Amoral Majority

I dread people asking me what my degree or job title is.  When I tell people that I am a “Mathematics Specialist”, they usually crinkle their nose and comment on how much they hate my chosen field.  Not everyone, of course, but a vast majority.  Ask a bunch of adults to raise their hand if they can’t read, and you’ll get nobody’s hand up.  People feel embarrassed to admit they can’t read.  Ask the same group of adults if they can’t do math, and you will get many hands.  People are not embarrassed at all to admit they can’t do math.  I’ve always thought it was weird that a room full of adults has no problem admitting their incompetence in the field of mathematics, a field that permeates every aspect of human life.  The situation isn’t much different for the field I got my first degree in;  Physics is still viewed by many as an intractable and incomprehensible field for the nerds and geeks of the world.  I’ll give you an example:  I was getting my teeth cleaned, maybe a year ago or so, and the lady asked me what I went to school for.  I told her I had gotten a BS in physics and an MS in mathematics.  She responded with a loud, “Ewwwww!  I hated math and physics!”

I told her, “I hate dentistry!” (not really, but I was thinking it!  What are you supposed to say to someone who just told you they hate your passion and chosen profession?)

But I am not writing about the fact that nobody has a problem telling me how much they hate my occupation.  I can live with that.  What would really bother me is if one of those people started arguing with me about Quantum Mechanics or the Calculus of Variations.  In fact, this has happenned before.  A while ago someone who had read some popular book, like Hawking’s “A brief History of Time”, wanted to actually argue with me about how quantum mechanics really works!  He had so many misconceptions of the subject that I just gave up and said, “whatever dude”, and left it at that.  I mean, can you imagine me trying to tell my dentist how to do her job that day?

But recently I have realized that this is exactly what almost every person does with both politics and economics.  Everybody, no matter how well read they are, has an opinion on these fields.  That must be exhausting for actual economists!  Economics is a science, like math.  You set out basic assumptions (axioms) and you draw conclusions through logic that you can test against reality for usefullness.  I’m glad they have kept math out of politics, because it would drive me crazy, I think, to hear the Hill debate weather or not Pi is actually a rational number.  Most people know nothing about economics, having never read a single book, but they nonetheless have many ideas and misconceptions of the subject (and will have no problem imposing those views on others through the force of government).  Similarly, everyone has an opinion on politics without ever having read the basic texts.

Marx, Bastiat, Adam Smith, Mises, Friedman, Locke, Hobbes, Hayek.  Everyone who ever talks about politics or economics should be familiar with all these names, and more, or they are like the guy arguing with me about quantum mechanics, full of misconceptions.  The one big difference is that the guy arguing quantum mechanics can’t really affect how the world works, or the direction of research in that field.  His understanding does not affect my world in a real way.  However, the peope who constantly argue politics and economics without at least a solid understanding of the fundamentals do affect the economy though their votes and elected representatives.  The TARP, (or TALF, or whatever it is now called), stimulus, bailouts, these all have serious implications for my future.  When the Mayor of Detroit gets on TV arguing economics with an economist, it drives me crazy.  Almost as crazy as Stephen Baldwin arguing the politics of Marijuana legalization with Ron Paul.  It reminds me of the classic skit in Monty Python’s Flying Cicus where the bulky boxer is put in the ring with a little girl and he just keeps knocking her down over and over.  Except this is real life, and instead of being funny, it’s actually quite depressing.

Now, since I am not an economist, though I have read many many books on the subject, I still tend to listen to actual economists before forming my opinion of any policy.  And just like the layman trying to decide on what to wear for the day and deciding what channel’s weatherman to watch, i want to listen to those that repeatedly get it right.  Some “economists” have proved to be so only in name, missing just about every single warning sign on the way to the current situation.  I dont listen to them.  I cant imagine a physicist or mathematician lasting too long when every time he sits to do an experiment or solve some problem, he misses wildly.  However there are many economists who have gotten it right over and over.  I tend to listen to them.

But one of the most respected and listened to economists has been disastorously wrong on multiple occasions.  Paul Krugman, Nobel prize winner and Keynesian economist extrodinaire, has been wrong over and over.  He suggested, in the wake of the dotcom bubble that greenspan should blow up a housing bubble to replace lost business investment.  Here we see a perfect example that replacing bubbles with other, larger bubbles can only lead to a worse situation in the future.  Would you rather go back to 2000 and let that recession take place and never have experienced the housing bubble to begin with?  Of course you would.  Unless, that is, you like the fact that we will be running a 2 trillion dollar deficit this year (which means we nearly have to borrow every two months what we did for the entire year last year at a time when the dollar really cant take anymore beatings), multi-trillion dollar deficits over the next four years, and moral hazard created when government steals from its citizens (who are broke) to bailout their rich friends on wall street.

