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Wealth Can’t Be Redistributed If It Doesn’t Exist!

June 25, 2015

The simple concept that production comes before consumption must not be as simple to understand as I think. Since before the tech bubble popped in 2000, our Government and the Federal Reserve have tried to spend, and electronically print, our way to prosperity. Government spending and money printing are not just consumption activities, they also work to distort the production process. We have been consuming more than we have been producing for about a decade or more. We have essentially been eating our seed corn.

Government’s wealth distribution policies are put forth by politicians as charitable activities. But, since Government doesn’t produce anything, it must first confiscate what it redistributes. That is theft not charity.

Here are three short articles from Mises.org that address the above topic.

1)  Technology Needs Capital To Produce Economic Growth, by Frank Shostak. Here are some excerpts from the article.

“Most modern theories that emphasize the importance of new ideas and new technologies give the impression that these ideas and technologies have a “life of their own.” Many experts hold that because of the limited amounts of capital and labor, without technological progress, the opportunities for growth will eventually run out.”

“So regardless of how clever we are and regardless of various technological ideas, without an adequate pool of funding nothing will emerge. It is through the expansion in the pool of real savings that an increase in the stock of capital goods is possible. And it is the increase in the capital goods per worker that permits economic growth to emerge.”

2)  Wealth Must Be Created Before We Give It To The Poor, by Steve Patterson. Here are some excerpts from the article.

“Charity is seen as ethically superior to business. After all, what could make a greater impact on the world than giving to the needy?”

“This view of the world is shortsighted. While it’s true that charity helps people, business makes a far greater contribution to humanity. Virtually all of the increases in society’s standard of living are because of simple commerce, and it’s the poor, in particular, who benefit the most…”

“In the developed world, it’s easy to forget that poverty is the default state of human existence. Wealth is not found in nature; it must be created, and this is precisely the role of businesses and entrepreneurs. They are the force which takes us out of the state of nature. All cases of poverty have the same solution — not wealth distribution, but wealth creation. This is not merely a theoretical argument. It’s witnessed everywhere around the globe.”

“… Not everybody has the skills necessary to create a new invention or become a successful businessman. But that doesn’t preclude them from making a positive difference in the world. However, we should be realistic: a donation of furniture to Goodwill does not create the same ripple effect as selling affordable food or power tools to everyone.”

“Many economic truths work this way. We’re quick to praise what’s easily seen…… but we overlook or even condemn what happens behind the scenes….. The farmer, the butcher, the truck driver, the cook, the engineer, and the businessman should also be praised for their work. Without them, there would be no surplus food for the charity worker to give away.”

3) Let’s Hope Machines Take Our Jobs: We Want Wealth Not Jobs, by Peter St. Onge.

When we use technology and machines to become more productive it destroys jobs, and this is a good thing. This article explains this abstract concept that I have found to be difficult to get people to understand. The article starts with the thought experiment that a machine is created that is capable of producing everything with a push of a button. Its creation puts a lot of people out of work. Now what happens? Read the article it will make you think which is a good thing.

Related Article – What Comes First, Production Or Consumption, at austrianaddict.com.

Related Article – Capital Consumption, aka Eating Our Seed Corn, at austrianaddict.com.

Related Article – Real Savings = True Credit, Printed Savings = False Credit, at austrianaddict.com.

Related Article – Producing Capital Goods, Requires Restricting Present Consumption, at austrianaddict.com

Related Article – Why Do People Think The Government Is The Economy? at austrianaddict.com.

Related Article – Entrepreneurship Can Be A Stinky Business, at austrianaddict.com.

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Real Savings = True Credit. Printed Savings = False Credit

March 12, 2015

In this article titled, Understanding True Credit And False Credit, by Frank Shostak at mises.org, explains the difference between real credit that is backed by savings from real production, and counterfeit credit that is created by the printing press.

Don’t think of money when we talk in terms of real credit, think in terms of real things that are first produced, then saved and finally loaned as credit. Money is how we facilitate the exchange of goods and services either in the present or at some time in the future because of saving. Credit is a part of this future exchange.

Here are some excerpts from the article.

“Banks cannot expand true credit as such. All that they can do in reality is to facilitate the transfer of a given pool of savings from savers (i.e., those lending to the bank) to borrowers.”

“Consider the case of a baker who bakes ten loaves of bread. Out of his stock of real wealth (ten loaves of bread), the baker consumes two loaves and saves eight. He lends his eight remaining loaves to the shoemaker in return for a pair of shoes in one-week’s time. Note that credit here is the transfer of ”real stuff,” i.e., eight saved loaves of bread from the baker to the shoemaker in exchange for a future pair of shoes….Note that the saved loaves of bread provide support to the shoemaker. That is, the bread sustains the shoemaker while he is busy making shoes. This means that credit, by sustaining the shoemaker, gives rise to the production of shoes and therefore to the formation of more real wealth. This is the path to real economic growth.”

