Thursday, December 23, 2010

Animal Spirits Pt. 4: Conclusion

Having finished this book, I can say I do like what I've read. Certainly I don't agree with every conclusion they've reached, nor do I agree with every analysis. But their approach is certainly more valid than the approach made by even the standard economics stories I'm familiar with. In a way, by acknowledging the fact that individual and cultural variations make most dry quantitative approaches to economic study less than helpful, their approach has more in common with the approach promoted by Ludwig Von Mises than that of those labeled Kensian and Monetarist.

That's not to say they are the same. Where Mises described a discipline that stuck to exploring the structure of logic that can be built upon certain basic, knowable facts (including the fact that human motivations are infinite and complex), Akerlof and Shiller explore the impact of specific psychological and cultural information on economic analysis. Indeed, were one to engage in a multidisciplinary approach that deliberately combined Misesian praxeology with psychology and cultural studies, it would likely look something like this (assuming the reader can accept that "Misesian" and "Rothbardian" are not necessarily the same, and that two people can attempt the same approach and, thanks to the role "understanding" plays in the comprehension of complex phenomena, can come to different conclusions). I can only hope their ideas have some effect on the overall profession.

So this book is a starting point, though I suspect there is a hurdle the authors are not anticipating. They speak of the role of "animal spirits" (and yes, they are using the term in the fashion I had hoped when I wrote Part 1) in shaping the overall economic and driving economic events. They say government regulation is an appropriate remedy to the excesses that can be caused by these "animal spirits". The question then becomes: how do we get appropriate policy out of the government? For it is not only the overall economy in which "animal spirits" plays a role; it is also in politics, and administration, that human motivation plays an important role.

In other words, would would be the result of applying "animal spirits" theory to public choice theory? For the government isn't a machine that inputs information and outputs policy: it, too, is made up of human beings with diverse motives. It, too, suffers from the effects of a confidence cycle, corruption, notions of fairness that may or may not be good for the overall output, changing stories, and other things identified as "animal spirits." Any policy recommendation resulting from an analysis must take this into account as surely as the original analysis must.

Sunday, December 19, 2010

Animal Spirits Pt. 3: Natural Wage Theory, Money Illusion, and Wages

I just finished reading Chapter 9 of Animal Spirits. Now I see the point of criticizing Natural Rate Theory. I mentioned in an earlier installment that I suspect that, over the long time, wages will tend to track inflation, but lag behind. Akerlof and Shiller appear to be saying that this is precisely the point. Steady inflation holds wages at a lower level, one which allows a lower level of unemployment. Employers can grant employees raises for the financial purpose of keeping it in line with the purchasing power of money, while still giving the employee the feeling that they are being rewarded for their efforts. In the absence of inflation, the employer can't afford to give so many raises, the employee feels he's not being treated fairly, and worker productivity falters. So, in their analysis, because of money illusion and fairness, a certain level of inflation is required to keep productivity up.

Outside factors they failed to take into account (which I will get into below), I can find no fault with their analysis. Particularly in a world in which people have, over multiple generations, come to regard raises as a regular obligation, perceived unfairness (that very phrase is redundant, given all fairness is subjective) could well result in productivity losses in the absence of inflation-motivated raises.

Of course, this likely leads to the recommendation that a level of inflation should be maintained at all times. Further, it makes something like a commodity money seem untenable. However, there is something else to put into the analysis: the credit cycle. Wages are downwardly rigid, therefore deflation can damage employment levels, as falls in wages fail to keep pace with falls in other prices. But what if "fractional reserve" banking were abolished, and therefore the bank created inflation that ultimately leads to deflation never occurred in the first place? The downward rigidity of wages could become irrelevant, in this scenario. But then, it could also lead to an extended (possibly multigenerational, meaning it would be politically unsustainable in reality) period of adjustment, until people finally realized psychological satisfaction is not going to come from making the numbers bigger.

It's a big hurdle to get over. From a strictly logical standpoint, wages generally rising over time, but lagging behind prices is not as good for workers as wages falling slowly but lagging behind prices. But falling prices, though it is good for a person whose wages have not yet fallen, is an impersonal phenomenon. Rising wages, though, feel like a personal reward, even if the employer is only keeping the wage in line with rising prices, and even lagging behind. The gradual price drops of a stable money supply may be better for workers materially, but rising wages, even insufficient to cover rising prices, are more emotionally satisfying.

Were it not for the dangers inherent in a fiat token-based (whether paper or digital) currency (which we are seeing today, as the results of bad monetary policy hit the economy like a hurricane), a fiat currency would definitely be better... IF the money supply expanded evenly. Unfortunately for fiat money supporters, it does not. Industries grow beyond what they should because of investment bubbles, and then people lose their savings, workers lose time building knowledge and experience in bad industries (not to mention their jobs for no good reason), people lose confidence (which the authors just spent a chapter talking about). I'm presently convinced the negatives of fiat money and an inflationary policy outweigh the negatives.

