Monthly Archives: August 2013
Those of you who view my blog know of my encounters with a certain MarxistMax, but given the fact that I’ve been dealing with Marxism so much on my blog, I’ve decided to take a step away from Marxism in order to deal with what has come to be known as “Progressivism” today.
Here are just a few of the positions progressives hold:
1) Healthcare should be run entirely by the government. “For Profit” medicine by necessity excludes the poor from getting the healthcare that they need to survive.
2) Businessmen are greedy assholes who don’t care about society as a whole, and who can only make money by exploiting workers by paying them Slave Wages. Therefore, the government needs to institute a Living Wage.
3) Banks need to be heavily regulated (if not outright nationalized). If it isn’t bad enough that they do nothing but speculate in the market, they’re constantly exploiting people through interest lending (or usury if you want to call it that). There’s no reason it should be considered moral or ideal that the Banksters should be allowed to make such excessive profits while people are losing their homes and starving on the street!
4) Too much money is going to Big Oil, and not enough is going to renewable, clean energy sources. We need to completely get away from fossil fuels so we can stop Global Warming and prevent humanity from going extinct due to Climate Change. There’s no reason Big Oil should be allowed to make such excessive profits by exploiting our environment!
5) Too much is being spent on War, and not enough is being spent on roads, bridges, and education. Our infrastructure is crumbling while Big Oil and the Military Industrial Complex is making a killing off of exploitation and… killing people.
6) The Public School System is a disaster, but it is because we’re not spending enough money on it; teachers are grossly underpaid, textbooks are out of date or non-existent, overcrowding is a serious problem in the classrooms, and all of this coupled with the fact that the two-parent household is breaking down, particularly in the inner-cities, has created this terrible system that we have now. So, the Federal Government must provide as much funding as possible to all states so that they can hire more teachers, provide better classrooms, and empower our youth, especially in the inner-cities, to strive for education, and to make Higher Education freely available to all those who can meet the University’s academic standards.
7) Immigration is an essential part of our country. We should do everything we can to encourage immigrants to our country to work, and to see to it that all of those immigrants have access to the same education and healthcare that we have access to, as well as affordable housing.
8) Housing needs to be more affordable. The government should be doing more to provide people with cheap, affordable housing, especially in the Inner-Cities. There is no excuse for letting people live under bridges or in their vehicles!
There is more to the Progressive Ideology, but I will only deal with these for the time being. You will notice no doubt that I have certain words/phrases underlined and in italics. It is because these words have become magic to the perception of the typical progressive. Here is my response to the listed positions:
1) The phrase “For Profit” is being used in a tone that suggests that profit-making is exploitation. I find it strange that the Progressive can say that it’s ok for a company like Microsoft to make profits selling their goods and services, or that it’s ok for a small business to make profits, but it’s not ok for private healthcare providers to make a profit. Healthcare, quite contrary to being a right or some alien commodity that’s different from any other good or service, is nothing more than an economic good/service. They would likely respond, “Healthcare is absolutely essential for society! That’s the difference!”
Would they say the same about the companies that produce food, or how about the companies that produce bottled water? Food and water are both absolutely necessary for a person to survive, so are we being exploited because there are private companies producing food and water and making big profits? According to them therefore (if they were consistent), this exploitation is even worse than the exploitation occurring with healthcare because people need food and water far more often than they need healthcare. After all, For Profit food and water production by necessity excludes people who have no means to pay for food and water, right? Just as it is true that there is no money in “For Profit” medicine in people who’re not sick, so it is also true that there is no money in “For Profit” Food and Water production in people who’re not hungry or thirsty. Would you accuse “For Profit” food and water production of exploiting the hunger and thirst of the people in the same way that you accuse Private Healthcare of exploiting people’s sickness?
2) I agree with the idea that businessmen are greedy assholes who don’t care about society as a whole, but the problem with saying, “therefore, we need a Living Wage”, is that you lose your initial assumption. It is assumed that if you have a Living Wage law, then those same greedy businessmen will just bite the bullet, pay their workers more, and all will be well. We will come back to this assumption later. Right now, I wish to mention that I had it suggested to me (more like shouted at me) by a progressive that, “Apple depends entirely on the wages people paid out by other employers, which are roughly 5 times more than it pays its own workers! Apple can’t even sell its own product to its own employees! Now take your free-market attitude and force these other companies to pay their workers what Apple pays theirs, and do you know who’ll be screaming? Apple, because they they can’t sell their products anymore and their profits will drop!!”
Those who have been trained in economics will no doubt do a spit-take upon reading the above quotation, but this was indeed said to me by a staunch progressive. First of all, the quotation blindly assumes that the price of one good/service will remain constant even though the prices around it are changing. If for some reason the wages of all workers fell down to the level Apple pays its workers, then the prices around those wages would come down as well. Food, energy, appliances, all would come down in price. The progressive who made the case above in quotations has also made the mistake of looking at the size of the number rather than what the number can get. The progressive would say; “A can of coke has gone from $1 to $2! So therefore, we need to see to it that each consumer is getting at least that much more in purchasing power by forcing employers to increase his wage!”
Do you see the mistake the progressive is making? He’s making the mistake of thinking that purchasing power comes from how many dollars you have, instead of how much each dollar can buy. If a can of coke dropped in price from $1 to $0.75 or $0.50, then you could say that the dollar has more purchasing power. You can have quite literally as many dollars as you want, but it wouldn’t increase the purchasing power of each individual dollar unit one bit. Purchasing power, therefore, is how much each dollar can buy, not how many dollars a given person has.
Now we come to his notion of a Living Wage. I’ve been told by many progressives that a Living Wage is that wage by which is absolutely necessary for survival. In other words, if you were paid less than a Living Wage, you couldn’t survive; you couldn’t afford all of the necessities of life, such as food, clothing, and shelter.