“The introduction of money does not alter the essence of what credit is. Instead of lending his eight loaves of bread to the shoemaker, the baker can now exchange his saved eight loaves of bread for eight dollars and then lend them to the shoemaker….Money fulfills the role of a medium of exchange. Thus, when the baker exchanges his eight loaves for eight dollars he retains his real savings, so to speak, by means of the eight dollars. The money in his possession will enable him, when he deems it necessary, to reclaim his eight loaves of bread or to secure any other goods and services.”

“The existence of banks does not alter the essence of credit. Instead of the baker lending his money directly to the shoemaker, the baker lends his money to the bank, which in turn lends it to the shoemaker. In the process the baker earns interest for his loan, while the bank earns a commission for facilitating the transfer of money between the baker and the shoemaker….Despite the apparent complexity that the banking system introduces, the essence of credit remains the transfer of saved real stuff from lender to borrower.”

“Trouble emerges when instead of lending fully backed money, a bank engages in issuing empty money (fractional reserve banking) that is backed by nothing….When unbacked money is created, it masquerades as genuine money that is supposedly supported by real stuff. In reality however, nothing has been saved. So when such money is issued, it cannot help the shoemaker since the pieces of empty paper cannot support him in producing shoes — what he needs instead is bread. Since the printed money masquerades as proper money it can be used to divert bread from some other activities and thereby weaken those activities. This is what the diversion of real wealth by means of money out of “thin air” is all about.”

“We can thus conclude that as long as the increase in lending is fully backed by real savings it must be regarded as good news since it promotes the formation of real wealth. False credit, which is generated out of “thin air,” is bad news since credit which is unbacked by real savings is an agent of economic destruction.”

Here is a previous post titled, Printed Money Doesn’t Represent More Savings, in which we talk about how electronically printing counterfeit money doesn’t produce any good or service, it is just the creation of a piece of paper that allows who ever receives it the legal right to demand someones production.

Related Article – What Comes First, Production Or Consumption, at austrianaddict.com.

Related Article – Capital Consumption aka Eating Our Seed Corn, at austrianaddict.com.

Related Article – The Role Of Interest Rates In A Market Economy, at austrianaddict.com.

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The Hidden High Cost Of Green Energy

January 27, 2015

Government politicians and bureaucrats have been pushing Green Energy for years. The reason these central planners are pushing this is because as Robert Bradley Jr. has stated, “When Government tries to pick winners and losers, it typically picks losers. Why? Because the free market consumers pick winners to leave the losers for Government.”

Even with all the Government regulations on the fossil fuel industry, and with all the subsidies and breaks the green energy sector has received, what’s left of the free market has chosen fossil fuels. Fossil fuels produce the most efficient energy at the lowest cost, which is why the market has chosen them to power our world. At some point in the future there may be a more efficient and lower cost source of energy, but not even Government power can bring this into the future before it’s time. When Government tries to bring the future into the present, which is also what they try to do when they electronically print counterfeit money, they create a misallocation of resources. In other words, they waste scarce resources because economic reality trumps the utopian vision of the world they are trying to impose on us.

No central planner or board of central planners, can produce a better order than the spontaneous order produced by millions of people cooperating and competing in the free market.

Here are some articles that explain why fossil fuels are better than green energy, and will be for the forseeable future.

150 Years Ago, Scholars Knew The Need Of Dense, Not Intermittent Energy, by Robert Bradley Jr. at instituteforenergyresearch.org.

Making The World A Better Place – By Using More Fossil Fuels, by Alex Epstein, at news.nationalpost.com.

Climate Alarmist Turn Back The Clock, by Viv Forbes, at masterresource.org.

Government Mandates Keep Electric Auto Manufacturers In Business, at instituteforenergyresearch.org.

Power Plant Closures, at instituteforenergyresearch.org.

 

THE STORY OF ELECTRICITY

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Why Stop At Community College? Let’s Make Everything Free!

January 20, 2015

President Obama wants to make tuition free at 2 year community colleges. Here is an excerpt from the White House Fact Sheet: Free Community College For Responsible Students, at whitehouse.gov: “Today the President is unveiling the America’s College Promise proposal to make two years of community college free for responsible students, letting students earn the first half of a bachelor’s degree and earn skills needed in the workforce at no cost.”

WHAT IS AN ECONOMIC GOOD

College education can’t have “no cost”, because it is an economic good. No matter how much the Presidents utopian vision of the world tries to tell us it isn’t an economic good, it is. What is an economic good? It is a good that is scarce and/or has to be brought to the market by the use of labor and capital. In other words it has to be produced. Air and sunlight are examples of non economic goods because they exist in abundance without having to be produced by anyone. There are very few non economic goods.

