Monthly Archives: July 2012

What the Republican National Committee Wants You to Think

This is what the RNC wants you to believe about President Obama:

U.S. Federal Government Spending

TOTAL OUTLAYS: 2000–2017

 

This is what actually happened:

U.S. Federal Government Spending

TOTAL OUTLAYS: 2000–2017

 

The RED line indicates what would have happened had Bush remained in office. The BLUE line indicates what really happened.

Conclusion:

President Obama was a huge improvement on President Bush when it comes to spending and the deficit.

The RNC lies.

Republican ideology and economics have not changed. If you want to go back to the RED line, vote for Romney.

 

Please, do yourself a favor and check out the REAL facts:

Myths Exposed: President Obama is Responsible for Historic U.S. Federal Debt and Spending Levels

A Response

A Response

In response to this comment…

If you look at the attached article to the chart, you will see that Ezra Klein reports 4.7 trillion dollars:

“When Obama took office, the national debt was about $10.5 trillion. Today, it’s about $15.2 trillion. Simple subtraction gets you the answer preferred by most of Obama’s opponents: $4.7 trillion.”

The chart was not done by the Washington Post; it was done by The Center on Budget and Policy Priorities.

I will also quote a large section of Klein’s article here:

“But ask yourself: Which of Obama’s policies added $4.7 trillion to the debt? The stimulus? That was just a bit more than $800 billion. TARP? That passed under George W. Bush, and most of it has been repaid.

There is a way to tally the effects Obama has had on the deficit. Look at every piece of legislation he has signed into law. Every time Congress passes a bill, either the Congressional Budget Office or the Joint Committee on Taxation estimates the effect it will have on the budget over the next 10 years. And then they continue to estimate changes to those bills. If you know how to read their numbers, you can come up with an estimate that zeros in on the laws Obama has had a hand in.

The Center on Budget and Policy Priorities was kind enough to help me come up with a comprehensive estimate of Obama’s effect on the deficit. As it explained to me, it’s harder than it sounds.

Obama, for instance, is clearly responsible for the stimulus. The health-care law, too.

When Obama entered office, the Bush tax cuts were already in place and two wars were ongoing. Is it fair to blame Obama for war costs four months after he was inaugurated, or tax collections 10 days after he took office?

So the center built a baseline that includes everything that predated Obama and everything we knew about the path of the economy and the actual trajectory of spending through August 2011. Deviations from the baseline represent decisions made by the Obama administration. Then we measured the projected cost of Obama’s policies.

In two instances, this made Obama’s policies look more costly. First, both Democrats and Republicans tend to think the scheduled expiration of the Bush tax cuts is a quirky budget technicality, and their full extension should be assumed. In that case, voting for their extension looks costless, and they cannot be blamed for the resulting increase in deficits. I consider that a dodge, and so I added Obama’s decision to extend the Bush tax cuts for two years — at a total cost of $620 billion — to his total. If Obama follows through on his promise to extend all the cuts for income under $250,000 in 2013, it will add trillions more to the deficit.”

Additionally, I will quote a substantial portion of the FactCheck link you cited:

“In fact, the upward trend began with Ronald Reagan’s fiscal 1982 budget, declined somewhat from fiscal 1997 through 2001, and resumed the upward climb with George W. Bush’s first budget in fiscal 2002 (which started Oct. 1, 2001).

And the rise accelerated as the economy slid into the worst recession since the Great Depression, starting in December 2007. As the economy shrank, the debt-to-GDP ratio jumped 5 percentage points in the fiscal year that started Oct. 1, 2007, and another 14.8 percentage points during the following year. Obama took office nearly one-third of the way into that 12-month period. At the time, the nonpartisan Congressional Budget Office was projecting the deficit for that fiscal year would be $1.2 trillion. It later rose to $1.4 trillion after enactment of Obama’s economic stimulus package, to be followed by back-to-back deficits of nearly $1.3 trillion in fiscal 2010 and $1.3 trillion again in fiscal 2011. CBO just projected the deficit for the current fiscal year, ending Sept. 30, will be $1.1 trillion.

A caution: The chart we’ve shown here is for total debt, including money the government owes to itself, chiefly through the Social Security trust funds. But a chart tracking only the debt owed to the public would show a similar shape. CBO projects that the debt owed to the public was nearly 68 percent of GDP in the fiscal year that ended Sept. 30, and will reach 73 percent this year and exceed 75 percent at the end of fiscal 2013.

We won’t attempt here to assess which side is more to blame for the mounting debt, or how much of the increase is Obama’s fault. Washington Post columnist Ezra Klein argues that the economic stimulus and other Obama policies account for just under $1 trillion of the debt added since he took office, while Bush added $5.1 trillion in his eight years — mostly due to tax cuts and the wars in Iraq and Afghanistan. On the other hand, former Washington Post reporter Eric Pianin and others fault Obama for not getting more strongly behind the recommendations of his own deficit-reduction commission more than a year ago. Obama agreed to extend Bush’s tax cuts for two years, even as his commission called for tax reform. And he attacked Republican proposals to hold down the cost of Medicare, despite the commission’s call to move beyond the “phantom savings” in his own health care law, savings the commission said “will never materialize.””

So, the answer is both articles are correct. Here is what I think should be the lessons:

  1. If the source (i.e., Washington Post) is incorrect we should show exactly how it is incorrect and detail where it went wrong. To just say it is wrong and not explain why leaves the matter up to faith (i.e., whatever one’s ideology predisposes one to believe). I think there are objective facts that can prove the reality of the situation (either, neither or some of both ways). In any case, we do not have to leave it up to ideology.
  2. To imply that President Obama made 4.7 trillion dollars worth of bills is misleading at best and I prefer to say a “lie” of the right. True there was 4.7 trillion dollars added to the debt after Obama took office. However, it is hardly fair to blame Obama for all the mandatory spending that he did not originate or much of the discretionary spending. In 2010 mandatory spending was 55% of the budget and defense discretionary was 20%. This amounts to 75% of the 2010 budget. 6% was interest on the debt. The remaining 19% was all the rest of the discretionary spending. If you look at Figure 5 of the CBO report I cited in the essay (http://www.cbo.gov/sites/default/files/cbofiles/attachments/10-26-DiscretionarySpending_Testimony.pdf) on page 22 of the pdf you will see that defense discretionary has been going down since the Bush years due to Obama’s budget and the Budget Control Act that President Obama signed into law on August 2, 2011 (http://en.wikipedia.org/wiki/Budget_Control_Act). This was also the bill that created the “super committee” which will have further dramatic effects on the budget going ahead if we go over the “fiscal cliff”. If you state that President Obama increased the debt 4.7 trillion dollars then I think it is also your responsibility to state exactly how he, personally, added 4.7 trillion to the debt. Otherwise, you are only repeating political propaganda that only reinforces dogma and does nothing the gives folks the facts they need to think critically.
  3. Even according to the FactCheck link the “debt-to-GDP ratio jumped 5 percentage points in the fiscal year that started Oct. 1, 2007, and another 14.8 percentage points during the following year”. The recession pushed more folks towards the federal poverty limit which put more people on entitlement. However, the middle class had been sliding that way for some time before Obama, they just went down faster after the recession. The CBO and Centers for Medicare & Medicaid Services (CMS) also agree on the benefit of the Affordable Care Act as opposed to doing nothing or repealing. Additionally, the CBO historical budget sources I cited do not show a 45% increase in spending starting in 2009. This is misleading. It actually shows a decrease in spending in 2009 and again in 2012. Take a look at the total outlays from 2008 to 2009 when Bush was still in office. That sharp increase during the last year of the Bush administration was dramatically changed by Obama or we would have been looking at almost a straight line increase. I made all these points in the article and they still stand unless you have details that would counter the CBO, GAO, OMB and CMS.

