Tuesday, February 25, 2014

WHAT Are "They" Spending? HOW Is It Done?

"Free markets are economically optimal, but partially free markets, with endless creation of fiat money and implicit government guarantees of the big boys, can produce perverse and dangerous results."

Martin Hutchinson

Fiat money is an interesting term here.  We certainly have seen the "endless creation" of fiat money in the US economy.

What is fiat money?  Basically it's money that is backed by nothing.  It is simply declared to be legal tender.  If we wanted to turn a dollar bill into the gubment we are guaranteed another dollar bill in exchange.  It is essentially redeemed for nothing.  It holds value for exchange insofar as people have faith in it.

The real danger with fiat money is that since it is not linked to the physical reserves of any commodity, like gold or silver, it risks becoming useless due to hyperinflation.  Gold and silver have never been valued at zero.

Martin Hutchinson here states that fiat money creates partially-free markets.  Hence, by this definition, we do not enjoy a free-market economy in the United States (or indeed anywhere in the world) and cannot.  An economy is therefore as fragile as the faith in its currency.

That is the harbinger of the "perverse and dangerous results" that Hutchinson states.  If a gubment, any gubment, implements policies that move the economy toward a loss of faith in its currency, then it risks the devaluation of its currency to zero.

What would cause the people in any economy to lose faith in its currency?

This is basic money and banking 101.  The true destroyer of economies, and therefore faith in currency, is inflation.  Inflation basically means that more and more money is needed relative to the goods one wants to buy.  Money becomes less and less valuable relative to those goods.

And what is the leaven that contributes most to the rise of inflation?  An increase in the money supply.

Pure and simple.

Inflation can be defined and redefined.  For example, if a loaf of bread is a part of the inflation statistic, and more money is needed to buy a loaf of bread, then there has been a tick up in inflation.  

But if energy costs are NOT a part of that inflation statistic and it takes more and more money to drive cars, heat and cool homes, or charge cell phones, then the inflation statistic is said to not be impacted.  


Over time that faith can be affected greatly.

The "presses" don't have to be pumping out dollar bills for there to be an increase in the money supply.  

There are back-door ways of increasing the money supply.

How?  By increasing the gubment's ability to spend money time after time after time.  They call it the "debt limit."  Where does the "money" for that spending come from?  Or how about buying tens of billions of dollars of stocks and bonds every month, for month after month after month, without "tapering."  Where does the "money" for that spending come from?  How about encouraging millions more people to not spend "money" for food, but spend "food stamps" instead?  Where does the "money" for that spending come from?  As regards this gubment program, name your give-a-way program - how about phones or internet services?  Where does the "money" for that spending come from?  Or if millions and millions of people simply enter the country with utter disregard for immigration laws and demand that their "needs" be taken care of, with advocates helping them to apply for and receive this and that and this and that (name it - food, health care, public education, ad nauseam), for years and years?  Where does the "money" for that spending come from?


Is that not "fiat" money producing what Hutchinson called "perverse and dangerous results?" 

The Keynesian economists think that "gubment spending" increases what they call "aggregate demand" which therefore creates economic growth.

Can anyone define "aggregate demand?"  Does the "aggregate" demand anything? 

And what, please tell me, WHAT are "they," the Wizards of Smart, spending?  When I studied economics I could never wrap my mind around that one.

The word "fiat" has a Latin root which means "let it be done."

That begs the question -- HOW is it done?

Friday, February 14, 2014

Are Legislators And Organizers Naturally Superior Shepherds?

"They would be shepherds over us, their sheep.  Certainly such an arrangement presupposes that they are naturally superior to the rest of us.  And certainly we are justified in demanding from the legislators and organizers proof of this natural superiority."

Frederic Bastiat (1801 - 1850)

Isn't this interesting!?

Two words stand out in this quote - "sheep," and "organizers."

Of course, the quote concerns "they."  The ubiquitous "they..."  We use that word all the time in our daily vernacular - "they" are doing this, and "they" will do that.

These words were spoken a full century before another famous book, Animal Farm, was written by the committed socialist democrat George Orwell.  He was an outspoken critic of Stalin, the dictatorial and brutal nature of Stalinism and what he thought the Russian Soviets were doing to his precious socialism.  He thought "they" were ruining it for the rest of the world!

