Monthly Archives: November 2013
A common misconception about the economy is that we need politicians who have business experience. The thought goes something like this; “These ivy-league politicians are nothing more than failed academics who don’t know anything about business or what creates jobs. We need political leaders who were involved in successful small/big business; they have the experience we need so desperately right now. Because they’ve built and run businesses, they know how to create jobs we need to get our economy back on track. It is all about jobs, jobs, jobs!!”
So, what are the virtues that this experience brings to the table?
“They know not to spend more money than they take in!”
And so does anyone who’s ever successfully managed a household budget.
“They know how to create jobs!”
So they know that a combination of savings and investment creates jobs? That’s not a very big leap that it takes years of experience in the business world to make. If you truly believe that they can create jobs as politicians, I have a story to tell you called, “What is Seen and What is Unseen.” Also, the entire mantra of “Jobs Jobs Jobs!!!” ignores the entire Structure of Production.
“They know how to make the compromises that the country needs!”
So they know how to make shady backroom deals with big finance fat-cats in order to make the statistics look as though things are getting better come election time?
This is what the heavily touted BUSINESS EXPERIENCE amounts to; the politician in question knows how to maneuver his way around Wall-Street and the big banks in order to make shady deals that are paid for by everyone else.
The greatest virtue a politician can have? No experience.
It is a common cry of the protectionist that free-trade hurts businesses that are just starting up. The protectionist says, “If the new industries are not protected, they will be crushed by foreign competition which operates on slave labor and a depreciated currency! Our jobs will be exported overseas and capital will flow out of our country and into theirs, thereby impoverishing us!”
This fallacy, like many fallacies, comes about because the protectionist is not considering both the Seen and Unseen effects. Let’s say a new car manufacturer has just opened shop for the first time, and like any other business, he needs customers as soon as possible to pay the cost of his obligations, but he can’t compete against the foreign car companies such as Toyota. So, he petitions the government with the following plea:
“If you will protect my business from competition by implementing tariffs on imported vehicles, at least until my business is well established, I will be able to hire more workers, pay higher wages, and enrich the country with my product. The result is a higher standard of living for my workers, a better material standard of living for the country, and more tax revenue flowing into the national coffers.”
The government passes this proposal, and thus this “infant” business is now protected. It is commonly believed by protectionists that protection increases National Production. In reality however, protection does not increase production by one cent. To illustrate this, consider a typical consumer; suppose he has some money to play around with ($30,000), so he decides to go out and splurge. He buys some books, a new television, a stereo system to go with the television, and a brand new laptop. To show you the money he’s spent so far, let’s put everything into a list. The following numbers are real prices taken from www.tigerdirect.com and www.amazon.com:
Books: “Stephen King’s IT”, “Stephen King’s The Shining”, and “Stephen King’s The TommyKnockers”. Total price is $21.96.
Television and home theatre system: total price for both is $2,297.98
Laptop: Alienware 14 with a 4th Gen Intel Core i7 processor running at 3.4 GHz, 8 GB DDR3 Ram, 750 GB HDD, Nvidia GeForce GT 750M GPU, 14″ Display, comes with Windows 8, and it’s Silver. This costs $1,199.99.
The total amount of money he’s spent thus far is $3,519.93.
Now, our consumer decides to buy a car. He has a choice of buying from the protected industry, or from Toyota (we’ll just keep his choices there for the sake of the example). He, at first glance, chooses Toyota, and decides to buy a new Toyota Prius for $20,100. He goes into the dealership, and upon reading the contract, he is shocked to discover that his purchase will be subjected to a 35% tax of the amount paid. This means he owes the dealer $20,100, and he owes the government $7,035 to account for the tariff. Outraged, he decides to go with the protected industry who’re selling a car for $24,654. Had our consumer been allowed to buy the Toyota Prius without being subjected to a tariff, he would’ve still had $4,554 to either play around with some more, or invest. Individually, this means that our consumer has suffered a loss of $4,554. This loss also hurts the surrounded businesses who might’ve otherwise acquired his business.
