Alternatives Considered

Ah, government "efficiency"

2010-05-13T15:54:00.000-07:00

It always amuses me when people explain to me how inefficient things like infrastructure would be if we didn't have a "central government to plan and coordinate it" all. How could we possibly have private roads?? What, would you have to stop and pay a toll every block?

Constructors of such silly strawmen really ought to consider the bar that their preferred system is setting before casting stones. In this post from Washington State's department of transportation, they gleefully announce the success of their planning process:

The announcement of a preferred alternative marks a milestone 13 years in the making. Since 1997, WSDOT and regional leaders analyzed design alternatives for a replacement SR 520 bridge and improved corridor.

13 years? 13 *years*?? 13 mother fucking YEARS???

It took these clowns 13 years - and who knows how much money went into this planning - just to decide *what to do*? And all that while, the bridge has been "seismically vulnerable", so it's not like there wasn't a cost to this delay (beyond the obvious costs).

A free market alternative may or may not be better, but anyone trying to claim that there's just no *room* for an alternative to be better has their head up their arse.

Obamacare supported by insurance companies

2010-03-10T14:00:00.000-08:00

One of the really incorrect things you see in the debate on Obamacare is the lefties' kneejerk assumption that if something is big government, it must be anti big-corporation. So many lefties hate and mistrust capitalism and they associate big companies with capitalism that it is not even a questioned thing in those circles. However, one thread I've been learning the importance of over the last year or two is that there is a huge difference between "big corporations" in a truly capitalist society, vs big corporations in our current setup. In our current setup, we have what is sometimes called "crony capitalism" which, unfortunately, is not capitalism at all, or is certainly not "free markets". I've made this mistake myself for a long time as well, often defending large corporations as if they must be little valleys of true capitalism/free-markets instead of realizing that in our current setting, they are often egregious products of crony-capitalism.

Crony capitalism quite simply is corporations that use the non free-market power of government to their advantage, thus doing decidedly non free-market things. A classic example are laws for regulating companies: often these are pushed by the biggest companies in that industry because they are large enough to afford the cost of regulation while it greatly increases the barrier to entry of small competitors, effectively providing them protection. Of course, direct subsidies and tariff protection are too extremely obvious cases as well.

In either case, one of the illusions going around about Obamacare is that this is a way for the left and the US population to stick it to insurance companies, and that this is essentially the people vs the insurance companies. Explicit in that is the notion that the insurance companies must be fighting Obamacare.

In fact, though, they are *supporting* Obamacare, in a classic piece of crony capitalism. As Reason writes:

"We allow the insurance industry to run wild in this country," President Obama declared on Monday. "We can't have a system that works better for the insurance companies than it does for the American people."

Yet Obama's plan to tame health insurers would boost their business, protect them from competition, and guarantee their profits, all at the expense of consumers and taxpayers. It is therefore not surprising that the insurance companies, while they object to the president’s rhetoric and quibble over some of the details, are happy to be domesticated. Here are five ways in which Obama would help insurers while pretending to fight them:

The individual mandate. What industry wouldn't welcome a law requiring everyone in the country to purchase its product? The insurers' only objection to this edict—which would force young, healthy people who don’t want insurance to subsidize the care of older, sicker people who do—is that the penalties for failing to comply are not severe enough.

The employer mandate. Requiring businesses to buy medical coverage for their employees brings the insurers more conscripted customers. It also shores up a perverse system of employer-provided health insurance that insulates consumers from prices, limits their choices, and weakens competition.

Subsidies. Allocating taxpayer money to help individuals and small business buy medical coverage makes customers less price-sensitive, allowing insurers to charge more than they otherwise could.

Regulations. Obama wants to dictate the details of what he considers to be minimally acceptable medical coverage, including the size of deductibles and the extent of benefits. This policy, which forces people to buy pricier policies than they would choose on their own, is like decreeing that all Americans should buy a Nissan Altima with GPS, a sunroof, and leather seats, even if they would prefer a Hyundai Accent.

