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Libertarian girls

I have been meaning to write about this for a while. A former student of Walter Block wrote to him:

I read an Economist article yesterday praising the government for bailing out Fannie Mae and Freddie Mac and was shocked that such an august publication could be so short-sighted. I talked about it with my liberal girlfriend and for the first time admitted the extent of my libertarian sympathies. She cried when I said I didn’t think people had a right to food. What does one do? I am very tight-lipped about politics for exactly this reason.

“I am very tight-lipped about politics for exactly this reason.” This describes me perfectly. I keep silent when my friends discuss politics. This is partly because it’s hard to sound intelligent, informed, or convincing when you’re holding back and only saying part of what you know and think, and to divulge all I know and think would require calling my friends completely economically ignorant, morally bankrupt, and politically naïve. I don’t want to insult and ridicule them right to their faces. They’re mostly good friends and co-workers; they’re just patently wrong about most things and we have strong disagreements about lots of others. Having morally objectionable and empirically destructive politics doesn’t make you a bad person. It just makes you do bad things.

On the other hand, I could be extreme (the only way to be fully correct) while remaining level-headed, but that’s the second part of the problem. I have such a thin skin that I don’t want to expose myself for the complete libertarian anarchist that I am. Being socially “liberal” and fiscally “conservative,” even to a great extent, is one thing, but insisting upon the complete immorality of the very existence of monopolistic government and advocating a completely non-Statist society is another altogether. I fear their judgment. In other words, I’m kind of a pansy.

Part of my problem is that I’m not so good at discovering or enunciating simple, concrete policy positions that would improve this or that economic, social, or governmental situation; my solution is always to abolish the whole monopolistic State because the voluntary choices of free individuals would sort it out wonderfully. My arguments would always either end in me defending a completely free society, or lying and saying, “Well, now, I wouldn’t go that far….”

Maybe you’d say that if they would judge me so harshly for well-thought-out and well-meaning beliefs, radical though they may find them, they aren’t such good friends to begin with and I need to stop being such a chicken and find new friends. Well, no one’s perfect. (Where would I find them, anyway?)

It probably sounds a little weird for such an avid blagger (except during Christmas vacation without high-speed internet) who is staunchly libertarian in every way to say he’s timid and cowardly about discussing politics with friends, but writing is a lot different from speaking on your feet. Yes, this blag is public, but I neither know nor care which friends know about it. It actually doesn’t matter a whole lot how many strangers read it (though the exposure, discussions, and support of all the regular and occasional visitors make me very happy). This blag is a platform for venting my frustration at the Statist world, crafting my ideas and arguments for continual improvement, going on record as being correct about socialist Statism, and sharing ideas with Kelly.

Anyway, back to what was originally the real topic of this post. Walter Block reflected upon his former student’s dilemma:

…it is tough to be a young male libertarian. At most gatherings where they frequent, the male–female ratio is about ten or twenty to one. For example, at the recent Mises University (look at the picture; see how many women you can find), my estimate is that there were almost 200 students; about 15 or so of them were female. (Hint for young ladies: a word to the wise is sufficient.) Nor is this merely a modern problem for male libertarians. Things have always been this way; I can attest to this, at least from 1962, when I first became a libertarian.

What to do? Well, get a non-libertarian girlfriend. Now what? Keep quiet about one of the most important things in your life? Well, engineers, computer nerds, physicists, mathematicians, etc., do not share their technical lives with their wives or girlfriends. Of course, libertarianism is different. It is the rare BBQ, dinner party or PTA meeting where such narrow scientific issues are discussed. But the state of the union, unemployment, foreign policy, elections, feminism, environmentalism, discrimination, etc., are usually at the tip of everyone’s tongue, and libertarians have passionately strong views on all of them. Three hints: one, keep dating until you find someone who can tolerate your views without crying or screaming at you. This girl need not be a libertarian; mere toleration is quite enough; hey, more than enough. Two, engage in a do-it-yourself project: try to convert your date to the one true faith. Three, don’t awfulize about your failures. Instead, keep trying. If at first you don’t succeed…

I don’t know many libertarian girls. I don’t know many girls who even have any libertarian leanings, much less girls who would be described as libertarians. My current girlfriend isn’t. She is fairly non-political, though, which is the next-best thing.

I knew three libertarian(ish) girls in college. One of them married a socialist and became an Obama supporter. The other two are still libertarian, I think. Hopefully even more so than we were in our naïve college libertarian club days. Both of them were pretty hot. One of them is still with her damn College Republicans boyfriend. Maybe he’s a libertarian now. I can’t imagine her staying with a neocon or even a conservative for this long (5+ years?). Oooh, I hate him so much…

I have met one libertarian girl after college, and she said the sexiest thing anyone has ever said to me: “I think all taxes are evil.” She was engaged before I ever set eyes on her… Oooh, I hate him so much… Actually, no, I hung out with him a couple times and he’s really cool. On the whole I think I’d rather be able to hate him!

Many people, especially men, do, say, or think things that result in pushing people (good friends or significant others) away when they feel they’re getting too close to them. As Adam Sandler said in one of my favorite of his songs, something inside them makes them want to screw it up. This is probably similar to a simple fear of commitment, but I notice myself doing this and I don’t think I have a fear of commitment (I certainly didn’t used to). I think it’s more like a fear of being completely open, exposed, and vulnerable as who you truly are, in the words of Adelai Niska. So we rationalize why this or that girl/girlfriend wasn’t Ms. Right by citing examples of supposed incompatibilities that shouldn’t necessarily have been deal-breakers: we don’t like her parents, we might want to live in different parts of the country in the future, she doesn’t like going to the bars that we do, she doesn’t like watching sports, she despises our favorite band, she isn’t libertarian enough to truly understand us. Maybe they are sound objections sometimes, maybe they aren’t other times. Either way, people of all kinds do this to keep from getting too close to that precipice of complete and total commitment, that point of no return. We say, “Well, our career paths precluded staying together permanently…” “You know, I’d probably always have to choose between going out with my friends and spending time with her…” “We’d always be disagreeing about politics…”

A lot of people with differing politics marry each other. (Then again, they share one ludicrous belief: Democrats and Republicans have opposing political philosophies.) Is it any harder for a libertarian to stay with a Statist? Is this fundamental difference a valid reason for giving up on the relationship, or for doing things consciously or subconsciously that sabotage the relationship? Should libertarians hold off on revealing the extremity of their politics until they’ve gotten to know someone well enough that they know the other person has similar leanings or they know the other person will like them or love them just as much, regardless of their extreme politics? These are some of the things I ponder, and wonder where I stand, where I should stand, where I will stand. Everyone handles it differently, I guess.

“Keep quiet about one of the most important things in your life?” Libertarianism is different. There is scarcely such thing as a casual libertarian. Certainly not a casual real libertarian (anarchist). To have such radical and life-changing beliefs means that you must feel strongly about them. And, regardless of what other libertarians think about their politics compared to others’ and how this affects their relationships with them, it is a very defining characteristic of who I am. Individualist anarchism defines a very large part of how I see the world, my relationship with it, and all of humanity’s relationship with each other. That is a pretty major part of who someone truly is. I’m not sure if Walter Block’s advice of finding someone who is apolitical is satisfactory for me, and I’m not sure I have the temperament to proselytize to people who are apolitical or Statist. I just don’t know where to find a libertarian girl. because all the girls I know, and especially the pretty ones, are either conservative Christians or tree-hugging socialist hippies.

The founder of the aforementioned college libertarians club would ask people who claimed to be libertarian, to test their true libertarianness, “Do you think all drugs should be legalized, including cocaine and heroin and crystal meth?” That would often be the first substantive thing he said to someone. That’ll put you on the spot! How many girls do you know who would give a libertarian answer to that? I know very, very few. It’s really frustrating. (No, I’ve never asked anyone that, but I encourage you to try it as an icebreaker on your next first date.)