The first big problem with this concept is that it seeks to set an objective number on numerous groups as “absolutely necessary”. A person who is having difficulty living on $13 per hour may be having difficulties for a number of reasons, but someone else will have a harder/easier time living on $13 per hour. The reason is simple; not everyone has the exact same set of responsibilities. Person A may have to make $13 per hour good enough to pay for a wife and two kids, a mortgage payment, a car payment, etc., while Person B might not have to pay for a wife and kids, or make a car payment. Due to this difference in personal responsibilities, Person B will have a much easier time living on $13 per hour than Person A. Thus, a “Living Wage” will differ from person to person, depending not only on the set of responsibility that each person has, but also on his ability to manage his money effectively (yet another variable that the Living Wage concept doesn’t take into consideration).
The second big problem regarding the Living Wage is the necessary policy prescription that stems from the concept of the Living Wage. “Therefore, we need the government to set a Minimum Wage which adjusts itself to the cost of living.” It is here that we must return to the progressive’s initial assumption; namely, that businessmen are greedy assholes who don’t care for society as a whole. I mentioned earlier that the problem with arguing for a Living Wage on the basis that big, greedy assholes are paying their workers low wages is that you lose the initial assumption. The reason this is so is simple; suppose you have Corporation X, a corporation named and ran with an iron fist by someone named Person X. He pays his workers far less than the neighboring businesses, so much so that the laborers in the surrounding businesses, on average, make 5 times more than the workers at Corporation X. Person X is absolutely ruthless; he doesn’t care about the plight of his workers, where or how they live, if they eat, etc.. All he cares about is they had better be at work on time, and they had better perform the services that he pays them for, or he will fire them without any other considerations.
Now, enact a Living Wage law, and what happens? The progressive seems to believe that Person X will say, “Yeah, it sucks that I’m not making as much in profit as I was before, but if I pay my workers more, it’ll make the economy better because they will have more purchasing power to buy other goods and services. This income will eventually come back to my business, and I’ll be better off in the long run.” It is here that the progressive loses his initial assumption of businessmen being greedy assholes. If you maintain that assumption, then you realize that instead of saying what is quoted above, he will say this; “Damn it! I’m not making as big a profit as I was before. All right, what we’re going to do is raise our prices, and we’re going to lay off some of those good for nothin’ asshats on the factory floor! At least my profits won’t hurt as bad!”
Some of those workers on the factory floor, who the progressive felt was being exploited, paid for the progressive’s intervention with the only source of income they had. The reason for this is simple; if the government steps in and sets the price of labor (wages) above the prevailing market rate, you doom a portion of the labor force to be unemployed. Of course, this probably won’t deter the progressive who feels that workers are being paid Slave-Wages from this kind of thinking, and to be honest, you probably never will. Progressivism is an ideology that is inherently reactionary, that shuns all reason for emotional gratification, and the very term Slave-Wages, a term that the progressives are very fond of, is indisputable proof of this. Had they not completely rejected reason for emotional gratification, they would’ve immediately seen that the term Slave-Wages is self contradictory; slaves are not paid wages, as wages are agreed upon by both the employer and employee, otherwise the potential employee doesn’t take the job.
This brings us to the progressive’s continuous use of the word exploitation. Whenever the progressives use the word exploitation, very rarely do they ever use it correctly. Many progressives won’t explicitly refer to profits as exploitation, but they will always refer to excessive/unreasonable profits as exploitation. Yet, you will never hear a progressive speak about unreasonable/excessive losses (unless he’s the one losing money of course). The phrase excessive profits is utterly meaningless if you’re not prepared to talk about excessive losses. Let me give you an example; suppose you have a lottery, and the person running it sells two million in tickets. At the end of the lottery, the person (or people if you prefer) running it hands out 1.8 million in prizes, and keeps $200,000. This means that, collectively, everyone who bought into the lottery lost $200,000, but no one ever thinks of this number, or he dismisses it the second it enters his mind. If you’re not prepared to argue that this $200,000 is an excessive loss, you cannot seriously argue that the $200,000 the person running the lottery kept for himself is excessive profit.
3) The term Banksters has become very popular these days. It is a play on the word gangster, and while I share the same disdain for certain big bankers the progressives have, I don’t make the mistake of lumping all big bankers in with those who extort money in backroom deals, or to steal a phrase from Ayn Rand, I don’t lump honest bankers and businessmen in with those who are apart of “The Aristocracy of Pull”.
The progressive’s true disdain for Big Business or Big Bankers comes not from the acts by which they consider to be exploitation, they come from the fact that those Big Businessmen that both myself and the progressives despise have managed to “corrupt” the public institutions, i.e., the senate, the congress, the white house, etc.. The politician is looked upon by the progressive, unless he gives them reason to think otherwise, as a saint; a patriarch/matriarch of the public good, working tireless for the welfare of all. The politician, when running for office, need but proclaim the merits of collectivism, denounce private interests as greedy/exploitative, and he will be embraced by the progressive without question. It is only later in his voting does he get any sort of serious criticism from the progressive. The progressive has completely forgotten that elected representatives are nothing more than average people; average people chosen by other average people to perform functions X, Y, and Z. It is foolish to assume, as the progressive assumes, that the mere election to statehood somehow changes the politician to a bastion of the public good.
Those who so wearily often use the term Banksters are also the same who rant and rave that the Banksters have their senators and their congressmen bought and paid for; that they have the government “in their pockets”. The following considerations will show this to be false:
It is indeed possible to pay off a politician to vote as you want him to vote, or to say what you want him to say, but he is no more “in your pocket” than the money you have given him. If he is approached by another interest who wants him to vote/speak differently than you, he will do so if the pay is better, and he will not hesitate to vilify you publically/legislatively if he sees it in his interest to do so; violently twisting the knife he placed in your back as he departs from you in the service of his new employer. The only possible way you could say that you have a politician in your pocket is if he truly agrees with you ideologically; that you have common ideals, and share the same ultimate vision, but even this has problems. It is true that he will willingly work with you, for X sum of cash (and even enjoy his work), but if you and the politician disagree as to the means by which to reach your common ideological end, and if you cannot reconcile your differences, the politician will not hesitate to go to the employment of someone else; violently twisting the knife he placed in your back as he departs from you in the service of his new employer. In other words, you cannot “buy” a politician; you can only “rent” one.