Instead of continuing to listen to those economists that have repeatedly gotten it wrong, why not listen to someone who has been right?  Examples are abound, just not in the mainstream media.  Here is one.  Tom Woods is my hero.  Here is another, Peter Schiff, Ron Paul’s economic advisor during his long shot presidential bid (and someone I wholehartedly support to this day as maybe the only honest, principled representative left who is truely conservative).  Check out the recently popular Schiff was right video on youtube.  Finally, Gary North and Lew Rockwell.  Gary can be found on Lew’s blog, which I read everyday.  Obviously, when Obama says the economists on all sides agree, he is admitting the personal flaw of selective hearing (as egomaniacal authoritarian warmongers tend: to select facts to support their agenda;  self-absorbed and obtuse to the extreme).

Forgive my rambling, but every once in a while it makes sense to try to think about the problem of government in a free society.  What does it take for a society to be truly free?  For me, it is the freedom to do whatever you may want, as long as it doesn’t stop others from doing so.  I’ll use that as my definition of freedom for now.  So what kind of government is consistent with freedom?

First, because enforcing policy necessarily requires voluntary agreement in a free society, there should be a reasonable level of agreement on any policy adapted by our central planners.  To what extent people agree will depend on the issue.  As these issues are defined more narrowly, we would expect agreement to be less and less likely.  Likewise, as the issues under consideration for control are made more broad and general, the level of agreement becomes greater (e.g. We all agree government should provide defense. We just don’t all agree on the specifics).

You might have heard, for example, that we have just been approved to build a new base in Italy, apparently, to try to prevent “social unrest.” You know, people not agreeing with what their government is doing to them (note to self:  Ask Obama what the hell this has to do with the security of the American people).  We have hundreds of military bases in over 100 countries.  Do Americans really want a new base in Italy right now?  Can we really afford to give any more money to the military-industrial complex? (Shhh…I don’t think it really matters anymore what we want, but don’t call it a conspiracy!)

Because we all have very different views, needs, wants, and morals, Americans embody a very wide spectrum of opinion.  We disagree on all sorts of things.  But the key here is that we do have practical unanimity on some issues, like basic human rights of life, liberty, and the pursuit of happiness.

Even on some issues where people can all agree , like raising the average wage in the US, the methods for accomplishing this goal can vary wildly.  Any given plan is likely to favor one group over another.  And for every plan that favors group A over B, there will be a plan that favors B over A.  The actual number of plans theoretically could be greater than the number of people under the direction of the central planners.  So that even when we have unanimous agreement on one issue, in reality no plan can be said to be objectively better than any other.

And this is where we get to the punchline.  Ultimately, if we are to pass the hypothetical plan to raise the average wage of Americans, some person or committee will have to decide, quite arbitrarily, on a specific plan.  The government will have to decide who wins and who loses, and as we’ve seen for quite awhile now, those in power to make such decisions usually have money and power on their mind; not the “general welfare”.

The problem stems, in this example, from the fact that the policy in consideration was ends-based.  It is not a general rule which must be followed by all, as is the case with laws concerning murder.  Rather, it is focused on a specific end.  This creates the need for specific groups to be mentioned in the policy.  The planners creating this legislation can see its effects in advance.  They use this foresight to please special interests (at the expense of some other group, of course).  However, murder laws, for example, are not the same at all.  None of the planners could possibly foresee what group will be affected by murder laws in advance.  It is true, though it possibly sounds like a contradiction, to say that planners should not have any kind of foreknowledge of the effects of their plan on any specific groups.  This does sound odd, but it is at the heart of why our planners have repeatedly failed over and over.

Furthermore, the arbitrary nature of such decisions will ultimately subvert the rule of law, which has always been the hallmark of a free society.  We have seen in the last eight years, the effects that such a subversion can have.  The rule of law, as opposed to the rule of men, is the natural consequence of the progression of societies from autocratic to democratic rule.  It is the dividing line that separates the totalitarian states of the past from the more liberal states of the present.  If we are to truly preserve the rule of law, policymakers must stop proposing ends-based policy.  As we have seen, ends-based policies subvert the rule of law, have almost no chance for any kind of broad agreement from the people, and are used to please special interests at the expense of the general public.