Since political economy and moral philosophy are so important to me, I feel like I am missing out by not being really close to someone who sees the world the same way I do, to whom I can open up and say what I really feel and offer my own intellectual, philosophical, and moral support. I feel like if I married a Statist, I would always be blaming her, silently or openly, for all the things her evil government and her stupid politicians did. Obviously I wouldn’t marry someone who didn’t know exactly what my politics were, so she’d probably know what I felt about everything political. She’d read my web page whenever she wanted. She’d know what I thought of her politics. Maybe she’d think the same thing about mine. That’s too much conflict, too much strife. I don’t want a choir to preach to; I want another principled person with whom I can share my thoughts about politics instead of being afraid to all the time. Who will challenge, but reinforce and help me improve upon, my analysis of every political issue. Who sees our relationships with the world, the State, and other people the same way I do. Who can make me feel less alone in this unfree world instead of feeling suffocated by socialist Statism everywhere I go.

Libertarian girls are rare, and I feel that emailer’s pain. My solution so far has been to bottle up my frustration at the rampant Statism we live under, swallow my derisive criticisms of the socialism my friends endorse, and hide my principled moral stances from everyone who’s appalled at the notions of individual sovereignty and peace. Something has to change sometime soon.

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Their lips are moving

Here at home at my parents’ house, I pay much more attention (i.e., a non-zero amount) to newspapers than I do back home in my apartment. A couple days ago, I noticed on the front page of the Atlanta Journal-Constitution two items about the nascent Obama administration.

First, Joe Biden said in some statement or press release that the American people can expect only productive spending and a lot less pork in the spending bills President Obama signs—in fact, next to no pork. Therefore, we can safely conclude that the opposite is true, and that pork-barrel spending will continue virtually unabated during the Obama administration. Please don’t ask me why I don’t act surprised when most of the pork is inserted into bills by Democratic elected criminals.

Second, I read that the Obama administration released a statement asserting Chief of Staff Rahm Emanuel’s complete innocence in the Rod Blagojevich senate-seat dealings. Well, we already knew that was false, but now that they have officially asserted it, its blatant falseness is solidified and highlighted. I can’t predict how much actual information will be revealed or suppressed about Emanuel’s negotiations with Governor Blagojevich, but rest assured that he is guilty enough to be prosecuted, if they weren’t hypocrites.

You might say my adherence to the belief that Emanuel committed crimes by secretly bribing or negotiating with Blagojevich, despite the (potential) lack of incriminating evidence, just shows that I’ll believe what I want and make judgments that fit my agenda irrespective of the facts, but I think, at least in Emanuel’s case, it shows that skepticism, cynicism, and distrust is the correct attitude.

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Water shortages and water-trading between states

My former state of residence, Georgia, is in a severe drought. It has been for years. It has gotten worse and worse over the last couple of years. Naturally, only government intervention in the water market can cause a true shortage. As far as I understand it, governments in the southeast have done this by keeping utility prices artificially low and, of course, by controlling a large portion of the water supplies of cities and counties. That type of socialism on that large of a scale can’t possibly calculate.

My current state of residence, Michigan, has never had a water shortage that I know of, especially not recently. I think this is because it gets plenty of precipitation and, well, it’s surrounded by three Great Lakes.

While allowing the prices of water to rise in the southern, drought-stricken states would lower demand and encourage conservation of water, thereby bringing supply and demand closer to an equilibrium, it seems obvious that increasing the supply of water would also help southerners a lot with their water shortage.

So why don’t states just sell water to each other? If they do, it certainly isn’t on a large scale. This has puzzled me for many months. Do you know the reason? Michigan is in a recession and its state government is in desperate need of higher revenue (from its perspective; obviously what it really needs is lower expenditures, in the zero dollars and zero cents range). I hear people on the radio talking about how that damn Governor Jennifer Granholm and that damn Michigan legislature had better not let other states take our water. I assume both the professional criminal class in Michigan and its captive subjects have considered and analyzed the possibility of some city/county/state governments selling water to other city/county/state governments, but you don’t hear of this happening very much. There isn’t really a water market across the country, is there? You never hear of Georgia negotiating with Michigan to buy so many billion gallons of water, or importing water from midwestern or western states, or anything like that.

Do you know if there are any laws that impede this happening? Is it because our local governments are so incompetent, short-sighted, and technologically backwards that they can’t manage to hold and transport enough water over a large enough distance to make it viable?

One thing I considered was that local perturbations of the water market by, say, Georgia state, county, and city governments keep the prices of water so artificially low that it isn’t profitable for people in Michigan to store and transport water 700 miles away to sell in Georgia. If the free market were allowed to work, prices of water would be higher, and anyone selling water to Georgians would make more money per gallon, so this revenue could cover the costs of selling water several states away and attract new profit-seeking suppliers of water to southeasterners; with prices of water kept “affordable” by law, there isn’t enough money to be made, so it isn’t profitable, so nobody attempts it. Maybe that isn’t the reason, though.

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Of course, Rahm Emanuel secretly negotiated with Blagojevich

The fact that Rahm Emanuel is a belligerent warmonger hasn’t noticeably stirred up very much unrest among Obama maniacs. Neither has his…shall we say, vicious and vindictive personality. In fact, a lot of people lauded Obama’s choice for his chief of staff precisely because of Emanuel’s uncompromising and dictatorial attitude towards politics.

Therefore, I expect that when it becomes as obvious to everyone else as it is to me and others who aren’t blinded by their faith in the Savior of America that Rahm Emanuel illegally negotiated with Rod Blagojevich to illegally fill the Savior’s vacated Illinois senate seat, the Obama maniacs will find several lame excuses to continue supporting both Emanuel and Obama and ignore this black mark on their regime, which hasn’t even started yet. I also predict Emanuel will face no formal consequences for it, such as being fired. Maybe the accusations that Obama’s presidential campaign co-chairman, Jesse Jackson, Jr., offered to pay $1 million for the senate seat will be dismissed as racist hate-speech.

Maybe some Obama maniacs will recognize these pay-for-play dealings as nothing more than “politics as usual,” which might lead them to become more cynical and skeptical about the State, but I will be surprised if a single liberal goes so far as to say, “These secret negotiations to give Obama’s senate seat to the highest bidder were wrong…it’s very similar to everything else that politicians do…therefore I think it’s all wrong!” Rod Blagojevich’s senate-seat negotiations are identical in principle to everything else every government does.

Given Rahm Emanuel’s unpleasant personality and uncompromising approach to politics, I would imagine his efforts to bribe Blagojevich were quite vicious, very arrogant and demanding, and probably more than a little bit profane. (That seems to be one of the main objections to Blago’s taped conversations, not so much their content.) Emanuel is a dirty, wretched creep, a parasite who lives off of the productive people of the country and belongs in federal prison, not the federal government.

Posted in Elections, Obama crimes, Obama predictions | Permalink
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Lew copies John

In his recent column against the imminent automaker bailout, Lew Rockwell raised an objection that I raised a month ago. Lew wrote:

What Americans have chosen not to buy, the government is now effectively forcing them to buy. You want a Toyota and paid for it with your money but your government is now saying that you should have bought a Pontiac, so it is tapping into your bank account to make it happen—and then not even giving you a car for your money!

Since I was the first and only other person in the whole wide world to make that observation, he must have copied it from me. Y’know, contrary to popular belief, I am one of Lew’s biggest influences and not the other way around…

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Bernard Madoff arrested for running Ponzi scheme

Apparently the irony is completely lost on the professional criminals in the FBI and SEC.

According to a Bloomberg article,

Bernard Madoff, founder and president of a New York firm that invested funds for wealthy individuals, hedge funds and other institutions, was charged with operating what he told employees was a long-running $50 billion Ponzi scheme in what may be one of the largest frauds in history.
[...]
“It’s all just one big lie,” Madoff told his employees on Dec. 10, according to the government. The firm, Madoff allegedly said to them, is “basically, a giant Ponzi scheme.”

Madoff faces as much as 20 years in prison and a $5 million fine if convicted.

Semi-libertarian, neocon warmonger, and all-around fascist State-lover Neal Boortz used to rant about Social Security until he was blue in the face on WSB radio in Atlanta. Maybe he still does. He said it was an enormous pyramid scheme, a Ponzi scheme, that any private investor would be arrested and put in solitary confinement for offering. But what happens to the professional criminal class in Washington, D.C. for not only offering but forcing the Ponzi scheme called Social Security on its subjects? Nothing!