It of course never occurs to the progressive that government regulation enables the types of shenanigans that we see in such crises as the 2008 housing market crash; it never occurs to him that because elected representatives are average people, precisely because they are average people looking to compromise and profit, the legislation regulating banks and insurance are, far far more often than not, written by the people to be regulated. It never occurs to him that the government, far from being a partner or a protector of the public good, hampers and destroys the public good by coercively shifting resources to different people; distorting incentives and creating moral hazards that could only initially be conceived in a nightmare.
We now come to the last issue to be dealt with here; namely, the hatred of speculation. The progressive makes the big mistake of confusing a speculator with a gambler. The difference between them is so readily apparent that it is appalling to see it missed. The difference between a speculator and a common gambler is this; the gambler creates his own risk. He doesn’t have to lose money because spinning pictures on a slot machine don’t line up in a specific order, or because one horse can run faster than the others. He creates this risk himself, while the risks in the market are inherent. Since resources must be allocated, and since there will always be those who direct and those who follow, someone must bear this risk; the speculator performs this function. To the extent that he is successful, he is rewarded. To the extent that he fails, he not only loses money, he loses credibility; those who watched what he is doing will laugh at him and scorn him, and unless he improves his ability to perform this function, he is forced out of the profession for good.
Contrary to the beliefs of the progressives, speculators earn their money, and they do society a great service.
4) It is common practice among the progressives to personally vilify people who put forth alternative theories. If you say for instance that global warming is a myth, or that it’s a natural cycle the planet goes through, then you are nothing more than a shill for Big Oil and corporations. If you say for instance that universal healthcare doesn’t work, it doesn’t matter how much evidence you have in your favor, you are nothing more than a shill for Big Insurance companies or Big Pharma. If you say that unions only care about their own members, and that they can’t raise the wages of anyone else other than their own members, then you’re nothing more than a shill for Big Business, you’ve been brainwashed, etc.. Never mind the massive amount of evidence that unions are an inherently evil entity, that doesn’t matter; you’re a scab and that’s all there is to it.
I am not interested in getting into debates with people over whether or not global warming is real or man made, and I’ve already dealt with the criticism of excessive profits. So instead, I’ll simply show you how silly progressives are being when they take up the mantle of environmentalism:
The progressive says we need to invest in alternative energy sources, i.e., wind, solar, etc., while at the same time spending money on roads. The machines repairing the roads put out a ton of CO2, but this goes completely unnoticed by the progressive. More/better roads encourages more driving, which means more CO2 in the air, but never mind that, we have to put the unemployed to work. GM failed, should it be bailed out? Absolutely, because we need jobs, but what does GM produce? They produce cars, cars that emit CO2 into the air when driven. What about existing CO2 output? We need to tax it so as to discourage CO2 output.
So in other words, we have to spend money on alternative energy sources, while at the same time polluting our air even more in order to put unemployed people to work making more instruments (cars) which will themselves pollute the environment, while at the same time forcing people to pay for CO2 output. I think you can see how hopelessly self-defeating all of this is.
5) The reason our infrastructure is crumbling is precisely because it is government run, government managed. The government has no stake in actually repairing or managing infrastructure efficiently. Why should it when those average people, who you selected to be elected representatives, can get far more by pillaging other countries, by bartering with each other for favors/votes, or to put it more simply; why should they try to serve the public when they can get far more by playing baseball?
6) You can’t empower anyone (at least not in a good way) through bad means, and this is showing itself in the inner-cities. The motivation programs that are supposed to keep kids in school, keep kids from buying/selling drugs, joining gangs, etc., have been, on the whole, a massive failure. You can form your own reasons as to why they have failed so abysmally, but the fact remains still. As for the public school system itself, I have learned from personal experience that it is a system that is, ultimately, accountable to no one; the parents have no control, the good teachers have no control, the poor administration people who try to make a difference can’t because they have no control, etc., and when you try to point the finger to blame someone within the school system for the horrible mess it is, something is always there to deflect the blame. This goes all the way to the Federal Level and beyond.
Only one entity can be blamed for the horrible mess that the school system is, and that entity is the government. Why? Because it is precisely the government who’s running it. If you’re interested in researching more, I refer you to these reporting specials. Click here, here, and here.
7) The progressive makes a good point about immigration, but unfortunately, he poisons the well with the same poison that he has flooded the other wells with. If you indeed offer free services such as healthcare, education, etc., to immigrants, then you will have people pouring in by the tens of thousands looking to get on the public dole. The progressive had demonstrated here, as well as other places, that he does not understand the nature of incentives, nor does he understand the nature of moral hazards.
8) This is so patently absurd, I could easily get away with just writing “2008. ‘Nuff said” and leaving it at that.
As you can plainly see, the progressive ideology is built about the sands of economic illiteracy, an inherently false understanding of incentives, emotional reactionary nonsense. It is a system that appeals only to those who’re too weak or too stupid to use logic and reason, and only a fool would be drawn into this patently absurd, inherently destructive ideology.
I apologize for the length of this post, but I felt it necessary to deal with this problem in detail.
My interest in economics began with my initial interest in politics. What got me started in politics, you ask? My older brother took me to see Michael Moore’s Fahrenheit 9/11 in theatres back when it first came out. Yeah, needless to say I didn’t exactly get a good start into the field. Later on, I began to follow the various political day-to-day news that was taking place; I took to watching The Ed Show, Keith Olbermann, and Rachael Maddow to soak up as much as I could (insert your own joke about me being severely damaged by all of this).