In general, I think that Republicans have proved over the last few years of the Obama administration that they would rather make the debt worse than compromise with the Democrats. We could have had “President Obama’s full plan to slash upwards of $3 trillion from federal budget deficits over 10 years” (http://abcnews.go.com/Politics/obamas-spending-cuts-spread-pain/story?id=14560170). This is how we could have reduced the debt dramatically. I have also written about how we should have started from the Simpson-Bowles plan (http://mixermuse.com/blog/2012/06/25/simpson-bowles-revisted/). I think the days of bipartisan compromise are over and I think, no matter who gets elected, we may have to govern by ultimatum, the fiscal cliff and letting the Bush tax cuts expire. This will be very ugly and the ones yelling the loudest about spending and debt will be squealing the most when it hits. IMO, this is not the politicians fault, it is the voter’s fault – they are getting exactly what they deserve and voted for.

 

Are You Honest? Take the Test…

Here is a test to find out if you are a game player.

  1. Do you find it easier to perform anonymous actions than actions under your own authorship?
  2. Do you prefer to deal with behavior you do not like with subversive tactics or direct responses?
  3. Do you throw up smoke screens rather than speaking and acting directly in an uncomfortable situation?
  4. Have you ever had an affair with someone even though you were in a committed relationship and did not tell your significant other?
  5. Do you think it is ok to do something wrong as long as no one finds out?
  6. If someone says something to you that you do not like, do you become passive and go away?
  7. Do you feel uncomfortable defending your positions?
  8. Do you regularly feel you are superior or more intelligent and most others are inferior and less intelligent?
  9. Do you feel hypersensitive to criticism?
  10. Do you hide behind some type of self-perceived morality when you feel threatened?
  11. Was a parent in your life overly harsh, condemning and criticizing?
  12. Do you have severe feelings of insecurity?
  13. Do you harbor grudges, suspicions and negative feelings toward those that you do not like?
  14. Do you find it easier to be neutral than personal?
  15. Do you change the subject or fail to respond when criticized?
  16. Are you afraid of feeling strong emotions?

If you answered two are more questions yes then you have a problem with honesty. The lack of honesty is a lack of personal integrity. Integrity is a necessary condition for civic society.

Integrity is a concept of consistency of actions, values, methods, measures, principles, expectations, and outcomes. In ethics, integrity is regarded as the honesty and truthfulness or accuracy of one’s actions. Integrity can be regarded as the opposite of hypocrisy, in that it regards internal consistency as a virtue, and suggests that parties holding apparently conflicting values should account for the discrepancy or alter their beliefs.

The word “integrity” stems from the Latin adjective integer (whole, complete). In this context, integrity is the inner sense of “wholeness” deriving from qualities such as honesty and consistency of character. As such, one may judge that others “have integrity” to the extent that they act according to the values, beliefs and principles they claim to hold.

A value system’s abstraction depth and range of applicable interaction may also function as significant factors in identifying integrity due to their congruence or lack of congruence with observation. A value system may evolve over time while retaining integrity if those who espouse the values account for and resolve inconsistencies.

The procedures known as “integrity tests” or (more confrontationally) as “honesty tests” aim to identify prospective employees who may hide perceived negative or derogatory aspects of their past, such as a criminal conviction, psychiatric treatment or drug abuse. Identifying unsuitable candidates can save the employer from problems that might otherwise arise during their term of employment. Integrity tests make certain assumptions, specifically:

  • that persons who have “low integrity” report more dishonest behavior
  • that persons who have “low integrity” try to find reasons in order to justify such behavior
  • that persons who have “low integrity” think others more likely to commit crimes — like theft, for example. (Since people seldom sincerely declare to a prospective employers their past deviance, the “integrity” testers adopted an indirect approach: letting the work-candidates talk about what they think of the deviance of other people, considered in general, as a written answer demanded by the questions of the “integrity test”.)
  • that persons who have “low integrity” exhibit impulsive behavior
  • that persons who have “low integrity” tend to think that society should severely punish deviant behaviour (Specifically, “integrity tests” assume that people who have a history of deviance report within such tests that they support harsher measures applied to the deviance exhibited by other people.)

The claim of such tests to be able to detect “fake” answers plays a crucial role in detecting people who have low integrity. Naive respondents really believe this pretense and behave accordingly, reporting some of their past deviance and their thoughts about the deviance of others, fearing that if they do not answer truthfully their untrue answers will reveal their “low integrity”. These respondents believe that the more candid they are in their answers, the higher their “integrity score” will be. [Link]

 

It takes a certain amount of courage and self-esteem to speak and act honestly. People with low self-esteem feel threatened by confrontation. They feel anxiety and danger in exposing themselves. Honesty requires good personal boundaries and a sense of self that is not externally dependent and vulnerable to conflict. If you are dishonest you are not alone. It is estimated that 40% of people are dishonest. When dishonesty becomes chronic, a person is no longer aware of being dishonest or wrong at times. This condition keeps a person from being in their skin. A person like this is lost, lonely and unhappy in the long run. They tend to act autonomously in late stages of this condition. They leave behind a lifetime of failed relationships and really have only themselves to blame. You cannot do anything about others but you can do something about yourself. If you want a life – get a life, do the hard work of honesty!

 

Myths Exposed: President Obama is Responsible for Historic U.S. Federal Debt and Spending Levels

The far right in the U.S. has been desperately trying to convince the electorate that President Obama is spending the U.S. into oblivion and driving up the debt.

Here are the facts…

The Washington Post and Center on Budget and Policy Priorities compiled this chart:

This chart shows the debt directly attributed to President Bush and President Obama. Much of the recent debt came from the Bush tax cuts.

Let’s look into the debt further…

This blog post states the following:

During 20 years of the presidencies of Reagan, Bush I and Bush II, the federal debt as a share of GDP increased by a cumulative 43% of GDP. During the 4 first years of the Obama presidency, it has increased by 36% of GDP.

This is how the Presidents rank in terms of development of the Debt/GDP ratio per year of tenure:

1. Clinton -1% per year
2. Reagan, Bush II: +2% per year
3. Bush I: +3% per year
4. Obama: +9% per year.

This following data comes from this (xls) Office of Management and Budget (OMB) source:

I re-plotted the data since, you could say, I have trust issues on the internet. It is similar to the data in the post.

The following is “The Budget and Economic Outlook: Fiscal Years 2012 to 2022” from the Congressional Budget Office.

What the blog post above did not state is that the historical years since the Bush tax cuts and the recession that started prior to President Obama taking office, have been the major contributors to the rise in spending as a percentage of GDP. Also, the future years the OMB graph shows is a worst case scenario that includes the CBO Alternative Fiscal Scenario which assumes the Bush tax cuts are extended. President Obama did not create the recession, he inherited it. The Bush tax cuts were not enacted into law by President Obama. It is a lie to blame the recession and the Bush tax cuts on President Obama.

Let’s dig down a little more.

This following is historical and projected outlays from The Office and Management Budget by agency. Outlays are the total amount of money spent including authority from prior years that obligates outlays in the current year. The source data from the following charts comes from this (xls) OMB data. The data lines and the legend descriptions are in the same order. My graphics file can be downloaded here (xls). This chart shows that the Federal debt has accumulated from previous years going back to 1962.