The protectionist policy does not increase production one bit; on the contrary, it diminishes production by hindering voluntary exchange. Ah, but the protectionist is sure to cry out:
“That may be true, but if resources are allowed to just flow out of the country unchecked, we will be left impoverished without a doubt.”
Alright, so we shouldn’t be importing anything. What about exporting finished products?
“Absolutely! That’s what we need! Hurrah for tariffs!!”
The protectionist doesn’t seem to understand that the entire reason we have exports is to pay for imports, and he doesn’t understand that protection does nothing but harm for those not being protected.
Anthony Migchel, author of the blog RealCurrencies, didn’t take too kindly to my attack on him, and referred me to his page where he has, according to him, “gone over these points endlessly.” Well, to say I am not impressed is an understatement. I’ve only read the first paragraph thus far, and literally every single sentence within that paragraph is flat-out wrong. I am now convinced that Mr. Migchel has not read any Austrian literature, for anyone who has would not make mistakes like the ones he’s made.
Quote from Anthony Migchel: “Addresses manipulation of volume as the cause of the boom/bust cycle. But blames the State for this, instead of the Money Power.”
This is what Mr. Migchel opens his “Faux Economics” page with, and just that fast he has made several mistakes. In the first place, the Austrian theory of the business cycle blames the practice of Fractional Reserve Banking for the boom/bust cycle. This can be practiced by a purely private bank, a bank with a state charter, or a central bank. The artificial creation of credit via Fractional Reserve Banking causes entrepreneurs to make ghastly long term investment mistakes, which eventually show themselves as just that; mistakes. What Austrians have said, however, is that it is far easier for a bank with a State Charter or a Central Bank to practice FRB (Fractional Reserve Banking) due to the fact that banks with state charters and central banks have more reach, more resources, and more confidence among the people than the traditional private bank, and thus, the boom/bust cycle is far greater than it otherwise would’ve been.
This is the Austrian theory of the business cycle simplified, but apparently Mr. Migchel couldn’t be bothered to actually research his opponent’s position before denouncing them as “Shills for the MONEY POWER.” He has no clue for instance that two of the best treatises on Austrian economics reflect that very same view. The Theory of Money and Credit by Ludwig von Mises, and Money, Bank Credit, and Economic Cycles by Spanish economist, Jesus Huerta de Soto.
He has no clue for instance that Murray Rothbard, arguably the best Austrian economist to ever live, wrote a book slamming bankers for their influence on world affairs. He also doesn’t know that the same Murray Rothbard pointed out that the practice of FRB is inherently fraudulent because it is in direct violation of the very contract that banks make you sign when you open an account with them.
Quote from Anthony Migchel: “Ignores the wealth transfer from poor to rich through interest and tries to explain it away as a normal free market price for money.”
You know, one of the links in my last post to Mr. Migchel, specifically this link, denied this very line of thought.
Quote from my link: “When posed the question “what is interest?”, one common response is that it is the price of money. This is not true. The price of money, like any other good, is the amount of something else that must be traded for it. To see this, consider the converse: what is the price of a tomato? Well, it is the number of dollars that must be given up in exchange for a tomato. Ok, how about the price of a banana? Again, it is the number of dollars that must be given up in exchange for a banana. Because dollars are money the price of all goods is expressed in dollars, whereas the price of dollars is expressed in other goods.”
So, again I am convinced that Mr. Migchel has not read, and absolutely refuses to read, any text on Austrian economics. Had he simply read the blog post that I specifically linked to him, he would’ve known that Austrians do not say that interest is the free-market price of money.
Quote from Anthony Migchel: “Modern Austrians want a free market for currencies, which is positive. They mistakenly claim Gold will prove to be best in such market.”
No, the Austrian who wants a free market in currencies says that it doesn’t matter which currency comes out the best, because what is money is being decided by the people and not by government/banker bureaucrats.