That, and I have moral difficulties with the idea of a monetary elite making things better by deliberately deceiving laborers.

Saturday, December 18, 2010

Worst Case Scenario

It occurs to me the world could actually end (or rather, begin to unravel) in 2012. This has little to do with Mayan calendars and what not, and more to do with the potential consequences of the unraveling of the final bubble, the bond market. In the late nineties bubble money fled from the stock market on the wake of the tech boom, into the real estate market. Real estate collapsed, and bubble money has fled into gold and bonds. What will happen when the bond market collapses? Will the gold market collapse?

2012, the bond market collapses. Many, many businesses find themselves unable to roll over their debts, and aside from those businesses politically connected enough to receive the next round of bail-outs, many businesses fail, and unemployment doubles, at least. The government rolls its own debt into a much higher interest rate, and debt-servicing beings to swallow a majority of government revenues. Those who continue to work pay out ever more taxes to finance the debt as services are reduced.

The tug-of-war over public funds intensifies to something more like a real war, as those with wealth held in treasuries pour enormous amounts of money into the political system to ensure that the idea of repudiating even a portion of the debt never sees the light of day. This further corrupts the two-party system, as increasing numbers of Americans come to realize they simply are not represented, and find any efforts to change this thwarted by the rigidity of the two parties, in the thrall of all this political money.

Riots break out at various places and time over the government's increasing inability to pay out social security, medicare, and other welfare "entitlements", the political system mostly denied to them. The democratic system begins to break down. Radical cutting of military spending results in a combination of large numbers of unemployed, militarily trained young men and resentful elements of the former military-industrial complex. Brigandry and the necessary government response (which brings many military suppliers back into the money stream) result.

This occurring all over the world, the largest country without debt problems, China, begins the process of establishing hegemony over most of Asia, and carving out sizeable spheres of influence in Africa. Most of the mainland countries fall into China's orbit without complaint. Russia and China maintain a low level of conflict over spheres of influence in the central asian countries between them. Violence erputs in Taiwan between pro-Washington and pro-Beijing forces, and China moves in to forcibly re-establish order. Either this, or a war between China and Japan, trigger war between the United States and China. The war is brief, and the US leaves just as quickly as it entered, as the American economy finally collapses completely under the strain, governments collapse with it, law and order collapses, all vestiges of civil society collapse, plunging most of the Western world into a new dark age. This assumes nuclear weapons are not a factor.

Even without them, the total break-down of the division of labor in the Western world results in a severe drop in the efficiency of the use of natural resources... resulting in unmitigated environmental disaster as people desperately try to survive in the absence of a functioning market, concerning themselves more with day-to-day survival than long-term viability.

All of this begins with the collapse of the bond market bubble. Stocks can collapse, and we're okay. Real estate can collapse, and still we're fine. But when the bond market collapses, it will affect the ability of the government, itself, to meet its own obligations.

Sunday, November 28, 2010

Animal Spirits Pt. 2: Money Illusion

I am unfamiliar with the term "money illusion", but from what I'm gathering from this chapter as I read it, this refers to the failure by many people to account for changes in the purchasing power of money in their financial planning. In short, the term "money illusion" is kind of like the inverse of another term I am familiar with, "Neutrality of money". Most economists operation under the assumption that money is a neutral medium of exchange. Akerlof and Shiller, in advocating a return to the idea of "money illusion", appear to be saying something similar to what is said in Misesian circles: that money is not neutral.

As evidence of this money illusion, the authors point out that the vast majority of labor contracts fail to include wage increases to account for cost-of-living increases. In other words, in the vast majority of cases, workers bargain in monetary terms, not in "real" terms. But, there is another explanation other than "money illusion". It could be that both sides are simply less concerned with future prices than they were with current prices. The workers want to get as much as they can right now, gambling that future negotiations will enable them to keep up with the costs of living. The employers want to avoid built-in cost increases, and gamble that future negotiations will enable them to avoid excessive wage increases. Since nobody can truly predict the future, neither side can effectively negotiate in terms of future wages.

Then again, that whole argument could be the same thing as "money illusion". I'm still not sure what it means, exactly.

Still, if it is true that, as Akerlof and Shiller assert, conventional economists (I suspect they are referring to monetarists here) actually make the assumption that people see through the veil of inflation naturally... I weep for the profession. I suspect, however, that there is more to it than this.

In the sort term, of course many people are going to fail to account for inflation. People differ in their degree of financial savvy. Furthermore, people who maintain minimal savings have little to lose from inflation (aside from wage erosion, but those are not entirely under their control in the first place), and thus have little incentive or opportunity to think in terms of inflation. So if monetarists, when they say people behave "rationally" and "see past" inflation (in the authors' words), actually mean people are smart and know about inflation... obviously they fail. Hard.