Now, Neal and I and the rest of you finally have a real-life example of a private investor being arrested and imprisoned (rightfully so, I expect) for running a private Ponzi scheme by the very same government that forces the largest Ponzi scheme in the history of the world on its captive subjects!

Hat tip: Lew Rockwell.

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Jim Rogers calls most large U.S. banks “bankrupt”

Jim Rogers spoke at the Reuters Investment Outlook 2009 Summit:

Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt.
[...]
What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent,” he said. “What’s happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics.
[...]
The way things are going, we’re going to have a lost decade too, just like the 1970’s.

Hat tip: Lew Rockwell.

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Scarcity is not shortage

The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it.

I might only be an amateur student of economics, and a lazy one at that (I have totally failed at reading a couple of the economics books I had planned to back in the fall), and I might show my bias towards the Austrian theories of economics on a regular basis, but at least I understand the things I do write about. At least I understand the words I use.

State-worshipping socialist idiots who erect shameful attempts at strawmen and then advocate further State interventions into the economy (extortion backed by the threat of murder) that have already been tried and failed…uhhh, not so much.

Take this commenter at Radley Balko’s blag, who hasn’t gone to any effort to, y’know, actually learn anything about economics or agriculture, but still thinks he is qualified to delegate the violent, deadly police power of government to a bunch of thugs in Washington so that they can govern how other people grow, sell, and buy food.

If there is one aspect of the economy which maybe should be tinkered with it’s farming. There is not much harm in having a perpetual oversupply of food than otherwise would have happened in a free market, but the consequences of the inevitable shortages created by a market economy are pretty grave. It’s one thing if there are too few cars made to meet the demand, but a food supply shortage is too gruesome.

This dolt obviously hasn’t thought much about the big picture or the broader ideas he absorbs from his TV and dutifully spits up, so I sure as hell shouldn’t expect him to pay close attention to the actual meaning of any individual word he uses, but I can’t help pointing out that he uses the word “shortage” in exactly the wrong way.

As Robert Prechter reminds us in a clear and entertaining column at Mises.org, it is literally impossible for there to be a shortage in a free market. Only coercive, freedom-reducing intervention (i.e., by the State) can create shortages of goods.

People who have actually studied some level of economics beyond listening to to Lou Dobbs or Jim Cramer know that the first lesson of economics is scarcity: every economic good is scarce. Every physical thing is scarce and everything involving human input of any kind—physical labor, mental labor, time, effort—is scarce. The only thing I can think of that doesn’t yet fit this axiom is oxygen, but in the future in off-world habitats this too will become the subject of economic scarcity.

Because of the scarcity of everything that everybody wants, freely acting people work at the expense of leisure and put a price on the things they produce and sell and buy. This will never change under any economic system or any foreseeable transformation of mankind.

Because of the law of scarcity, in a free market things that are demanded more cost more and/or are produced in higher numbers. Things that are demanded less cost less and/or are produced in lower numbers. Only if people are threatened with abuse, kidnap, enslavement, and murder (government regulation) would the price system that matches supply to demand fail to adjust to reality and result in a shortage. A shortage is different from scarcity. They are spelled and pronounced differently because they mean different things. A shortage means that prices or supply are not allowed to rise to meet demand. This is not what scarcity is. Everything is already scarce. That’s why we work and pay money for things—essentially, exchange our labor for others’ labor. If it is generally agreed that there is a “shortage” of a good, it’s because its price is forcibly prevented from rising to meet the high demand in a situation of low supply, or because other economic interventions restrict people’s freedom to go into business and increase the supply of that good to compensate for the high demand and low supply.

In a gasoline or water or food shortage, the mere fact that something is more expensive or more scarce than before does not change the law of scarcity, or anything else, for that matter. Either, a) the price of the good will be allowed to go up to meet demand, encourage thrift, and stimulate increased production of this good by selfish, profit-seeking entrepreneurs; or, b) much more likely, government restrictions of economic activity will have forcibly prevented prices from rising to lower the quantity demanded and encourage thrift, or they will have forcibly prevented other people from taking advantage of this great profit opportunity and entering the market to increase the supply of the “extra-scarce” good. Case (b) is called a shortage. Both the good and all the inputs that went into production of the good were already scarce. To all of you who endorse State measures that keep prices low in times of (State-created) shortage: who are you to say what price something should have, anyway? And how do you justify the prior and ongoing State actions that keep the supply and prices down?

[This post was edited on 12-12-08 so the last paragraph makes sense.]

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Barack Obama: window breaker extraordinaire 2

From an Associated Press article:

President-elect Barack Obama said Saturday that he wants to revive the economy and create jobs by upgrading roads, schools and energy efficiency in a public-works program whose scale has been unseen since construction of the interstate highway system in the 1950s.

He offered no price estimate for the grand plan, how the money might be divided or the effect on the country’s financial health at a time of burgeoning deficits.

The ideas were outlined in the weekly radio address the day after the government reported that employers cut 533,000 jobs in November, the most in 34 years. They are part of a vision for a massive economy recovery plan Obama wants Congress to pass and have waiting on his desk when he takes office Jan. 20.

The president-elect’s address never once used the word “spend,” relying instead on “invest” or “investments,” and pledging wise stewardship of taxpayer money in upgrading roads and schools, and making public buildings more energy-efficient.

“We won’t just throw money at the problem,” Obama said. “We’ll measure progress by the reforms we make and the results we achieve—by the jobs we create, by the energy we save, by whether America is more competitive in the world.”

Staggering arrogance. The absolute height of economic ignorance, megalomania, and disgust with the common man. You’ll measure progress by the results you achieve and the jobs you create? I fail to understand how you and your cronies know how to spend the people’s money better than the people do. I fail to see how the violence-backed decisions made by a few self-interested elected and unelected criminals can be in any way superior to the voluntary decisions and transactions made by hundreds of millions of self-interested people.

Several governors welcomed Obama’s economic plan.

I also recall reading that several governors were begging the Imperial Federal Government for a bailout of sorts, very recently. Take money from the central government’s big public pool of stolen revenue and distribute it to state governments according to their need. Maybe those same governors are using that same understanding of economics and those same firm moral principles when they laud this grand public-works sham.

As a part of the package, Obama said he wants to expand broadband Internet access in communities. “Here, in the country that invented the Internet, every child should have the chance to get online,” he said.

I guess I figured our new opportunistic, egalitarian, piece-of-shit president would keep his Soviet-style communism to himself until at least a little while after he took office, or until after our economy improved, lest the rest of us who aren’t blinded by our own ignorance and arrogance be able to garner a lot of support when we point out some problems with his new New Deal.

If you’d like to learn a little bit about the real world and find out how the Imperial Federal Government’s previous attempts at extending broadband internet service to poor and rural Americans turned out, read this.

These Statolatrist plans of Obama’s will only impoverish Americans further by increasing our taxes, increasing inflation, and diverting money, labor, and capital away from ventures the free market would deem efficient and into things that don’t suffer from competition and aren’t subject to economic calculation.

This is post #1 in the Obama failures category.

See also: Barack Obama: window breaker extraordinaire.

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Science needs an economics revolution

Here in the scientific research world, there is considered to be a vast dichotomy between the atmospheres and work environments in academic (university) research labs and private (big pharma and biotech) research labs. Whether it’s true or not, I don’t know. The impression is that in academia, you are free to work on what you (and your funders) think is important, you are free to take your projects where your results lead you, you are free to discuss and disclose as much as you and your colleagues deem necessary, and everyone moves the field forward by publishing their work in publicly accessible journals and building on publicly accessible knowledge. On the contrary, the line goes, in private research, you must work on what businessmen and non-scientist managers tell you to, you spend too much time in meetings, you can only do science that will be profitable for your company, you must switch fields entirely (or be fired) when some manager or executive decides on it, you must keep most of your results secret, and unfavorable results are suppressed because of the profit motive.

