Three Myths About Capitalism

If Only You Knew Better

"if you just can’t believe I’m saying the things I say, at least consider the possibility that you’re the one who just doesn’t get it."

--Paul Krugman.

This Just In... part 2

Joe Biden is still an ass.

On China's one child policy:

Your policy has been one which I fully understand — I’m not second-guessing — of one child per family. The result being that you’re in a position where one wage earner will be taking care of four retired people. Not sustainable.

Forcing families to limit themselves to one child? Forced abortions? He fully understands? But now they're in a pickle because the workforce isn't large enough to support a wealth-transfer Ponzi scam like our Social Security, that's the problem with the one-child policy?

This guy is giving chase to Dan Quayle's title as dumbest vice president in modern times.

Would That We Were Smarter

In the grand tradition of the Smartest Man in the Universe, a fellow by the name of Jacob Weisberg bemoans the current state of politics because contemporary matters are complicated and people, especially those that don't agree with Mr. Weisberg, are stupid.

He starts his column thus, "It is hard to remember a more dismal moment in American politics," a fine example of historically ignorant pabulum. The article then proceeds to get worse.

"But for the federal government to spur growth or create jobs, it has to spend additional money. The antediluvian Republicans who control Congress do not think that demand can be expanded in this way." So not only are people foolish enough to disagree with Keynesian analysis ignorant, they are an anachronism as well. Unhip to the wicked smarts of our paralogical masters. Regardless of the fact that disagreement with Keynesianism is based on observed history and not pinned on some normative fantasy land.

"Some of the congressional Republicans who are preventing action to help the economy are simply intellectual primitives who reject modern economics on the same basis that they reject Darwin and climate science." I love this one because it doesn't even attempt to hide the author's smug condescension.

"Faced with Republican intransigence on taxes, Democrats are less likely than ever to give ground on Social Security or Medicare." Yes, we can all remember how willing the Democrats were to cut Social Security, Medicare and Medicaid but for the intransigent Republicans.

"At the level of political culture, we have learned some other sobering lessons: that compromise is dead and that there's no point trying to explain complicated matters to the American people." Another desperate plea for recognition of the Sisyphean efforts to reason and educate the poor simpletons in these demotic times.

William Voegeli does a far better job than me of addressing the intellectually void and frankly insulting lines of alleged reasoning employed by Mr. Weisberg.

Oh, and a little searching brought up this little doozy previously written by Mr. Weisberg in 2008 on The End of Libertarianism, just as lacking in any intellectual vigor as the present column, and nicely torn asunder by Cato's Brink Lindsey.

Aye, That's the Question

Jason Linkins writes:

we ask ourselves difficult questions like, "What impact will removing trillions of dollars from the economy have on ordinary people?"

Do we? Because I ask where did the government get that trillions of dollars in the first place? And if it is being "removed," where is it going?

So the real question seems to be: is Mr. Linkins a sophist or simply an idiot?

Debt Deal

If Paul Krugman and Keith Olbermann (remember him?) are so outraged, I should be ecstatic, no?






I am also willing to give one United States Dollar to anyone who can quantify how many straw men are constructed, lies told and false choices/analogies proffered by Olbermann. My patience and the battery on my calculator ran out.

Oh, and I doubt the "super congress" is a very good idea, the reason being that our current congress came up with it. But it is certainly constitutional. Now that Mr. Olbermann is such a fan of the constitution and knowing where it says what, I could point him to Article I, Section 5, clause 2, first sentence:

Each House may determine the rules of its proceedings

So if congress wanted to draft laws by pulling random words out of Joe Biden's ass, they can do that.

P.S.-I had forgotten how humorous Keith's phony outrage/faux populist act can be. I should joint the other three viewers and check him out more often.

Art is Dead

I just saw the show the Green Room with Paul Provenza on Showtime. I love it when comics sit around talking about comedy. Actually, I love it whenever you can see or read experts in their field, people who care about what they do, discussing it amongst themselves (the move the Aristocrats is patently obscene, but a brilliant example of what I'm talking about).