However, though wages for unskilled labor will always tend to lag behind inflation, they will also tend to track inflation, quite in spite of the worker's lack of knowledge about inflation. For workers are not aiming at a specific level of "real wages". They are simply trying to get as much value out of their jobs as possible (including money, but also including such intangibles as job satisfaction, job security, risk aversion both physical and psychological, etc.). Likewise, their employers are not trying to maintain some specific "real value" in their wage rates, but are rather, day to day, simply trying to get as much value out of as little money as they can. Inflation is entirely irrelevant in this calculation, so long as both parties are dependent on that third, unassailable economic force: the consumer, who is simply trying to get as much value for as little money as possible, also. (Most labor contracts I am familiar with that include COLAs are those of government workers, such as teachers, who are not dependent on the consumer, but rather the taxpayer and the voter; entirely different incentives apply.)

So as workers move from job to job, they will tend to go with the highest bidder, regardless of who that is. Someone who fails to get a raise he thinks he deserves may attempt to move to a different company. A company that finds its wages too high and finds themselves unable to lower those wages will tend to look for excuses to fire overpaid workers outright, replacing them with new workers with whom they can negotiate lower wages. Whether either party will be successful is ultimately not up to either the employers and the workers, regardless of whether or not they "understand" inflation, but to market conditions as dictated by the consumers.

However, "money illusion" will still tend to skew the economy. Downward wage rigidity is part of this. Consumer resistance to price rises is another. The "wealth effect", in which people tend to spend more when the monetary value of their assets rises despite the unchanged form of those assets, is another. All these forms of resistance will ultimately crumble in the long term, as market realities force reassessments; however, these "money illusion" phenomena do tend to transform what should be gradual changes over time into sudden and traumatic lurches, which skew perceptions and beliefs even more.

At this point in the book, the authors have failed to point out the source of money illusion. Some changes in prices simply reflect changes in consumer disposition: a price for one thing drops because consumers value it less today than they did yesterday, or because costs in producing this good have dropped; a price for another thing rises, because consumers value it more today than they did yesterday, or because production costs have risen. However, when ALL prices rise, it can only be because consumers value the money, itself, less today than they did yesterday, OR because the supply of money itself has risen. And there is only one entity with the power to increase the money supply to the degree it has over the twentieth century: the State. This "illusion" is not a natural phenomenon: it is man made. I hope to see Akerlof and Shiller point out this fact later in the book.

Tuesday, November 16, 2010

Animal Spirits

A friend of mine and I occasionally discuss questions of politics and economics. He recently read George A. Akerlof's and Robert J. Shiller's Animal Spirits. At his recommendation, I am also reading it. Of course, I can't help but read it from the Misesian perspective I've been absorbing as I read through Von Mises's Human Action. I'll be using this space to comment as I read through.

I just finished the introduction. So far, I have only two problems with the text. The first is the implication that the Classical model of economics (which Akerlof and Shiller are calling "traditional economics") was somehow the last word in economics before the entire profession was awakened by first the Great Depression and, today, this recent series of closely followed crashes. This is not true, as in both cases there were those who successfully predicted the events (and were at the time universally derided for it). Ludwig von Mises, for example, successfully predicted the Great Depression as the inevitable result of Federal Reserve policy during the "Roaring Twenties." More recently, Peter Schiff, a follower of the same set of ideas, called this recent recession several years before it materialized.

There are similarities between the Misesian approach to economics, and the approach proposed by Akerlof and Shiller in this book, which brings me to the second problem I have: the terminology the authors chose to employ. For while "Animal Spirits" may have good book-selling shock value, the term is highly misleading in that it has both a surface meaning (the new-agey ideas about totems and ghosts and stuff the average reader would get from it) and the more archaic meaning the authors are using, which simply refers to the fact that human beings make their own decisions according to the world as they see it, rather than the world as it actually is (or rather, I dearly hope this is what they are getting at).

This is similar to Von Mises' approach, which he termed methodological dualism. Von Mises, in Human Action, briefly alludes to the philosophical debate about whether or not human beings have "souls" or "spirits", whether or not people have free will or are slaves to a chain of cause and effect going back billions of years that determines what we do. He then dismisses these questions as being outside the scope of economics and without satisfactory answer as of the writing (and even as of today, so far as I can tell). According to Mises, to be correct, the economist must theorize as if people have the ability to decide upon action independently of this chain of cause and effect the strict materialist believes determines our actions, since economics has no way of following this chain beyond the confines of the human mind (the way I always put it is that, from the perspective of economics, the mind is a black box), and psychology, as yet, cannot follow it reliably. Thus the term methodological dualism. The term "dualism" refers to the idea that there are two sources of "cause" in the universe: the physical chain of cause and effect that can be analyzed and predicted by the physical sciences, and the actions of human beings which cannot. The term "methodological" refers to the fact that the economist is laying no claim to the the truth of the idea of human free will... merely that this assumption is a requirement for economic analysis under the current scientific conditions.