My political positions were incredibly Left-wing; Socialized Medicine, Global Warming, Corporate Profits, the 99% and the 1%, the whole 9 yards, except for one exception; education. Any one who knows my past knows that I went through pure hell in school, from being bullied by the other kids to being targeted by malicious higher-ups with intent to slander, demonize, and to ultimately destroy. It was (and still is) my opinion at that time that the entire public school system needs to be abolished. My reasons are best illustrated by a personal story.
The school I went to (Quitman County Middle School, or Q.C.M.S), is in an extremely poor area in the Mississippi Delta, and so all of the food served in the cafeteria was free, subsidized by the state. At lunch time, we would line up, get a tray, give the cashier our assigned number, and we would sit down and eat. Well, some days I just wouldn’t take a tray. Why? Because the food served on those days was garbage; if I had taken a tray, I would’ve just thrown it in the trash. This got me in trouble on more than one occasion, and when I finally explained to them that it makes absolutely no sense for me to take a tray since I was just going to throw it away anyway, they responded by informing me that it didn’t matter if I ate the food; in order to keep the free program going, the state required that a certain number of kids be participating in the program, i.e., taking trays and giving numbers.
I looked around and thought that the majority of these kids, including myself, could easily pay for lunches with the money that we blew on snacks everyday both in and out of school, but I never shared that thought with anyone. Sometimes I would be in the library and I would see a notice about a meeting that would be held in the library in the form of a Luncheon, and around that time, I would see very professional looking men/women entering the library. I would sometimes sneak in close to get a look at these people, but the most I would see is them exchanging formalities and smiling/laughing with each other. This is about the same time that the kids loved to “get crunk” in the hallways (those who attended school with me will remember this); everyday (especially Friday) during period change, the kids, jam-packed in this tiny hallway, would turn the hallway light off and the entire hall would erupt in a riot of jumping, hollering, and sometimes even fights. The teachers (the few who still cared) were absolutely powerless to stop it, as were the administrators (who really didn’t give a rat’s ass).
Eventually, this utter chaos in the halls fell out of style with the kids, but I never got that image of those administrators joking, laughing, exchanging pleasant formalities, as if they were doing this spectacular job, even though it was not only well known that the majority of the kids at this school (during my day at least) was so stupid that they had a hard time passing something as simple as the MCT, it was also well known that the local drug dealers were using the school playground as a “place of business”, so to speak. Barbara Akon, the person who was principal of the school during the majority of my years there, was the leader of this circus. And to make matters worst, not only did she “manage” that school into the ground to the point to where the State had to step in and take it over the proceeding year after I left, Barbara C. Akon saw fit to sue the Quitman County School District on the basis of discrimination!
I remind you all that all of this, the fancy luncheons, the subsidized waste in the school food system, all came at a great expense to the tax payer. Today, from what I can gather, Q.C.M.S. appears to have cleaned up its act for the most part, but that experience, watching that group of Affirmative Action Rejects rape and pillage that school in order to stroke their own egotistical sense of self-worth was the single most traumatic experience of my life, bar-none, and it is what convinced me that the public school system is nothing more than a prison with the illusion of a warden; it is a system of corruption, theft, and deceit so vile that it corrupts and corrodes everything it touches, and it is a system that must be abolished entirely.
I am afraid that I must warn you from the outset that this post is going to be both very involved, and very lengthy. Consider yourselves warned.
Milton Friedman has done some very good work, to be sure, but unfortunately, Milton Friedman and what is today called “Monetarism” has many short comings. Before I start, however, it is important that you watch this entire video before reading on, as nearly all of my critiques of Friedman will be drawn from this video. The video is part of a television series that Milton Friedman did in order to combat the rising tide of Socialism, called “Free to Choose”. The program would feature a short film by Milton Friedman, then he and several other intellectuals would discuss the film in a round-table format in the Harper Library at the University of Chicago. Here is the video itself.
If you couldn’t tell from the video, Milton Friedman is talking about inflation and the disastrous consequences it has. This film however is a mixed bag. At the start of the film, Milton Friedman is in a ghost town, talking about the gold rush in the Old West. And it is here where we encounter our first big mistake that Friedman makes.
Quote at 2:40) “But a few struck it rich. For them, gold was real wealth, but was it for the world as a whole? They couldn’t eat the gold, they couldn’t wear the gold, they couldn’t live in houses made of gold.”
I don’t think that it’s necessary to point out the fact that people wear gold all the time, but Milton Friedman’s distain for commodity-based moneys is readily apparent. He (rightly) points out that as more gold came into circulation, overall prices in terms of gold went up, and then he goes on to say this.
Quote at 3:00) “At tremendous cost, at sacrifice of lives, people dug gold out of the bowels of the earth. What happened to that gold? Eventually, at long last it was transported to distant places only to be buried again under the ground. This time in the vaults of banks throughout the world.”
Milton Friedman doesn’t explicitly say it, but it is apparent from the emotional emphasis that he puts on the cost of mining that gold that he considers this entire process to be one big waste. He goes on to cite another example of a commodity money; tobacco. He talks for a moment about the history of tobacco’s use as money in the United States (very interesting stuff, and I say that with no sarcasm), but then he proceeds to make the same case that he makes with gold.
Quote from 4:35) “Now you know how money is; there is a tendency for it to grow, for more and more of it to be produced and that’s what happened with this tobacco. As more tobacco was produced, there was more money, and as always when there’s more money, prices went up. Inflation. Indeed at the very end of the process, prices were forty times as high in terms of tobacco as they had been at the beginning of the process.”
In this one quote, we have Milton Friedman’s implicit case against private money; people will rush to produce money in order to enrich themselves, and in the process, so much money will be created that it will cause a massive inflation. Milton Friedman, right from the start, paints private commodity-based money as inherently inflationary, but of course, this logic can be turned on him.
