“Occupy Wall Street” rage misdirected

These people are very upset with a particular strip of roadway in Manhattan.

The protesters are ignorant, smelly hippies.  That about sums up my take.  If you want the longer version, here it is:

The protesters are literate, and some are even educated in some specialty, but they don’t seem to understand economics at all.  Some of them blame poverty and unemployment on “Wall Street”; others blame it on rich people.  Either way, they engage in pure fantasy.

First, Wall Street.  I assume they have no beef with the street itself.  Maybe they just call rich people or corporations “Wall Street,” or at least that’s what my understanding of markets leads me to infer.  They can’t be talking about the stock market–that is, they can’t be talking intelligently about the stock market.  If you know what the stock market actually is (not a true entity, but a loose network for the free and open exchange of securitized goods) and who participates in the stock market (hundreds of millions–if not billions–of individual disparate entities, among whom nearly everyone is included, and none of whom can exercise anything close to what could objectively called coercion over the market), and the effects of a stock market on an economy (a great increase in productivity, availability of capital, and gainful employment), then you have a hard time understanding what the hell it is these people are talking about when they express rage toward Wall Street. They don’t even seem to have a workable definition of what “Wall Street” is.

Because rage toward “Wall Street” is utter nonsense, I must assume they have a serious–albeit irrational–problem with corporations and/or high net worth or high income people.  They believe rich people and/or corporations are responsible for any extant hardship experienced by “the 99%.” But the rich, the corporations, the Apples, Disneys and Microsofts have exercised no force against us; on the contrary, we have engaged in voluntary exchange with them.  We have voted with our dollars to make their owners wealthier than we are.  The fact that they become so well-to-do that they escape the hardships of the rest of us is unfair, but it is not unjust.  They have not forced us to give them our money.  Any man who gives money to Apple does so because, marginally, he values Apple’s production more than his own–not because Apple has forced him to do so.  If the people must slay a dragon, there is a convenient and sensible target; it is an entity that forces us to give it money and it has a monopoly on force, but it is not headquartered on Wall Street.

That dragon is of course the federal government, and I can sympathize with these protesters only insofar as interest groups (including corporations) control the government to meet their own ends at our expense.  However, I see no real advantage in egregious (and probably unconstitutional) measures, such as depleting the wealth of interest groups, outlawing their association, or nationalizing corporations, which seem to be the sort of unjust solutions favored by today’s demonstrators.  I do not suggest a new all-powerful leader of the flock, but instead suggest each sheep be allowed his sovereignty.  I know such an individualistic position has never been and probably never will be popular–people like to be led, lest they wander.  My policy to keep interest groups from controlling government is by binding government down under the chains of the constitution (see Jefferson’s “Opinion on the Constitutionality of a National Bank”), which would make government a thing so small and insignificant–so limited in its powers of appropriation and bestowal–that no corporation would have any interest in controlling it, because it would be unprofitable to do so.

What happens if states run out of money?

debt

People who warn about the insolvency of the U.S. government are wrong. A government that can legitimately print fiat currency can never really be insolvent, because more currency can always be printed to pay off debts and expenses. Because of their inability to print currency, U.S. states face real debt limitations. As California has discovered, a state can run out of money. Federal bailouts of insolvent U.S. states are politically unfeasible. To this point, they have been hidden under the veil of “stimulus” money, but economic stimulus packages will not be passed forever. There are, however, a couple of tools that are politically tolerable and produce the desired effect, but both of them have the undesirable side-effect of increasing federal expenses and the moral hazard of rewarding fiscal irresponsibility.

1. The federal government can buy state bonds. While this solves the immediate cash flow problem, it is even worse than a bailout in the long run. Racking up too much debt is the primary reason for state insolvency in the first place. Owing even more money only exacerbates the problem. This solution merely transfers the federal government’s fiat currency debt advantages to the insolvent states. The silver lining for states in this solution is that the Congress would have a fairly easy political sell if it wished to forgive state debt, and if it did so, states could use federal cash to pay their expenses and their debt. The bad news for the American people, of course, is that all of this would still mean more public debt at the federal level.