Limits on competition. Obama pays lip service to the idea of letting health insurers, like other insurers, compete for customers across state lines. But his minimum coverage requirements would undermine a major benefit of such competition: the ability to escape a particular state's restrictions on the policies insurers can offer.

If Obama's plan works as advertised, it will be a huge boon to insurers. As he himself notes, "they're going to have 30 million new customers" thanks to the government's mandates and subsidies.

More on "hating the rich"

2010-01-12T16:08:00.000-08:00

I had an unpleasant interaction with someone recently that culminated in his changing his .sig to "Rich people who whine about paying taxes should be publicly raped and executed. Paid for with their own money, of course."

Now, clearly, this person is, unfortunately, dealing with some emotional issues. I am not claiming that any emotionally healthy people actually advocate this. But the mindset that it exaggerates is a baffling common one: that there is something evil about "the rich".

There are lots of reasons for this mindset (and undoubtedly have been many attempts to explain it one way or the other; I'm hardly the first to have commented on this), but sometimes I come back to a common theme: that "money" distorts people's thinking. To illustrate, consider the following thought experiment:

Bill Gates is rich because he has lots of money. According to the above mindset, there is nothing at all wrong with taking his money, because he has way too much of it and it should be redistributed to poorer people. That is not "theft", it is "taxation". As we know, Bill Gates got rich selling copies of MS Office and MS Office (for the most part; let's just leave it at that for the purposes of our thought experiment). That is, many times over, he exchanged a product to a consumer that judged the product to be of more worth to them than the $200 or so that they paid for the product. Imagine now that Bill Gates never sold those copies of software: he produced them, in prodigious quantities, but stockpiled them in a warehouse. At this point, he doesn't own a single dime, but he's sitting on an amount of product worth a fortune. Is he rich? And if he is, would it then be ok to just go in and take his *product* - the product he hasn't even sold - and call it "taxes"?

I maintain that the typical anti-rich person would be conflicted with doing the latter, even though it is the exact same. What is the difference between waiting for Mr Gates to sell a copy of the software and then taking the money that was paid for it from him, and just taking the software in the first place? (Assume zero transactional costs, since that is not at all germaine to the thought experiment). But the "anti-rich" person is going to have a hard time with their kneejerk rich-hating *if the victim doesn't have a nickel to his name*.

Somehow there's a cognitive mistake being made: people don't treat "money" as just a proxy for "stuff". Stuff, they understand: you can't just take stuff. But money? Money isn't "real", so taking it is purely an abstract act.

I can't help but imagine that part of this cognitive mistake is a function of fiat currency: it literally *isn't* real. No wonder it seems like an abstraction: it is. The government's constant manipulation of currency just exacerbates this impression. It's yet another mark against fiat currency and the Fed, though hardly the only one.

I'll end with a "pithy saying" of my own invention, relatively devoid of any real meaning like most pithy sayings and only distantly tangentially related to this post, but still kind of fun to me:

It is often said that "money is the root of all evil." It has always struck me that, in fact, it's a *lack* of money that is the root of all evil.

Stop the Panic on Security

2010-01-07T11:15:00.000-08:00

Here's an article that I really can't add much to; it's spot-on.

What is Austrian Economics?

2009-11-27T11:40:00.000-08:00

Just so I don't lose it, here is a list of "Themes" that define Austrian economics, taken from ThinkMarkets:

(1) the subjective, yet socially embedded, quality of human decision making; (2) the individual’s perception of the passage of time (‘real time’); (3) the radical uncertainty of expectations; (4) the decentralization of explicit and tacit knowledge in society; (5) the dynamic market processes generated by individual action, especially entrepreneurship; (6) the function of the price system in transmitting knowledge; (7) the supplementary role of cultural norms and other cultural products (‘institutions’) in conveying knowledge; and (8) the spontaneous – that is, not centrally directed – evolution of social institutions.

