foreign or domestic) lawfully being permitted to be used for trade, guess what happened?  Trade flourished!  See what happened in 2009 here.

If we know for a fact that these ideas work, why don’t governments break up, why don’t they shrink, why don’t they abandon their “plans” for the benefit of the people?

Because they don’t exist for the benefit of the people.  They exist for themselves, to suck the lifeblood out of an economy.  They exist to expropriate property on behalf of their benefactors.

Remove the thief and the people flourish, just like you’d expect in any safe, civilized area of the city. 

Allow the rapists of the State to flourish and what you get is not anarchy, but chaos.

Who can deny that the biggest, most expensive State operations today are occurring in Iraq and Afghanistan?  Have you visited these “strong state” regions?  Do you know the “benefits” the internationalized State is providing the people in these regions?  Note: the Taliban are long gone from govt in Afghanistan and Saddam Hussein was hanged years ago now.  These “enterprises” are now run exclusively by Western govts and by the UN.

I ask you: Would you prefer to live as an ordinary person in the secessionist area of the Ivory Coast mentioned above or in Kabul?  Both are extreme cases at either ends of the spectrum: one with the complete absence of govt, and one with the greatest concentration of govt agencies (both “domestic” and international) on the planet.

Please think about it.  And please never associate anarchy with the Sex Pistols song ever again.

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Categories: Anarchy, Austrian School

Keynesian Krugman writes his own obituary

January 8, 2010 Leave a comment

Paul Krugman made me laugh today.  Really laugh!  Here is the funny piece from his blog:

This is the way the Chicago School ends.

Not with a bang, but with a cackle.

Brad DeLong, Justin Fox, and Paul Kedrosky have already weighed in on the not-available-online John Cassidy piece on Chicago economics.

Like them, I find it really sad. Here’s Eugene Fama, insisting that there was no financial crisis, just markets reacting rationally to an economic crisis caused by brain-eating aliens flouridated water something or other — hey, macro isn’t his department. John Cochrane, on the other hand, says that it’s all because George W. Bush gave a scary speech.

What struck me was the fact that Cochrane is still trying the argument-from-authority thing: this was all proved false in the 1970s, nobody serious believes in it, etc.. At this point he knows (although one wonders whether he did originally) that there’s this thing called New Keynesian economics on which a lot of smart people have been working since the mid-1980s. And yes, the models do allow for effective fiscal policy. But Cochrane is still using the Lucas giggles and whispers line.

It’s hard to avoid the sense that Chicago just turned inward on itself circa 1982, and stopped paying attention either to the world or to anyone not of its tribe. And now it finds that the rest of the world is returning the favor.

Two things made me laugh.

First, the brain-eating aliens/flouridated water line was both unexpected and very witty.  I liked it from an economist who is normally so serious about his own profession.

Second, the obituary he writes for the Chicago School is exactly the obituary I would write for the whole mainstream – particularly the Keynesians.  Henry Hazlitt cut Keynes to bits half a century ago, and Keynesianism still carries on, like a zombie, brain-dead, lifeless, causing death and destruction wherever it is allowed in.  After the Keynesian-induced disasters of Japan and the US, each time PK visits any country the call should go out across the land:

“A Keynesian is approaching!  Shut the town gates!  Hide the women and children!  Run!  To the men: Get the crucifixes, the Holy Water and the garlic and the shot guns and let’s all meet in the town square to distract the Keynesian zombie away from the gold and our women!  Apparently all Keynesian zombies love brains – give me some mad cow brains and perhaps he’ll eat those!”

Paul Krugman writes accurately of the Chicago School’s demise but doesn’t realise his words could apply equally to himself and Keynesians generally.

Then again, zombies can never tell that they’re already dead. 

Shhh…. don’t tell him (he might start staggering my way!).

How can Peter Schiff see simultaneous hyperinflation and high unemployment?

January 6, 2010 Leave a comment

To pick up a brilliant point made by Peter Schiff in the video to the previous post below (but not understood by those on the brain-dead panel):

Inflation is simply debasement of the currency, or increases in the money supply.  Inflation is occurring, just not where you expect it.  It’s occurring in govt pork and govt employee numbers and in govt contractors making big bucks off govt spending.