In 1895, it was possible to buy a five pound bag of flour for twelve cents. In the year 2011, you would’ve paid roughly $2.75 for that same bag of flour. That is roughly twenty-three times the price of what you would’ve paid in 1895. In 1890, you could get a ten pound bag of potatoes for sixteen cents. In 2011, you would’ve paid roughly $7.35 for that same ten pound bag of potatoes. That is nearly forty-six times the price typically paid in 1890. In 1905, you could get a round steak (one pound) for fourteen cents. In 2011, you would’ve paid roughly $4.69 for the same steak. That is nearly thirty-six times the price of 1905. Therefore, it is an empirical fact that a non-commodity money like fiat money that is controlled by a central authority of bankers and bureaucrats is inherently inflationary.
Now, Milton Friedman, right about here, starts to actually make some good points. He points out that government bureaucrats can’t stop the bad effects of inflation from taking place.
Quote from 4:57) “And as always when inflation occurs, people complain, and as always a legislator tried to do something, and as always to very little avail. They prohibited certain classes of people from growing tobacco, they tried to reduce the total amount of tobacco grown, they required people to destroy part of their tobacco, but it did no good. Finally, many people took it into their own hands and they went around destroying other people’s tobacco fields. That was too much, and they passed a law making it a capital offense, punishable by death, to destroy other people’s tobacco. Gresham’s Law, one of the oldest laws in economics, was well illustrated. That law says that cheap money drives out dear money and so it was with tobacco. Anybody who had a debt to pay of course tried to pay it in the worst quality of tobacco he had. He saved the good tobacco to sell overseas for hard money. The result was that bad money drove out good money.”
Milton Friedman makes a very important point about the devastating effects that inflation has on the psyche of society in general. As he points out, when inflation occurs, people complain about the increases in the cost of living, and where there are rising complaints about the increase in the cost of living, there is always a legislator trying to write a new law into existence that will somehow solve the problem, but it never does. Wage and price controls only make the effects of inflation even worse, as Friedman goes on to point out in the film.
But, Milton Friedman’s illustration of Gresham’s Law is rather puzzling. It is true that Gresham’s Law has come to simply be understood as, “Bad money drives out good money”, but this is a simplification that doesn’t accurately describe Gresham’s Law. A much better illustration of Gresham’s Law runs as follows:
Suppose you have country in which gold and silver are the legal tender. The government decides to decree one day that any debt equal to 20 ounces of Silver can be paid with 1 ounce of Gold. The problem however is that the actual market rate of exchange between Gold and Silver is 15 ounces of Silver = 1 ounce. of Gold. In response, the debtor will buy an ounce of Gold for 15 ounces of Silver and use the Gold to pay off his debt quoted in Silver. As a result, over time the Gold will disappear and the Silver will stay in circulation.
To really sum this up, it is impossible for two different moneys to circulate together if their conversion ratio is fixed by the state. But, is that what happened with tobacco? Not from what we can derive from Friedman’s account of it. According to Milton Friedman’s account;
Quote from 3:47) “That beleaguered minority of the population that still smokes may recognize this stuff as the raw material from which their cigarettes are made, but in the early days of the Colonies, long before the United States was established, this was money. It was a common money of Virginia, Maryland, and the Carolinas. It was used for all sorts of things; the legislator voted that it could be used legally to pay taxes, it was used to buy food, clothing, and housing. Indeed one of the most interesting sights was to see the husky young fellas at that time lug a hundred pounds of it, down to the docks to pay the cost of the passage of the beauteous young ladies who would come over from England to be their brides.”
Simply voting to make a given commodity legal tender doesn’t set off Gresham’s Law. Now it would make sense if the government had set a fixed exchange ratio between Tobacco and some other commodity, like Tea for instance. If the government had set a ratio such as 24 lbs. Tobacco = 12 lbs. Tea, then we could’ve seen Gresham’s Law. Milton Friedman’s account however states that those with Tobacco would pay their debts with the poorest quality of Tobacco that they had, and that they would save their good Tobacco to buy hard moneys from overseas. According to this account of Gresham’s Law, however, any society that has had a commodity money, be it Gold, Silver, Salt, or Tobacco, would live in a practically never-ending state of Gresham’s Law.
Since the quality of the final product is not uniform among the various producers, for example the coins created by two different Gold-Smiths will not be identical in quality, this, according to Milton Friedman, will cause Gresham’s Law since the lower quality coins would be circulated while the higher quality coins would be exchanged abroad.
What has happened here is fairly simple; Milton Friedman completely misinterpreted a given phenomena as an example of something that it wasn’t. While it true that people would want to pay their various debts in the cheapest quality of Tobacco possible, this doesn’t explain why it is that people would save their good Tobacco to sell overseas. The answer is simple; high quality Tobacco was in much higher demand abroad than at home. Because of the high demand for Tobacco abroad, it was much more profitable to exchange the good Tobacco abroad than it was to exchange it domestically. A person with one hundred bushels of high quality Tobacco can get more for it abroad than he can in an area where Tobacco is plentiful. In other words, market forces made it so it is worth it to him to pay his debts in the poor quality Tobacco while saving his high quality Tobacco to exchange abroad.
Now in all of this, let me say that if indeed there was a fixed exchange ratio regarding Tobacco put in place by the government that wasn’t mentioned here (highly possible), then I admit to being wrong, but if there wasn’t, and I suspect that there wasn’t because of the way that Milton Friedman worded his account of Tobacco, then there is no way around it; Milton Friedman was wrong. This is not an illustration of Gresham’s Law.
Later in the film, Milton Friedman makes a very good point.
Quote from 8:18) “Before every election, our representatives would like to make us think that we’re getting a tax break, and they’re able to do it while at the same time actually raising our taxes, because of a bit of magic they have in their kit-bag. That magic is inflation; they reduce the tax-rates, but the taxes we have to pay go up because we are automatically shoved into higher brackets by the effect of inflation. A neat trick; taxation without representation.”