OUTLAYS BY AGENCY: 1962–2017

(in millions of dollars)

 

This chart shows that the Federal debt has accumulated from previous years going back to 2000.

OUTLAYS BY AGENCY: 2000–2017

(in millions of dollars)

There is no huge increase in spending starting in 2009 when President Obama was inaugurated. The estimates include the Affordable Care Act. The chart shows that all the major increases in spending started ramping up more quickly in the decade of 2000. The spending is chiefly in the Department of Health and Human Services, Social Security Administration (off-budget), Department of Treasury and the Department of Defense (Military Programs). The Department of Health and Human Services increase comes chiefly from the middle class falling closer towards the federal poverty level as discussed below in more detail. The Social Security Administration increases have to do with baby boomers getting older and rising health care costs. The Treasury Department increases come basically from paying interest on the national debt by financing it with government bonds. The Department of Defense increases have to do with the wars in Iraq and Afghanistan and the costs of gearing up for war. It is interesting to note that the U.S. spends 41% of the world’s total military expenditure. China, the next highest in the world’s total military expenditure, only spends 8.2% (see this).

The baseline scenario in the graph below shows current law and the effect of continuing certain programs that are scheduled to expire.

 

 

If you really want to raise the debt go ahead and repeal the Affordable Care Act according to the Center for Medicare and Medicaid Service (CMS) according to this publication:

 

Mandatory budget items are not optional year to year. It takes an act of Congress to change a mandated budget item. These requirements were made by Republicans and Democrats over the years. President Obama did not create the vast majority of mandatory budget requirements. The Affordable Care Act is mandatory but as already shown will lower the debt unless it is repealed. Discretionary budget items are voted on each year by Congress in 13 appropriations bills. Here is a chart showing mandatory and discretionary spending for 2010:

Mandatory and discretionary budget items are further explained in this:

Discretionary spending is provided in, and controlled by, annual appropriations acts, which fund many of the routine activities commonly associated with such federal government functions as running executive branch agencies, congressional offices and agencies, and international operations of the government.1 Essentially all spending on federal wages and salaries is discretionary.

Discretionary spending is often contrasted with mandatory, or direct, spending. Mandatory spending includes federal spending on entitlement programs, the Supplemental Nutrition Assistance Program (formerly known as the Food Stamps program), and other spending controlled by laws other than appropriation acts.3 Spending levels for mandatory programs are generally controlled by eligibility criteria and size of the eligible population.

 

Mandatory budget items have gone up for some time now as this chart shows:

 

The recession which certainly preceded President Obama has resulted in many more people qualifying for entitlement benefits. President Obama did not change qualification requirements for these programs. As more people fell towards the federal poverty level, more people have received government benefits. This is shown by the Census Bureau and an article in the Wall Street Journal:

 

All of this data supports the conclusion that President Obama has acted very responsibly in view of the economic catastrophe he inherited. The far right is spinning yet another myth.

Links for further reading:

http://blogs.wsj.com/economics/2012/05/26/number-of-the-week-half-of-u-s-lives-in-household-getting-benefits/

http://useconomy.about.com/od/fiscalpolicy/p/Mandatory.htm

http://useconomy.about.com/od/fiscalpolicy/tp/US_Federal_Budget.htm

http://www.whitehouse.gov/omb/budget/historicals/

http://useconomy.about.com/od/healthcarereform/f/Patient-Affordable-Care-Act.htm

http://useconomy.about.com/od/candidatesandtheeconomy/f/Healthcare_Reform_and_Budget.htm

http://super-economy.blogspot.com.au/2011/08/obama-hockey-stick.html

http://super-economy.blogspot.com.au/2011/12/american-federal-debt.html

http://www.cbo.gov/publication/21203

http://www.washingtonpost.com/business/economy/adding-to-the-deficit-bush-vs-obama/2012/01/31/gIQAQ0kFgQ_graphic.html

http://www.cbpp.org/research/index.cfm?fa=topic&id=121

http://www.gao.gov/special.pubs/longterm/pdfs/spring2012_update_slides.pdf

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/108xx/doc10871/01-26-outlook.pdf

http://www.nytimes.com/packages/html/newsgraphics/2011/0119-budget/index.html

http://www.kaiserhealthnews.org/Stories/2011/February/14/President-Obama-Proposed-HHS-Budget-2012.aspx

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/health.pdf

http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/downloads/HR3200_2009-10-21.pdf

http://www.cbpp.org/cms/index.cfm?fa=view&id=3450

http://www.cbp.org/documents/120224_CalWORKs_KeyFacts.pdf

http://www.nytimes.com/2012/04/08/us/welfare-limits-left-poor-adrift-as-recession-hit.html?pagewanted=all

http://www.kff.org/medicaid/upload/7985.pdf

http://www.ssa.gov/history/BudgetTreatment.html

http://www.epi.org/publication/bp156/

http://www.socialsecurity.gov/history/InternetMyths.html

http://www.nytimes.com/2009/05/13/us/politics/13health.html

http://www.usgovernmentspending.com/year_spending_2012USbn_13bs1n_3031#usgs302

http://www.globalissues.org/article/75/world-military-spending

Fundamentalism in Market Economy: The Austrian School and the Problem of Suffering

This is the next part in a series on the Austrian school of economics. The previous part is here.

Thus, when critics direct their efforts against the Austrian School they frequently do so within their own analytical framework, which is completely inadequate to accurately interpret the Austrian contributions to the science. They attack part of the theory without realizing that the various parts that make up the Austrian understanding of the market process are all interconnected within the “whole.”

There is a tendency toward the uniformity of profit and prices, both geographically and intertemporally. This tendency is interrupted by the dynamic nature of the market, due both to changing preferences and to technological progress, as well as any permanent cost inequalities, such as differences in the cost of transportation over varying distances. (Catalan, The Foremost Austrian Contribution to Economic Science, 2011)

 

The consequences of government spending can only be properly assessed within the framework of market coordination. If socialized investment is truly warranted, then the results of the investment must be better than the result that would have occurred had those same resources been economized by individuals on the market.

In other words, the government’s method of deciding on investments would either have to enjoy the same characteristics as the market’s, and the government a better entrepreneur, or the government’s method would itself have to be in some way superior. We can rule out the latter option on the grounds that we know that the only method of economic calculation is by individuals through the pricing process. Therefore, government investment is inherently inferior to free-market investment.

Individuals economize resources based on their own preferences and their own ends and based on the expected preferences of others, which are partly reflected through the price mechanism and oftentimes predicted through other means of information as well. Even producers of capital goods removed from the final consumer by one or more phases derive their profits from consumer satisfaction, since the demand for their products is decided by the entrepreneurs who are directly supplying the consumer. (Catalan, 2011)

 

It seems that in the Austrian School, there appears to be a kind of social myopia that refuses to acknowledge that the free market in its purest, non-government interventionist form could be the source of human suffering. They exhibit a kind of myopic belief that the unfettered market will best solve deficiencies which result in human suffering. The myopia comes in when the temporal aspect of the market is considered. Even if the market is the most efficient means for solving deficiencies in real need such as shelter, clothing, health care, etc. what is meant and governed by ‘efficiency’ needs to be made explicit. From my reading, the Austrian School’s notion of efficiency is thought and governed by the lowest possible market pricing. This is very reminiscent of Adam Smith:

“The price of monopoly is upon every occasion the highest that can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion indeed, but for any considerable time together. The one is…the highest which can be squeezed out of the buyers…The other is the lowest which the sellers can commonly afford to take…. The monopoly price is most often sustained by “the exclusive privileges of corporations (65)” (Smith, 1776)

The Austrian School believes that the government acts as a monopoly. I have yet to find writings about how that market itself can generate monopolies without government involvement as Adam Smith believed. It would be interesting to find their position on market monopolies that do not involve the government and central banking. In any case, the myopia seems to stem from their fascination with free market pricing as the lowest possible and thus, the most efficient. What is lacking when market pricing governs that equation is the temporal aspect of the pricing mechanism.