Some of the most comical characters in the "farm yard" featured in Animal Farm were the sheep.

The leaders of the farm yard, the Two Legs (animals that formerly walked on four legs but gained superiority be distinguishing themselves when they walked on two, like the humans they denigrated), keep the other animals in check brutally, even eliminating dissenters as needed.  The Two Legs, and the leader, a boar named Napoleon (obviously Stalin), create a new social, farm yard doctrine called Animalism.

The Sheep are basically mindless followers who have a limited understanding of what Animalism is doing to the farm yard, and support Napoleon in every way.  They are best at repeating all the little jingles and sayings promoted by the Two Legs.  All dictators have their jingles and sayings.  The Sheep also sing whatever national anthem that comes along, and it changes necessarily over time.

And here, a century before, Bastiat, a politically-liberal economist (he would be considered a radical conservative in today's political climate) compares citizens who blindly follow socialism to sheep!  And the leaders are compared to Shepherds!

Well, in Bastiat's view, the Shepherds, two legs all, see themselves as the Superiors of the Sheep!  Naturally.

Would not these Shepherds also consider themselves to be Wizards of Wonderfully Smart?  Yes, yes they would!

And Bastiat makes the most important statement, a statement that we could ask today, "We are justified in demanding from the legislators and organizers proof of this natural superiority."

Legislators have subjected us to their "superiority" for centuries.  But we are only recently introduced to an "organizer."  So, what is the proof of this, their "natural" superiority?

Are legislators and organizers naturally superior shepherds?

That's an easy one!  Well, never, ever, ever when free enterprise is the leader of the farm yard.

Tuesday, February 4, 2014

So, Who Takes Care Of These?

 "What private property does is connect effort to reward, creating an incentive for people to produce for more.  Then, if there's a free market, people will trade their surpluses to others for the things they lack.  Mutual exchange for mutual benefit makes the community richer."

John Stossel

Private property is the very essence of free enterprise, free market economics, capitalism and individual freedom.

If I don't own my ability to offer my private enterprise, whatever that may be, to the market place, what is, to use Mr. Stossel's word, my  INCENTIVE  to do so?

Notice how what is done in the scenario portrayed by the quote above is all voluntary? 

> There is no force in free market activity. 
> There is no force in free enterprise. 
> There is no force in risking one's personal fortune in a venture in the attempt to exchange mutually with others, and benefit thereby.

And there is a whole lot of upside potential when we are allowed to do so.  The upside can benefit everybody, including whole societies.


 But there is a huge downside potential to such freedom as well.

With the freedom of choice, one can choose to act, or choose to be acted upon.

What if someone chooses not to prepare for participation in the market place?  What if someone chooses not to become educated enough to learn to think independently?  That is the aim of education, right, to learn to think for oneself?

What if one chooses not to read and become informed by information - fiction and non-fiction - and learn of people, places and things, events, scenarios, mistakes and successes?

What if one does not develop an interest or sharpen a personal skill to the point where that skill might be useful, or productive, in the market place?

What if someone is under motivated by life?  Decides to lolly gag, or participate in activities that do not benefit one's future, dropping out, as it were, in an economically-competitive way.

Naming some of those -
  • involved in pop-culture television for hours every day or having ear buds blasting unending streams of loud music, even while one watches the hours of television;
  • or hour after hour on a computer or phone engaging in social media to keep abreast of useless information about "friends," or other avatar photographs of people best known electronically; 
  • or commit mental suicide by smoking something all day;
  • or drug involvement to the point of utter addiction;
  • or playing video games striving very hard to get to the next level;
  • or create a fringe life style, looking as odd or shocking as possible, and hanging around all day with similar fringe types, the birds-of-a-feather thing;
  • or not getting trained or wanting to train in productive skills?
Well, certainly I could go on.

So, who should take care of these?

Their parents?  Society in general?  A facility?  Churches?  A home where birds of a feather can flock together?  Themselves?

Are they not themselves deciding what to do with their own private property and their own private lives?

What of those who may be able, but privately decide not to connect effort with reward, mutually trading what they are able to trade for the benefit of their own lives and others?

Remember, in a free enterprise sense, in an individual freedom sense, they are not forced to participate, they are not forced to contribute.

So, who takes care of these?

These who may be able, but decide not to take care of themselves?  Who?