Banks are lending massive amounts of new money – to governments around the world.  They are the only entities the banks can find who will pay them back (even if it has to be in worthless paper currency – ha ha ha!).

Therefore, the “de”-flation that we should have seen occur to “cure” the credit bubble has been deferred – by way of an increase in brain-dead govt employees! 

This is unlikely to “cover” for the loss in private sector activity because govt spending is generally unsustainable and therefore has a lower “velocity of money” than genuine private sector investment.  However, these ridiculous “heroin stimulus packages” do cover up (temporarily and only to some degree) the deflation we should have had, coming out of the “credit boom” years.

Because of the massive distortions and misallocations caused by (1) the classic ABCT credit-fuelled Ponzi-boom and (2) now the ridiculous unsustainable govt spending, crowding out the private sector’s access to cheap capital for real sustainable projects that the public actually wants, we are now going to get (at the end of the day) much higher unemployment. 

Higher unemployment is baked into the cake because of the massive stimulus spending.  Take any specific “stimulus” measure, be it “Cash for Clunkers” in the US or the “First Home Buyer’s Grant” or incentives for home insulation or solar panels.  Now, simply ask yourself:

What happens when the “stimulus spending” stops? 

Most of the “stimulus spending” simply brings forward future consumption patterns – it re-allocates inter-temporal spending patterns, but doesn’t actually increase the total consumption over time.

I explained all of this in much more detail several months ago here.  I see the balance of the forces being slight deflation rather than hyperinflation, but the dynamics are the same.  I see possible inflation (possible hyperinflation) in 2012-2015, but that’s a long way off – and I mightn’t even be alive then (here’s hoping!).

Only Austrians such as the brilliant Peter Schiff understand that you can have very high inflation and very high unemployment because of preceding bad investments and unsustainable economic activity, leading to an economic dead-end rather than to ongoing economic activity.

When you build on Ponzi-quicksands, you fall into Ponzi-quicksands.

Political giant Ron Paul on the causes of the Lost Decade

January 6, 2010 Leave a comment

The fact that the best politician in the world is relegated to “kook” status in his own “Land of the Free, Home of the Brave” country proves conclusively to me that there is no God.

Here is his brilliant analysis of the real causes of the Lost Decade:

This past week we celebrated the end of what most people agree was a decade best forgotten.  New York Times columnist and leading Keynesian economist Paul Krugman called it the Big Zero in a recent column.  He wrote that “there was a whole lot of nothing going on in measures of economic progress or success” which is true.  However, Krugman continues to misleadingly blame the free market and supposed lack of regulation for the economic chaos.

It was encouraging that he admitted that blowing economic bubbles is a mistake, especially considering he himself advocated creating a housing bubble as a way to alleviate the hangover from the dotcom bust.  But we can no longer afford to give prominent economists like Krugman a pass when they completely ignore the burden of taxation, monetary policy, and excessive regulation.

Afterall, Krugman is still scratching his head as to why “no” economists saw the housing bust coming.  How in the world did they miss it?  Actually many economists saw it coming a mile away, understood it perfectly, and explained it many times.  Policy makers would have been wise to heed the warnings of the Austrian economists, and must start listening to their teachings if they want solid progress in the future.  If not, the necessary correction is going to take a very long time. 

The Austrian free-market economists use common sense principles.  You cannot spend your way out of a recession.  You cannot regulate the economy into oblivion and expect it to function.  You cannot tax people and businesses to the point of near slavery and expect them to keep producing.  You cannot create an abundance of money out of thin air without making all that paper worthless.  The government cannot make up for rising unemployment by just hiring all the out of work people to be bureaucrats or send them unemployment checks forever.  You cannot live beyond your means indefinitely.  The economy must actually produce something others are willing to buy.   Government growth is the opposite of all these things.

Bureaucrats are loathe to face these unpleasant, but obvious realities.  It is much more appealing to wave their magic wand of regulation and public spending and divert blame elsewhere.  It is time to be honest about our problems.

The tragic reality is that this fatally flawed, but widely accepted, economic school of thought called Keynesianism has made our country more socialist than capitalist.  While the private sector in the last ten years has experienced a roller coaster of booms and busts and ended up, nominally, about where we started in 2000, government has been steadily growing, because Keynesians told politicians they could get away with a tax, spend and inflate policy.  They even encouraged it!  But we cannot survive much longer if government is our only growth industry.