Human need is certainly addressed by pricing and availability but it is also essentially related to a critical temporal window wherein pricing and availability themselves become relevant. If pricing and availability are thought in a-temporal terms then, human need gets addressed in whatever time frame the market dictates. This time frame has no direct obligation to interim suffering and death. Of course, the point could be made that given enough suffering and death while waiting for pricing and availability to meet demand, the market would eventually answer the call. However, the gap in time to meet the need and ongoing suffering appears to have no place in market fundamentalism.

If the government is analyzed from the perspective of pure investment only, the Austrians make the point:

Overall, we can safely conclude that government spending causes more harm than good; it redistributes the means of production toward the attainment of ends considered inferior by the individuals who make up the society that government is allegedly acting to improve. (Catalan, 2011)

However, the ‘overall’ pronouncement blindly assumes that government spending is only about investment. This assumption completely leaves aside the possibility that government spending may also occur in order to address needs that the market has not yet found a pricing solution for but must be addressed immediately to stop human suffering which cannot wait. While any government spending could be analyzed as an ‘investment’ and its effects on the economy, there are clearly times when that analysis must be put aside for more immediate concerns. War is one case in which market pricing is irrelevant to action. If a war is considered just, it implies that the justification for war is to stop human suffering that cannot wait for the market to decide. It may be the suffering of non-citizens or the defense of the country which implies the suffering of citizens. In any case, war is a situation where government spending gets a reprieve from a strict market analysis. Likewise, other immediate needs that trump market analysis have traditionally been issues surrounding food, shelter and health care. In 1986 Ronald Reagan, certainly a free market Republican of sorts, enacted the Emergency Medical Treatment & Labor Act which required hospitals “to ensure public access to emergency services regardless of ability to pay”. There is no discussion here of emergency rooms waiting for the market to decide. These examples circumscribe bounds of government spending that cannot simply be constrained to a market investment analysis.

In light of pressing human needs that cannot wait for the appropriate market response, it would be really interesting to hear from the Austrians on what their solution would be. Would Austrians push their market analysis to the point that would prohibit ANY government intervention in these kinds of ‘extraneous’ issues and instead, advocate waiting for market solutions? Would their analysis allow government intervention in case of war but none other? It seems to me that the silence has always been deafening with fundamentalist free market advocates. It is like pulling teeth to get them to concede any of these exceptions. They seem to approach it like a slippery slope argument where one concession means the whole abnegation of free market capitalism. This kind of silent treatment gives the impression of unreasonableness. It looks as if they would protect market dynamics over pressing human needs. It is understandable how this myopia can be taken as a protection mechanism for those that do not have immediate needs at the cost of those that do have immediate needs. This is a very ugly portrayal that gets its life from the silence of fundamentalists, free market advocates. It seems to me that there are two possible reasons for their deafening silence. If they are pressed into silence because their answer would not even be palatable to them, they demonstrate a self-defeating ideology that can only succeed under the cover of denial, secrecy and elitism. If they lack the courage to address the issues of immediate human need at the risk of their fundamentalist, market certainty, they appear to ignore human suffering in favor of unmediated fanaticism. It seems to me that this kind of market conservatism is a definite and discrete step away from the older conservatives that would not force their ideological purity this far.

As I mentioned in the note to the last part of this series, the system of Austrian economics seems to derive its essence from a continual and circular deferral. It functions as a whole or nothing at all. Any criticism must be deflected by deferring to the whole. Its telos, its completion is never piecemeal but integral to the entire system. As mentioned at the top, “various parts that make up the Austrian understanding of the market process are all interconnected within the “whole.”” This reminds me of Hegel’s Logic where Hegel states:

Each of the parts of philosophy is a philosophical whole, a circle rounded and complete in itself. In each of these parts, however, the philosophical Idea is found in a particular specificality or medium. The single circle, because it is a real totality, bursts through the limits imposed by its special medium, and gives rise to a wider circle. The whole of philosophy in this way resembles a circle of circles. The Idea appears in each single circle, but, at the same time, the whole Idea is constituted by the system of these peculiar phases, and each is a necessary member of the organisation. (Hegel, 2010), Part 1, Section 15

Philosophy misses an advantage enjoyed by the other sciences. It cannot like them rest the existence of its objects on the natural admissions of consciousness, nor can it assume that its method of cognition, either for starting or for continuing, is one already accepted. The objects of philosophy, it is true, are upon the whole the same as those of religion. In both the object is Truth, in that supreme sense in which God and God only is the Truth. (Hegel, 2010), Part 1, Section 1

Further, the refutation must not come from outside, that is, it must not proceed from assumptions lying outside the system in question and inconsistent with it. The system need only refuse to recognise those assumptions; the defect is a defect only for him who starts from the requirements and demands based on those assumptions. (Hegel, 2010), Part 5, Section 1288

Likewise, the circular and self-correcting fundamentalist, mechanism of the Austrian, free market seems to depend on the whole that cannot be criticized individually and only on its own terms. There isn’t much daylight between this and what is commonly called ‘dogma’.

 

 

Catalan, J. M. (2011, March 31). Government Spending Is Bad Economics. Mises Daily .

Catalan, J. M. (2011, January 06). The Foremost Austrian Contribution to Economic Science. Mises Daily .

Hegel, G. (2010). Science of Logic. Cambridge, UK: Cambridge University Press.

Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. London: Methuen and Co., Ltd.

 

A Thought Experiment with God’s Particle

I have been trying to understand what all the fuss is about with the Higgs-Boson. In college, my Electrical Engineering curriculum did include three classes in physics and three classes in calculus. However, this has not been of much use to me with my research into the Higgs field. The lay person’s articles I have read try to use metaphors but I have found them a bit trite so I thought I would take a whack at it with my own thought experiment. If you are a serious minded person I would advise you not to read this as, at best, it is probably a geeky, feeble attempt at entertainment so save yourself the aggravation.

Let’s suppose there is a bubble. This bubble is not anywhere or at any time since the bubble itself creates time and space. For old times’ sake, let’s suppose this bubble is called ether. The ether is not consistent through the entire bubble. It has irregular pockets of more concentrated ether, less concentrated ether and even pockets of no ether at all. The ether is a very odd substance. It can be very different depending on what you are. It can be quite sticky and gooey or it can be quite thin like air or like the vacuum of empty space or even not noticeable at all depending on who you are. Let’s suppose you are moving infinitely fast. You would not see the ether at all and nothing in the ether would see you. You would have no footprint in the ether, no mass, and no noticeable effect whatsoever. From someone’s perspective in the ether, you would not exist; you would be nothing. From your perspective, the ether would be totally unified in everything else that you saw. Any and all forces in the ether or outside the ether would be unified, the same force. We could say that everything was totally symmetrical, super-symmetry. Of course, an observer in the ether would see various forces. Perhaps the observer in the ether might have an intuition of the nothing outside of the ether but it would only be at best a hunch with absolutely no objective evidence.