Someone has to pay for an economic good. The producer pays the original cost for the production of an economic good. If the good can’t be exchanged at a price that covers the cost, plus a profit, it tells the producer that there is no market for the good and the producer will cease production and absorb the loss.

I love the phrase “AT NO COST“. There is no such thing as, at no cost, in a world ruled by scarce resources that have alternative uses. Economic goods always have a cost and no amount of rhetoric can escape this reality. Political rhetoric is an attempt to shift the cost to someone else. I suspect we, the tax payers, are going to be forced to pay the cost for this new “free” good. Let’s take a look at this from another angle. Instead of shifting the cost of community college to the tax payers, lets see if we can shift the cost to some other individuals.

LET’S MAKE EVERYTHING FREE!

If educating our children is so important that we need to make it free, let’s make the professors volunteer to teach at no cost. Let’s make the workers at the colleges provide their services at no cost. Let’s make text-book companies provide their books at no cost. Let’s make businesses who support the infrastructure of the college provide their good of service at no cost. This would lower the cost of college significantly or possibly make it free if we went far enough down the chain of production.

What would happen if Government bureaucrats mandated that every good and service was free? Would you continue to work as many hours at your job, or would you spend some of your time doing other things that are now free? Anybody with a degree of common sense knows that this wouldn’t work. No one would provide their good or service for free. People trade their good or service for money, and then exchange this money for other goods (food, clothing, shelter, etc.) that allow them to survive every day. If everything was free they wouldn’t need to work.

When you went to the grocery would you choose the ground beef you’ve always purchased, or would you upgrade to ground sirloin or a T-Bone steak? When it was time to get a new car would you choose a used car like you’ve always chosen or would you get a new car?

Do you see the problem? People will choose to consume more things and different things than they would have when there was a price on goods. People will also produce less because they know they can get what they want for free without any corresponding production. We can’t escape the reality of the world we live in. We live in a world of scarce means that have to be used to satisfy the unlimited ends desired by all individuals. Scarce resources, time, labor, and capital have to be rationed in some way. There are three ways to ration scarce resources: 1) through prices in a free market economy, 2) by bureaucrats in a centrally planned economy, 3) or by fighting over them. Voluntary cooperation in a price coordinated free market economy uses scarce resources in the most efficient way possible. It also satisfies a higher amount of ends out of the unlimited number of ends that exist among all individuals. There is no other way of rationing scarce resources, that currently exists, that can come close to what the free market has produced.

Free college isn’t free, the cost is just shifted. Obamacare is an attempt by Government to shift the cost of healthcare to the taxpayer. Welfare, food stamps, and subsidies to big businesses are other examples of shifting costs to the tax payer. As more is made free by Government officials, less will be produced in the free market. Central planning ultimately leads to a lower standard of living, or as F.A. Hayek has said, it’s “The Road to Serfdom“.

OTHER OBSERVATIONS ABOUT THE FACT SHEET

Here is another excerpt from the fact sheet; “Responsible.. students who attend at least half-time, maintain a 2.5 GPA while in college, and make steady progress toward completing their program will have their tuition eliminated.”

Why is the President going to discriminate against students who, through no fault of their own, are irresponsible. Why should they be made to pay? Why should there be a cut off at a 2.5 GPA? Why not 2.2 or 2.0? What heartless bureaucrat arbitrarily chose 2.5? Shouldn’t it be more like our graduated income tax? Wouldn’t it be “fair” to gradually increase the amount a student would pay at each incremental point they receive below a 2.5 GPA? The President is being mean and unfair, which are the very qualities he paints his political opposition with.

Read the fact sheet. It is a piece of political propaganda that would make Joseph Goebbels blush.

 

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Decreased Gasoline Demand + Increased Oil Supply = Lower Gas Prices

January 6, 2015

supply and demand market economy - stock photo

Gas prices have been dropping since July, and the overriding factors responsible for this drop are our old friends supply and demand. Even though Government interventions such as regulations, taxes, and electronically printed counterfeit money are factors that have to be adjusted for by the pricing process of the free market, or what’s left of the free market, supply and demand overwhelmingly determine prices.

PRICES COORDINATE PRODUCTION AND CONSUMPTION OVER TIME

Prices are how consumers demands for scarce resources, and producers supplies of scarce resources are coordinated at any particular moment in time. The law of supply and demand states that, more will be supplied and less will be demanded at a high price, and less will be supplied and more will be demanded at a low price. Prices are constantly adjusting for all the variable factors (including Government interventions) that go into the process of production and consumption.

In an article from July titled, Gasoline Consumption Is Down: Why?, we showed that consumption of gasoline in the U.S. has slowly declined by 66% over the last eight years. Look at the full chart here.