Furthermore, the world is extremely complex, and understanding all of the interconnected and often conflicting goals of each of its inhabitants can never be achieved by any one man, let alone a committee of men.  Eventually, policy decisions will always favor one group over another (due to the limited scope of the planners’ experience and knowledge), and the laws of economics are such that the favored group is bound to be smaller (so that each member of the losing group ends up “paying” a small amount, lest they revolt).  Thus, ends-based policies have little chance of actually helping a majority of the people.

I sometimes wonder if people truly believe that its okay to have such a powerful executive as long as the guy in control is benevolent.  As I mentioned earlier, the complexity of even the most basic structures of society, like the vast financial system, are such that no one man, woman, or committee could possibly effectively handle tweaking the system to what they perceive to be in the general interest.  But even if we got someone that can manage such control, whose to say Americans will always vote for that person?  In fact, the likelihood seems very small considering our past presidents.  If we continue to give such power to our federal government, we will ultimately find ourselves one day serving under an autocracy and living in servitude to the ruling party and their elite friends (although I’m not totally convinced that isn’t more or less the case right now).

One would like to think that Obama does not fit this group.  However, it is clear that Obama does not share this vision of how we may truly have a government by the people and a free citizenry protected by the rule of law.  He has shown he has no interest in bipartisanship or truly listening to the ideas of both sides, neither of which seems to know anything about economics (Where have all the Austrians gone?).  He had no problem voting against the overwhelming majority of Americans on the TARP.  He favors ends-based policy, which is the enemy of the free society.

I’ve been rambling for long enough, I think.  Time to get back to figuring out how I can use the new laws being passed to my advantage; at the expense of others, of course.

The following content was originally written on January 10, 2008 and posted in an online forum.   Please excuse my somewhat disjointed ramblings since this was originally intended for an internet message board.   I simply wanted to revisit my previous thoughts and assess the accuracy of my predictions.  So here we go:

Here’s some doom and gloom for ya.

Here’s what I see in the next four years that our next president must deal with.

Stagflation

Alan Greenspan reminds everyone that things aren’t great.  He gives us insight into the weird raising of interest rates that occurred toward the end of his career.  He tells us that we are already seeing the early signs of stagflation.

Economics.about.com says the following on stagflation:

“But the most important element in the war against inflation was the Federal Reserve Board, which clamped down hard on the money supply beginning in 1979.  By refusing to supply all the money an inflation-ravaged economy wanted, the Fed caused interest rates to rise.  As a result, consumer spending and business borrowing slowed abruptly.  The economy soon fell into a deep recession.”

The problem with today is that the Fed can’t stop printing money.  Our tax base is shrinking and we have two wars to pay for, not to mention Social Security and Medicare, so a cure by recession is out of the question.  Over the next four years, the status quo (Bernanke and his Keynesian dreamworld utopia) would be to keep rates artificially low to prop up the market.  Meanwhile, prices continue to rise for the same reasons they did in the 70’s, including energy and commodity costs.  This leads to unemployment.  Further, oil prices will continue to rise as long as we maintain a military presence in the Middle East, but more on that later.  I just hope that we won’t be drawn into a conflict with Pakistan or Iran.

Our viable candidates have offered us better schools, “energy independence”, and a slew of other non-issues that CANNOT be payed for.  None of it will matter when unemployment reaches a new high, the national debt swells faster than ever before, and prices rise as the dollar falls.  Our stagflation cannot be cured by recession.  Unfortunately, only a severe depression can result since the Fed’s hands are tied and the government needs the money.

The same Keynesian arguments won’t work anymore.  Hayek was right.  Get used to it.  I mean, how could we ever believe a guy that talks about “Keynesian multipliers?”  What a load of crap!

MILTON FRIEDMAN:
Stagflation was the end of naive Keynesianism.
You had two things at the same time, which under the Keynesian view would have been impossible.
You had stagnation in the economy, high level of unemployment.
You had inflation, with prices rising rapidly.

NARRATOR:  When Hayek moved back to his native Austria, he was depressed. The success of mixed economies made his free-market theories, and Hayek himself, seem more irrelevant than ever.