Now, suppose you could slow down enough so that the ether barely existed for you, a bit like the vacuum of space. At this point, the perfect symmetry you were in would be broken by the bare existence of the ether. Suppose you were still going fast enough so that the ether offered no resistance to you but there was a bare distortion of the time and space in the space you were in. However, remember that the ether is not uniform and consistent in the bubble. Therefore, whenever you contacted more sparse ether or none at all, the minimal distortion of time and space of the ether would disappear and you would be going infinitely fast again. The distortion of the ether would have an effect on anything in its reach. However, since you a traveling through pockets of sparse ether or not ether the minimal distortion of time and space would be effected. Since the lack of ether you moved into was nothing, the ether could not follow you into nothing. No trail of ether into the nothing that you entered could be seen from inside the ether since ether cannot be ‘in’ nothing. You would look like the starship Enterprise going into warp drive as you entered the boundary of the nothing, hyperspace or better yet hyper-inflation [big bang]. What someone inside the ether would see of you would look like a hole, not even a dark hole, just a hole. Now let’s suppose you had a whole lot of friends doing the same thing you were doing. Someone inside the ether might look at you and your friends and see something like holes but without darkness in the hole merely many distorted pockets of time and space that effected things in the ether. The holes would have no color that could distinguish it. The observer would just see the uniform color of the ether at its boundary. The only way the observer might notice the holes would be to detect odd behavior around the holes. They might call this odd behavior dark energy. It would be noticeable because it would not attract anything in the ether into the hole but repel everything away from the hole. Since things can only exist in the ether, things would be pushed away from the lack of ether. It might even have a counter effect to big objects that sink into puddles of ether and pull things behind them such that it would oppose this attraction and keep things in relative equilibrium so something massive would not pull the universe into the miry ether bog along with it.

Now, let’s suppose you slowed down more so that as you moved through the ether, the ether acted more like air. You would make air waves of sorts as you transverse through the ether. These waves would be more severe distortions of time and space. However, while the ether boundary reacted to your motion with waves, these waves do not act like normal waves. Because you were still moving very fast, much faster than 186,282 miles per second, you would look from inside the ether as if you were accelerating if you could be seen [which you can’t]. The waves or more severe distortions of time and space would not be equally spaced as they reached the boundary of the ether, sort of like a shore, they would catch up to each other as they neared the shore. However, the observer in the ether could not see this. What the observer can see is the shore, the boundary of the ether, where all the incoming very odd waves would finally converge and reinforce each other’s wave amplitudes infinitely such that they would appear to actually stop just at the ether boundary. Because you looked like you were accelerating from someone observing within the ether, the effect of this would be to allow the waves to catch up to each other and pile up from your motion at the ether boundary. The piling up of ether waves at the boundary would not have any mass at your current speed only severe distortions of time and space. It would be limited by the ether to 186,282 miles per second at the boundary. If someone were watching this from within the ether it would look like light. The wave would be time and it would be stopped at the boundary, the speed of light, but started again as the wave slowed more and moved toward the observer in the ether.

Now, let’s suppose that you slowed down even more while still moving faster than the speed of light. However, now infinitesimally small waves would crest over the light barrier and make tiny ripples in the ether that an observer in the ether could detect. These tiny ripples showed up as very small amounts of mass. To the observer in the ether, the mass would look like a particle or a wave depending on what the observer was looking for but, this is weird so let’s take a step back. Remember that you have a whole lot of your friends doing the same thing as you are doing. This means that all these spillover waves are clashing into each other producing a very frothy, bubbly mix of ether waves. Since some of your friends are shaped differently than you, the infinitesimally small, spillover waves would have different masses, shapes, spins, colors, strange characteristics, etc. as they chaotically crash into each other. Let’s say that you and your friends were really string shaped. The strange little masses that resulted from your slower speed waves in the ether might be perceived as a little piece of the string. The observer in the ether might think the resultant wave was a very tiny, sub-atomic particle like a quark or a lepton. Of course, you would know that you were not a tiny dot. You would know that the tiny particle representation of you that the observer saw was really only one little, tiny part of the string that you were. However, the observer in the ether could not see outside of the ether, outside of time and space so the observer would just think you and your friends were just tiny dots the observer called particles, tiny masses moving with momentum through the ether.

Let’s also say that you and your friends went right through the more dense part of the ether so that the observer would only see tiny particles come into and out of the ether existence. The observer would think that these tiny particles were rather quirky and random. However, let’s suppose some of your friends that had other shapes and sizes got stuck in the ether. Your stringy friends might get stuck at their ends or in the middle somewhere. They may even get stuck in two places so that the observer would see two dots or particles that appeared to be entangled with each other. The observer would see that whatever happened to one particle would instantly happen to the other particle even if the particles where on opposite sides of the ether universe. Whatever happened to one particle would happen to the other particle much faster than the speed of light. If your string friend was spinning one direction, the observer would see one particle spin clockwise and the other particle spin counter clockwise from the same string. If the observer changed the spin of one particle, the spin of the other particle would instantly change direction. If one particle was annihilated, the other particle would also instantly be annihilated. What the heck? They must be part of the same thing even though they look like two or more different things to the observer. If the observer looked for the tiny mass being moved around with momentum the observer would see it. However, if the observer was trying to see the waves in the frothy, gurgle of ether they could see the waves produced by you and your friends but the particle mass moving with momentum could not be observed at the same time. It is almost as the ether ‘knew’ what you were looking for and gave it to you. This would be one of those goofy characteristics of the ether. Some have even suggested that there might be other ether bubbles that behave very different from the ether in the observer’s bubble that you and your friends, these strings, might also move through…weird, huh? They call them parallel universes.

Now, remember the holes, the dark energy? What if our string friends that the observer sees as dot particles that punctuate the ether does something odd at the boundary of the more dense ether and the less dense ether. What if the strings, hyper-accelerated at the boundary where the ether gets thin or there are pockets of no ether, invert the mass the observer sees of the particle into a negative mass? In other words, instead of a tiny portion of the waves spilling over into the observer’s ether, the inability of the wave to spill back over into the nothing would create a kind of mass hole, a mass that is not positive but negative. Negative mass would be the trail of hyper-expansion just before the string particle passes out of existence at the boundary of the ether. The negative mass might repel rather attract inside the ether. Positive mass in the ether is an attractive force. Perhaps we could call this negative mass ‘dark mass’? Perhaps the dark mass would look like scaffolds, a trellis that the vine of the universe grows on, because it demarcates the thinning of the ether and even the lack of the ether at the pockets of nothingness.

The ether also has some other odd behavior. Remember the waves that created time and space? Let’s suppose that nothing could ever be lost in the ether, no information could ever be lost. Therefore, everything that had ever happed was still stored somehow in the ether. Now, let’s say that the ether had the very odd effect of only allowing some waves to combine. Remember that all your string friends have different shapes and sizes that result in waves with different masses, shapes, spins, colors, strange characteristics in the ether. Well, the ether has this strange but very specific ability to let certain very exact and particular waves combine to form combinational sub-atomic particles. Once combined, the ether might allow some of these combinational sub-atomic particles combine to make ever bigger particles called atoms. Moreover, atoms could also combine to form things; things like stars, planets, galaxies, animals, humans, trees, rocks…you know. Perhaps one way to understand the way the ether does this is to think about cells and viruses. Cells have keyholes that only very specific viruses have the key to open. If there is a key/keyhole match the virus is allowed to combine with the cell. What makes them combine?…a force. Different forces are also part of the key/keyhole match. Some particles are held together with very strong forces while others are held together with weaker forces. As things get bigger from quirky sub-atomic particles to atoms to very large things like solar systems different forces act on the different bodies with attractions that are electric and magnetic and also repulsive as when opposites do not attract. As bodies get really large the very large masses settle into the ether and make massive ruts and bogs in the ether that smaller masses tend to fall towards with an attraction that is absolutely gravitational. However, since everything is wanting to move where its own momentum is moving it, some bodies such as planets may not fall directly into the very large mass but circle around them as planets around a sun or moons around a planet. Of course, since ether is wacky by definition some masses are so extremely large that they poke a hole in the ether and other masses fall right into them like a nasty black hole. They might go out of existence as defined by the ether and into nothing.