Quote from Anthony Migchel: “But Gresham’s Law predicts people will hoard gold and pay with paper.”
Again, even after being corrected on this, Mr. Migchel still insists on promoting this completely wrong view of Gresham’s Law. Gresham’s Law only comes into play when the conversion ratio between two commodities is fixed by the state. Period. If the conversion ratio is not fixed, it is not Gresham’s Law. For example, suppose the State decrees that any debts of $20 can be paid in 1 ounce of gold. The problem is that the market values gold at $15. So now, people will buy 1 ounce of gold for $15, and use it to pay off the $20 debt, saving himself $5.
In other words, because the conversion ratio is fixed by law, there is a massive incentive for this kind of behavior. But without this decree from the state, there’s no incentive for this kind of behavior, nor will it send gold flying out of the country. If the market rate is $20 = 1 ounce of gold, then any debt of $20 can be paid either in dollars or gold. It’s up to the debtor. If he pays in dollars, that’s fine. If he pays in gold, that’s fine too, but there is no monetary incentive in this case from him to trade gold for dollars or dollars for gold to pay the debt in question.
As for your hoarding gold claim, this is equally silly. Some producers will only accept gold as payment for goods and services rendered, and as such, gold will still be circulating within the economy. Since there is a free market in currencies, you can also buy and trade in currencies. In other words, you can buy dollars and sell gold, or you can sell dollars and buy gold. Seeing as there are shops that only accept gold as payment, that will be entirely up to the people as to what currencies they hold. If they don’t like gold, they don’t have to shop at the places that only accept gold.
I strongly recommend dropping this Gresham’s Law argument. Aside from it being based on fallacious reasoning, it is also based on a misunderstanding of Gresham’s Law that will get you laughed at by just about any economist who knows their stuff, Austrian or not.
Quote from Anthony Migchel: “Deflation hurts debtors (90% of the population), as the value of debts and the interest payed over them increases in value.”
Deflation does no such thing. Are you seriously worse off because you have to pay less for food, clothing, etc.? And by the way, it’s paid, not payed.
Quote from Anthony Migchel: “Kills economic growth because people hoard cash instead of investing and consuming.”
So, in their compulsive need to hoard cash, people aren’t going to consume anymore? So does this mean these people won’t be buying food, basic clothes, paying rent, etc.? People are going to consume regardless of their expectations, because there are basic necessities that everyone has to have. Even the richest banker in the world has to eat. Just because they aren’t spending as much money, and on what, as YOU want them to gives you no right to denounce them as hoarders.
By the way, saving (hoarding) is investing. Even Keynes said that much, as Paul Krugman points out.
Quote from Anthony Migchel: “Deflation is a result of crashing demand, due to a contracting money supply.”
This is an old mercantilist myth. Deflation is a contracting money supply, not the result of something.
Quote from Anthony Migchel: “The associated declining prices are not a boon, but a symptom of a serious disease.”
If Mr. Migchel really feels that declining prices are a symptom of a serious disease, he could do something about it. The next time he goes to the grocery store, he can mark up the price of all the items he picks out by 50%, and when he pays for his items, pay that amount in cash and tell the cashier to keep the change.
Of course, no sane person would do this, and just as no sane person would intentionally pay more than the price listed for basic needs, no sane person believes that we are worse off due to falling prices.
Mr. Migchel clearly has a lot to learn.
Among the many cries for monetary reform, there is a group of people who want the Federal Reserve to be assimilated into the Treasury Department and for the newly created money (which would be created at a much faster rate) to be lent out interest free. All interest is usury that should be abolished, according to these people. Some of this I have dealt with in a previous post, but Anthony Migchels, writer of the blog RealCurrencies, is convinced that the Austrian case for a free market in currencies is actually a hoax.
Quote from Anthony Migchels: “In the old days of Austrian Economics things were simple: one just derided fiat currency. It is unfair to be raped by interest for paper money created out of nothing, even the Austrians will admit. So, they claim, stop fiat money and replace the paper with Gold. We’ll all feel a lot better when we can slave away for our usurious tributes to the Money Masters if we can pay in Gold coins.”