In other words, these ideas are hardly new... they simply have never been taken seriously in the context of mainstream economics (whether neoclassical or Keynsian). I'm looking forward to getting to the meat of this book and seeing where the authors go with this.

Sunday, October 10, 2010

Chinese Monetary Manipulation

Or "the pot calls the kettle black".

Unless you've just not been following the news at all lately, you might have noticed that there is some controversy between the governments of the United States and China over Chinese policy with regard to the value of their Renminbi against the US Dollar. It is said that, by devaluing their currency, the Chinese government is impairing the ability of US manufacturers to compete with Chinese manufacturers, making their own export goods cheaper than US manufactured goods. To those who attempt to directly compete with Chinese manufacturers, this is a bad thing.

Rarely mentioned, due to certain parties' never-ending quest to confuse the intended results with actual policy, is the question of HOW the Chinese government goes about devaluing their currency against the US Dollar. The answer is simple: they buy US Dollars with newly issued Renminbi. This added demand for US Dollars raises the price of the Dollar in terms of the Renminbi. It also increases the price of the Dollar in terms of other things, as well.

This increase in the price of the Dollar influences Federal Reserve policy with regard to inflation. The tendency for prices to increase due to Fed policy is counterbalanced (to a degree) by the tendency for prices to fall due to Chinese central bank policy. In other words, the Fed happily supplies more dollars to meet Chinese central bank demand. Chinese monetary expansion is piggybacked on, and therefore dependent on, US monetary expansion.

This would not be a problem if China had nothing more to do with these dollars than to spend it on goods from the United States. Once they'd gained cash holdings of a certain size, it would no longer make sense for the Chinese bank to keep acquiring more. They'd have to start spending it on something, and this would begin the process of sending US Dollars back to the US, a new demand on US exports.

However, they do not do this. Instead, they buy Treasury bonds. This would result in the private holders of treasury bonds having additional cash to buy US goods, were it not for the fact that Congress gladly meets Chinese demand for treasury bonds by issuing more than they could otherwise get away with. In other words, Chinese monetary policy is also dependent upon Congressional fiscal policy.

In other words, in the absence of an irresponsible US monetary and fiscal policy, the Chinese could not continue their policy of devaluing the Renminbi relative to the Dollar indefinitely. It is US policy, not Chinese policy, that is to blame for the situation.

Sunday, May 23, 2010

Letter to Rand Paul

During the primary season, I had a decision with regard to which libertarian Senate candidate to put my limited financial support towards, Rand Paul or Peter Schiff. I decided on Schiff. Schiff is a successful investor, a well educated Austrian economist with a track record of successfully predicting market movements. All I knew about Paul was that he his his father's son... though I had no idea how close or far this particular apple fell from the tree.

I hope I am wrong about this, but some of his recent comments suggest the apple is not so close as one might have hoped. His stumbling and backpedaling on the question of the Civil Rights Act show he lacks his father's political acumen. And his seemingly reflexively pro-Business (with a deliberately capital "B") stance on the BP oil spill show him to be unreflective, at the very least. This isn't to say I wouldn't vote for him were I a Kentuckian... just that he recent performance is underwhelming.

The following is a letter I sent via the contact form on his website.

I just wanted to say I was disappointed by your handling of questions regarding the appropriate reaction to the BP oil spill. The comments you've been reported as making on this subject suggest, I think, that you are less the complete Libertarian your father has managed to portray himself as.

The case of the BP oil spill is, IMO, a case where the two feuding branches of the Liberal family tree (Libertarianism and modern "liberalism") should be able to agree on the appropriate outcome, and quibble only over the means. Indeed, the libertarian response to BP's spill should be even more radical than the Progressive response.

Yes, "accidents happen", but responsible people cop to it and do whatever they must to make it right. And if government has any purpose, it is to (via tort law) force those who impose costs on others, for whatever reason, to compensate injured parties for that damage. It's the same, IMO, whether some drunk accidentally rams his car into the side of my house, some kid sprays paint over the side of my house, some burgler removes objects from inside my house, some power company dusts the siding with soot on a continual basis, or some oil company drenches my house in oil.

And the damage from this spill is going to be enormous, quite possible enough to bankrupt BP altogether if they were made to pay for it all... and that's just the property recognized by The State. When one considers the effects on the "commons" of the gulf region in general, and the people who live and work there, the number is staggering (and beyond my ability to calculate). One may not be hearing about BP not paying... but they don't have to say anything about it. Congress has already capped their liability.

I honestly don't really care why it happened, though some do, and I wasn't even remotely surprised, having worked in a number of corporate environments lead by overreaching, short-term thinkers, to hear that BP has a record of a cavilar attitude toward safety and preventative maintenance. And it's not surprising that any company in that industry would have this kind of problem, given Congress' consistent record of subsidizing unsafe practices by capping liability in such cases. It's starting to become a cliche, but we really do need to stop socializing risk.