In any case, forces are not some spooky action at a distance but might have very little, tiny sub-atomic carrier particles that carry the force through the frothy, gurgly mix of ether. The forces and their carriers are also part of the key/keyhole that helps things combine or keeps them apart. For example, cooper atoms have particles called electrons in shells. In the most outer shells electrons are held together with a weak force so they are easily knocked out of the shell. In a cooper wire, the electrons can be knocked out with an electric of magnetic field at one end of the wire. The electrons bump into atoms further in the wire and knock out their electrons. A chain reaction is setup that propagates all the way through the wire at a very high speed. This is called current. All forces are thought to have carrier particles that allow forces to move through the ether. Even the ether is thought to have carrier particles. The carrier particles are called the Higgs-Boson. When these odd combinational waves in the ether break down, masses become energy. When the waves combine, energy becomes masses.

Ok, remember that the ether remembers ALL. Let’s say that the observer in the ether has partially discovered how to decipher some of the information in the ether. The observer has figured out that by looking back to the beginning of the memory, very far out into space, towards the beginning of the universe, the observer can see forces merging into each other. As the observer looks into the stored memory, the observer sees that the way key and keyholes worked to combine things changed with the way forces changed as they combined with each other. Very odd things like quasars that could never exist in the observer’s time were massive accumulations of particles and energy that could not exist in the observer’s time or space. Even further back, some kind of particle plasma made spooky shapes sort of like the Northern Lights. Even further back some empty space where the ether was super concentrated seemed to propel everything out in hyper-expansion from a single point. Some have called this point a big bang but since no one was around to hear it…well, you know. In any case, remember the beginning of this silliness? Remember, “Any and all forces in the ether or outside the ether would be unified, the same force. We could say that everything was totally symmetrical, super-symmetry”? Well, that is where we started, isn’t it?

God and Other

Since, as humans, we are composed of atoms and star dust it may be that we have a bare hunch, a non-specific intuition, about the limit of time and space, the end of reason, perhaps as Heidegger might suggest, death as the possibility of the absolute impossibility of me. The notion of me as limited gives way to a kind of feeling of existential suspension, of an ‘other’ to me, to mine, to all. Let’s suppose that this feeling or vague awareness provides a sort of blank field for humans, a tabula rasa, that calls for content, a projection onto nothingness. For some that content could be God. For others it could simply be natural end. For others it could be angst. In any case, this field lends itself to a kind of volitional creation, Desire for the eternal, filling the gap, personal responsibility for one’s ultimate meaning. Faith, as thought by the religious person, might be the positive projection in this void that wishes to hope in their notion of absolute meaning as eternal life, the Good, perfection, love, etc. In any case, the ability to project without any basis, any logic, and any rationality certainly opens the way for error and the inability to be able to understand, to know with absolute certainty, to know that we do not know; yet, to live in this projection as if it is. This is a hypothetical that gathers up more than just logic or truth propositions but essential meaning. However, another aspect of this personal dynamic is how it works for communities, how we are as together with others. A fundamental transformation from the personal to the communal takes place that displaces the personal projection into this active nothingness. A kind of attributed certainty that is not felt in the strict personal Desire acquires a kind of momentum of its own that displaces the bare standing before one’s end. This certainty with others is a kind of diversion from the bare me, the recognition of the not-me…the other. The feeling of the question of essential meaning gets filled in with an answer, a Logic. Even if the Logic addresses existential Desire, it can lose the impact that is rooted in my inability to be able to finally ground me, to identify apodictically with absolute certainty. This homelessness cannot be overcome with Logic but always remains a gap. In this gap the face of the other is brought back once more without my certainties, my schemes, my logic. For Emmanuel Levinas this is what opens up, each time, the possibility for Ethics.

Fundamentalism in Market Economy: The Austrian School

This is the next part in a series on the Austrian school of economics. The previous part was here.

The previous discussion comes more from a philosophical orientation. I do believe that philosophy does not follow theoria but precedes it as a necessary and determining factor. However, a philosophical argument of this type should not stand on its own but should be obligated to demonstrate how the enactment participates in the philosophical paradigm. To this end, I will begin a series of discussions that will deal with specific Austrian economic literature and issues. This is the first of that series…

On ‘savings’ and loans Jonathan Catalan, and Austrian economist states:

Production is derived from consumer preference. The explanation of the price mechanism above, however, simply assumes that the entrepreneur commands the necessary capital to invest and meet consumer desires. It is important to bear in mind that this capital, and the capital goods (producers’ goods) that it represents, does not simply appear ex nihilo; rather, it is the product of prior accumulation (savings). Savings can only be described as consumption deferred to an unknown future point in time, allowing temporary use of said capital for investment.

What triggers the revelation of this incomplete investment, oftentimes described as “malinvestment,”[40] is a consequent rise in the price of consumer goods relative to capital goods. That capital deepening did not come at the expense of consumer demand but instead was made possible by an artificial increase in loanable funds, suggesting that the initial fall in the price of consumer goods that should have otherwise taken place did not actually occur. Consumer-goods prices will also rise as a factor of an increase in the price of labor, a product of an increase in the demand for labor as a factor of production, and as a result of a possible diminishing in the stock of capital goods, as some nonspecific goods are used in earlier stages of production. The rise in the price of consumer goods catalyzes the abrupt shortening of the structure of production, revealing a mass of malinvestment.

“The Foremost Austrian Contribution to Economic Science”, Mises Daily: Thursday, January 06, 2011 by Jonathan M. Finegold Catalan, http://mises.org/daily/4924

 

It is perfectly understandable how loans could introduce artificial price supports on the capital side. However, the juxtaposition of ‘savings’ and ‘loans’ seems a bit archaic. Most businesses today would never get off the ground with ‘savings’. If ‘savings’ are defined as “consumption deferred to an unknown future point in time, allowing temporary use of said capital for investment” then, an implied capital base for investment is assumed. However, if most capital is always in flux, not sitting around waiting to be invested, but leveraged, then debt, as loan obligation, must be thought together with the notion of capital not in opposition to ‘capital at rest’. Capital as leveraged not ‘saved’ is the functional notion of business origination. I suspect that without loans, modern business, as we know it, would not exist. Capital works for the investor by balancing the service debt of leverage with anticipated profit. If pure ‘savings’ were used for investment then the notion that loss would get more effectively communicated to consumer pricing would have merit.