I know an academic researcher who used to work for a couple of private companies, Roche (a huge pharmaceutical company) and Chiron (a biotech research firm that was bought by Novartis). He says Roche had the most miserable work environment he’s ever experienced. The work day was 9–5 and no one worked any more than that. He would get there a few minutes early, like at 8:50 or 8:55, and the parking deck and lab buildings would be almost completely empty. Then between 8:58 and 9:00 everyone swarmed in. At 4:58 everyone would be sitting at their desks with their brief cases or purses on their desks ready to go, and at 5:00 they would all file out at once. No one liked working there and this attitude spread to every new person who came.

His other experience was much better, but he still doesn’t want to go back to biotech. He works in a university lab now, and despite making a little more than half of what he made in industry, he says he is staying in academia and would only go back to industry in desperation. He is moving away soon, so he’ll have to find a new job, and even though he could probably find another biotech job, or the same biotech job, he won’t pursue it.

I get the impression that a lot of people feel that way. Maybe that’s because I’m surrounded by people who made the choice to stay in academic research, though. I won’t be much longer, I know that much.

I wish I could comment more on what’s wrong (and right) with industry jobs and the work environment at those companies, but that isn’t my goal in this post.

There were two commentaries published in scientific journals recently that prompted this post. The first was an essay, Economics needs a scientific revolution, in the October 30, 2008 edition of Nature, by Jean-Philippe Bouchaud. Here are some good excerpts:

Compared with physics, it seems fair to say that the quantitative success of the economic sciences has been disappointing. Rockets fly to the Moon; energy is extracted from minute changes of atomic mass. What is the flagship achievement of economics? Only its recurrent inability to predict and avert crises, including the current worldwide credit crunch.

Austrian economists and other libertarians did predict the housing bust and credit crunch and are the only ones who have offered anything other than the same old same old as measures to avert future crises (for instance, see the Mises Institute’s Bailout Reader).

To me, the crucial difference between modelling in physics and in economics lies rather in how the fields treat the relative role of concepts, equations and empirical data.

Classical economics is built on very strong assumptions that quickly become axioms: the rationality of economic agents (the premise that every economic agent, be that a person or a company, acts to maximize his profits), the ‘invisible hand’ (that agents, in the pursuit of their own profit, are led to do what is best for society as a whole) and market efficiency (that market prices faithfully reflect all known information about assets), for example. An economist once told me, to my bewilderment: “These concepts are so strong that they supersede any empirical observation.” As economist Robert Nelson argued in his book, Economics as Religion (Pennsylvania State Univ. Press, 2002), the marketplace has been deified.

Economic and praxeological reasoning from universal or near-universal truths (axioms) is perfectly legitimate and is the basis of Austrian economics, which has proven correct time and time again, at least on the large scale, especially as relates to the housing bust and credit crisis. Just because economists predict that everyone rationally acts to maximize his profits (which aren’t limited to money), it doesn’t mean they are always successful or even somewhat good at it. If economic agents, in the pursuit of their own profit, don’t to do what is best for society as a whole, then how the hell would government agents? Markets are efficient, especially compared with the alternative (State coercion), and all “empirical observation” to the contrary is pro-State trolling that probably confuses corporate-State socialism with capitalism.

The supposed omniscience and perfect efficacy of a free market stems from economic work done in the 1950s and 1960s, which with hindsight looks more like propaganda against communism than plausible science. In reality, markets are not efficient, humans tend to be over-focused in the short-term and blind in the long-term, and errors get amplified, ultimately leading to collective irrationality, panic and crashes. Free markets are wild markets.

No one except strawman-erecting Statist morans ever refer to “the supposed omniscience and perfect efficacy of a free market.” Libertarians are the ones repeatedly reminding everyone that bankruptcies are necessary and beneficial in a free market! Of course companies will fail! New ones should take their place—or not! Libertarians are the ones who say prices (of goods, of labor, and of money) should be allowed to adjust, dramatically, if necessary, and often, if necessary, to major economic events; socialist Statists are the ones who think they are omniscient and perfect enough to help everyone by keeping prices stable!

The most ardent and principled 20th-century defenders of free markets and debunkers of socialism were Ludwig von Mises, Eugen Böhm-Bawerk, Friedrich Hayek, Henry Hazlitt, and Murray Rothbard. Only Rothbard published any seminal writings that I’m aware of in the 1950’s or 1960’s.

Errors can only get amplified on a wide scale if governments use the violent, deadly police power of the State to prevent corrections from occurring immediately. Literally every economic crisis of the 20th century that I’ve read about can be explained in this way.

Reliance on models based on incorrect axioms has clear and large effects. The Black–Scholes model, for example, which was invented in 1973 to price options, is still used extensively. But it assumes that the probability of extreme price changes is negligible, when in reality, stock prices are much jerkier than this. Twenty years ago, unwarranted use of the model spiralled into the worldwide October 1987 crash; the Dow Jones index dropped 23% in a single day, dwarfing recent market hiccups.

I have read, with some skepticism, Austrian economists’ pooh-poohing of mathematical models. I mean, they don’t think they’re useless, they just think economists rely on them too much. That could be, but not being an economist, I have the impression that if sound math is applied to the relevant data, the right diagnoses can be reached and right predictions be made. Either way, the author’s criticism of math-reliant models applies to every economic school except Austrian economics.

Ironically, it was the very use of a crash-free model that helped to trigger a crash.

Ironically, it is the very use of a supposed price- and inflation-stabilizing system (the Fed) that causes inflationary booms and subsequent busts.

Brouchaud’s main point is that economists need to stop relying on laws and axioms that aren’t really true, and start doing data-driven research into what really happens in economies and base our policies only on what’s supported by reality. That’s true as far as it goes, but he goes in the wrong direction by assuming that these policies should consist of telling us how to supervise and guide markets from on high instead of getting out of the way.

The second item that sparked my interest was a letter to the editor of Science by Rui Sousa of UT-San Antonio:

Research Funding: Less Should Be More
The Policy Forum “Structural disequilibria in biomedical research” by M. S. Teitelbaum (1 August, p. 644) discussed structural problems in U.S. biomedical research funding, particularly NIH funding, but neglected to mention one of the most perverse structural problems in the system: Scientists are incentivized to secure as much funding as possible for their work, irrespective of whether an increase in funding leads to a proportionate increase in productivity.

The problem can be illustrated by a simple comparison. Suppose a pharmaceutical company has hired two researchers to run two new research labs. After 6 years, both researchers are evaluated and both have been similarly productive in terms of papers, patents, and new drugs in the pipeline. However, one researcher has sustained this productivity with a modest budget of $800,000 per year, whereas the other has constantly requested funds from the company for more equipment, more technicians, and more resources and now spends $3 million per year of the company’s money. Which researcher is the company more likely to reward and promote to a position of greater responsibility?

Now, let’s switch to a research university or medical school and talk about two assistant professors who, at the end of 6 years, have been similarly productive in terms of papers and other achievements. One has done so with a single RO1, whereas the other has managed to secure three major grants. Which assistant professor will the deans and administrators be more enthusiastic about promoting and rewarding with raises, endowed chairs, and other perks?

The discrepancy between the financial priorities in these two settings is no mystery. At the company, the funding for research comes out of the company’s pocket, and it has an interest in encouraging economic efficiency in scientific output. At the university or medical school, the funding comes from outside the institution, and there is an interest in maximizing the money secured for research, irrespective of its effect on actual productivity.

Even if the academic research model is self-correcting in the long run, would it not be more economically efficient in the first place to eliminate the incentives to secure funding over and above what a scientist feels he can most effectively use?

How can we remove these incentives? There must be a change in culture. No prestige should be attached to the level of funding that an investigator has managed to secure. The most basic of truths must be emphasized: Money is a means, not an end. We do not do science to get money. We get money to do science. Funding cannot be a measure of productivity, because scientists do not produce research dollars. Research dollars are produced by taxpayers (and to a lesser extent by philanthropists and charitable individuals). The amount of money spent by a researcher is not a measure of his productivity, but of his consumption, and might even be counted on the negative side of the ledger when he is evaluated.

I thought that was a really interesting perspective on private vs. public research funding!