LAURENCE HAYEK, Hayek’s Son:  The world was very much a socialist world.  His ideas were not fashionable.  Nobody seemed to listen to him.  Nobody seemed to agree with him.  He was alone.

NARRATOR:  Hayek found his ideas shunned by the academic world.

FRIEDRICH VON HAYEK (interviewed in 1978):  Most of the departments came to dislike me, so much so that I can feel it to the present day, [and] economists very largely tend to treat me as an outsider.

NARRATOR:  He was living in a provincial town and stuck in a rut.  But the outside world was beginning to change.  Skimming the newspaper in his usual restaurant, Hayek read how inflation and unemployment were rising at the same time.  There was a new word to describe it: “stagflation.”

So have we taken any lessons from the 1970’s?   It appears that haven’t.  Tis a shame, but the party in Washington and on Wall Street was more important to the ruling elite than the parties on main street.

China, however, is learning from our mistakes. China has no social security, no guaranteed medical plan, and no pention benefits.  They seem more capitalistic than the U.S.!   It’s no wonder they are doing so well.

But will they go on the gold standard, untying their currency from our fiat paper?

Some excerpts from Moneyweek:

Dollar collapse: the rise of Asia

On our way to a post-collapse, post-dollar world, Asia will likely transition from a de jure dollar standard to a de facto gold standard.  This will happen in stages as the dollar crumbles; Asian countries and consumers will accumulate gold reserves surreptitiously at first, and may eventually formalize the transition through some sort of pension IMF-type arrangement.

Asia has the “second mover advantage” of being privy to all the Western World’s mistakes.  They are able to see where profligacy and runaway entitlement programs have led.  Their top-down orientation will enable them to rein in expensive entitlement programs or, better yet, curtail young ones before they grow bigger.  Not being as mentally and emotionally tied to the workings of empire and the capitalist welfare mentality, Asia will successfully cut the cord faster.  In doing so, Asia will also rely on its citizens’ natural propensity to trust precious metals and hoard them as a store of value in the first place….

While Keynesians see the rise of gold as temporary – and will continue to assert their naysayer views as gold rises further – it will soon come to light that the ‘world reserve currency’ idea was the temporary thing, an anachronism of the industrial age…

The world reserve currency concept is tied to the notion of a single all-powerful superpower.  That is a 20th-century idea that is going away.  It is also tied to the idea of a single economic powerhouse striding atop the rest of the world. That idea is going away too…

Even if China becomes the new manufacturing Boss Hoss of the 21st century, it will not wield the same economic heft as America did in the 20th or Britain did in the 19th.  There are too many competitors for that now.  To the degree that China’s power comes as a cheap manufacturing destination, it will always be one price cut away from noncompetitiveness with India or the rest of the Asian nations, and eventually the Middle East, South America, Africa, etc… economy of scale is simply no longer the powerhouse edge that it used to be.  The agglomeration of industrial and political power seen in the 20th century will likely vanish into the pages of history.  The concept of ‘world reserve currency’ may well vanish with it…

Asia could well be the vanguard for a new gold standard because of internal dynamics.  China is exemplary in this regard in that Chinese citizens regularly save as much as 40% of their personal income. This is in large part due to the lack of a safety net in China.  There is no Social Security, no guaranteed medical care, no pension benefits and so on.  Many of China’s less-connected citizens seem as likely to bury their wealth in a shoebox as put it in a bank. This mindset strongly favors a physical, storable asset, like gold.

So maybe we could hear from our candidates about these things?  There are serious problems out there, and forgive me for supporting the only wack job [read: Ron Paul] that specifically addresses these concerns and offers a new solution.

As I predicted over a year ago, rates have been kept low and tensions continue in the Middle East and between us and Pakistan.  Obama continues to assert, despite the National Intelligence Estimate’s conclusions to the contrary, that Iran is seeking nuclear capabilities.  Unemployment continues to rise and Congress, together with the Fed, is pouring money into the financial system with absolutley no regard to inflation.  We have seen a slight correction in commodities, but as gold has clearly reversed its downward trend, so will other commodities.  Oil has certainly come down in a major way, but this is simply a temporary correction, which always happens when oil prices spike like they did.  Commodities are the only asset class whose fundamentals have remained strong throughout this downturn and they will continue to be the best asset class throughout the coming depression.  Our leaders, however, must have not seen what I observed because they have ramped up their spending and economically destructive behavior since I wrote this.

Sometimes I feel like I’m eating crazy pills!