Milton Friedman is describing a phenomenon called “Bracket Creep”, and it goes like this. Suppose you have a worker making $30,000 per year gross salary, and pays an income tax of 15%. A little bit of arithmetic shows us that this person, assuming no deductions of any sort, makes a net salary of $25,500 per year. The government then slashes the tax rate to 10%, and they start printing money. The problem is that while they lowered the tax rate, inflation shoves you into a higher tax bracket. Returning to our worker about 6 years later, we see that he now makes $45,000 per year gross salary, but since he’s in a higher tax bracket, he now has to pay a higher tax rate (we’ll say 20% for the sake of the example). Arithmetic shows us that he now makes a net salary of $36,000, but because of inflation, the cost of living has gone up as well so that now he in effect has even less money than he had at the start.
This is called “Bracket Creep”, and it is an incredibly insidious tool by which the government cons us out of our money.
Milton Friedman does us yet another good service, as he then goes on to prove that Unions aren’t creating inflation as higher wages are mostly a result of inflation and not the cause. He also destroys the myth that inflation is imported; that higher world prices drives up domestic prices. And he does us possibly the greatest service that he, given all of his faculties, could do us. He pointed out that inflation is created in one place and one place only; the Federal Reserve Bank of America (or the Fed as it is sometimes called today).
After a history lesson, as well as some examples of what societies with high inflation look like, he then describes to us the reason we have inflation in the United States (or anywhere else for that matter).
Quote from 22:55) “The reason we have inflation in the United States, or for that matter anywhere in the world, is because these pieces of paper and the accompanying book entrees, or their counterparts in other nations, are growing more rapidly than the quantity of goods and services produced.“
Milton Friedman has made this mistake repeatedly, and this is by no means unique to him, but he is using the term inflation to mean an overall increase in prices, when in fact it means an increase in the supply of money. To say that an increase in the supply of money causes inflation is to confuse cause for effect; are you running a fever because you’re sick, or are you sick because you’re running a fever?
Today however, many economist (quite wrongly) use two different terms to describe inflation; monetary inflation means an increase in the supply of money, while price inflation means an overall increase in prices. Make no mistake about it, this change in language is far more dangerous than it appears; if you define inflation as an overall increase in prices, then it is easy to get away with increasing the supply of money because the government can hide the price increases in their official measurements (things such as CPI, etc.).
Even if you don’t initially plan on circulating the new currency, even if you stash all of the new money in reserves as a means to boost confidence, that doesn’t mean that there is no inflation, it simply means that you won’t feel the effects of inflation for the time being. When (not if, but when) those reserves begin to circulate, overall prices will go up.
With all of that laid out, Milton Friedman then sets out to explain the “cure” for inflation, and it is here that all of his past theoretical mistakes come back to bite him.
Quote from 25:06) “In 1973, Japanese housewives going to market were faced with an unpleasant fact; the cash in their purse seemed to be losing its value. Prices were starting to soar as the awful story of inflation began to unfold once again. The Japanese government knew what to do; once more, they were prepared to do it. When it was all over, economists were able to record precisely what had happened. In 1971, the quantity of money started to grow more rapidly. As always happens, inflation wasn’t effected for a time, but in late 1972 it started to respond. In early 73, the government reacted; it started to cut monetary growth, but inflation continued to soar for a time. The delayed reaction made 1973 a very tough year of recession. Inflation tumbled only when the government demonstrated determination to keep monetary growth in check. It took five years to squeeze inflation out of the system.”
Milton Friedman is correct when he says that the way to stop inflation is to stop monetary growth (albeit for the wrong reasons), but his own plan of slow monetary growth has its own set of problems. In the first place, how much would be the optimum amount to increase the supply of money by? And by asking this question, we’ve found the answer to our problem; there is no way to know the optimum amount to increase the supply of money by. The formulae and equations that are used assume away the very answer that you’re trying to find, and what’s worse, the complex equations and formulae gives the intellectuals the appearance of a mathematical precision that they just don’t have. To make matters even worse, to say that we need to control the production of money (slow growth or otherwise) is to effectively say that we need to control the demand for money, which is undeniably impossible.
The monetary economists who are saying that we need to increase/decrease the supply of money by X amount are, in reality, planning in the dark, and while it is true that it is possible to have high inflation with a commodity-based money, it is far easier to have high inflation with a money that can be created at will.
Milton Friedman’s distain for tangible, commodity-based money is easily seen throughout the film. He doesn’t say it explicitly, but he paints private commodity-based money as inherently inflationary, and this same distain causes him to make very reckless mistakes, such as saying that people can’t wear gold or misdiagnosing a case of Gresham’s Law.
While there is a lot of good in the above film, I’m afraid there is just as much bad in it as well. The film is, as I said earlier, a mixed-bag.
Hollywood is notorious for pushing films that paint Capitalism and the Free Market as this evil system of exploitation (Alien, Avatar, Titanic, just to name a couple), but this one takes the cake. Since the movie hasn’t been released in theatres yet (It releases August 9, 2013), I took to looking at the trailers to see how much of the plot I could get. What I got however was Marxist nonsense.
Elysium is set in the year 2154, 141 years into the future, and the world is divided between the privileged living up on Elysium, a massive satellite orbiting Earth, and the common people living on Earth. The privileged on Elysium (the 1%) enjoy the highest standard of living possible; no war, no poverty, and no sickness. The trailer shows a woman laying in a body scanner getting her cancer cured at the press of a button to illustrate this point further.
The people on Earth (the 99%) however are treated as slaves, working themselves to the bone for a meager subsistence. From what I can make out from the trailer, they are lined up by robots (who I’m guessing are the police down there?) at the various transportation hubs to be shipped to their place of employment. Matt Damon, the main protagonist of the film, is one such worker.