And even if BP did everything "right", perhaps the decision to drill as deep as they did with the particular technology they used was too great a risk. I don't have a problem with people taking risks, but I do have a problem with people taking risks, collecting the proceeds when they win, but making their neighbors pay for it when they lose.

Your response should have been something along the lines of "I don't think we should disallow drilling at any depth or in any place outright... but I do think we should remove (not merely raise it as Bill Nelson proposed) the liability cap established under the 1992 law. The oil companies themselves are in a better position than anyone else to judge whether the practice can be done safely, and holding them accountable for the entire consequences of taking this risk (something not done today) would give them a clear incentive to do so only if it could be done safely." In other words, yes, the oil spill is a tragedy and BP needs to dig as deeply as it can, up to and including bankruptcy, to restore the property of those harmed by this tragedy, The solution is not more bureaucracy, as a progressive would have it, but rather plain old justice, holding people accountable for their mistakes.

Your father seemed to understand this while he was writing The Revolution: A Mainfesto. You don't seem to, or at least you weren't able to think of it while under the harsh spotlight you really should have seen coming.

Sunday, May 16, 2010

Island Tales

Imagine an island. Imagine there are a hundred people living on it. Imagine ten of these people are free men, and the other ninety are slaves. Does this sound like a free society?

Now imagine a different island. On this island, all 100 are free men, but ten of them own all the land on the island. The other ninety have to somehow satisfy one of the ten to earn the privilege of existing on this island, let alone making their living off it... or learn to swim. Does this sound like a free society? How much different does it sound from the first example?

Let us imagine another. On this island, the Ten own 50% of the land on the island. Another twenty own another 30%. 20% of the land is unclaimed... for a reason. The other seventy must either eke out a living on the 20% margin, or satisfy one of the Twenty and Ten in order to make use of the good locations. Does this sound like a free society?

What do you suppose would happen to the lifestyles of the bottom seventy were twenty more people to shipwreck on the island? How about the lifestyles of the top ten?

Imagine the second island, but the Ten have been overthrown. The people of this island now fearfully cut down anyone who is more productive than normal for fear he may become a new Tenner. Does this sound like a free society?

Now imagine another island. On this island, 100% of the land is regarded as being owned by all in collective. People can claim and put to use unclaimed land at will. When multiple people wish to make use of the same land, a fifty-year lease is sold to one of the parties at auction, with the proceeds distributed to the other 99. Otherwise, people only get out what they put in... what they produce or receive from others willingly (either in trade or as a gift). Does this sound like a free society?

Tuesday, May 11, 2010

British Petroleum

Just some thoughts I had as I listened to the various radio stories on the big British Petroleum oil spill in the Gulf of Mexico.

There are a number of questions being asked in the media about this spill. Was it preventable? If so, whose fault was it? Does BP generally have a corporate culture that doesn't do preventative maintenance, a "fix it as it breaks" culture as one investigator in an earlier spill in Alaska put it? Is it the fault of bean counters at the top discouraging "unnecessary" maintenance? Is it the fault of lazy people closer to the problem? Is it BP's fault, or that of the subcontractor that operates the rig... or that of the manufacturer that made some crucial part? Or is it nobody's fault, they did everything they could, and it was really just an accident? Is deep water drilling just too risky? Should it even be allowed?

In my opinion, while the answers to all these questions are interesting, they are also irrelevant to anyone who is not in the business of offshore oil drilling. For no matter what the human contributions to the situation are, the solution is the same, in my opinion: make BP pay for ALL the damages caused by the incident, and for ALL cleanup efforts they are not directly engaged in, and if that bankrupts them, so be it.

If the spill is genuinely their fault, this is a no-brainer. Clearly, an organization responsible for a deep water oil rig takes on an enormous trust, and if they violated that trust by not doing everything they could to prevent such a spill, I think losing the business is getting off light, considering the magnitude of the disaster. A bankruptcy sale would result in the transfer of many such operations out of the hands of an organization that, in the event they're just not doing proper maintenance, clearly cannot be trusted at that level, and into the hands of other organizations that deserve a chance to prove themselves in exchange for some help reimbursing those affected by the incident.

Of course, if they can actually afford to pay out and continue doing business, and choose to continue offshore drilling in spite of the payout, clearly the value of the oil is greater than the risks involved.

If it's the fault of a contractor, BP is still the responsible party. If any part of the blame needs to be shifted off to the contractor, BP can do that themselves by suing the contractor, and getting some of the money from them that needs to be paid out to the various wronged parties. BP should not be able to wriggle out of its responsibilities by offering up the contractor as a scapegoat, able to go bankrupt with minimal damage to BP. For even if BP did EVERYTHING "right" from the perspective of the industry...

That only proves that there was one initial decision that turned out to be a very, very bad decision: the decision to drill at that location in the first place. I honestly don't care what the government has to say about it. Just because it's legal, it doesn't make it right, and people, even ginormous multinational corporations, should take responsibility for the consequences of their actions, even the unforeseen ones, even the unforeseeable ones... and if others are caught in those consequences and the responsible party attempts to dodge that responsibility--well, if that isn't a reason for having courts and governments, I don't know what is. We'd be genuinely better off without one, otherwise.