In the absence of coercive funding of academic research, there would be fewer research scientists in some fields and more in others; the Imperial Federal Government’s broad role in subsidizing graduate education suggests to me that the overall number of academic researchers (grad students, post-docs, technicians, and professors) would decrease in a free market. But the waste inherent in State funding of everything suggests that the work would be more productive overall, in terms of products, services, and knowledge provided to consumers and medical professionals in a free society.

The Statist might object, “But, without taxes wisely imposed on us and distributed by our Leaders, no basic research would ever get funded! How would universities get funds for research?” Where does the money come from now? The people! If the people want to spend it on that, then they will make donations, investments, and purchasing decisions that result in universities and other research enterprises receiving some of the ample additional wealth they would have in a free society. If the people don’t want to spend it on that, then I submit that they would better off not spending it on that than they would be with you and millions of other arrogant busybodies creating States and agencies to take the money against their will.

It is interesting to think about the ways in which the nature of private pharmaceutical and biotechnology companies would be different in a free society. That is too deep and broad of a topic to go into in this post, but I will say that the state of biomedical research would be better off if some aspects of academia (openness, publication and sharing of results, pursuit of knowledge for its potential benefit to the field and not always directly for profit) and industry (the primary concern of any business should, however, be long-term profit; the reason science is funded is to make the public healthier or wealthier; and an emphasis should be placed on controlling costs, not securing as much of the pie as possible) were combined.

Also, as is widely believed by libertarian economists and non-economists alike regarding every other type of company, there would be more and smaller pharmaceutical companies in a free society. The non-importance of intellectual property and existence of multiple, competing safety-evaluating agencies would help this.

When I am able, I am pretty sure my calling in life will be to use my scientific background to write about science in 21st century America, science funding policy, the pros and cons of academic and private research, and the relationship between science and the State. Additionally, I really want to write two books titled “Health Care in America” and “Health Care and the State.” Or maybe just the latter. The value I hope to add to society in that capacity is to provide detailed information about State actions and policies that affect the scientific and medical industries, evaluate the perturbations these actions cause, and recommend changes in governmental and private policies that could improve the state of medicine and basic research.

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Quote of the day

Bailout-related quote of the day:

“The worst crime against working people is a company which fails to operate at a profit.”
—Samuel Gompers

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Stabenow and Gettelfinger plead for bailout

On the radio this morning I heard a clip of Michigan Senator Debbie Stabenow, presumably in Washington, talking about the desperate need for a bailout of the automotive industry. I can’t find an article or video with her dialogue, but this is very close to an exact quote from Stabenow’s remarks arguing that a publicly funded bailout of the automakers was preferable to bankruptcy: “People aren’t going to buy cars from a company that’s in bankruptcy.”

Yes, that’s the point! The reason they’re in dire straits is because the people don’t want their products at their prices! If the State allows money, people, and capital to remain in unprofitable production, via newly created money that forcibly erodes the public’s real wealth and purchasing power, then it is preventing a correction from occurring, not a disaster!

In searching for a verbatim quote from Stabenow’s address, I came across this vacuous opinion column by one Ron Gettelfinger of the Detroit News.

[W]hen former GOP presidential hopeful Mitt Romney launched a misinformed media blitz claiming that bankruptcy was the best route for the domestic auto industry, former Sen. Spencer Abraham, a Republican from Michigan, stepped forward to rebut him. As Abraham pointed out, bankruptcy is an absolute dead end for companies that make cars and trucks—and we want our industry to live.

And the rest of the world doesn’t, you dimwitted twit. If enough people wanted it to survive, it would survive because it would make a profit! Forcing an entire nation of people to help an industry survive because YOU want it to is the epitome of destructive socialist snobbery. Decades ago, they should have changed what they were doing and started doing less of it. They haven’t. They have received public funds before and they will be back clamoring for public funds again. This won’t save them; it will only delay the final crash of the Big Three, impoverishing Americans more rather than less along the way. And it won’t save the industries that are so dependent upon and integrated with the automotive industry. THEY NEED TO LOSE MONEY, JOBS, AND CAPITAL BECAUSE THAT IS WHAT THE VOLUNTARY CHOICES OF MILLIONS OF PEOPLE HAVE INDICATED THEY SHOULD DO! Arrogant interference and dirigiste planning by obstinate morans like you is EXACTLY what gets workers, companies, and entire economies in the quandaries they are in right now.

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Question about Peter Schiff’s advice

In one of Peter Schiff’s recent commentaries, he repeats a recommendation he’s made many times over the last few years:

Like GM, our economy is in desperate need of a restructuring. Spending must be replaced with savings, and consumption with production. The service sector must shrink and manufacturing must expand to fill the void.

He obviously argues fervently against any bailout or government loan of any kind to any company. So my question to you is: if auto companies are supposed to shrink and restructure, and the workers go do something else profitable and desirable, such as…manufacturing…why is it not okay, according to Peter Schiff, to stay in the automobile-manufacturing business? He says Americans should save, produce things for export, and stop buying so many damn things, so exactly what manufacturing jobs does he have in mind? What do you think he means when he says automotive manufacturing needs to shrink and restructure severely, but our overall manufacturing sector should grow? Does he think Americans should stop manufacturing cars because they are only manufactured to be sold to Americans, who don’t need them? What does he think we should manufacture instead? Other capital goods to sell to other companies and/or products to sell to foreigners? I have assumed this is what Schiff meant in my last two blag posts.

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Chrysler exec makes a visit from Bizarro World

Chrysler Vice Chairman Jim Press said something that was unintentionally hilarious, in a dark way. “If we have a catastrophic failure of one of these car companies, in this tender environment for the economy, it’s a huge blow. It could trigger a depression.” He is exactly wrong. Malinvestment in automobiles and houses and hundreds of other economic interventions have already pushed us into a depression, and further distortions of the market that keep capital and money invested in unprofitable, unwanted, unproductive ventures will both prolong the depression and thereby make it worse in the end.

A recession is referred to by knowledgeable, non-Statist economists as a correction, by which they mean people, money, land, and machines ceasing to produce what they used to and switching to more desired, profitable lines of production. The Imperial Federal Government and various state governments have intervened dozens or hundreds of times in the real estate market, the automobile manufacturing industry, and the banking and finance industry, and these interventions have prevented the market from regulating itself, by keeping money and capital flowing to unprofitable and unwise ventures and keeping firms in business that should have been bankrupt long ago.

Bankruptcy is a correction of a company that frees up resources to be put to better uses. In a free market, while unemployment is miserable in the short-term, it is better in the long term for most everyone who worked for the bankrupt company and for the economy at large. First, the workers at the failed business will, if they are willing and worthy of employment, find better jobs at better firms (almost by definition, since their previous job obviously wasn’t being put to a valued end), and they will usually be better off in monetary terms in the long run because they are usually no longer working for companies that will soon be unable to pay them. Second, everyone else in the economy is better off because the labor, the intellect, and the physical means of production of bankrupt businesses will be used to produce something that the rest of the economy wants more than it wanted the stuff the bankrupt company offered.

The problem with real estate foreclosures, automaker bankruptcies, or failed banks is not insufficient regulation, it is too much intervention, some of which is regulation, which hinders the market’s regulation of itself. The main form in which free markets self-regulate is by bad companies losing money and other companies increasing their profits, forcing failing businesses to provide something that others want at prices they want to pay or else go bankrupt and free up their money and other capital to be put to more desired ends.

The American economy and therefore the world economy would be better off if GM, Ford, and Chrysler filed for bankruptcy or underwent reforms similar to a bankruptcy, so that they would stop doing things that are unprofitable and stop draining money from the Imperial Federal Government (the public—the rest of us!). If you wonder why not only the Big Three automakers but so many other companies are losing money and cutting jobs, it is because economic perturbations like low-interest government loans, barriers to entry, high cost of regulatory compliance, special tax breaks, land-use regulations, minimum wage laws, the Fed’s currency monopoly, the Fed’s rampant inflation, and who knows what else keep some big companies in business and insulated from upstart competition for an artificially long period of time; but, eventually, when a breaking point is reached, it isn’t simply a matter of adjusting to a new competitor or market condition, it is near-bankruptcy and emergency job-slashing. It is a desperate and all-at-once correction for years of malinvestment and unwise decisions. State interference can keep companies afloat and insulated from profit-stealing, talent-stealing competitors for a few years or even decades, but when enough money has been wasted and enough consumers have been impoverished by thousands upon thousands of governmental perturbations, their businesses will no longer be profitable and the solution is to let them lose the money that they never should have earned in the first place and stop offering goods and services that never should have been profitable in the first place.