As for a lack of regulation, the last decade saw the enactment of the Sarbanes-Oxley Act, the largest piece of financial regulatory legislation in years.  This act failed to prevent abuses like those perpetrated by Bernie Madoff, and it is widely acknowledged that the new regulations contributed heavily not only to the lack of real growth, but also to many businesses going overseas.

Americans have been working hard, and Krugman rightly points out that they are getting nowhere.  Government is expanding steadily and keeping us at less than zero growth when inflation is factored in.  Krugman seems pretty disappointed with zero, but if we continue to listen to Keynesians in the next decade instead of those who tell us the truth, zero will start to look pretty good.  The end result of destroying the currency is the wiping out of the middle class.  Preventing that from happening should be our top economic priority.

Shove that up your pipe and smoke it, JQ.

Myopic mainstream economists narrow their blinkers even further

January 5, 2010 Leave a comment

I’ve commented previously that mainstream economists wish Austrian economics was dead, wish Austrian analysts never existed, and wish Austrian predictions on the GFC would be wiped off the face of the earth forever.

Austrians show mainstream economists up for the egocentric little blind bureaucrats they really are – sycophants to the bankers and the Establishment.

No one likes to look in the mirror and see a shallow status-seeking shill staring back at them.  To know a small group of economists nailed the GFC and are laughing at Keynesian stupidity day after day (check out the US unemployment figures! Ha Ha Ha!) – this is, understandably both frightening and infuriating.

Still, it is amazing how much the useless academics (publishing useless articles in their obscure journals) obsess about the “influence” of the Austrian School.  If it’s so “out-dated” why criticise it at all? 

There is NOT ONE working Austrian Professor of economics at ANY prestigious university in either the UK or Australia.  Not one.  Clearly the academic culling has been as successful as… well… as any govt-backed genocidal operation has been (they’re generally pretty successful judging by history).

The last remnents, the last holdouts against Fabian socialism still annoy the academic Daleks.  They still scream “Exterminte! Exterminate! Exterminate!” to try to “cleanse” the academy of any ideological impurities.

So much for academic freedom in academia!  You would get more open-minded discussion in a Catholic convent compared to the average economics dept in Australia.

John Quiggin, Australia’s poor attempt to produce a Paul Krugman, reloads and shoots blanks at the Austrian target, yet again. 

Why he bothers when no one in Australia actually understands Austrianism is beyond me. 

It’s not taught in ANY university in Australia.  It’s not even mentioned in any curriculum.  I speculate that most economics students in Australia, if pressed, would think “Austrian School” is a school of anti-Semitic Fascist Nazi propaganda promoted during the Second World War, rather than a school of libertarian thought associated with liberal Jews such as Ludwig von Mises and Murray Rothbard.

This probably says something about both the quality of university education in Australia and the reflexive associations most Anglos still have to the terms “German” or “Austrian” philisophical thought.

Getting back to mainstream zealot JQ, he states the following:

But the Austrians balked at the interventionist implications of their own position, and failed to engage seriously with Keynesian ideas.

The result (like orthodox Marxism) is a research program that was active and progressive a century or so ago but has now become an ossified dogma. Like all such dogmatic orthodoxies, it provides believers with the illusion of a complete explanation but cease to respond in a progressive way to empirical violations of its predictions or to theoretical objections.

Whether he’s being deliberately misleading here or just stupid I don’t know.  Austrians scream for a return to the gold standard to stop the mad credit-fuelled misallocation of resources that inevitably leads to financial crises – they do not support “mopping up” the crises afterwards with even cheaper credit or more crazy stimulus spending by govt.  What’s inconsistent about that?  What’s dogmatic about that?  Where’s the Keynesian engagement with Austrians?