If he seriously believes that in the old days of “Austrian Economics”, all you did was deride fiat currency, then Mr. Migchels hasn’t done that much research into Austrian Economics. For instance, he hasn’t read “Principles of Economics” by Carl Menger, the book which puts forth, in the clearest possible way, the principle of Subjective Marginal Utility; a principle which has completely revolutionized the science of economics.
Quote from Anthony Migchels: “But later things became a little more complicated. People started to wonder about the Gold Standards of the past. Weren’t these just banker operations? Don’t the bankers own all the gold? Haven’t they controlled Gold throughout modern history? And how about these Government controlled Gold Standards? Can’t Government just change the fixed price and mess up everything that way? And can we really trust them to indeed have the Gold they claim they have?”
First of all, Mr. Migchel’s statement that gold standards have always been banker operations is factually inaccurate. Gold has been money for no less than 6,000 years, and this predates the earliest recorded bank in history by ~2,000 years.
Secondly, Mr. Migchel doesn’t understand how ownership of currency works. Just as bankers didn’t own all of the gold, the bank does not own the money I now have in my pocket. I own that money, and no one else, and the only way the bank can have any sort of legitimate dealing with that money is by my permission. Period. It is here Mr. Migchels has demonstrated not only a severely impaired understanding of ownership, he has also demonstrated a complete lack of understanding as to what money is and where it comes from.
Money doesn’t have to be gold or silver, per se. In fact, historically, many things have been money, ranging from rocks, to gems, to salt, to iron and copper. Money is not some alien commodity that just fell from the sky, or was created by an elite to enslave people (as I’m assuming Mr. Migchel believes), money was created, and can only be created, by the market. It is a medium of exchange, selected by the people’s preferences (i.e., their buying and abstention from buying), by which goods and services are more easily exchanged. It allows for specialization of labor, and thereby increases the overall efficiency of the division of labor.
Money is, first and foremost, a commodity, and just like any commodity, there is a supply of, and a demand for it (which means it DOES exist in the realm of Supply and Demand… you know who you are….)
Mr. Migchel’s main gripe is with the practice of usury, i.e., loaning out money at interest. Here again, Mr. Migchel’s ignorance of the “Old Days” in Austrian Economics shows its ugly head. Had he simply bothered to type “Austrian Economics Interest” into Google, he would’ve found this blog post. Aside from being a fantastic exposition of the Austrian position on interest, the blog is basically a summary of Eugen von Bohm Bawerk’s “Capital and Interest”. Eugen von Bohm Bawerk was a student of the previously mentioned Carl Menger, and was the teacher of the man who would later become the face of the Austrian School, Ludwig von Mises. For yet another response to Mr. Migchel’s position of usury, see the first link above in the first paragraph.
Quote from Anthony Migchel: “Of course, Austrian Economics is well known for its trust in the magical ‘freedom’ of the market. First it has Government declare a ‘free market’, then it has Government enforce the contracts in this ‘free market’ and third it has Government look away if a few monopoly capitalists take this market overnight. Of course Government should not interfere if these capitalists show such wonderful ‘human action’ and gobble up the whole thing. Surely these capitalists would not win, were they not doing something right.”
Quote from Anthony Migchel: “The minute Government creates this ‘free market’, it will be quickly conquered by the Money Power with its vast resources. It will have thousands of independent journalists and professors discuss the wonders of Gold as currency at its media outlets. It will pour in billions to open up thousands of ‘competing’ Gold banks, providing Gold based credit. The one at 4,9%, the next at 5,0%. Many of these outlets will actually believe they are really competing.
The Money Power will bribe politicians to only accept Gold coins in taxes.
Meanwhile, nobody will be investing one cent in Mutual Credit based facilities. Because there is nobody with the necessary resources.”
This is nothing short of a conspiratorial doomsday scenario that is based on truly shoddy historical research (as I pointed out earlier).