Year           Thousands of Gallons Per Day (April)
2006            61,020.8
2007            57,354.7
2008            56,307.4
2009            51,215.6
2010            46,016.2
2011            41,555.0
2012            29,684.0
2013            28,179.6
2014            20,109.1

We stated in the July article that “Since demand is low, the price should eventually go down“. This is coming true, even though we forgot to look at the “supply” side, of the law of supply and demand. If we look at the price of oil over the last six years, checkout the chart here,  we see that it has been trading on average of around $90 a barrel. We know that more will be supplied at the higher price according to the law of supply and demand. This higher price over time has allowed fracking to become a profitable way of extracting oil from the earth. In spite of the Governments attempt to slow down, or shut down, fracking by taking Federal land off-line for shale oil production, the supply of oil in the U.S. has almost doubled since 08 because of the fracking boom that has taken place on private land in Texas, North Dakota, Pennsylvania, and parts of Ohio. Under normal market conditions, when the underlying commodity (oil) used to produce a consumers good (gasoline) costs less, the price of the consumers good usually goes down.

This chart is from carpediemblog.

oil

THE MARKET CHOOSES FOSSIL FUELS AS THE WINNER OVER GREEN ENERGY

This shale revolution is an example of prices working their magic, by not only discovering new oil reserves, but also in using new technologies to find new methods of extracting the oil. It is sad and funny at the same time to see how this administration went all in for funding (investing in) green energy, only to find out that politicians and bureaucrats aren’t smart enough to be in the venture capital business (here). They thought their green energy “investments” would lead job creation in our new green economy. In fact, if it wasn’t for the jobs created by the shale oil revolution, there would be no job growth in the U.S. since 08.

This chart is from carpediemblog.

texasemp

Green energy companies that received your tax dollars have gone bankrupt (here). Think of all the tax payer funded resources, capital, time, and labor that has been wasted, because politicians and bureaucrats don’t understand, or don’t care, that price coordinated markets are more efficient in allocating scarce resources to their most valued uses, according to consumer demands, than Government central planners could ever be. Green energy will only become viable when it’s unsubsidized cost is lower than our current way of supplying energy. The discovery of new oil reserves has pushed the chance for green energy becoming a viable alternative to fossil fuels  much farther into the future. Unless an exponential advance in green energy technologies happens that reduces the cost per unit of green energy, compared to cost per unit of energy from fossil fuels, green energy will remain a quixotic crusade for the left.

WHAT HAPPENS NOW THAT THE PRICE IS FALLING

The process of supply and demand is always trying to find an equilibrium point. In an ever-changing world, this equilibrium point is always just out of reach of wherever the economy is at any given time. It’s difficult to understand that the future equilibrium point we are moving toward, is a creation of what individuals are doing in real-time. We also have to understand that economic data is a snap shot of what has happened in the past. And knowing that history is by its very nature tardy, we should also know that economic data has already been factored into the future equilibrium point that the economy has been trending toward both yesterday and today. And we also know that point will change tomorrow.

Since the price of oil and gas is falling, we know two things will happen or are already happening. 1) Less gas and oil will be supplied at these lower prices, and 2) more gas and oil will be consumed at these lower prices. The decisions that individuals are making about consumption and production of gas and oil at these lower prices, are already setting the stage for the next price shift upward. When this will take place nobody really knows. Look how long it took for gas and oil prices to go down from their highs over the last six years.

Here are a few things to think about.

1) If demand doesn’t increase a lot at these lower prices, it tells me the economy isn’t as strong as the experts have been telling us. Gas and oil are the energy that drives our economy. As economic activity increases more gas and oil will be consumed. If consumption levels stay close to the levels we have seen in the above charts, we will know how healthy our economy is.

2) If the price of a barrel of oil isn’t high enough to cover the cost of fracking a barrel of oil, fracking will begin to slow, and in some cases wells will have to be shut down. This isn’t good or bad, it is just the reality of changing market conditions.

3) How much of the fracking revolution is a bit of a bubble activity? We know the Fed has electronically printed trillions of counterfeit dollars over the years that, as Jim Grant says, “is money in search of mischief”. This counterfeit money has ended up in the financial markets and is searching for a higher rate of return. I’m sure this counterfeit money has found its way into the fracking industry. This counterfeit money is pulling future production and consumption into the present before it would have come to exist in an unhampered market. Any bubble part of the fracking industry will eventually be liquidated. This liquidation is the cure, it will purge speculative investment from the fracking industry, helping find the right amount of production that can be supported by true market conditions. This liquidation won’t happen if the Fed, along with politicians and bureaucrats, bail out the speculative investors. Lets hope they hate the oil industry enough to allow it to self correct.

4) If demand doesn’t increase at these lower prices, the price will eventually go up. If the amount of gasoline we use remains at a certain level whether the price per gallon is $2.00 or $3.00, what do you think the price will be? Put another way, if overall revenue is greater at the higher price than the lower price, the higher price will be charged.