To quote WP’s summation of Murray Rothbard’s position on money production:

Rothbard believed the monopoly power of government over the issuance and distribution of money was inherently destructive and unethical. The belief derived from Ludwig von Mises and Friedrich Hayek’s Austrian theory of the business cycle, which holds that undue credit expansion inevitably leads to a gross misallocation of capital resources, triggering unsustainable credit bubbles and, eventually, economic depressions. He therefore strongly opposed central banking and fractional reserve banking under a fiat money system, labeling it as “legalized counterfeiting”[42] or a form of institutionalized embezzlement and therefore inherently fraudulent.[43][44]

He strongly advocated full reserve banking (“100 percent banking”)[45] and a voluntary, nongovernmental gold standard[21][46] or, as a second best solution, free banking (which he also called “free market money”).[47]

In relation to the current central bank-managed fractional reserve fiat currency system, he stated the following:[48]

“Given this dismal monetary and banking situation, given a 39:1 pyramiding of checkable deposits and currency on top of gold, given a Fed unchecked and out of control, given a world of fiat moneys, how can we possibly return to a sound noninflationary market money? The objectives, after the discussion in this work, should be clear: (a) to return to a gold standard, a commodity standard unhampered by government intervention; (b) to abolish the Federal Reserve System and return to a system of free and competitive banking; (c) to separate the government from money; and (d) either to enforce 100 percent reserve banking on the commercial banks, or at least to arrive at a system where any bank, at the slightest hint of nonpayment of its demand liabilities, is forced quickly into bankruptcy and liquidation. While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where banks can continually innovate in forms of credit, make free banking an attractive alternative.”

JQ can’t have it both ways.  He can’t say the Austrians are “dogmatists” screaming mindlessly for a return to the gold standard and also that we “want” to scream for paper monetary stimulus at the end of the credit cycle, but for ideological reasons can’t bring ourselves to do so (rubbish).

If pushed, I’d prefer the term gold standard “dogmatist” to “sell out” any day of the week.

He goes on to add, bizarrely, that “the [Austrian] label has been increasingly associated with gold bugs, critics of fractional reserve banking, neo-Confederates and general fringeness.”  In other words, maddies and psychos.

Support for the gold standard is not mindless dogma (unlike Keynesianism which is).  To quote again from the WP article on the Austrian School’s view of inflation:

The Austrian School has consistently argued that a “traditionalist” approach to inflation yields the most accurate understanding of the causes (and the cure) for inflation. Austrian economists maintain that inflation is by definition always and everywhere simply an increase in the money supply (i.e. units of currency or means of exchange), which in turn leads to a higher nominal price level for assets (such as housing) and other goods and services in demand, as the real value of each monetary unit is eroded, loses purchasing power and thus buys fewer goods and services.

Given that all major economies currently have a central bank supporting the private banking system, almost all new money is supplied into the economy by way of bank-created credit (or debt). Austrian economists believe that this bank-created credit growth (which forms the bulk of the money supply) sets off and creates volatile business cycles (see Austrian Business Cycle Theory) and maintain that this “wave-like” or “boomerang” effect on economic activity is one of the most damaging effects of monetary inflation.

According to the Austrian Business Cycle Theory, it is the central bank‘s policy of ineffectually attempting to control the complex multi-faceted ever-evolving market economy that creates volatile credit cycles or business cycles, and, as a necessary by-product, inflation (especially in asset markets). By the central bank artificially “stimulating” the economy with artificially low interest rates (thereby permitting excessive increases in the money supply), the government-sponsored central bank itself allows debasement of the means of exchange (inflation), often focused in asset or capital markets, resulting in “false signals” going out to the market place, in turn resulting in clusters of malinvestments, and the artificial lowering of the returns on savings, which eventually causes the malinvestments to be liquidated as they inevitably show their underlying unprofitability and unsustainability.[38]

Austrian School economists therefore regard the state-sponsored central bank as the main cause of inflation, because it is the institution charged with the creation of new currency units, referred to as bank credit. When newly created bank credit is injected into the fractional-reserve banking system, the credit expands, thus enhancing the inflationary effect.[39]

The Austrian School also views the “contemporary” definition of inflation as inherently misleading in that it draws attention only to the effect of inflation (rising prices) and does not address the “true” phenomenon of inflation which they believe is the debasement of the means of exchange. They argue that this semantic difference is important in defining inflation and finding a cure for inflation. Austrian School economists maintain the most effective cure is the strict maintenance of a stable money supply.[40] Ludwig von Mises, the seminal scholar of the Austrian School, asserts that:

“Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”[41]

Following their definition, Austrian economists measure the inflation by calculating the growth of what they call ‘the true money supply’, i.e. how many new units of money that are available for immediate use in exchange, that have been created over time.[42][43][44]