Matt Damon, unfortunately, is notorious for his political activism. His main claim-to-fame in political activism is when he (quite rightly) slammed then Vice-Presidential Candidate Sarah Palin in the 2008 elections. Since then, he has been involved in all sorts of activist shenanigans, most notably with the Teacher’s Union (his mother is a teacher) and with Occupy Wall-Street. Of course, Occupy is pretty much dead now since all of the details regarding them came out; the rapes at the protests, the total lack of a coherent goal, etc.. I still remember left-wing intellectuals going on news shows and practically drooling over this, as if it were the start of a new ideological revolution.
Anyway, the main protagonist of the film ends up in some accident whereby he will die in five days, and now he must get to Elysium to get the medical treatment he needs. His friend gives him a suit of armor that will let him override the Elysium systems, so that he actually has a shot at getting up there. The movie would’ve been bad enough had they just left it at that, but it gets worse. The character suddenly becomes an icon of hope for everyone (the 99%).
The class-warfare in this film is sickening; the entire film is based around the concept of the masses (the 99%) rising up and violently overthrowing the privileged (the 1%), and it is no surprise to me that Matt Damon, the same one who narrated that awful documentary on the 2008 crash, “Inside Job”, is the main protagonist.
Needless to say I will not be seeing this movie… ever. I will not support Matt Damon, or this Marxist-style class-warfare nonsense that Hollywood insists on shoving down our throats.
It is not unusual that we hear cries in the media about there not being enough jobs. A standard jobs rant runs something like this; “The government’s plan isn’t creating jobs, it’s destroying jobs! We need a new policy towards creating jobs and stimulating employment!”
This complaint is flawed in that it uses the very general term, “jobs.” What kind of jobs in what sectors? Should they be full-time jobs or part-time jobs? When you say that “We need jobs!” you’re actually creating far more questions than you’re answering.
MarxistMax responded to my piece here, and it is apparent that he entirely missed the point of my last post.
Quote from MarxistMax: “The Conservative Party is funded by the rich, staffed by the rich, and works in the interests of the rich. It was in the interests of the rich to slash the heavy industry of the north, and unleash the monster of the London financial markets. That’s why Thatcher did it.
The Conservative Party destroyed many northern communities in the 80s, and it will take more than a few environmentally destructive, ground shaking, water-supply meddling Fracking wells to revive those communities again.”
This is what he started with, and I must confess that I am wholly ignorant to the Thatcher administration. But, I will say this; all of this completely misses the point. The point of my last point was to point out that all of the so-called green jobs, like those jobs such as fracking, have environmental trade-offs. I mentioned the wind-farms upsetting the ecosystem by killing thousands of birds, for instance. So the point is this; the government taking over the energy industry and investing in so-called “green technology” isn’t going to make us safer or healthier, since all of the “green technology” so heavily touted by environmentalists each have their own environmental trade-offs.
Now with regards to it being within the interests of the rich to keep us dependent on fossil fuels, let me ask you this MarxistMax; aren’t there rich people in the “green energy” business who have a massive interest in government funding of “green technology?” You are subsidizing the interests of the “rich” no matter what you do. If you say the government should nationalize the energy industry, then it can only do so in one of two ways; either it must, using public funds, buy the businesses from those businessmen who own said industries, or it must seize them forcefully from those said businessmen. But even if you nationalize the entire energy industry, the government will still have to do business with those parties outside of the energy industry, and the extortionist, backroom deals that will ensue from this will know no bounds and no ends. The interests of the “rich” are once again subsidized.
MarxistMax, right about here, changes direction; he says that the green sector is more “job intensive” than the carbon-based sector (which may or may not be true, I don’t know), and that we need the government to invest in the green sector in order to create jobs.
Quote from MarxistMax: “The fact is that the green sector is more jobs-intensive than the carbon sector. We are in a time of economic crisis. Jobs are needed more than anything. Opening up the fracking wells will introduce some jobs, but not nearly so much as pursuing our carbon targets by investing in green energy.
The argument is often put forward that prices will be lowered due to market competition, because don’t we all want to help the little grannies in the winter time? There is a shed-load of evidence that the economic conditions of the US are not compatible with the UK. If we were to get started on green infrastructure and jobs now we will be in a much better position for the future.”
Notice here the massive shift-in-direction that MarxistMax just pulled. In his last post, he was saying that it is imperative to get away from fossil fuels on the basis of environmental concerns. Now he’s saying that we need to invest in the green sector on the basis of job creation.
First and foremost, there is what is seen and what is not seen. What is seen is that, yes, government spends money creating jobs. What is not seen is that when the government takes it’s revenue, it by necessity destroys an employment opportunity for someone else, so the actual net balance of jobs created is zero, if not less than zero.
Let’s say for example that the government imposes an extremely punitive tax of 50% on the consumption of fossil fuels in order to invest in the green sector. If a person on average consumes ~$500 per month in fossil fuels, he will have to pay an additional ~$250 per month as a result of the tax. The result is that he will have to pay a total of ~$750 per month in energy costs. Assuming everyone pays this incredibly punitive tax willingly, the government will use this added revenue to invest in green technology. You will look at this and say, “We’re creating jobs!” but what you don’t see is what the consumer would’ve done with the ~$250 taken away from him through taxation. The ~$250 taken away would’ve created employment for another business at a later date.
The same benefits of “job creation” are present even without the tax. Ah, but you might interject, “We actually don’t want them to pay that punitive fossil fuel tax, we want people to invest in alternative energy on their own and avoid the tax altogether. The tax is just a failsafe to see to it that investments into green technology are made.”
But even in this instance, you’re still not actually creating jobs. If the demand for fossil fuels shifts to alternative energies as a result of the tax, then jobs will disappear in the fossil fuel industry (creating unemployment) as jobs in the new green sector begin to boom. You’re merely transferring jobs from one sector to another sector, and this creates its own set of problems.