Whatever one's school of economics, it seems that if it ignores some or all of these things, it can't possibly be going a good job of capturing what's really going on. I don't know enough about Keynesianism to say categorically that it doesn't include all or even some of these things, but it's my impression that it doesn't, and certainly I haven't see any Keyensian make mention of them, and in particular that macro formula that seems to be 90% of Keynesianism that Garth and others have quoted and discussed on wc-talk which has about 5-6 aggregate-level variables.

Rebranding "libertarianism"

2009-11-05T16:10:00.000-08:00

I posted this as a comment on the Beacon, but decided it made for a decent enough post here, so I'll copy and paste it:

There's a reasonable argument to be made that a new term is required, that "libertarian" has so much baggage that it can never be resuscitated... The venues in which most people participate in any discussions aren't much more sophisticated than children's playgrounds and the rules for playgrounds seem to apply there, so that meaningless name-knockoffs like "libertard" actually seem to have a lot of (negative) influence on people who might otherwise be sympathetic.

"Classical liberal" isn't *so* bad but "liberal" has so much non-libertarian meaning attached to it now that I'm not sure it works. I see some merit in the term "liberaltarian" - when forced to give a label, that's usually what I use - but it may not be different enough from "libertarian" to work, and besides, it kind of represents one "half" of libertarians, squeezing out those more closely associated with "paleo-libertarianism".

The LP has made a huge mess of this branding. Their rhetoric is so "me-me-me" and "angry" that it alienates many who, as you say, are basically culturally liberal and fiscally conservative but don't see themselves as revolutionaries or rebels, just rather people who think fiscal conservatism and cultural liberalism are preferable to their alternatives. Calling yourself "the Party of Principle" amounts to an inference that if you aren't already in the LP, you don't have "principles", again alienating many who would otherwise be sympathetic.

It seems to me that what is needed is something much more lowkey and something much more positive-sounding and inclusive rather than embattled and angry; not just a term, but also the accompanying "elevator speech". Libertarianism and LP's focus on "force" is unintuitive and difficult to understand in a casual way; while I think that the principle is intellectually crucial, I don't think that intellectualism has to also be the branding.

The current association of libertarianism with a fierce individuality and focus on freedom is likewise counterproductive: people *want* to be part of collectives, we all understand that risks are less when we are parts of collectives, that there are economies of scale that come from collectives, etc. They see a disconnect between this individuality/freedom message and all the collectives that give them comfort: their family, their community, the company they work for, their clubs, their churches, their country and its national defense, etc. And "freedom" is a poor marketing message: it's too selfish. It is almost always described in selfish terms: "*I* should be free to do what I want to do...", etc. It gives an impression of irresponsibility, as people will fill in "you want to do what you want to do... and not be responsible for its consequences (and perhaps not anything else)."

A rebranding needs to be done that speaks simply to this huge group of fiscally conservative, culturally liberal people. It needs to speak in terms of what *they* get out of it, not what *you* get out of it. It needs to speak to an acknowledgment and even an embrace of collectives - voluntary, of course, but that can be in the fine print - and the sense of connectedness and responsibility that is important to them.

I am not a marketer, so I'm better at describing "requirements" than I am with coming up with a solution. The term that I've been kicking around the most - and I freely admit it has issues - is some variant of "Responsibility". The notion that freedom and responsibility go hand and hand is well known, but libertarian branding has focused on the former much more than the latter, and this may have been a branding mistake, for the reasons I give before. For the large section of people that are comfortable with and want to be part of collectives, who want the "safety nets" that come from collectives, etc., but just think that fiscal policy should be conservative and that government should stay out of people's personal lives, a focus on "responsibility" may work. In no way does it hint at a free ride, and it doesn't offend the sensibilities of those who *do* think that people should be "responsible" for helping other people in the sense that it's "the right thing to do". But "responsibility" captures the notion that no one can shirk their responsibilities by foisting them off on the government to do them; we have to take that responsibility on ourself. And because freedom and responsibility have to go together - you can't be responsible for something if you didn't have freedom to make a different choice - freedom comes along, including its manifestation in law and government.