In the end, the bankruptcy of BP would send precisely the message to drillers and potential drillers that needs to be sent. For it is the companies involved in drilling and pumping who have the most direct interest in consulting scientists, engineers, and technicians, along with their accountants and lawyers, to figure out what the actual risks of drilling are relative to potential profits. Are the profits great enough to fund an insurance policy designed to handle just such a possibility while still being genuinely profitable? Was BP just a bad company, or are the risks simply too great, as revealed by this incident? The spill itself changes the information that goes into such considerations. And when justice is done, and done consistently, the consequences to the bottom line and the consequences to society become nearly synonymous... and the firms who will do the business become the most trustworthy assessors of risk.

Either way, the consequences to BP will be evaluated by BP, and by other companies according to the actual knowable facts. If companies don't believe they can get away with taking enormous risks (and this goes for drilling, the financial industry... everything, really), if they can't expect their pet politicians to shield them from the consequences, they WON'T take those risks. Mark my words: the Gulf oil spill and the recent financial crises are directly related to a common root cause.

Because the alternative is to let the politicians make the decision on this. They might consult scientists, engineers and technicians, but regardless of the answers they get from them, they will also be consulting pollsters and campaign strategists. The answer they will come up with will ultimately balance not risks to society (measured in financial risk to the firm in an environment where the courts can be expected to require reinbursement of wronged parties) against benefits to society (measured by how much more than production and risk management consumers are willing and able to pay for their product... demand), but rather which hurts their chances at the polls least: allowing drilling and therefore risking the ire of the environmental movement and the people affected, directly or indirectly; or banning it and losing the rather large financial contributions to their political campaigns oil companies provide.

Most likely (almost definitely, barring a deafening roar from the electorate), they'll try a third option: engage in some ineffective rhetoric, create a new bureaucracy or some new rules that fool people into thinking they are doing something about the problem but don't actually address the problem, and go home laughing.

Honestly, if that's all the government is good for, I'd rather live in a world where there's nobody to stop a more direct form of reprisal by the wronged parties.

Monday, March 15, 2010

The Constitution?

I was thinking tonight about Ron Paul's candidacy for the Republican Nomination this last presidential election cycle. One thing that has stuck in my mind is the support afforded him by certain prominent racists, and the controversy that generated in the pro-freedom community. It's a strange phenomenon, one most people don't even question: that movement, and those individuals most single-mindedly devoted to that movement, are frequently associated with racism, slavery, and such. William Buckley, though otherwise committed to liberty and not personally a racist, opposed attempts to use federal power to compel the recognition of the rights of black people. Ron Paul, though not himself a racist by any means (he refers to racism as "a particularly ugly form of collectivism"), was publicly supported by certain prominent racists. The old Democratic Party, which stood stalwart against Federalist, Whig, and ultimately Republican attempts to expand federal power, was also the party of slavery and racism. What's the deal?

I think it can be traced back to the Constitution. The Constitution has a number of unfortunate features which has facilitated this seemingly schizophrenic divide in the liberty community. The main problem, the one I will address here, is the role it has come to play in the fight to preserve liberty in this country: Strict Constructionism, or "constitutionalism", is the legal philosophy most commonly supported by non-Anarchist libertarians and non-Neo conservatives. The idea is that the constitution granted the federal government only specific powers; anything beyond that is unlawful. This is a comforting philosophy for those of us who prefer a more limited government: theoretically, we have the law on our side.

The problem is that while the Constitution did not grant the authority to do things like create welfare programs, a central bank, roads and rails and other things, it also placed no limitation on the States, even in the matters addressed in the Bill of Rights. It wasn't until after the Civil War when it was declared that, because of the Fourteenth Amendment, the Bill of Rights could be applied to the States. It also gave the Federal Government no authority to compel the States to recognize the rights of all its citizens; Slavery, Jim Crow, and such were well protected under the Constitution.

In the drive the prevent the Federal Government from expanding its power, the proponents of Liberty have repeatedly found themselves on the wrong side of what I think can be called America's "Negro Question." When it became a question of the States continuing slavery or the Federal Government outlawing it, many liberals allied with the slavers to keep the Feds from overstepping their Constitutional authority. When it became a question of protecting State-granted White privilege, or allowing the Feds to compel states to recognize the rights of Blacks, many liberals, such as William Buckley (I refer not to the quasi-socialist progressives who assumed the name under the previous generation, but the genuine liberals who found both the Democratic and Republican parties an uneasy home), opposed this use of Federal power on the same grounds they opposed every use of Federal power.