In summary, artificial State interventions (i.e., coercion) to keep GM, Ford, and Chrysler from going bankrupt will worsen and prolong the current recession because such measures amount to throwing good money after bad, keeping unprofitable and undesired businesses afloat when they don’t deserve it. The correction, as painful as it may be, would be to let them lose the money, let them go bankrupt, let them be taken over by someone else, and open up opportunities for the managers, the engineers, the blue-collar workers, and the factories to design and produce something else, something that isn’t an overpriced and unwanted, something other than consumer products for Americans. The Big Three have been barely staying afloat for decades, and they’ve been in similar predicaments before. It will happen again. Each coercive rescue will impoverish Americans further and further. The more money and the more workers and the more materials that are diverted from useful ends and into automobile manufacturing will create another recession and/or a continuation of the current recession, at least in that industry. Jim Press says a rescue is needed to prevent a depression; a rescue is exactly the market perturbation that will prolong and worsen the depression, by keeping capital locked up in unprofitable ventures.

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Plaxidental shooting

Last Friday, New York football Giants wide receiver Plaxico Burress took a gun into a New York City nightclub and accidentally shot himself in the leg while he was fumbling with his gun in one hand and holding a glass of wine in the other. He went to the hospital shortly afterwards, and turned himself in to police on Monday. The police had been looking for him at various hospitals to charge him with two counts of illegal possession of a firearm.

I am apparently the only one around here who sees the arrest, trial, and imprisonment of gun owners as the fascist, police-state crimes that they are. Can you believe the nonchalant and unquestioning attitude with which most people talk about “gun crimes,” without even stopping to think, much less discuss, the right of the State to restrict gun ownership and use as much as it wants? No government or any other body of people has any right to restrict the purchase, ownership, possession, or use of a firearm, beyond what our natural right of self-defense allows.

It is (or, should be) the purview of the night club owners and only the night club owners what types of firearms are allowed on their premises. They let him in with his gun, knowing full well that he was carrying it, so that was their decision. The property owners, and the people who went onto the property expecting their person and property to be safe, are certainly in a position to object to someone’s brandishing or firing of a gun, because even threatening, much less shooting, other people except in self-defense is completely indefensible. If Plaxico Burress had ever endangered anyone other than himself with the gun, that would be another matter entirely. Perhaps the club’s lawyers could press charges against him for scaring or threatening its guests and giving it a bad reputation or something. But he didn’t even pull his gun out of his pants (or wherever it was). He did nothing wrong to anyone else.

The ESPN.com article says, “Burress had a concealed-weapon permit issued to him in Florida, but records show it expired in May and New York does not recognize out-of-state permits anyway, New York media have reported.” It apparently doesn’t recognize any redeeming qualities in the Second Amendment or the innate rights it refers to, either.

Burress faces 3.5 to 15 years in prison for the laws he broke. Can you believe that? What an appalling, depressing, enraging authoritarian police state we live in! I am left almost speechless by the unquestioning, matter-of-fact attitude with which the rest of this country—this world!—accepts fascist laws that treat non-aggressing people as potential criminals to be caged and constrained and mothered and regulated until they can’t do anything without the State’s explicit permission.

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Unlawful imprisonment on airplanes

Passengers aboard a TACA International Airlines flight were kept on board the plane for nearly 14 hours on November 30. It was supposed to be 4.5 hours. Radley Balko asks, “How is holding someone in an enclosed airplaine on a tarmac with no circulating air and little food or water against their will for nine hours not unlawful imprisonment?”

Good question. I’ll wager a beer to everyone who reads this that the problem is the law itself; i.e., it isn’t unlawful, because an airline or an airport would never, ever be held accountable for its obviously-wrong actions in a court of law. They would probably hide behind some idiotic FAA (or other, non-U.S.) governmental regulations and say they were only following the rules or taking precautions. Even if they didn’t use that defense or even if that argument weren’t swallowed by a judge or jury, they simply wouldn’t be held accountable. Government legislation and/or the shameful immorality of our justice [sic] system would protect them from any verdict against them. The State gets in the way of justice being served; it doesn’t provide or protect most people’s rights or give them justice.

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November market anarchist blag carnival

I enjoyed each of the posts submitted to the November edition of the market anarchist blag carnival. I tried to submit my post on early English law, but my internet was down for a couple days, and then I forgot, and then I was incommunicado down in the land of dial-up for Thanksgiving break, so I hope it gets into the December edition. What I hope even more than that is that I have another entry worthy of submitting this month, in terms of philosophical rigor and interest to readers.

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More thoughts on the auto bailout

All I hear about in the news segments of morning radio here in Michigan is how “we” desperately need a government bailout of the Big Three automakers, and how letting them go bankrupt will be a disaster for many industries other than Detroit automakers, and how it isn’t fair for the Imperial Federal Government to bail out investment banks but not manufacturing companies, and how anyone who opposes it must have selfish ulterior motives (e.g., Alabama Senator Richard Shelby), and how, irrespective of all that, it isn’t a “bailout,” it’s a LOAN!

I suppose I get one benefit out of hearing this selfish and economically ignorant talk early in the morning: it riles me up so that I am no longer sleepy and I feel like rolling out of bed sooner than I usually do. I have two objections to the certain and imminent bailouts that I want to vent in this post.

First: how is this “loan” going to be any different from the failed non-bailout “loan” that Chrysler received in 1980? How is it going to improve anything in the long run?

Chrysler did not pay back its loans in full, the cost to Americans was not zero, and the loans OBVIOUSLY didn’t help Chrysler in the long run. Within 20 years of paying back part of the loan and reforming itself similar to a bankruptcy restructuring, Chrysler was once again an inefficient behemoth unworthy of and incapable of making a profit.

James L. Gattuso and Nicolas Loris explain that the proposed bailouts will turn out to be just that—bailouts, subsidies, grants, not loans.

But, say the automakers, the loans are not a subsidy, since the manufacturers would be expected to pay the money back. This is nonsense: Such loans come at a cost to taxpayers, both explicitly and implicitly, to cover the risk of default. The auto industry’s claim to the contrary, in fact, is disturbingly similar to claims long made by Fannie Mae and Freddie Mac that their implicit federal guarantee did not impose costs on the federal treasury. That implicit guarantee is now costing taxpayers billions in very explicit dollars.

The proposed deal for taxpayers, in fact, is in one sense worse than that shouldered by the taxpayers 25 years ago when the federal government bailed out the Chrysler Corporation. At that time, the federal government assumed ownership of Chrysler shares, providing them with a benefit if the firm did well. This time around, there is no upside potential for gain for taxpayers but only a downside risk of loss.

General Motors and Ford are also apparently pretty terrible businesses that are not a boon but a drain on our economy, and which would benefit themselves and the rest of the world economy by shrinking and restructuring. Their costs are too high and their revenue too low because they offer products that Americans don’t want at prices they don’t want to pay, and their medical/retirement benefits are too costly. This is largely the fault of poor management, diseconomies of scale, protections against failure and bankruptcy that they receive from the Imperial Federal Government (many low-interest loans, perhaps other legislation that protects them from competition), and destructive union policies. In order to truly benefit the entire economy and not just the automotive subset of it, automotive factories and workers should stop building cars and move to another area of production, one that is capable of sustaining a profit. By keeping these factories, machines, factory workers, engineers, managers, and other non-factory workers devoted to inefficient and undesired production, the State would be distorting the market such that people and capital don’t move to more beneficial jobs, i.e., producing things that consumers or companies both want and can afford to buy, and which don’t cost more money to produce than they bring in.