"Trust us, we're from the government"

2009-08-07T13:09:00.000-07:00

One of the things I run into with great consistency when I try to talk to people about alternate conceptions of social organization (besides the currently prevalent "nation-state") is their unbalanced accounting: they will dig hard and deep to find the most perplexing edge-case for the alternate system (examples include tragedy-of-the-commons type problems, "freeloader" problems, etc., problems that of course exist and are not nicely solved by the current system either) and when the answer isn't a slamdunk proclaim "aha! Your system is broken, conversation ended!", while seemingly not seeing the gargantuan mass of problems that the *current* system already has in widely demonstrable form. I wish I had documented *all* of them, just so I could return their remark with a list of thousands and thousands of not imagined problems or anticipated problems but *existing* problems, but I guess there's no time like the present to start.

To wit: what a surprise, an audit has found that police regularly misues police databases to look up data about celebrities. And yet, the same people that tell me how good the current system is and how bad an alternative would be will just go on assuming that somehow the people who work for government are "different" than eveyrone else, that government is "benevolent" and works "for the people", rather than seeing that there is no such as "government" as an entity, there are only people, the only agents in our society that take action are people, and whether or not people work for the government or not, they still have the same strengths, weaknesses, desires, self-interests, etc., as everyone else. Which is to say: any system designed with the notion that there will exist one "super class" of people that is above human nature and can be trusted to act benevolently even if they do not have sufficient incentives to do is designed from false assumptions and likely to be very dissappointing.

It is likely to end up, say, trusting that "super class" of people with more information and power than normal people and then expecting them not to use that information or power for their own uses.

And that's not theory: it is demonstrable fact. Read the article.

On why we can't overinterpret history

2009-07-01T16:42:00.000-07:00

One of the places where I often run into fundamental blocks when discussions subjects of interest to this blog with others is in the interpretation of history.

Some people will look at a historical event and draw definitive conclusions from it. Irrespective of whether they are correct or not in their conclusion, the methodology is broken.

Compare and contrast a scientific experiment with a historical event. If you've ever taken a class with a laboratory component, you know how much effort and precision goes into the design of experiments: they must be carefully controlled so that you can be sure that the effect you are seeing has the cause that you are hypothesizing. Famous examples of mistaken experiments abound, and these are mistakes that are very subtle and yet completely alter the conclusion that can be drawn from the experiment.

Now contrast this with the process of reading about a historical event and attempting to draw a definitive conclusion about cause and effect from it: nothing is controlled, there is only one data point. Could you imagine trying to submit a paper proving Newton's law of gravity not by actually running experiments in which you drop things (carefully!) and measuring them (carefully!), but instead by reading about someone dropping something in a history book??

History is great for two things: for hypothesis creation, and for negative proof via counter-examples. It is terrible for hypothesis *proving*, however.

Statistician Paul Holland (1986) cautions that there can be “no causation without manipulation,” a maxim that would seem to rule out causal inference from nonexperimental data.

This is a perfect example: if you don't get to manipulate an experiment to try to tease out the causal factors, you really can't make causal inferences. And yet, this is bread and butter in 99% of common discourse! Every talk radio, newspaper editorial, television advocacy program, politician, and blog lives on this. Just look, for example, at the number of definitive statements that have been made about the recent economic situation. Sure, there is interesting stuff to see here to try to formulate hypotheses that we can then go and analyze and experiment with in much more detail, but we cannot draw conclusions from this set of history, there are way too many uncontrolled variables.

The frustrating result is that 99% of what is said by many reasonably smart people is just wasted oxygen/pen/electrons. It's not that it's wrong, but that because its methodology is wrong, it adds nothing to the information about the subject.

Just one of the many things that frustrates me about the world I live in.