This alliance has been consistent enough that, even today, the most unrepentant of racists still consider the libertarian movement, with men like Ron Paul, to be the best hope they have of being able to turn the page of history back to their own era. I do not believe this association is correct: while a commitment to freedom of association would allow employers to go back to (openly) declining people employment on account of their race, stores and restaurants to (openly) decline to allow certain kinds of people to enter their establishments, and so on... I sincerely doubt such establishments would today serve much more than a fringe pariah community. And racists would find no allies among libertarians at either the federal level OR the state house... aside from the fact that if they somehow managed to get a state government to attempt to differentiate the legal statuses of whites and others, they could count on libertarians to block attempts to oppose this from the Federal level... because of the Constitution.

I think we should set the record straight: The Constitution should no longer be allowed, in the pro-freedom community, to serve as an excuse for condoning assaults on the liberties of people different from ourselves. An assault on liberty is repugnant, whether it comes from the federal, state, local, or individual level. True law, in my opinion, is not words on a piece of paper written by the agents of The State, but rather the principles these words properly, but do not always, reflect. If "the law" says we must permit some of our fellow men to oppress some others of our fellow men, then, I believe, "the law" is not in accord with The Law, and is therefore wrong. This isn't to say we should abandon the Rule of Law completely, but rather that if we consistently find that some legal principle is is conflict with our moral principles, then it should be considered that this legal principle could be wrong.

The Civil War is a perfect example of this. Though I do not believe bloodshed was necessary on the scale it occurred, the fact remains that it was the South, at ever turn, who started the conflict. For the conflict began well before the fighting began... indeed, before the South attempted to secede from the Union. There were repeated, rather successful attempts to use Constitutional principle not only to preserve slavery in those states where it was practiced, but also to impose a "right" of slaveholding upon the peoples of both states and territories who had (or perhaps would at some future date) declared, via their state and territorial legislatures, slavery to be illegal.

The principle was this: The Constitution declared that people could not be deprived of their property except for certain public uses and without just compensation (eminent domain), and that states had to recognize the decisions of other states. Certain people were property, and property being protected, these people could not be freed except by their owner's consent anywhere on US soil, even if the area happened to be under the jurisdiction of a "free state". Indeed, the Dredd Scott decision brought the very notion of "free states" under question. And many so-called liberal Democrats solemnly nodded their heads and declared this reasoning to be sound.

Many of the most anarchist of libertarians like to point out the essentially illegal nature of Lincolns war to prevent the secession of the states that made up the Confederacy. But what of the South's initial encroachments on American liberty via the machinery of the State? Is it any more right, just because men in black robes declare it to be so? Since when does the Anarchist care about the pronouncements of the State, except in exposing hypocrisy? And why should we expend rhetoric in defense of such pronouncements, on behalf of men whose aim was the preservation of potentially the most illiberal of institutions? If we are to choose a side in a conflict with no clear moral victors... why choose the side of racists and slavers?

Friday, February 26, 2010

Land Justice: Yet Another Model

Lately, I've been thinking about the models I've promoted in the past: a periodic disbursement of rents to the public on a per capita basis, whether by the government via taxes on rents (land values, electromagnetic spectrum, etc.) and a partial or complete citizen's dividend, or via a regular stock dividend from a separate corporation that acquires rental opportunities on behalf of the public over time. It occurs to me that one advantage to the way things are now is that, for the most part, people have to work. It is theoretically possible that, under public distribution of rents, you might end up with more people who choose not to work than are unemployed under the current model, and while that looks neat if you'd rather not work, it may have a significantly negative impact on overall productivity. If you consider society standing by itself, this isn't necessarily a bad thing... but one society never stands alone. More productive societies sometimes overcome less productive societies, wiping out such models.

I find myself returning to the model presented in Leviticus 25: 8-17, wherein the distribution of the land is reset every fifty years. It occurs to me that, even in the absence of "ancestral lands", there is a way to implement a similar model in our own society. In this case, I'm not considering how one would get from here to there... though the slow accumulation of land by a foundation established for this purpose could perhaps implement this as well as my earlier model. Simply put, rather than collecting and disbursing land rents yearly, it would be done every fifty years.

The advantage of this is that it while still freeing people from the mistakes of earlier generations, it would do less to protect people from the consequences of their own actions... which is a desirable outcome, in my opinion. This corporation, jointly owned by every inhabitant of a country, would lease the land (and other rent collecting opportunities) to individuals on a fourty-nine year contract. In the fiftieth year, the lease would expire, and everyone would have to renew their leases, from the owner of a small city plot to the owners of large tracts of agricultural land to the owners of rights of way for privately owned infrastructure. The proceeds would then be disbursed to the shareholders (the People) on a per family or per capita basis.

I believe that fifty years is a short enough period for every generation to get access to these proceeds at least once (and in many cases twice) during their lifetimes. It's also long enough that I suspect that, if someone is in danger of losing their lease to a higher bidder, replacement of capital improvements on a different site could be built into a business plan (everything needs to be tore down and rebuilt every now and then, after all). In the case where this isn't feasible, if the activity is productive, I suspect the current occupant would value that location higher than any other... and thus not be outbid.