5) Many say this lower price will stimulate the economy, because people will have money to spend on other things. While every increase in productivity helps the overall economy become wealthier; do we know what part of the increase in productivity in the oil industry is represented by what consumers save at these lower prices? The money that is not represented by an increase in wealth as a result of becoming more productive, doesn’t create anything new. Depending on how each individual chooses to use the money he saves at the pump, it is just going to be shifted from the oil and gas industry to a different sector of the economy.

6) When the price of oil and gas went up, the market (which means individuals) adjusted their activities around the new price. These adjustments ultimately helped produce the lower price that exists today. Individuals will now start to adjust their activities to the new lower prices. Whatever results from these new adjustments, even as the price goes up, is exactly what should happen.

7) Since gasoline consumption has been decreasing for years, State and Federal Governments have been collecting less tax revenue. With the price of gas going down, watch out for politicians and bureaucrats starting to talk about raising the gasoline tax, in order to repair and build highway infrastructure.

CONCLUSION

Prices coordinate supply and demand, according to what each individual desires in relation to the inherent scarcity that exists for any economic good or service. Prices don’t cause this scarcity, prices reveal the degree of the underlying scarcity.

Related Article – Is The Economy; Growing, Shrinking, Or Exactly Where It Should Be?, by austrianaddict.com.

Related Article – Capitalism vs. Crony Capitalism, by austrianaddict.com.

 

here are some

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Correcting Ebenezer Scrooge’s Economics, by Ryan McMaken

December 24, 2014

Humorous illustration cartoon of Ebenezer Scrooge with one green ornament - stock photo

Ryan McMaken’s article titled, Correcting Scrooge’s Economics (read here), takes a look at Charles Dickens’ classic novel, A Christmas Carol, through the lens of Austrian Economics.

Here are some excerpts from the article.

“As Charles Dickens himself admits, Ebenezer Scrooge is a thoroughly peaceful man, guilty of no true crime, who has robbed no one. Therefore, we must conclude that his wealth is a sign of his ability to please at least some people, and as Michael Levin notes: “Dickens doesn’t mention Scrooge’s satisfied customers, but there must have been plenty of them for Scrooge to have gotten so rich.”

Value is Subjective

“As Carl Menger demonstrated long ago, value is subjective and different persons value goods differently depending on the person’s goals in life. Does the person want to raise a family? Perhaps he wishes to be an independent scholar who devotes all his time to reading and research. Perhaps he wishes to be a hermit who prays most of the day….. A like or dislike of Christmas, for example, cannot be calculated this way.”

“Scrooge, who is apparently not a Christmas enthusiast, greatly values money, and likes to have plenty of it handy… In Human Action, Ludwig von Mises explained that human action stems from a desire to “remove unease” about one’s present situation. With Scrooge we see (if his fiancée is to be believed) that the thought of being destitute is a source of constant unease for him. Thus, he desires to build as much wealth as possible in the hope of being beyond the possibility of poverty.”

“As Scrooge’s primary goals is poverty avoidance, this colors how he views all economic action. His peers tend to not recognize this in him, either dismissing his as simply “odious,” as Mrs. Cratchit does, or as unhappy.”

“…. just as Scrooge’s colleagues and family members do not appreciate his ranking of values — Scrooge does not seem to appreciate that others might value money for different reasons.”

 Poor Scrooge

“Ebenezer Scrooge asks very little of his fellow human beings. He only asks that they keep up their ends of the bargains in the business agreements they make. It was just his misfortune, then, that he is surrounded by a bevy of control freaks who are hell bent on making sure Scrooge enjoys Christmas in just the way they want him to.”

“Scrooge returns the favor by maintaining a ferociously low opinion of most others around him, concluding quite often that others are simply fools for choosing to enjoy the company of friends and family when there’s money to be made.”

Related Article – Holiday Shopping? Consider The Economically Efficient Gift Of All: Cash, And Avoid The Deadweight Loss Of Christmas, by Mark J. Perry, at carpediemblog.

 

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The Real Thanksgiving Story

November 27, 2014

hand drawn illustration of Pilgrims celebrating first thanksgiving dinner - stock photo

An article titled, “The Great Thanksgiving Hoax“, by Richard J. Maybury, at mises.org, tells the true story of Thanksgiving. Here are some excerpts from the article.

“In his History of Plymouth Plantation, the governor of the colony, William Bradford, reported that the colonists went hungry for years because they refused to work in the field. They preferred instead to steal food. He says the colony was riddled with “corruption,” and with “confusion and discontent.” The crops were small because “much was stolen both by night and day, before it became scarce eatable.”

“In the harvest feasts of 1621 and 1622, “all had their hungry bellies filled,” but only briefly. The prevailing condition during those years was not the abundance the official story claims, it was famine and death. The first “Thanksgiving” was not so much a celebration as it was the last meal of condemned men.”