When it comes to employment, there is always one extremely important aspect of the economy that is left in the lurch; the structure of production. It is absolutely essential that the structure of production is resting on a sound foundation. If the structure of production is upset through out-right consumer manipulation (the attempt at making consumers invest in green technology so as to not pay an extremely punitive fossil fuel tax for instance), artificial credit expansion via fractional reserve banking, etc., then whatever jobs are “created” will be nothing more than a flash-in-the-pan. They have no substantial future; in a given number of years, those jobs will disappear from the economy altogether and the same people screaming that we need jobs will be back in the media once again screaming the same mantra, “We need jobs!”
There is one final issue to address with the sort of manipulative policies addressed earlier; people are not pawns on a chessboard that you can move at your whim. You’re looking at society as if it were a chessboard and saying, “if only we could get a smarter player to move the pieces. Then we could achieve results X, Y, and Z.” Before you interject and say that this is a strawman, let me remind you of what you wrote.
Quote from MarxistMax: “The energy industry should be nationalized so that the government can take an active hand in guiding the industry from carbon-intensive means of production towards green energy. Only by fully owning and controlling the industry can this be achieved. Only then can we invest properly in wind farms, offshore and onshore, in solar panels, and in geothermal energy.” (my italics)
Since it is not a strawman to say that you hold this view (when you blatantly do), let me now ask you this; how many men throughout history have looked at the whole of mankind with grand visions of regimentation and guided production, and how many people died because those same men tried to implement these grand visions? They believed that they could instill all-around regimentation within the life of man, and the result has always been mass poverty, mass murder, and mass political corruption. They manipulated the world around them as though they were God, they instituted their vision because they thought they were the ones who would save civilization from inevitable collapse, and the people at large are the ones who paid the price.
The last point to be covered with regard to MarxistMax’s post comes to us in the form of a rant about competition.
Quote from MarxistMax: “We must stop this obsession with competitiveness! The US is our economic superior (why?), and will be for the foreseeable future, we simply mustn’t let some childish international race to environmental destruction force our hand in this matter.”
You will notice from the question of WHY that I injected into the above quote that he never actually questions the reason the US is economically superior to the UK. Competitiveness makes things better, and cheaper. If you do not have competition, you only have monopoly, and getting rid of competition would only make the super rich even wealthier.
Energy is a hot political topic for both the Left and the Right, but like most political topics, sound economics is replaced by political/emotional rhetoric. So it is with the case of energy. MarxistMax, a blogger I’ve sparred with before, is now calling for the energy industry to be completely nationalized by the government. This comes after a big long rant on fracking, a new process to gather oil (which he kindly details in the linked post far better than I can).
He makes the case that fracking is just another way of “violating and exploiting our natural environment” and that “we know and we have known for a very long time that renewables must be developed soon.”
Let me first say that I don’t know the first thing about fracking; I am not an environmental scientist (and neither is MarxistMax, to my knowledge), so the best that either one of us could do with regards to climate change is to regurgitate old talking points that various intellectuals have spoon-fed us. Bearing that fact in mind, you can understand my total lack of interest in the climate change debate.
But, I will say this much; if there is absolutely anything to the climate change claims, i.e., that CO2 is getting into the atmosphere and creating this “greenhouse” effect that is making our planet warmer and warmer, then the only entity that can be blamed for this is the government itself. If you don’t believe me, consider this: who created the excess demand for oil by creating such infrastructure as the massive inter-American highway system, the interstate highway system, more roads on the basis of job creation, etc.?
The answer of course is the government. They created almost (with a few notable exceptions) all of the transportation infrastructure, which increases the demand for cars, and increases the demand for oil. Climate change, if the stories the environmentalists tell us are all true as stated, is merely the unintended consequence of government action.
Now the government has taken to investing in such things as wind farms, solar energy, etc., in an effort to create alternative, renewable energy sources. Unfortunately, all of these have their own environmental trade-offs. Wind-farms, thought to be environmentally harmless and highly touted by the environmentalists, are upsetting the ecosystem by killing thousands upon thousands of birds each year. Solar energy, also highly touted by environmentalists, has proven itself to not be as harmless as they thought. To make the solar energy situation even worse, consumers of solar energy panels are being told that they can’t even buy what brand of solar energy panels they want, unless they’re willing to pay a punitive tariff (considering that Obama is politically invested in American solar companies through the stimulus package, it is safe to say that there is some backroom shenanigans going on here).
Geothermal power, yet another highly-touted clean energy alternative, you guessed it, its own set of environmental consequences. And of course this goes without saying anything regarding nuclear power.
This idea that somehow government investment into alternative energy sources are going to have hardly any environmental consequences of their own has been empirically proven wrong.
Now, let’s get into the real problem I have with MarxistMax’s post; namely, his call for the energy industry to be completely nationalized.
Quote from MarxistMax: “Proponents of the introduction of Fracking to the UK tend to rely on the argument that it will drive prices down, and that it will give the UK energy security for the forseeable future.
They are frightened of renewables. They think of them as the pet project of hippies, vastly inefficient, costly and against market principles. They think that introducing fracking will drop prices due to market mechanisms, creating a better country for all.
To them I say this: energy production and consumption will always be problems until the government nationalises the industry, and when it does, it should spend its time investing in our future, and not wasting valuable years on fracking.”
And thus, according to MarxistMax, the same government that is subsidizing alternative energy should instead nationalize the entire industry, and oversee the entire process of energy production and consumption. Of course, using the exact same logic, I could put forth the following case:
Americans consume far too many calories. The junk foods that we consume, usually in massive excess, range from twinkies to ding-dongs, and this says nothing about American fast food. These companies have proven that they don’t care about the long-term health of the people at large. Therefore, in the interest of society as a whole, the government should nationalize the entire food industry, and directly oversee the production and consumption of food.
MarxistMax is operating on a very slippery slope, and I pray he realizes it soon.