In other words, any loan to GM, Ford, or Chrysler is throwing good money after bad. There is no plausible scenario that will make this untrue. All three companies, especially General Motors, are simply hemorrhaging cash, and after they receive their next low-interest loan, they will continue to lose money until the next government intervention or, hopefully, bankruptcy.

Lest you doubt my assertion, above, that automakers have received government money before and will receive it again: GM, Ford, and Chrysler have ALREADY been guaranteed $25 BILLION in low-interest loans to help their factories retool for more fuel-efficient cars. It was authorized by Congress in September 2008! Here’s another article, from Bloomberg, about this. I think these loans haven’t taken effect yet. I am like 90% sure that I read or heard that GM, Ford, and/or Chrysler have received other multi-billion-dollar loans in the recent past as well. It’s just that with those, they weren’t considered “bridge loans” to save a dying company but rather subsidies to help them achieve a specific end, like making “greener” cars or something else. I’ve spent a lot of time on Google and news websites searching for articles or blag posts about previous automotive loans, but the interwebs are so inundated with news and commentary about the imminent Big Three bailout that it’s hard to find anything older. Also, they weren’t newsworthy for some reason, so there wasn’t much coverage of them. (If, that is, I’m right about the other recent loans.)

My second train of thought in this post: If “it’s just a loan” and the Big Three aren’t asking for a bailout, and they’ll pay it back once they get back on their feet, why don’t they try to get the loan from a private creditor? The answer is not that the credit markets are frozen (though, to the extent that credit is frozen, which is not much, it is the government’s fault and only letting the recession take its course would unfreeze it). The answer is that the Detroit automakers are uncreditworthy losers whom no one would willingly lend money to. Under no realistic scenario could they ever even come close to paying it back. This is a guarantee. You heard it from me, though you probably heard many others say it before.

If I understand monetary theory and macroeconomics correctly, which is a big if, then regardless of whether the Big Three pay back the loans in full and regardless of when they do, the effects of inflation will be irreversible. The Federal Reserve will simply create, say, $25 billion, and even if the government gets, say, $26 billion back 10 years from now, the money doesn’t disappear. It was still added to and is still a part of the world economy. If I am wrong and the effects of that inflation are theoretically reversible, I am much more confident in saying that the inflation is not realistically reversible. The Federal Reserve isn’t going to deflate a certain amount to correspond to the loan payments it receives from GM, Ford, and Chrysler.

They are poorly run companies with costs that are too high and revenues that will not cover their costs any time soon, and the gigantic costliness of inventing and building “greener” cars will cripple them further, meaning only government subsidies can keep them afloat and meaning the people who will pay for these subsidies—American citizens and other Federal Reserve note users—would be better off if the companies and their employees switched from making automobiles to making something else.

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Urine-to-water purifying machine

Astronauts on the space shuttle Endeavor believe they have nearly perfected a machine that filters urine to produce drinkable water. The article quotes space station commander Mike Fincke: “Not to spoil anything, but I think up here the appropriate words are ‘Yippee!’”

Folks—he pees into a cup, pours it into a filter contraption, and drinks it. Yummy, yummy. Folks, it don’t work that way! You cannot pee into a Mr. Coffee and get Taster’s Choice!

Posted in Computers/technology, Humor, Science | Permalink
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Free markets would have no “gold standard”

The Mises Institute recently published a speech by Mark Thornton called “Monetary Freedom and Its Opposite”. It was about how monetary freedom could be established, how it would benefit everyone except the “power elite,” and how the Federal Reserve, with its monetary monopoly and inflationary fiat currency, destroy an economy’s well-being.

Thornton said,

There are some reforms that we obviously do not want and that will not work. For example, we don’t want the supply-sider solution of the Federal Reserve targeting the price of gold—that would be very dangerous. We clearly do not want a “new Bretton Woods System,” whatever that would amount to….

We also do not want to return to a gold-exchange standard where governments are in charge of most of the gold and emit paper notes for people to use. This approach is unnecessary and inevitably harmful when too many notes are issued not matched with a corresponding amount of gold.

We actually do not even want to return to a gold standard system which still leaves government too much room for manipulation. In fact, we want no standard at all. “Standards” in money imply government regulation. Such a regulatory role resulted in the problems of bimetallism where government establishes a fixed ratio of gold to silver. As soon as reality deviates from the plans of government bureaucrats, either gold or silver money virtually disappears from circulation.

That’s the problem with libertarianish political campaigns like Ron Paul’s: as pro-liberty and anti-State as they were, his solutions had to be framed mostly within the context of the State, its Constitution, and what (some) people find acceptable. (Obviously most people in the world found Ron Paul’s ideas not merely unacceptable but downright horrific.) But his solutions were still somewhat Statist and too often based on “Constitutionality.” Ron Paul proposed, and has long advocated, abolishing the Federal Reserve and replacing it with nothing. This is good; it is very pro-liberty and pro–free market. However, he promoted, and has long advocated, returning the U.S. dollar to the gold standard. A truly free society has no currency/commodity “standard,” at least not one imposed by a monopolistic authority; any such standard would be mandated by the matrix of billions of free-market decisions that occur every day.

I think Ron Paul knows that true individual liberty, true free markets, and true Austrian economics demand that no gold standard or silver standard or any other standard be applied to our currency from on high. But he can’t propose that because it is too anarchist for mainstream tastes. Again, he isn’t mainstream, but there is a limit to the extremity of libertarianism that he can propose, framed by our Constitutionalist/democratic-Statist mindset.

Posted in Economics, Political correctness, Ron Paul | Permalink
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Algore for Secretary of Energy?

One of George W. Bush’s most derided and publicized shortcomings was all the terrible nominations and appointments he made for various governmental positions: Paul Wolfowitz as President of the World Bank, Harriet “Palpatine” Miers for Supreme Court justice, John Ashcroft as Attorney General, Alberto Gonzalez as Attorney General, John Bolton as Ambassador to the United Nations, etc., etc.

I was reminded of this when Barack Obama offered Hillary Clin-ton the Secretary of State position. What could he be thinking? Is he just trying to appease the Clintonite wing of the Democratic Party? Did somebody advise him that that was a good idea? Talk about compromising principles. She is one of the most hawkish Democrats in Washington. She is a power-hungry monster. Her heart is pure black and everyone with half a brain knows it. But, maybe he is trying to follow the old adage, Keep your friends close and your enemies closer.

I wonder what other terrible appointments he’ll make in the coming months and years. The first one that came to mind is Algore for Energy Secretary. It makes sense, from the Obama camp’s perspective, doesn’t it? The sustainable energy guy, beloved by everyone on the left, winner of the Royal Swedish Academy’s Statist of the Year prize, producer of An Inconvenient Truth, denier of inconvenient truths about…well, just about everything. I almost want that to happen just to partake in the comical tragedy that Obama’s regime would become.

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Carl Sagan reads from Pale Blue Dot

I’m pretty sure this is the best video on the entire internets:

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Arnold Kling on credit default swaps

Arnold Kling at EconLog wrote the clearest explanation I’ve heard yet of what a credit default swap is and how it could have led to so many financial losses in our current recession. It sounds like a correct explanation. Maybe it’s too simple to be true; it seems impossible to imagine that I haven’t encountered an equally clear and simple explanation before, but that shows you how unable and/or unwilling most economically-knowledgeable people are to explain things really clearly for banking-and-finance dummies like me.

A B-rated bond has higher default risk than a AAA-rated bond. There are lots of institutions that could hold AAA-rated or AA-rated bonds but which are precluded from holding B-rated bonds. However, if it were not for regulation, those institutions might be able to do better with B-rated bonds than with AAA-rated bonds. Suppose that a B-rated bond has a default probability of .01, and a AAA-rated bond has a default probability of .0001 (note: those are strictly hypothetical figures, that I pulled out of the air–not based on the actual relationship between ratings and default probabilities.)

If two B-rated bonds are independent of one another, then the probability that both of them default is .01 times .01, or .0001, which is the same as the probability of a default on the AAA-rated bond. And if you have three independent B-rated bonds, the default probability gets even lower. Where this is leading is that with enough independence, a diversified portfolio of low-rated bonds can be created that has lower risk and a higher return than a AAA-rated bond.