Mr. Migchel then proceeds to demonstrate that he is an economic illiterate, addressing the issue of if we did have free competition in currencies. In the process, he sharply contradicts himself.
Quote from Anthony Migchel: Of course, would there be real competition, Gold would be absolutely irrelevant in a free market.
As we explained earlier (here and here), if Ron Paul’s “”Free Competition in Currency Act” (HR 1098)” (which would end legal tender laws and end taxing metals) would ever be enacted, nothing would happen.
Everybody would continue to hoard Gold and pay with Federal Reserve notes.
It’s called Gresham’s law: bad money drives out good money. It’s no use discussing this: just check it out for yourself: would you pay with your Gold coins or with your notes?”
Do you see the contradiction? Saying that nothing would happen if Ron Paul’s policy was enacted, and then to say that we’d be witnessing Gresham’s Law, is a contradiction that can only be made if you have little-to-no understanding as to what Gresham’s Law is.
Gresham’s Law, named after Sir Thomas Gresham, doesn’t come into play without legal tender laws. Period. In one of the links he posted, he addressed this very criticism by saying, “In response to a comment by Memehunter, quoting my article on Gary North, they elaborate on why they think I might be wrong.
They suggest that Gresham’s Law does not apply: “As we pointed out before, this is a misconstruing of Gresham’s Law. Gresham’s Law only applies to tender manipulated via government compulsion: ” ‘When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.’ It is commonly stated as: “Bad money drives out good”, but is more accurately stated: “Bad money drives out good if their exchange rate is set by law.”
However, the source for this info is Wikipedia, and I don’t believe the Daily Bell will blame me for not accepting that as Canon Law.
It may be true that this was the situation at Gresham’s time, but it is clear that his observation is true always when different units circulate side by side and one of them is overvalued. Or losing value.”
Now we can begin to understand; it’s not that Mr. Migchel just doesn’t understand Gresham’s Law, it’s that he refuses to understand Gresham’s Law. Not only has Mr. Migchel refused to do any sort of sound research on Austrian Economics, he’s constantly spewing forth these nonsensical conspiracy theories about an elite creating these banks and using interest lending to enslave and exploit, but just a little bit of logic shows us exactly why interest lending isn’t exploitative in the least.
Suppose you have a borrower who his desperate to pay his mortgage; he’s $1,200 short this month. So he goes to his local lender to apply for a loan. After considering the pros and cons of the loan, the lender decided to charge an interest rate of 25%. For those who want to know the numbers, that means the borrower will have to pay back the principle of $1,200, plus $300 in interest, for a total of $1,500. Is this exploitation?
Not at all. Why? Because the borrower preferred the $1,200 he borrowed today to the $1,500 he will have to pay back in the future. If he made a mistake in his valuation, then the mistake is on the borrower, not the lender or the interest lending system.
Quote from Anthony Migchel: “The second issue is, that would there be Mutual Credit Facilities competing with Gold banks, they would be offering credit at 0%, while the Gold banks would want 5% for their mortgages.
Where would you go for your loan?
Is it really any use discussing this further?”
Click here for Mr. Migchel’s explanation of Mutual Credit Facilities, and it is one of the most absurd proposals I’ve ever heard. It will receive its own response in due time.
Quote from Anthony Migchel: “The ‘free market for currencies’ is just a ruse, made possible by Austrian Economics’s standard way of ignoring market power. They only look at Government intervention, but they always ignore the elephants monopolizing the helpless ‘free market’.
Should there be a ‘free market’ for currencies, especially if the Federal Reserve Notes would be phased out, the massively funded and promoted Gold dealers would quickly gobble it up and tightly controlled specie, easily inflated and deflated and taxed with interest, would provide the Money Power with the de facto Gold Standard it wants.”
I can’t tell if it’s typographical errors or what, but Mr. Migchel’s proposal is really hard to understand here. Is he seriously proposing that Gold dealers would control all of the gold, inflating and deflating at will? Does he fault the Electronic dealers for controlling all of the electronics, inflating and deflating at will? The logic is the same in both cases, and it’s completely silly.