These funds, once received, would do much to alleviate the disadvantages of those whose opportunities are restricted by the mistakes of the previous generation. Such funds could be used to educate oneself or one's children, take advantage of investment opportunities (including starting businesses of their own), move to more advantageous locations, and, yes, it could be blown in a few years on a licentious binge. The advantage of doing this semicentenially is that those who chose to spend the money foolishly would rather quickly end up having to work for a living again... returning to the ranks of the productive. Doing it annually runs the risk of creating a class of men who are chronically unemployed by choice.

Tuesday, February 16, 2010

Beyond Money?

Lately I've been playing a good amount of Star Trek Online; this has me thinking about Star Trek stuff. I've also started reading The Bible fairly regularly again (okay, just for two nights now, but still). I've also had a good amount of time alone with my thoughts on crawlspace jobs, wood treatment with Timbor, hanging insulation, etc. I'm also listening to J-Pop right now; actually, that has nothing do do with this. At any rate, I ended up thinking about precisely what various individuals in the Star Trek universe (particularly Jean Luc Picard, but I think there may have been others, as well) meant when they said that the humans of the Federation had advanced “beyond money.”

One scripture that has been foremost in my thoughts as I've worked on this job is something from one of the letters—Paul's, I think (this is one reason I've gone back to reading... I kind of want to rediscover where I first read many of rhe pasages that float about in my head, and whether I recall them correctly)—in which the writer exhorts his readers to do anything they do as if they were doing it for God himself. I try to worry only about my own performance, and not about whether I might be being taken advantage of, whether I'm being paid enough for the effort I'm putting out, whether I am working reasonably or above and beyond, whether or not my current employer can be expected to recognize my efforts, etc. I've also been thinking about some of the spiritual effects—in this lifetime—of keeping up a regular tithe and such (whether officially, to a Church or some such organization, or just personally, setting aside a percentage of one's gross earnings for donation to various worthy causes).

One conclusion I've come to is that, despite the potential financial costs of both “working for God” (in the sense of potentially reducing leisure and “giving too much” for too little) and some form of tithe (direct financial cost, of course), one thing it does do is keep one working harder than one otherwise would. “Working for God” has its obvious effect, but a regular tithe is of particular interest to me. I know savings make me lazy; if I've got a sizable amount saved up and accessible, I have a tendency to be very lazy about looking for another job. A tithe, on the other hand, particularly if it cuts deeply enough into my cash flow to force me to economize and keeps me on my toes in terms of labor, it provides me with a cash flow that's normally not accessed by me, but can still be tapped in the event of a financial emergency. If it's acceptable for not-yet-King David to eat the bread normally reserved for priests when he and his men are on the march and hungry, and its acceptable to rescue an animal on the Sabbath (Jesus said both were okay), then it is acceptable to tap one's tithe one pay period if absolutely necessary.

The effect of all this is that in the process of working harder than one would naturally, one develops endurance, skill, confidence, and other intangible personal qualities faster, and to a greater degree, than one ordinarily would. When one has these things, one doesn't need to worry so much about money; one's personal qualities ensure that opportunities will be found and utilized easier, with jobs more easily landed, and so on Indeed, I ran across Jesus' direct statement in a similar direction last night (Matthew 6:25-34). Which leads me back to Star Trek: I believe it was Jake Sisko who informed the Ferrengi Nog that the humans of that era were more interested in personal improvement than in money—in accumulating intangible personal qualities rather than physical goods.

For certainly, the world of Star Trek is not a post-scarcity economy. One of the missions of the first Enterprise was the discovery and securing of sources of various minerals, particularly dilithium crystals. I believe it was Ben Sisko who spoke of spending all his transporter credits visiting his father's restaurant (or something like that) when he was in the Academy. The idea of using credits for rationing things like holodeck privileges was not a foreign concept to the Voyager crew when they found themselves far beyond their supply lines. But a central (particularly a centrally managed) currency seems to be largely absent from the Federation's economy. So how do they coordinate production and set priorities of we're prepared to reject the “communist paradise” paradigm? Perhaps they use some kind of high tech barter system instead of a single central currency? ;)

But I digress. The point I am trying to make is that personal improvement is more important than the accumulation of things. Things can be taken; things can be lost. I just heard a story on NPR about some woman who lost her life savings to Bernie Madoff's scheme and suffered a renewing of old fears of becoming a bag lady as a result. But personal qualities, barring a major head injury (and even then, relationships serve better than wealth to keep one secure), cannot be lost or taken. “Do not store up treasures for yourselves on earth, where moth and woodworm destroy them and thieves can break in and steal. But store up treasures for yourselves in heaven, where neither moth nor woodworm destroys them and thieves cannot break in and steal. For wherever your treasure is, there your heart there will your heart be too” (Matthew 6:19-21, New Jerusalem Bible).