2. Big banks can cash state I.O.U.s. Small banks could try this too, but with risk of bankruptcy. When states run out of money, they must resort to writing I.O.U.s to their employees, creditors, and contractors. A large bank like Bank of America can cash these, and hold them to be paid later by the state, or by the federal government. Even if governments never pay the I.O.U.s, the large banks that hold them have little cause for concern. Between the goodwill they gain by cashing I.O.U.s, and the persistent doctrine of too-big-to-fail, it is inconceivable that such banks endangered by state I.O.U. exposure would not receive an “emergency” bailout.

The myth of excessive wealth

I sent the following letter concerning wealth to the Daily Beacon, the University of Tennessee’s student newspaper, on February 15, but it was never printed:

Sam Smith’s February 15 column was illogical and economically ignorant. He begins by declaring that the federal government spends too much. His only solution to this problem: increase taxes on the wealthy. Low taxation does not water the root of our growing federal deficit–excessive spending is its true life-source. Over the past twenty years, federal spending has tripled. Because no level of taxation can keep up with this exuberant trend, the only realistic solution is to stop the government’s spending spree.

Smith then points his wayward cannon at the “excessively” wealthy, blasting the likes of Lane Kiffin, an easy target in this media market. It is a contradiction in terms to speak of “excessive wealth”; there is no such thing. An individual who gains wealth through productivity or capital investment, regardless of selfishness, benefits everyone else in the process, by meeting the demands of consumers. Moreover, the initial investment of wealthy consumers eventually allows even the poor to enjoy life’s luxuries. If there were no one “excessively” wealthy enough to buy the first television sets, the first computers, or the first cellular phones, then inventors would have toiled fruitlessly, and no reinvestment into their innovations would have taken place. Without the “excessively” wealthy purchasing high-dollar goods, we would not know many of the technologies we enjoy cheaply today.

Smith echoes many of my professors, who complain that the football coach earns too much money. This is in truth a lament over the rights of individuals to consume freely; it assumes that people who choose to watch football are somehow guilty of injustice. To the professor of this mindset, I offer a promise: When you attract 100,000 people to pay $50 a head to sit through one of your lectures, the University of Tennessee will kindly add a zero or two to the amount on your paycheck.

Letter to the editor, 10.27.09

My following letter to the Daily Beacon, the U. of Tennessee’s student newspaper, appeared on October 27, 2009.

For an exemplary misunderstanding of economics, freedom, and human action, refer to Amien Essif’s October 19 column, “Resisting self-interest an act of freedom”.

 In order to understand the human world, we must first recognize that each and every person is responsible for his/her own actions.  External authorities can restrict individual actions, but cannot force individuals to act.  You picked up a newspaper today and began reading.  You are reading out of your own volition.  No government, no religion, no community, no party, no corporation, no family, no philosophy department, nor any other authority outside of yourself can force you to read this letter.  

 Human freedom is a fact that can only be escaped in the imagination, and Essif’s column is an escapist’s trip down the rabbit-hole.  He who will publicly complain about the restrictiveness of capitalism’s conveniences has strayed far from reality.

 Essif admonishes “private institutions whose first interest is making money–and I’m not talking about people.”  If he is not talking about people, he imagines the animate in the inanimate.  His column, however intriguing, becomes fictional when he asserts that corporations–and not the people within them–have any interests at all.  No corporation has ever had any interest that was not in fact a human interest.  Pick any corporation, and remove all of its human interests; you will then find it has no interests whatsoever.

 Essif says that “Nabisco, acting individually, can practically force me to buy a package of crackers.”  Forgetting the absurdity of this statement, let us examine reality.  What have the generally good, honest, hard-working people of the Nabisco corporation done?  They have fed the hungry, and they have done so by acting in their own interests.  Essif’s purchase of crackers, far from restricting his freedom, is evidence that his freedom is relatively unhindered by false authorities.

 The false authority Essif worships is the community, an entity incapable of thought or action.  So, predictably, all of his faulty logic culminates in the exaltation of communal living.  Communal life is simpler in the sense that it is less complex, but it is harder in the sense that it requires much more work.  To spend five minutes of labor on a pack of crackers would be impossible for a practicing communist, whose mere sustenance hangs often in the balance.  Essif should be free to go forth and live as he pleases, on a commune, but neither he nor anyone else should ever have the authority to force the restrictions of communal living on those of us who understand freedom and cherish it.