However, since capital as ‘savings’ is almost always leveraged with debt obligation, there will be some compression/expansion effect on consumer pricing. If economic fundamentalism does not take this compression/expansion effect into consideration as valid modifiers of market dynamics it will get forced into a fictional regression of ‘capital at rest’. Loans and leverage are not simply correlated to central bank liquidity. The compression/expansion effect would happen apart from a central bank influence. It may be true that central banks can influence this compression/expansion effect with monetary liquidity but a simple cause and effect relationship would have to be proven empirically. While the logical case that Catalan espouses could be true, it could also be that the private market could quite handily demonstrate the same lag between capital goods and consumer pricing with the leverage effect as well. So private sector loans, capital at work, would produce the same shielding effect of capital goods and consumer pricing. This, in itself, does not indict central banking.

If the Catalan’s argument wants to establish an exaggerated and aggravated relationship to the shielding from monetary policy, a purely logical argument will not prove whether this happens in the real word. In my opinion, economics should deal with the situation at hand and not a logical, hypothetical situation that could be. If Catalan wants to make a further point that private investors would more directly suffer the effects of private malinvestment than central banks and therefore be governed more by market risk than the central bank I think this is cogent. However, central banking in the U.S. came into existence not to protect the institutional investor from risk but to protect smaller deposits in banks. Consumers make up the lion’s share of the U.S. economy. Banks leverage consumer deposits to fund institutional investors. Banks also make it possible for institutional investors to push risk down to the consumer. Therefore, when institutional investors lose from malinvestment the effects of the risk are felt primarily by the consumer not the entrepreneurial investor.

Additionally, institutional investors do not invest equally and randomly over the entire breadth of the market. Institutional investors invest more heavily in businesses and market segments with proven track records. This has a congealing effect on capital investments in less risky, more certain returns on investment. To the degree that this occurs larger businesses with larger capital resources become the instrument of new business start ups and venture capital gets diverted from unaffiliated [with larger corporations] start ups to market conglomeration dynamics. This natural pocketing of capital resists the notion that a randomized investment pattern offsets risks/loses in the market and therefore exercises the least possible negative effects on individual parts of the market making booms and busts not likely [or less likely] to occur. It is quite possible that because of market conglomeration and even more, market monopolizing, apart from central banking concerns, booms and busts would still occur and their impact might not be mediated by the idealized, random effects of the pure free market, the fundamentalist’s dream.

If the consumer could absorb loss by pushing it further down, the hypothetical lesson learned from the brute market might salvage the market fundamentalism of Catalan. However, the dynamics change when the largest investor, the consumer, is also the bedrock of the market. The Great Depression and now the Great Recession are examples of what happens when the consumer loses on the free market. When consumers recoil en masse, the market suffers a catastrophic distortion that effects the normative operation of the market to recover. True, given enough time, even if the market and government totally collapse, the market will re-spawn perhaps with different rules from a different government but the question that should come to the fore is how much human suffering and regime change are we willing to endure before a recovery takes place? This decision is not an economic decision. It is a political decision. A devout faith in market fundamentals cannot break the tendency for capital to be leveraged, institutions as the instrument of leverage to push risk down and fund itself from the consumer, market busts to occur from natural market conglomeration, and the largest investor [in terms of sourcing capital] and least able to absorb loss, the consumer, take hits that produce social suffering, upheaval and regime change. All this can happen quite independently from the central banks issue [and I think could be historically demonstrated]. The question then becomes, can central banks worsen this situation? I am not going to address the whole issue of central banks now but I will bring up a few points for consideration.

I certainly think that central banks could worsen the situation. It is also possible that as I have already discussed that even if they did not exist the situation could get worse of its own free market accord. However, I also think that central banks can soften to impact of catastrophic market failure. The central banking system is not and should not be used as an instrument of market fine tuning. However, economies do not turn on a dime. Large economies are much like large cruise ships. You cannot head full steam into a slip and expect to throw a cruise ship into reverse for a soft impact. The central bank has to look far ahead and make changes in the economy with rather crude tools to try to forestall foreboding bubbles and busts in the normative operation of the market. When the economy stalls monetary liquidity can make more money available for loans, business start up and spur consumer spending. However, when central banks follow the philosophy that if some is good more is better, inflation and deflation is the inevitable outcome. I agree, historically speaking, inflation is more likely. The market fundamentalists appear to think that central banks can only either create or grossly aggravate booms and busts in the economy. They do not seem to believe that central banks can exercise an effective governor type effect on the economy. Consider this interview with Alan Greenspan, a Republican, a professed market fundamentalist, and Brian Naylor:

BRIAN NAYLOR: The man once known as the maestro for his direction of the nation’s economy as Fed chairman sat for four long hours yesterday, watching lawmakers who once cheered his performances turn into harsh critics. Testifying before the House Oversight Committee, Greenspan didn’t down play the severity of the crisis in the nation’s markets.

Mr. ALAN GREENSPAN (Former Chairman, Federal Reserve): We are in the midst of a once-in-a-century credit tsunami. Central banks and governments are being required to take unprecedented measures.

NAYLOR: Under questioning from Democrats on the panel, Greenspan conceded he might have been, as he put it, partially wrong in not moving to regulate trading of some derivatives that are among the root causes of the credit crisis. He also admitted his free market ideology may be flawed. This exchange with committee chairman, Democrat Henry Waxman of California, verged on the metaphysical.

Representative HENRY WAXMAN (Committee Chairman, Democrat, 30th District of California): You found a flaw in the reality…

Mr. GREENSPAN: Flaw in the model that I perceived is a critical functioning structure that defines how the world works, so to speak.

Rep. WAXMAN: In other words, you found that your view of the world, your ideology was not right. It was not working.

Mr. GREENSPAN: How it – precisely. That’s precisely the reason I was shocked, because I’ve been going for 40 years or more with very considerable evidence that it was working exceptionally well.

Additionally, there are practical considerations that the purist, market fundamentalists are not adept at addressing. In particular, I will repeat some points I previously made in another post on international realities and the U.S. Federal Reserve. Whether we like it or not, believe in a ‘free-market’ or not, the reality is that almost all other countries (and the Euro political conglomerate) manipulate their currencies. They subsidize businesses and whole market segments to their advantage. If we cannot or will not play that game we will lose. We live in a world economy where such historical and simpler models such as the gold standard would put us at a huge disadvantage relative to the rest of the world. If you are playing with dirty poker players you better be up on your dirty game or you will lose the majority of the time. For this reason we need a Federal Reserve that can devalue our currency relative to other large economic powers such as the Euro and Chinese Renminbi. This makes our exports more attractive and stimulates growth in our country. The Fed has multiple functions historically but some of these like overnight deposits for local banks are not as important as they used to be and others like the ‘elasticity’ of money, the money supply available at a given time in the economy, is much more important than it used to be. The Fed has to strike a balance between putting too much money into circulation and increasing inflation or not putting enough in and driving the cost of money up with higher interest rates thereby making credit harder to come by and growth slower. The flip side of putting more money in circulation is that our currency gets devalued relative to the rest of the world and our exports are stimulated. The Fed achieves the elasticity of money through buying and selling U.S. securities from the Treasury department (which is the agency actually responsible for ‘printing’ money). If we got rid of the Fed our currency would be at the mercy of the rest of the world economic powers. Therefore, we can control our monetary destiny or hand it to over to other powerful economies. This is where the real debate over the Fed needs to be centered. For this reason, I believe we need the Fed and our central banking system. Those that would get rid of the Fed in favor of the unfettered ‘free market’ would be sacrificing the elasticity of our money supply relative to other country’s un-free market like behavior.