In the first episode I saw there was Judd Apatow, Mark Maron, Ray Romano, Gary Shandling and a young comic named Bo Burnham who performed the song below. Good stuff.

It reminded me of the hours I used to spend watching Short Attention Span Theater with my brother back on the old Comedy Channel.

The impressive part was this kid was able to hold his own with the likes of Shandling and Provenza. Very talented.

This Just In...

Joe Biden is still an ass.

So debating with people who don't want to take other people's money makes them terrorists?

Mr. Keynes, Meet Mr. Hazlitt

Henry Hazlitt was not a "professional" economist. But that doesn't mean he couldn't teach a lot of alleged economists a thing or two about how the real world works when it comes to the "science" of economics. I can't remember where I first heard of Mr. Hazlitt, but the first thing I read by him was Economics in One Lesson, an excellent work that I can't recommend highly enough.

He has also written, among other things, The Failure of the New Economics, a chapter-by-chapter (and sometimes line-by-line) refutation of Keynes' General Theory.

Recently I came across Man vs the Welfare State (an allusion to Herbert Spencer's The Man vs the State). So far I am enjoying it as much as I have his other works. But the reason for this post is not merely to introduce Henry Hazlitt.

Regarding the recent debt-ceiling debates (if what happened is worthy of the word), some wags have posited that the deal reached will spell the end of Keynesian economics. Would that we should be so lucky. Keynesians and Keynesianism and, God rest his soul, Keynes aren't going anywhere. In a later post I will try to explain why the man and his foolishness won't just go away (if I can figure that bit out).

Anyway, below is Chapter 2 of Man vs the Welfare State in its entirety. It is a mere 1466 words, and with such an economy of words that includes no jargon whatsoever, Mr. Hazlitt lays bare all that is wrong with Keynesian economics.

Enjoy:

IN THE EARLY NINETEEN THIRTIES, IN THE DEPTH OF the Great Depression, the theory became fashionable that the cause of all depressions was Lack of Purchasing Power. The people just did not have enough money, and because of unwarranted pessimism they were refusing to spend enough even of what they had. The solution was therefore simple: at such a time the government should boldly increase its own spending, "prime the pump," and "get things moving again."

Naive advocates of this theory assumed that more government spending was the whole answer. The more sophisticated advocates saw that the increased spend- ing would not give people more purchasing power if the government kept the budget balanced and took it all away again in higher taxes. The thing to do was to spend more without taxing more. The trick, in other words, was deliberately to unbalance the budget—to run a deficit.

Most of the champions of deficits—including the eminent John Maynard Keynes himself, the theory's chief architect—at least publicly professed to believe that the required deficit could be financed by selling bonds directly to the public, to be paid for out of savings. But again, the more sophisticated deficiteers must have seen that a man who buys a $1,000 bond out of his savings surrenders that much purchasing power for the life of the bond. In short, he loses just as much buying power as the government gains. On net balance, no new buying power has been created.

How, then, can the government "create" new purchasing power? It can do so only if it does not increase taxes at all, but "sells" its bonds to the banking system, and if the banks "pay" for them by creating deposit credits on their books in favor of the government. This leads to an increase in "the money supply"—that is, an increase either in the amount of currency or of demand bank deposits.

If the government's new bonds are sold directly to member banks, there tends to be a dollar-for-dollar in- crease in the money supply compared with the amount of new bonds. But if the government's securities get into the hands of the Federal Reserve Banks, they are used to create what is called "high-powered" money. This can lead to the creation of about $6 of new money for every dollar of new government securities.

It is not easy to give a satisfactory but short explanation of the reason for this to readers without any previous knowledge of monetary theory. When member banks "buy" government bonds and "pay" for them by creating a deposit credit on their books against which the government can draw, they are adding to the nation's supply of purchasing media. They are creating money out of government promises, and some would say they are creating money out of thin air.

Now if a member bank that has bought such government bonds sells them to its regional Federal Reserve Bank, it can ask that Reserve bank to credit the proceeds to the member bank's reserves with that Reserve bank. But if the member bank is a "city bank," it is required to keep a reserve with the Federal Reserve Bank of only l61⁄2 per cent against its net demand deposits. This means that the member bank is entitled to lend, and so create demand deposits for, about six times the amount of its reserves with the Federal Re- serve Bank. That is why money created directly or in- directly by the Federal Reserve Banks is called "high-powered" money.