This interpretation of inflation implies that inflation is always a distinct action taken by the central government or its central bank, which permits or allows an increase in the money supply.[45] In addition to state-induced monetary expansion, the Austrian School also maintains that the effects of increasing the money supply are magnified by credit expansion, as a result of the fractional-reserve banking system employed in most economic and financial systems in the world.[46]

Austrian School economists claim that the state uses inflation as one of the three means by which it can fund its activities, the other two being taxing and borrowing.[47] Therefore, they often seek to identify the reasons for why the state needs to create new money and what the new money is used for. Various forms of military spending are often cited as reasons for resorting to inflation and borrowing, as this can be a short term way of acquiring marketable resources and is often favored by desperate, indebted governments.[48] In other cases, the central bank may try avoid or defer the widespread bankruptcies and insolvencies which cause economic recessions or depressions by artificially trying to “stimulate” the economy through “encouraging” money supply growth and further borrowing via artificially low interest rates.[49]

Accordingly, many Austrian School economists support the abolition of the central banks and the fractional-reserve banking system, and advocate instead a return to money based on the gold standard, or less frequently, free banking.[50][51] Money could only be created by finding and putting into circulation more gold under a gold standard.

At the beginning of his career Alan Greenspan, former chairman of the Federal Reserve, was also a strong advocate of the Gold Standard as a protector of economic liberty:

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.” [52]

Advocates argued that the Gold Standard would constrain unsustainable and volatile fractional-reserve banking practices, ensuring that money supply growth (“inflation“) would never spiral out of control.[53][54] Ludwig von Mises asserted that civil liberties would be better protected:

“It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings.”[55]

Notice how nuanced, how detailed, how sensible the arguments are for a return to gold.  Austrians sensibly look at history, see the madness of government, the repeated financial crises caused by over-issuance of paper money and conclude that a gold standard (a monetary system that has applied for 99% of human history) is a better alternative than the certainty of destruction caused by govt manipulation of property rights.

Is it “gold buggerism” to point this out?  Is it madness to point out the embezzlement inherent in fractional reserve banking?

Apparently, according to JQ. 

JQ is one weird dude.  He recognises the success of many Austrians predicting the GFC (and perhaps deeply resents it).  He recognises that nearly all mainstream economists failed dismally in predicting anything during this period (including the GFC).

What he doesn’t point out is that (probably) around 70% of practising academic economists in Australia would label themselves as Keynesians, neo-Keynesians or post-Keynesians (or some other variant of quasi-Socialist-Fascist thought), that the other 30% would probably label themselves as mainstream neo-classical economists and that NOT ONE OF THEM would label themselves as “Austrian” and NOT ONE OF THEM would have a clue what Austrianism is all about.

Which is why Australia as a nation is doomed to financial catastophe after financial catastrophe, why JQ’s home state of Queensland is a basket case (despite JQ’s sage socialist advice) and why virtually every state in Australia is headed for a fiscal and/or environmental Armageddon.

And why JQ is not counted amongst the 12 economists in the world who accurately predicted the GFC, but why I did predict the GFC (ha ha ha!) – despite having the burden of a full time non-academic job, despite being ridiculed and rejected for my “gold bug” beliefs in Oz, and despite there being no work for any Austrian economist in the whole of Australia.

JQ, with all his time and academic resources, is essentially a useless redundant fool amongst many useless redundant fools in academia sucking off the teat of the govt’s payroll, whilst screaming at the alleged venalities and corruptions of the private sector – whilst failing in his own job to warn of the precise nature of the GFC and STILL failing to provide accurate predictions regarding GDP, unemployment, stockmarket trends or any other vital piece of economic data needed by the govt and businesses.  Talk about useless!  Talk about redundant!

Notice how he hasn’t made ONE PREDICTION about 2010 on his own website, but instead issues a steady stream of arrogant “advice” about this policy prescription (ETS please) or that govt policy (no Qld asset sales!).  Perhaps making economic predictions is beneath him, but base advocacy of socialism isn’t.  Or perhaps he’s too gutless to make them, exposing himself to the reality that his Keynesian theories are useless outside the Dalek-infested world of tenured academia.

For an economist to be afraid (or be incapable) of making real world economic predictions – now that’s true economic Karma!