“But in subsequent years something changes. The harvest of 1623 was different. Suddenly, “instead of famine now God gave them plenty,” Bradford wrote, “and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God.” Thereafter, he wrote, “any general want or famine hath not been amongst them since to this day.” In fact, in 1624, so much food was produced that the colonists were able to begin exporting corn.”

“What happened? After the poor harvest of 1622, writes Bradford, “they began to think how they might raise as much corn as they could, and obtain a better crop.” They began to question their form of economic organization.“

“This had required that “all profits & benefits that are got by trade, traffic, trucking, working, fishing, or any other means” were to be placed in the common stock of the colony, and that, “all such persons as are of this colony, are to have their meat, drink, apparel, and all provisions out of the common stock.” A person was to put into the common stock all he could, and take only what he needed.”

“This “from each according to his ability, to each according to his need” was an early form of socialism, and it is why the Pilgrims were starving. Bradford writes that “young men that were most able and fit for labor and service” complained about being forced to “spend their time and strength to work for other men’s wives and children.” Also, “the strong, or man of parts, had no more in division of victuals and clothes, than he that was weak.” So the young and strong refused to work and the total amount of food produced was never adequate.”

“To rectify this situation, in 1623 Bradford abolished socialism. He gave each household a parcel of land and told them they could keep what they produced, or trade it away as they saw fit. In other words, he replaced socialism with a free market, and that was the end of the famines.”

“Thus, the real meaning of Thanksgiving, deleted from the official story, is: Socialism does not work; the one and only source of abundance is free markets, and we thank God we live in a country where we can have them.”

If these sparsely populated settlements couldn’t make socialism work, how could our present day leaders think that trying to implement socialist policies (like Obamacare), incrementally to a population of 330 million possibly work? Oh that’s right, they think it hasn’t worked because it hasn’t been tried by people with superior wisdom like themselves. We will never learn the lessons of history, let alone economics.

Related Article – Why Socialism Won’t Work? Human Nature, at austrianaddict.com.

Related Article – We Can’t Recreate The Garden Of Eden, at austrianaddict.com.

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Are We Losing Economic Freedom?

October 15, 2014

Capitalism 3D sphere Word Cloud Concept with great terms such as economic, private, free and more. - stock photo

The Fraser Institute published a paper titled, Economic Freedom Of The World: 2013 Annual Report, which shows how the US is in the slow lane on the Road to Serfdom, because we as individuals have lost economic freedom over the past 12 years. Economic freedom is nothing more than each individual deciding what to produce, consume, exchange, and save without anyone, especially Government bureaucrats, hampering or intervening in his activities. Individuals are less free today than they were in 2000.

Scroll down to page 148 in the report to see the statistics for the United States in different categories related to freedom, from 1980 to 2011. The report rates 154 countries on economic freedom, with a 10 being the highest rating. It also ranks each country in order of most free to least free. Our freedom rating and rank has dropped since our high in 2000.

CATEGORY     (rate/rank)                    80               90              00               11

UNITED STATES

Summary  (rating/rank)                  7.92/3      8.35/3      8.65/2        7.74/19

Size of Government                           5.08/49    6.71/24   7.03/34    6.83/47

Legal System/Property Rights     8.35/1       8.35/10   9.23/9        6.93/38

Sound Money                                      9.22/5       9.68/7      9.78/2       9.30/36

Freedom Of Trade Inter.                8.77/7       8.77/11    8.78/22    7.92/30

Regulation                                            8.11/4         8.23/4      8.43/2       7.75/17

 

Below is Hong Kong’s summary rating and rank for economic freedom. Go to page 62 to see a more detailed report on Hong Kong.

HONG KONG                                              80                90                00               11

Summary  (rating/rank)                 9.02/1        8.59/1       8.86/1        8.87/1

Hong Kong was under British rule for 156 years until 1997 when it was turned over to China. Hong Kong has had more economic freedom under British colonial rule, and Chinese communism than the US has had under a constitutional republic with leaders elected democratically. People in Hong Kong have been protesting recently because it looks like China is going back out on its promise to allow democratic elections in 2015. The people in Hong Kong should take a look at the US to see what democratic elections have done to our economic freedom, before they go all in for democracy. Democracy is just one possible means for gaining individual freedom, but it is no guarantee of individual freedom. Read, Thomas Sowell Explains How Democracy And Freedom Are Not The Same Thing.

Three of the categories, listed in the above article, that the Fraser Institute rates and ranks countries on their level of economic freedom are; legal system/property rights, regulation, and sound money. The US has decreased in rate and rank in these three categories over the last decade.