Respectfully,

Alex Winston

Junior in political science

Franklin D. Roosevelt’s false mandate

FDR

In my many college political science courses, I have yet to meet a professor who did not subscribe to the belief that Franklin D. Roosevelt was given a mandate by the people to institute his New Deal reforms.  Nothing could be further from the truth.  Like many elected since, President Roosevelt attained office through deception.  If the people had known what his plans were, not only would he have failed to win, he would not have received the Democratic party’s nomination.  Roosevelt ran on the promise of less government, but after winning election, he abandoned his rhetoric and his electorate, and instituted a giant bureaucracy that the people did not want.

For proof, I refer the reader to Garet Garrett’s “The Revolution Was”, a pertinent excerpt of which I will provide:

“The first three planks of the Democratic party platform read as follows: We advocate: ‘1. An immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus and eliminating extravagance, to accomplish a saving of not less than 25 per cent in the cost of Federal government…2. Maintenance of the national credit by a Federal budget annually balanced…3. A sound currency to be maintained at all hazards.’  

Mr. Roosevelt pledged himself to be bound by this platform as no President had ever before been bound by a party document.  All during the campaign he supported it with words that could not possibly be misunderstood.  He said: ‘I accuse the present Administration (Hoover’s) of being the greatest spending Administration in peace time in all American history–one which piled bureau on bureau, commission on commission, and has failed to anticipate the dire needs or reduced earning power of the people.  Bureaus and bureaucrats have been retained at the expense of the taxpayer…We are spending altogether too much money for government services which are neither practical nor necessary.  In addition to this, we are attempting too many functions and we need a simplification of what the Federal government is giving to the people.’  This he said many times.”

So when you hear a self-described intellectual claim that Roosevelt’s New Deal was an execution of the people’s will, or allowed by the electoral mandate, know that you are listening to a person who has no understanding of the 1932 election.

Free market, profit incentive eliminate racism

racism

I relay the following explanation, which I gave to an anonymous friend who believed that the free market fosters racism, and could not understand why he was wrong.

Okay, I will explain, with a preface.  Your hypothetical situation, in which many employers are racists, assumes that free people are, in large part, naturally racist and averse to being near people of other races.  It assumes that employers much prefer white employees to black ones.  If this is true (a big if), the market will tend to eliminate their racist natures.  Simply, here’s how (and remember that this situation is based on your racist assumptions, which may or may not be accurate):

All other factors being equal, demand for a white employee is much higher than demand for a black employee.   Therefore whites tend to be employed at a high wage, and blacks tend to be employed at a much lower wage, if at all.  In this context–which in its results resembles reality–imagine two manufacturers that produce the exact same product, one of which hires based on racial preference.

The racist employer hires an all-white workforce, and pays his employees the going wage for white labor.  The profit-seeking employer hires the cheapest labor, and therefore ends up with an all-black workforce.  Labor costs are much higher for the employer who employs only whites.  This means the price of his product must also be much higher than the price of the profit-seeking employer’s identical product.  Consumers will therefore buy from the profit-seeker, with whom the racist cannot compete.  The racist manufacturer will fail, leaving all of his white employees unemployed.  This unemployment, which must happen many times over if racist employment is prevalent in society, cheapens white labor, and in short order the price of labor is determined by the price or quality of labor–not by skin color.  In this way, the price mechanism, the market, and the profit incentive eliminate racist business practices.

Cash for clunkers: economic retardation

c4c

Only government would be so backward as to take functioning used automobiles–objects of great value to many people who cannot afford to buy new ones–and require that they be destroyed.  This decreases the supply of used cars, causing the price of used cars to rise generally, and therefore making it harder for lower income Americans to buy them.  Of course, we should not be surprised to see the government hurting lower income Americans under the pretense of helping them; this is how the government expends much of its (our) resources.

Moreover, our entire economic crisis was caused by a credit bubble.  Before the crisis can end, bad credit must be liquidated.  Cash for clunkers only exacerbates the credit crisis; it encourages many people (who may or may not lose their jobs within the next year) to take out new car loans, and the government is effectually paying their down-payment in the form of a $4,500 rebate. This is exactly the sort of government “solution” that caused over-investment and distorted demand in the housing market.  Cash for clunkers will certainly be a contributor, albeit a minor one, to financial firm failures around the country over the next few years.