In conclusion, I’m afraid Mr. Migchel has a lot to learn about economics.
First, let me apologize for being absent for so long. I have been long overdue for another post, and MarxistMax’s post on Islam gave me the kick in the ass I needed to make one.
“I maintain that the invasion of Afghanistan was and is justified. But the war to topple Saddam Hussein remains a token of destructive idiocy which achieved nothing. We set an entire nation against us, on the basis of self-preservation from WMDs that have still not been found. There have been 461,000 deaths in Iraq since we arrived in 2003, directly attributed to the violence.”
Actually, the War in Iraq accomplished quite a bit, depending on who you talk to. To you and myself, it didn’t accomplish anything, but to Dick Cheney and Halliburton, it was billions in government contracts to repair the damage caused by the war, and millions in oil reserves. The war was, primarily, an effort to keep American markets open in the Middle East. I am sorry to beat a dead horse, Max, but if the doctrines of protectionism rings true, that is, the idea that importation impoverishes a country and exportation enriches a country, then this kind of behavior is entirely justified.
Fortunately, the doctrines of Protectionism are false, and this behavior is some of the most repulsive known to man, despite how accepted it is.
“The 9/11 attacks inspired a culture of fear, paranoia and intolerance. The terrorists attacks that have come since then have painted the Islamic community of Britain as a rotten apple, filled to the brim with murderers, extremists and child traffickers. I have never believed this to be the case. Owing to a multitude of factors, social, economic, historical and cultural, the Islamic community has perhaps found it the hardest of all to assimilate into British culture. Due to differences in wealth between adherent nations of Christianity and Islam, there is more reluctance to deviate from scripture.”
Differences in wealth will not convince a Muslim to deviate from Scripture. Period. No Muslim will deviate from the Qur’an. The Qur’an explicitly condemns this kind of behavior.
“Tommy Robinson and EDL represent a solid core of resentment and ignorance about Muslims, which is spreading through the British working class with dangerous speed. It developed after 9/11, and the twelve years of ‘The War on Terror’ have seen it grow into a cancer. Tommy’s recent decision to jump ship to Quilliam has left many puzzled, not least myself. That man continues to be an enigma to the world.”
Tommy Robinson, not even his real name by the way, got his ass kicked well enough to where nothing he says or does should matter at this point. Here’s the video.
“Tommy Robinson accuses the Qur’an itself of condoning sex-trafficking, FGM and the killing of infidels and homosexuals. But both the Bible and the Qur’an were written for a different age. The question remains one of dogmatism. Most Christians are taught to screen out pieces of scripture which condone awful things, and most Muslim do as well. The only difference between us is that dogmatism is slightly higher within Muslim ranks, that is all. And as I’ve said before, that small difference is owing to the fact that most Muslim countries are less developed than the West.”
Tommy Robinson is full of it. The only time Homosexuals are mentioned in the Qur’an is to condemn the act as a sin, and to recite the story of Sodom. The Qur’an does not condone killing homosexuals, and the Qur’an doesn’t mention FGM (Female Genital Mutualization) at all. In fact, as Mustafa Akyol points out in his brilliant book, FGM is an African Tradition that predates Islam by no less than 1,000 years, and is still practiced today in Ethiopia, which is a Christian majority. Muslims do not screen out the “harsh” parts of the Qur’an, instead they interpret them differently. For example, Surah 9:5 says:
“But when the forbidden months are past, then fight and slay the Pagans wherever ye find them, an seize them, beleaguer them, and lie in wait for them in every stratagem (of war); but if they repent, and establish regular prayers and practise regular charity, then open the way for them: for Allah is Oft-forgiving, Most Merciful.”
While those in the EDL interpret this as an aggressive front against all non-Muslims, the Muslim interprets this as a commandment to be followed during a defensive war, and indeed the Muslim has the correct interpretation.