REGULATION

The Affordable Care Act (Obamacare) is just one example of  the thousands of pages of regulations, passed by congress and signed into law by the President, that take away economic freedom by imposing  huge costs on businesses. Where does the Government get the power to interfere with an individuals right to make a contract with another party on how he chooses to pay for his healthcare? Nowhere in the constitution do politicians and bureaucrats have a right to do this. They’ve usurped the power from us, and the Supreme Court, which has turned into a nine seat legislature, uphold their lawlessness. Read Regulatory-Industrial Complex, by Lew Rockwell, at mises.org, for more analysis on what regulation does to economic freedom.

SOUND MONEY

We could talk endlessly about how important sound money is for economic freedom, but here is the short version. When the Federal Reserve electronically prints counterfeit money, it is theft. What you produce each day at work is represented in the money your employer gives you in exchange for your labor. You in turn can demand goods and services with the money you are paid. The stable purchasing power of the monetary unit is what sound money guarantees. When the Federal Reserve electronically prints counterfeit money, it is decreasing the purchasing power of each dollar you have, and therefore stealing your production. If you or I counterfeit money it is theft. If the Fed counterfeits, it is still theft, it is simply theft that is sanctioned by the legislative, executive, and judicial branches of Government. Read, Is The Surge In Capital Goods Orders Do To Malinvestment, by Frank Shostak, at mises.org, to understand what happens when the Fed counterfeits.

PROPERTY RIGHTS

Without property rights there is no economic freedom. If an individual has no assurances that what he produces or owns can’t be taken away, then economic freedom is just meaningless rhetoric by politicians. There is the obvious taking of property through eminent domain laws (Kelo vs. New London), civil asset forfeiture laws, federal taxes etc, and then there is the unseen taking of property through the cost of complying with regulations, and out right stealing it by electronically printing counterfeit money. Read “Human Rights As Property Rights, by Murray N. Rothbard, at mises.org, to see how property rights are the foundation of economic freedom.

As F. A. Hayek said, “the battle for freedom must be won over and over again, the socialists of both parties must be persuaded or defeated if they and we are to remain free men.” These words are more true today then when he wrote them.

 

-I found the, Economic Freedom Of The World: 2013 Annual Report, in this article titled, The “Land Of The Free” Ranks 36th In The World In Respecting Property Rights, at zerohedge.com.

 

 

 

 

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Climate Change: Religion? Economics? Science?

October 2, 2014

The climate march that coincided with the UN’s climate summit a few weeks ago was entertaining to say the least. These two videos show how true believers act when the religion of climate change is challenged. They worship at the altar of climate change, and demand that all infidels accept the teachings of their climate science catechism. True believers never stop to think about trade offs.

QUESTIONS ABOUT TRADE OFFS

A world without fossil fuels is a utopian vision that exists cost-free in the minds of true believers. To their way of thinking, getting rid of carbon based fuels has no consequences. They never ask; how do we get there from here? What is the cost of trying to implement a world of carbon free energy? Will there be enough “green energy” alternatives to make up for the loss of the energy formerly produced by carbon based fuels? What is the cost in dollars per kilowatt-hour for “green energy”, compared to the cost in dollars per kilowatt-hour for carbon based energy? What was the standard of living in the US before we started using coal, oil, natural gas, and nuclear power? How would your present standard of living change if you had to function on 33% less energy a day? What about 40% less, or 50%less? Would you be willing to trade off diminishing amounts of cleaner air against your present standard of living?

CREATING WEALTH ALLOWS US TO AFFORD A CLEANER ENVIRONMENT

Countries like India and China didn’t even attend the climate summit. They are willing to accept more polluted air for a higher standard of living. They won’t clean up after themselves until they have created enough wealth to make it possible to have both a higher standard of living and a cleaner environment. Only wealthy countries can afford to clean up after themselves. People in poorer countries are just trying to make it to the next day. In the case of the US we have clean air to breath and water to drink. Using increasing amounts of scarce resources to make infinitesimal increase in the quality of our air and water, will kill the wealth creation that allowed us to clean up our messes in the first place. There is a diminishing return for trying to create a utopian world. And at some point you start traveling down the “road to serfdom“.

TWO GREAT VIDEOS

Here is a video of Robert Kennedy Jr being interviewed at the People’s Climate March. How condescending is this guy? It wouldn’t take much to push him into a Ray Rice moment.

Here is a video of Alex Epstein at the People’s Climate March. I like the green “I ♥ Fossil Fuels” t-shirt he is wearing.

SCIENCE VS. REALITY

This article, “Stop The Scare Climate Models vs. Human Needs“, by Willie Soon and Christopher Monckton at masterresource.org, asks great questions about the trade offs involved in the discussion (actually it’s a monologue) about climate change. Here are some excerpts from the article.

“India’s Prime Minister Modi, ….. knows that a quarter to a third of India’s people – at least 300 million of its citizens – still have no electricity. In Bihar, four homes in five are still lit by kerosene. His priority is to turn the lights on all over India.”