Theoria and Austrian Economics [from what I can see]

First, I want to state that I think vehement argument is somewhat akin to what, I have surmised, the Austrian School could have some commonality. An artifice of insular, academic jargon could be thought as a kind of intellectual credit bubble. It provides certain sheltered, intellectual framework where truths can be maintained or dismissed, careers can be made, artificial ‘bubbles’ of certainty can be maintained that would not be possible without the academic organizational structure. Interdisciplinary argument is a bit like heterogeneity of intellectuality in the ‘free market’ of ideas. When argument is stripped of rigid boundary conditions that defines various traditional paradigms (i.e., Austrian, Keynes, Freidman, Frieburg, etc.), the raw force of the argument is brought to the fore. The tendency for the argument to rely on justifications within its tradition is deemphasized as it must rely more on its own logic and empirical backing. To the degree that an academic discipline sets up its own internal language, unfalsifiable assumptions, barriers to entry and relevancy is to the same degree that it becomes a dogma and not a science (I use dogma and science here more are pure ideals or poles and not any implied designation or a particular discipline). To the degree that academic rigor becomes mesmerized with itself and encrusted in its professional (and economic) certitude is the same degree that it fails to respond to intellectual ‘market’ risk and uncertainties with agility and relevance. On a personal note, I love the free, no holds barred, market of ideas and never mean anything personal or hold personal feelings about the enterprise. I am a bit of an iconoclast and do not recognize artifice or title; only a good, backed up argument. In my opinion there are no ‘educators’ except in sophistry (i.e., paid academicians), -only better students. I am a student most of all and value learning above all no matter if I prevail or fail in the argument. I have learned most when I failed. I make no pretense to knowledge of Austrian economics. I only point out, in a rather nag fly ‘internet’ manner, the problematic issues I perceive.

It seems to me that Austrian economics is too focused on pure capital and not the underlying value dynamic (or better, referent in linguistic philosophy) of capital. To illustrate this, let’s look at this case. There is a tendency for monopolistic endeavor to initially reduce the cost of goods from consolidation, economies of scale, domination of suppliers and systemic abolition of competition through lower pricing and de facto regulation. Once a monopoly has effectively eliminated competitors, created a bubble, there is nothing to stop it from using its position to maximize profits by increasing pricing for some time, effectively regulating the market either with public or private market regulation. Private market regulation would mean prohibiting market entry by, for example, the monopolist requiring ‘compatibility certification’ (by you guessed it) or imputing any kind of standard on the market that requires monopolistic approval. This effectively sets up barriers to market entry and competition and ‘regulates’ the market by its own internally generated rules. A monopoly can effectively produce a lower expectation of cost in the market. This can artificially effect the perception of entrepreneurial investment and perceived cost of entry for production requiring consumption of monopolistically produced goods or services. Furthermore, if market entry is determined and controlled by monopolistic concerns, bubbles can result that the Austrians appear to reserve for central banking. Empirically, these kinds of monopolistic bubbles has occurred the U.S. with railroads and energy to name a few. Monopolistic entities will push risk down to their suppliers, consumers and end producers. As monopolies succeed, this will effectively shift the damage of the inevitable bust to suppliers and consumers. Monopolies effectively become economic ‘governments’. While they may dominate the market, produce the conditions for bubbles and busts, they will eventually become bloated, diluted and dispersed from sheer size. Of course, this assumes that they do not literally become the government as in a monopolistic ‘planned’ economy. It seems that making an essential distinction between private business and public ‘government’ may have some ideological underpinnings and historical, economic artifice. However, the critical dynamics that produce bubble and burst in an economy may be more effectively diagnosed from an analog continuum of small to large organizational dynamics resulting from within the organization, its environment and its market footprint. This would seem to take account of market heterogeneity better than starting with the a priori notion of ‘kind’ (as in public versus private). Certainly there are legitimate differences between public and private that should be part of an economic analysis but when unsustainable assumptions become the ‘economy’ of an intellectual enterprise, inefficient analysis becomes authorized and perhaps, other, more efficient models are dismissed. Why is it that “boom and bust” seems to be only reserved for government intervention (i.e., central banks) and dismissed entirely from the possibility of anything that could happen strictly in the private market?

Additionally, if the ‘government’ or even the central bank system is assumed to be homogenous as opposed to the heterogeny of the ‘free market’, a certain kind of over-simplification seems to prevail. The U.S. government is comprised of states each with constitutionally protected and at times, somewhat ambivalent powers from the Federal Government. The electorate also introduces much uncertainly and heterogeny into the ‘government’. The central bank is not so central. In the U.S., it is comprised of Board of Governors, the Federal Open Market Committee, twelve regional Federal Reserve Banks, and privately owned U.S. member banks with various advisory councils. However, relatively speaking, the U.S. central bank is probably more homogenous than the U.S. Government. The same could also be said of large corporations with board members, executives, management and employees. When the U.S. Government is thought as a monolith, a certain kind of “internet” thinking is imputed on its heterogeneity. These issues need to be thought in terms of the dynamics of relative size, organizational diffusion and market impact not in terms of ‘nouns’ that carry pre-understood connotations.

In contemporary philosophical terms, if the referent of capital (or value) is thought to END in adjectives like ‘free’, ‘unhindered’, ‘just’ [proper function of the] market as opposed to the ‘distorted’, ‘boom and bust’, ‘unjust’ [improper interference] market of government intervention, the referent points to nouns (‘ends’ as determinates) and not verbs. The value of capital is sustained and maintained vis-à-vis an ideal of real and artifice, free and not-free, natural market dynamic as opposed to forced and destructive market regulation, private versus public and authentic versus illegitimate. This is what contemporary philosophy refers to as a meta-language; a language that contains its own terms for what constitutes relevance and minimizes externality. To the degree that externality, the dynamic that faces us, is filtered as already understood theoria is to the same degree that market activity is NOT largely a product of emergent order. I would also add that this will always be a matter of degrees. Theoria is not optional; it is ‘seeing’. However, when it tends towards static, encrusted academic ‘job security’ it shuts down the process of emergence and replays the error of ordination. As Thomas Kuhn would suggest the received beliefs become the normal science that often suppress “fundamental novelties because they are necessarily subversive of its basic commitments”. Thus scientific revolutions are required as “tradition-shattering complements to the tradition-bound activity of normal science”. In Austrian economics I would think this could be coined as ‘boom and bust’.

Lorenzo and Marxism

This is in response to Lorenzo’s comment here concerning Marxism:

In a smaller economic system, relatively speaking more closed system, the socially necessary abstract labor time would be more closely aligned with the crude labor time. Value in a barter system would be argued between folks that were more intimately acquainted with the effort it took to create the products. If the crude labor value and the socially necessary abstract labor diverged widely then the ‘bid’ and ‘ask’ values would not create a market. To the degree that they converge is to the degree that a market is made. In capitalism where a third party is typically assumed and the ‘value’ of capital (of money) has varying degrees of severance from the crude labor required to make the product, a sort of free floating uncertainty about the variation between crude labor and socially necessary abstract labor time certainly opens the door for exploitation where value is not ever realized by the laborers, the means of production or even more, the owners of production assuming they are not the laborers. For example, the transformation of value from a house to a mortgage to mortgage backed securities to credit default swaps represent multiple opportunities for values to be reassessed, sliced and diced, to the point where the market can actually be thoroughly confused about who owns what underlying asset (or what percentage of the underlying asset). When this much flexibility is driven by market mechanisms, there is every opportunity for exploitation. Even more so, a good capitalist would not be worth their salt if they could not find a way to exploit the uncertainty in this system of value.