Wednesday, March 25, 2009

History of Paper Money Fraud

Another bow tie wearer, Lawrence Parks, explains the fraudulent process by which we've ripped off by paper money.

Saturday, March 21, 2009

Save the World? Learn Economics

The recent death of actress Natasha Richardson has given the socialized medicine of Canada another black eye. After the original 911 call, it took four hours to get Richardson to a hospital in Montreal because Quebec has no medical helicopter system. "Our system isn't set up for traumas and doesn't match what's available in other Canadian cities, let alone in the States," said Tarek Razek, director of trauma services for the McGill University Health Centre, which represents six of Montreal's hospitals." In a brilliant analysis of what's wrong with socialized medicine, Bill Anderson points out that countries with socialized medicine systems are always relatively under-supplied with capital goods, like medical helicopters. Anderson's county of residence has 80,000 people and more MRI machines than Montreal which has several million residents. It is numbers like these that lead to the quip that it is easier in Canada to get an MRI for one's dog than for one's aunt.

Today, wealthy Canadians can simply bypass Canada's inferior health care system (provided they are not in the same situation Natasha Richardson was in) and get medical care in the relatively capitalist U. S. system. Were the United States to adopt a system like Canada's, health care would eventually be much worse than it is today. Wealthy Americans would bypass this new American system by going out of the country to a hospital that will allow doctors, likely refugees from the U.S., to cater to them. Thus the limousine liberals who advocate socialized medicine for the masses know that they themselves will not have to wait in line for health care.

The bigger question, however, is how does someone like Bill Anderson analyze a question of political economy like the provision of health care? Answer: He simply applies knowledge of economic truths to real situations. The fact that we have a system of economic knowledge to draw upon to guide us is largely the consequence of the stubborn adherence to professing the truth of the greatest economist of the 20th Century, Ludwig von Mises. With courage and at great personal and professional cost, he battled the destructive intellectual trends of the last century: historicism, socialism, fascism, interventionism, and any other doctrine which promised prosperity yet was bound to bring misery.

Although Ludwig von Mises believed, like Max Weber, that economic science is value free and should not be influenced by the personal opinions of the scientist, he strongly advocated laissez-faire capitalism. There was no inconsistency. Just as a biologist needs objectivity in studying harmful bacteria, he may be motivated to study the bacteria in order to save humans from the misery the bacteria cause. Thus von Mises had developed economics as "scientific theory without any thought of its political significance". Yet he passionately advocated laissez-faire economics because his critique of interventionism led to the conclusion that interventionist government policies subvert the free choices of individuals and always accomplish the opposite of what the policy makers profess to be the goals of the policy. Laissez-faire is the proper policy is so far as mankind prefers "life to death, health to sickness, nourishment to starvation, [and] abundance to poverty." For Ludwig von Mises, advocacy of laissez-faire was advocacy of civilization itself.

Ludwig von Mises wrote in his magnum opus Human Action "Economics deals with society's fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen." Can a simple person learn enough economics to actually make sense of the world and evaluate government policy? Certainly. Economics is not, as one might think from browsing through the requirements for a degree in economics from a typical college, the realm of specialists with knowledge that is beyond the comprehension of mere mortals. Physicist Ernest Rutherford is reported to have said, "If a principle of physics could not be explained to a barmaid, ...the problem was with the principle, not the barmaid." So too with an economic principle.

Where to begin learning economics and becoming a citizen qualified to make sound pronouncements on the seemingly endless string of policy blunders by government? I recommend four books for beginners, although there are others. These can be read for free:

The Concise Guide to Economics by Jim Cox

Economics in One Lesson by Henry Hazlitt

What Has Government Done to Our Money? by Murray Rothbard

Economic Policy: Thoughts for Today and Tomorrow
by Ludwig von Mises

Happy reading!

Monday, March 9, 2009

Milkcow Blues in Chandler, AZ

The lack of a capital theory is one of the many problems with mainstream economics. Capital, to most economists, is just a homogeneous blob that they assign a letter, like K, and then use in some Rube Goldbergesque equation, a process that they mistake for actually doing economics (at least Rube's contraptions worked). Real economists, however, have a conception of capital that recognizes its heterogeneity. There are stages of production, each results in goods; some are goods used to make other goods and some are the finished goods for consumer use. This capital structure is created and guided, if left alone, through a system of prices and ultimately reflects the demand of consumers. The upshot of this is that the ship of economy is guided by what Ludwig von Mises called "Captain Consumer". Any forceful interference by the government in the form of law or spending new money, will enable its favored consumers but only by thwarting the demand of other consumers and distorting the capital structure (spending tax revenue also distorts the capital structure in the same way). This kind of distortion can only last as long as the government money continues to flow.

The creation of new money, i.e., inflation, by the government thus creates one of the great ethical problems of our time. When the government creates new money, through the central bank (either by creating reserves for the banking system or financing government deficits), the capital structure of the economy becomes distorted. Certain ventures boom, like residential real estate. However other ventures, that would have been supported by consumer demand, are starved as resources flood into the favored venture and industries that support it. Inevitably the money spigot is turned down and these once-booming enterprises go bust--effecting not only those directly involved, but also many innocents in a radiating pattern of economic doom.

Chandler, Arizona provided a microcosm of this process in action. Chandler historically was a rather sleepy farming town, with dairy farms supported mostly by local grain fields. Its main claim to fame was Arizona's first vacation resort, the San Marcos Hotel. The gradual process of farms giving way to residential and commercial real estate development accelerated in the 1990s and was at a full gallop in the new millennium until the real estate bubble burst in 2008. Having been a Chandler resident since 1996, I had a front row seat. If, as Jim Rogers predicts, the farmer in the future will be driving a Lamborghini by producing food for an ever-hungrier planet, the Chandler dairy farmer got Lamborghini-rich in the near past by selling his farm to ever-hungrier real estate developers. Thus driving Chandler roads gradually became a less aromatic experience.

The ethical problem with new money and credit creation (which would be simple counterfeiting if done by a non-government entity) comes from the shotgun blast of pain that is suffered by parties not involved directly in the credit-creating event, specifically of late, the mortgage contract. In Chandler, many productive farms that could help feed the local population are gone, replaced by residential areas suffering from high foreclosure rates. The symbol of the real estate bust in Chandler is, perhaps, the bankruptcy of Fulton Homes. Its upscale development in Chandler called Fulton Ranch now lies well short of finished. If the future of the world food supply is as dismal as some think, we may miss the farms lost here in Chandler. Chandler is but a small example of the Federal Reserve's credit-induced distortion of the capital structure, the excesses of which need to be liquidated so that capital can be put into the hands of productive capitalists, serving Captain Consumer.

The Fed's credit-induced boom and bust calls into question the need for a government-sanctioned counterfeiter of last resort to encourage recklessness in the lending practices of financial institutions, bringing pain to the entire economy. The position here at Bow Tie is clear: END THE FED.

Post Script: Hear my witty song inspired by a now-defunct diary farm in Chandler: "Milkcow Blues".

Thursday, March 5, 2009

Jim Rogers

One of my bow tie heroes, Jim Rogers, on our current state of affairs.