“Electric power is the quickest, surest, cheapest way to lift people out of poverty, disease and subsistence agriculture, and so to stabilize India’s population, which may soon overtake China’s. Families that no longer have to worry about children dying before they are five, or need them to tend starvation-level crops, tend to downsize their families.”

“Not one climate model predicted the severe Indian drought of 2009, followed by the prolonged rains the next year – a rainfall increase of 40% in most regions. These natural variations are not new. They have happened for tens of thousands of years.”

“Models are not ready to predict the climate. Misusing computers to spew out multiple “what-if” scenarios is unscientific. Most of the fundamental problems in our immature understanding of climate have remained unresolved for decades. Some cannot be resolved at all. The UN’s climate panel admitted in 2001 what has been known for 50 years: because the climate is a “coupled, non-linear, chaotic object,” reliable long-term climate predictions are impossible.”

“Misuse of climate models as false prophets is costly in lives as well as treasure. To condemn the poorest of India’s poor to continuing poverty is to condemn many to an untimely death…..It is time to put an end to climate summits. Real-world evidence proves they are not needed.”

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“Human Action” Helps Us Understand Mrs. Rice’s Instagram, and Obama’s Iraq Speech

September 12, 2014

 

File:Human Action scholars edition brown cover.jpg

How can these seemingly unrelated stories have anything in common? They are not related in any way, unless you understand the concept of human action as explained by Ludwig von Mises in his tome “Human Action: A Treatise On Economics”. Human action has nothing to do with the psychological reasons or the internal forces that result in a particular action. Trying to figure out these reasons would be guesses by anyone who is not a psychiatrist, and educated guesses by professional psychiatrists. Human action is purposeful behavior and as such can be meaningfully interpreted. The end man seeks with his action is his motive for acting. Why he is motivated to attain this end has nothing to do with human action. Human action doesn’t care about the psychological reason compelling a person to act, it only cares about the action itself. When a person acts he is not simply giving preference among many alternatives, he is displaying what he prefers at that particular moment.

In summary. A person purposefully acts using available means, to reach a particular end, an end which he thinks will bring about a more satisfactory state of affairs than the state of affairs that existed before he decided to act. A person makes a particular choice,  between many competing ends, at a particular time. His choice reveals his most valued end that particular moment. The correctness or incorrectness of the action chosen will be revealed at some point in the future.

Now lets analyze these two stories.

RAY AND JANAY RICE

Ray Rice hit and knocked out his then fiancée Janay Palmer in February of 2014. On March 27th a grand jury indicted Ray Rice on aggravated assault charges, and dropped simple assault charges on Janay Palmer. On March 28th Rice and Palmer were married. On May 1st Rice rejected a plea deal and applies for pretrial intervention program which accepted him allowing him to avoid a trial. Rice is suspended in July for the first two games of the year. The video of Rice punching his then fiancée surfaces on September 8th, and later that day the Ravens terminate his contract, worth $4 million this year, and the NFL  suspends him indefinitely.

Everyone from reporters, commentators, spokesmen for women’s groups, politicians, et al, have an opinion on why she would marry the guy who knocked her out. Here is how human action helps us understand this. It doesn’t matter what motivated her to marry him. Her choice reveals that she thinks being married to him is a better state of affairs than not being married to him. Trying to figure out why, assumes a level of knowledge that no one, outside of Ray and Janay, has access to. The correctness of her action will be revealed at some point in the future. The statement in her instagram message (here), “…THIS IS OUR LIFE!”, means butt out it is none of your business.

One more comment. What is the preferred end, the Ravens, the NFL, reporters, commentators, spokesman for women’s groups, and politicians think they will achieve by the actions they have taken in this case? No matter what the preferred end is, they obviously think the actions they have taken will bring about a better state of affairs, for themselves.

OBAMA’S IRAQ SPEECH

Lets start with a little background. In 08 the President campaigned  on getting out of Iraq. After he got elected he set a date for withdrawal which allowed the enemy to lay low and rearm. He withdraws our troops without leaving enough of them to keep the enemy in check and help support the new Government.

If there is one thing we can be 99% sure of concerning every politician its this: the end sought in every action is to gain political power, especially when these actions happen closer to an election. This is why in the last few weeks, the President has talked about corporations using “unpatriotic tax loopholes” to pay less in taxes, and why the minimum wage should be raised. The speech about Iraq is purposeful action taken for the achievement of an end that will be preferable to the present state of affairs. Now here is the 64,000 dollar question: is this preferable state of affairs to make the Iraq situation stable, or is it to help the Presidents political situation before the November elections? Either way we will know the answer to this question at some point in the future.

The biggest difference in these two cases is, 1) In the Rice situation, Ray and Janay suffer the consequences of their actions. 2) In the Iraq situation, all of us will suffer the consequences of the actions of the President. So why are more people talking about the situation that doesn’t affect them, instead of talking about the one that does affect them?

 

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