Thus new "purchasing power" is brought into being. Thus people have more money to buy more goods, create more jobs, stimulate more output, and restore prosperity.

At least so it seems for the moment. But soon there are other consequences.

If there have been heavy unemployment and much "idle capacity," the new monetary purchasing power in the system, by increasing the demand for commodities, may indeed lead to an increase in production, and hence to an increase in employment. This has been hailed as the great Keynesian contribution to economic theory and policy. But there are fatal flaws in it.

Unless there were some serious lack of coordination among prices, costs, and wages, mass unemployment would not exist in the first place. When it does exist, the only appropriate cure is individual adjustment of prices, costs, and wages to each other—the return of coordination. But this can be brought about automatically only if the competitive forces of the market are given free play.

The reason the Keynesian medicine can work—un- der special conditions and for short periods—is that by increasing monetary demand and prices it may in- crease both sales and profit margins, and so restore production and employment. Yet this could be done even more effectively—and without the poisonous side- effects and after-effects—by restoring freedom of com- petition and individual coordination of prices and wages.

The Keynesians think in terms of aggregates. Their remedy is to increase the total money supply, and thereby to bring the price "level" sufficiently above the wage "level" to restore or maintain profit margins and so keep the wheels of industry spinning at full speed.

This remedy is defective in two respects. It tacitly assumes that there is a uniform discrepancy between prices and wages and a uniform percentage of "idle capacity" throughout industry. Neither is true. If "industry" is estimated to be operating at 80 per cent of capacity, we must remember that this figure is at best an average. It may cover a situation in which, say, industry A is operating at only 60 per cent, industry B at 63 per cent, and so on up to industry M at 97 per cent and industry N at 100 per cent. If we try to expand the money supply enough to return industries A and B to full capacity, we may completely "overheat" industries M and N and produce serious productive distortions and bottlenecks.

What is more, an increase in the stock of money, contrary to Keynesian theory, will begin to force an irregular increase in prices long before "full capacity" has been reached and the "slack" taken up—if only for the reason that the "slack" is never uniform throughout industry. In a very short time, also, with the increase in

prices and the increase in the demand for labor, wages will start climbing too. Then, if the previous trouble was that most wages were already too high in relation to most prices, there will again be discoordination between wages and prices; and the Keynesian prescription will call for still further doses of government spending, deficits, and new money.

So the Keynesian medicine must lead to chronic deficits and chronic inflating of the money supply. This is precisely what we have had. It is no accident that we have just run eight annual deficits in succession, and that we have had 32 deficits in the last 38 years. It is no accident that the U. S. money supply (currency plus demand deposits) has been increased more than five- fold—from $36 billion at the end of 1939 to $199 billion in September, 1969. And so it is no accident that, in spite of a tremendous increase in industrial production in this thirty-year period, consumer prices have in- creased (to June, 1969) by 164 per cent.

Today the Federal Government is spending in a single year 269 times as much as in the fiscal year before the outbreak of World War I. The recent increase in annual spending is being attributed by government spokesmen to the cost of the war in Vietnam. Yet though in 1970 scheduled national defense expenditures are $35.6 billion greater than in 1960, total expenditures are $103.1 billion greater. This means that non-defense expenditures alone have increased $67.5 billion in the same period. It is not the war, but the determination to impose the welfare state, that has led to this incredible squandering.

A central fallacy of Keynesianism, as of all inflationary nostrums, is that they chronically confuse "income" in terms of paper money with real income in goods and services. It is possible to increase paper-money income to any amount by debasing the currency. But real income can only be increased by working harder or more efficiently, saving more, investing more, and producing more.

So let us not be too impressed by politicians who constantly cite the increase in dollar incomes, in dollar "gross national product," to show that we never had it so good. In Italy today, as a result of past inflations, it takes 624 lire to buy an American dollar. So anyone in Italy with an annual income or even total property worth more than $1,600 American dollars is already a millionaire in his own currency.