The regulatory anomaly is that a bank or pension fund cannot take advantage of this. The regulators will see B-rated bonds in the institution’s portfolio and penalize the firm for taking risk. The regulators overlook the diversification.

Into the breach steps a AAA-rated insurance company, selling credit default swaps on B-rated bonds. The bank can buy a B-rated bond, protect it with a credit default swap from the insurance company, and have the regulator treat the bond as at least AA. The insurance company performs the diversification function, selling swaps on a boatload of different bonds. The insurance company gets to keep most of the extra return that is created by having the banks take on low-rated bonds.

It turns out that at least two things can go wrong here. First, the bonds may turn out to be more highly correlated than was thought. It could be that if some of them go bad, then a lot of them go bad. Second, even if defaults stay under control, an increase in the probability of default can force the insurance company to put up more margin (collateral), and this can put the insurance company in dire straits.

The regulatory issue is this: why are banks not allowed to take the risk of (a) holding a diversified portfolio of low-rated bonds, when they are allowed to take pretty much the same risk by (b) purchasing credit default swaps? If they do (a), then if the bonds turn out to be highly correlated, then the portfolio will not be so well diversified and the strategy will fail. However, if they do (b), then if the bonds turn out to be highly correlated, then the seller of CDS is unlikely to be able to perform as promised.

Regulators have to take a point of view on the issue of how highly correlated are bond defaults. If they take the view that they are not highly correlated, then banks should be allowed to take on diversified portfolios of low-rated bonds. If they take the view that bonds pretty highly correlated, then banks should not be allowed to claim that the purchase of credit defaults swaps provides insulation from risk.

The inconsistency in regulation is what accounts for the rise in the credit default swap market.

I think if you are going to regulate, you have to be really careful to trace through all of the consequences of regulation. If you see a financial innovation taking off like crazy, there is a good chance that it is being used to exploit a regulatory anomaly.

Effective regulation is really easy after something blows up. In real time, it strikes me as a darn hard problem.

A commenter, Grant, gave some input that I found equally as helpful:

I’m wondering if the scenario played out something like this:
Financial institutions want to purchase lower-rated bonds and diversify their risk. Ideally they’d be able to buy bonds with different rates of defaults. The risk levels here would be relatively transparent, because the bond holder and the bond issuer would be the only financial intermediaries involved.

Regulators prevent this from occurring, so the financial institutions have to purchase lower-rated bonds that have been insured and turned into higher-rated bonds. This adds an additional intermediary to the whole process: the insurer. This reduces transparency, and the ability of the bond holder (and bond rater) to estimate the default correlation of their bonds (as they can’t know how diversified the bond’s insurer is).

This makes me wonder: Why didn’t the holders of insured bonds tread more carefully due to the uncertainty of their insurer defaulting? I can understand that laxer lending standards and low interest rates caused an increase in supply of mortgage bonds with a high default rate (presumably making their price more attractive), but I don’t understand why investors would not try to estimate the correlated risk of their insurer.

Of course, mortgage bonds can be highly diversified over many small housing markets. Only a widespread downturn in home prices could cause defaults across all those markets and put the insurers and bond holders in trouble. Naturally that is exactly what happened, but again I find it hard to believe that bond holders did not at least try to estimate the counterparty risk from their insurers.

Why did the buyers of insured bonds systematically underestimate the risk of their insurer defaulting? Was it really as simple as not believing a nation-wide downturn in home prices could occur?

Seems like the case. If you have a bunch of bonds, or mortgages, or 20-sided dice, or just hypothetical computer algorithms, that each are only moderately likely to return a certain result, then multiplying them all together in the same “game” makes it very unlikely that a high percentage of them will give that result, other things being equal. So, you won’t be as well off as if you were playing with bonds, mortgages, dice, or computer programs that were very unlikely to return that result, but you should still be in pretty decent shape, especially if you got them for cheap, other things being equal.

But, I can think of at least two parameters in this “game” that would convert your moderate-likelihood game into a near-certain failure—parameters that cause the “other things” to stop being equal. First is if there’s something in the “game” that makes prior outcomes affect future outcomes, e.g., one default makes a second default more likely, or two defaults in close proximity make, say, five or ten more defaults more likely. Something like that. I don’t know if this relates to what happened in the real world, in the housing market or elsewhere. But I do know another game breaker that did happen in the real world and, if Grant and I (and many others) are right, is the primary reason so many credit default swaps lost money (turned “toxic”) and financial institutions lost billions: some outside factor caused nearly all home prices to plummet, destroying equity and causing many of these moderate-likelihood-of-default mortgages to become near-certain-to-default mortgages. This outside factor was the housing bust that followed the housing boom.

Austrian economics predicted the housing bubble and predicted its burst. Austrian economics says a bust must be preceded by a boom and that a boom can only end in a bust. (Or hyperinflation.) One of the main reasons so many houses were built, and so many mortgages were bought, and so many unreliable borrowers were sold mortgages, and so many houses rose in price (not value) was the artificial credit boom created by the Federal Reserve. This, along with the New Deal–esque home-ownership obsession that professional criminals in Washington, D.C., promoted and pushed on Fannie Mae, Freddie Mac, and private banks, created the housing boom. The Federal Reserve and the Imperial Federal Government intentionally created the housing boom by specifically distorting the real estate market, and all the non-Austrian economists and short-term thinkers and greedy high-time-preference investors out there went along with it, rarely questioning a thing.

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Minarchist states and basic necessities

What are the most basic necessities of life, of survival? I’d say food, water, and shelter. In our modern world, a fourth good one to add to the list would be medicine. I think it’s fair to say that without these four and certainly without the first three being available and affordable to almost everyone in society, there is no society to speak of. We’d be hunter-gatherers again. Or some sort of violent, dystopian society with neither Statist nor customary nor any other type of law.

Therefore, when minarchists and other inconsistent, delusional, unrealistic hypocrites speak of having “the government provide the basic needs of society like police, courts, national defense [and sometimes the roads], and letting the free market take care of the rest, since it is the most efficient system,” I get a little twitch in my neck and I want to hurt somebody. Like the minarchists.

These thoughts were prompted by a comment to David Z.’s recent post about social contracts and voluntary taxation and other nonsense, Taxation really is theft! His friend Zach S. left a comment that included this paragraph, which I really disagree with:

I believe Brad G and I spoke about this and his idea would be for the government to run the most basic of needs: fire department, police department, military, etc.

I left a comment saying, basically, that those types of things are not the most basic needs; food, water, shelter, and medical care are. Fire departments, defense from outside attackers, and criminal investigation/prosecution/punishment systems are very important in any remotely large society, but they are secondary needs. People have to be living healthily before they even consider those things relevant.

Therefore, if minarchists think the free market is both more just and more efficient at providing the four basic needs to humans, then why in the world does it completely fail, to the point of justifying a monopolistic state, at providing secondary needs like those mentioned? No one except severely misinformed and biased Statists want the government to have anything to do with provision of the four basic needs of (modern) human survival, so why do minarchists say food and housing should be produced and traded freely, secondary needs like police and fire departments should be completely involuntary, but then everything else should be freely traded, too? Is there something special about secondary human needs that doesn’t apply to anything else? Is there something special and intrinsic about monopolistic states that allows them to provide four or five specific things perfectly justly (i.e., non-aggressively) and efficiently, but not anything else? Is there any principle behind that whatsoever?

I don’t know Zach S. or Brad G., but I know they would probably fit my criteria of “broadly libertarian” or “semi-libertarian.” I know it would take a long, long time and a lot of government-reducing reforms before we found a single one to disagree about (other than maybe the order in which to eliminate government activities). (I also know that isn’t the road to agorism, but we’d both prefer much less government in the meantime if we could get it.) So I know minarchists like them are my philosophical allies and I’m not trying to harass or browbeat them into growing into anarchists. I’m just trying to make my point forcefully because it is an important point that deserves to be made forcefully.

I know this subject could have warranted a much longer, more detailed, more philosophical treatment, but I just wanted to reproduce and expand upon my comment to David Z.’s post.

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