The Austrian School’s 7 Commandments

January 5, 2010 3 comments

As quoted from Jim Sinclair’s website:

The Austrian School’s 7 Commandments:

The Austrian free-market economists use common sense principles:

1. You cannot spend your way out of a recession.

2. You cannot regulate the economy into oblivion and expect it to function.

3. You cannot tax people and businesses to the point of near slavery and expect them to keep producing.

4. You cannot create an abundance of money out of thin air without making all that paper worthless.

5. The government cannot make up for rising unemployment by just hiring all the out of work people to be bureaucrats or send them unemployment checks forever.

6. You cannot live beyond your means indefinitely.

7. The economy must actually produce something others are willing to buy.

I myself would add an additional 3 Commandments, to get to the obligatory 10:

8. Every government bureaucrat should keep the following motto in mind when attempting to influence the economy: “First, do no harm!”

9. Central bank-supported fractional reserve banking is an economically distorting, ethically questionable activity.  In particular, no government should ever do anything to save any bank from the full consequences of a bank run, no matter what the short-term consequences.

10. Gold is God’s money.

Categories: Austrian School

The motivating madness of government fascism

January 5, 2010 Leave a comment

People don’t see crises coming because they believe in the rationality of government.  They don’t see the dynamic inherent in a coercive rent seeking entity that necessarily compels governments worldwide towards madness again and again and again.

WWI was madness.  The Great Depression was madness.  WWII was madness.  Hiroshima was madness.  The Cold War was madness.  Chernobyl was madness.  The deliberate death of the Aral Sea was madness.  The destruction of arable land worldwide to convert this precious fertile land into low-density residential development is complete madness.  Deliberate and govt-supported over-fishing worldwide is unsustainable madness.  The GFC was predictable madness.  The continued presence of the West in Afghanistan is madness.

Why do governments the world over act with such apparent suicidal, manic-depressive blind stupidity, such venal short-termism, such environmental destruction, such barbarity?

Because very simple incentive structures built up over time around the coercive activities of government compel it towards destructive barbaric madness.  Simple.

Those contractors supplying government make money out of what government does.  Government (originally) was developed to provide a limited range of essential services – law and order and defence.  Suppliers to government have a natural incentive to try to convince government to spend more, to make government bigger.  It’s an easy gig because governments can print to finance their own spending habits (unlike the private sector).

Governments then get bigger doing things they shouldn’t do.  And because there is no appeal process beyond government (all you can do is appeal to another agent of government), government has a natural tendency to get bigger because nothing can stop it short of complete anarchy.  So it keeps growing until chaos really does ensue.

This happens again and again throughout history and every time people are “shocked” by the chaos, by the suddenness of the social breakdown.  The Soviet Union, Iran, the US in the ’60s, Cambodia, the former Yugoslavia, Europe after WWI… all these regions experienced government-induced chaos, government supported madness.

The US will experience exactly the same social breakdown, the same insane bankruptcy, the same comic-tragic stupidity.  Why?  Because the dynamics of government compel the country towards this inevitable denouement.

Let me explain by providing a quote from Bill Bonner of Daily Reckoning:

Bethesda is one of America’s wealthiest suburbs. Money from all over the nation rolls this way. The playing field is tilted in Bethesda’s direction.

“I was sitting in the Starbucks, having a cup of coffee,” Elizabeth reported. “One man next to me was on the phone. He was talking about some deal he had done with the US Army in Afghanistan. It sounded as though he was very happy with it. The man next to me on the other side was on the phone too. He was a jollier fellow, talking loudly about how much money he had made. I thought he was a stockbroker or something like that. Then, I realized he was talking about a contract with the government.”

While the rest of the nation has suffered a setback over the last ten years…the Washington metropolitan area has boomed more than ever. Real estate prices are down…but less than other areas.

And when we looked for a house to rent, we expected to be able to name our price. We thought it would be a buyer’s market. Not so. Nice houses in Bethesda are still being sought after. How so?

Wars…bailouts…boondoggles – this area loves them. Federal employees’ earnings keep going up…and a higher portion of the US national income goes to Washington.

People make money out of the government’s fascist madness.  So the fascist madness increases.

Simple.

What’s hard to understand about rent-seeking?