Debate on the Great Depression and current crisis comes from within Federal Reserve system itself

2009-06-22T12:23:00.000-07:00

I have had at least one professional economist declare to me that certain things in economics are known as facts, and that anyone who disputes them is "discredited" and full of "nonsense". To him, this includes all Austrian economists and the entire school of Austrian economics, as well as many closely related thought leaders, e.g. Robert Higgs and his alternative analysis of the Depression in terms of "regime uncertainty". He has insisted that no one who counts amongst "mainstream economics" even thinks there is a "debate" any longer on these issues.

I wonder if economists in the Federal Reserve system itself count? Members of the Richmond Federal Reserve bank Steelman and Weinberg, in the lead article of the 2008 Annual Report of the Federal Reserve bank of Richmond, make heavy reference to Higgs' regime uncertainty concept:

Through the [current] crisis, the Fed’s approach has evolved and changed in numerous directions, including the direction of credit to particular market segments and institutions. Beyond winding down its many new lending vehicles, the Fed will need to make it clear to all market participants which principles it will follow during future crises…. Public policies by all agencies must be well articulated and time consistent so that market actors can make rational plans regarding their financial and other business affairs. Arguably, such policy uncertainty did much to prolong the Great Depression in the United States (pp. 16-17) [footnote to Higgs (1997)].

Third, there is policy uncertainty. After the onset of the crisis, the Federal Reserve and the Treasury took several actions to help stabilize the financial sector. However, these actions appeared to evolve on a case-by-case basis. Some institutions received support, while others did not, making it more difficult for market participants to discern the governing principles and to make predictions about future policy moves. These institutions were already facing an uncertain economic environment, which contributed to relatively sparse lending opportunities. Coupled with an uncertain public policy environment, it is not surprising that many have been hesitant to lend and that many have had trouble raising private capital.

[T]here is also a strong case to be made that the function of market discipline can be improved by constraining some forms of government intervention, especially those that dampen incentives by protecting private creditors from losses (p.5)…. However, additional regulation of financial markets would likely hamper innovation in that industry. An alternative approach is to seek to reduce the scope of explicit safety net protection—as well as creditors’ expectations of implicit protection of firms deemed too big to fail (p.11).

More broadly, they criticize the Fed (their own employers):

The Fed could benefit from heeding the advice of two classical economists, Henry Thornton and Walter Bagehot, who considered how the Bank of England could act effectively as the lender of last resort. The Thornton-Bagehot framework stress six key points:

• Protecting the aggregate money stock, not individual institutions
• Letting insolvent institutions fail
• Accommodating only sound institutions
• Charging penalty rates
• Requiring good collateral
• Preannouncing these conditions well in advance of any crisis so that the market would know what to expect.

Current Federal Reserve credit policy has deviated from most if not all of these principles.

The authors certainly do not buy Higgs' thesis hook, line and sinker, but that's not the point: the point is that it is part of the debate, and not just within masturbatory austrian circles, but in the much wider economics community.

HT: I lifted these quotes from The Beacon, which is a very interesting Blog by members of the Independent Institute (which includes Higgs, though he didn't write the post from which I am cribbing).

Paul Krugman wanted the government to cause a housing bubble

2009-06-20T13:09:00.000-07:00

Here's some of Paul Krugman's "best": (from August 2002)

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

That's right: Paul Krugman *wanted* the government to create a housing bubble.

But somehow this is *not* an example of government intervention just putting off until later a needed correction? Much like the current government is attempting to do *again*? We're supposed to listen to this clown despite his complete and total miss on this?

On banking

2009-02-14T12:05:00.000-08:00

Like many people, I have found myself unusually interested in topics like economics and banking lately. I've watched much of my net worth go up in smoke as housing and stock prices have plummeted, I've watched friends and family struggle through lost jobs, and I realized that I really had little idea of what is causing all of this.

So I've been on a crash-course lately. One of the first things I've read on the subject still remains perhaps my major candidate: our "financial system", by which I mean our currency system, our banking system, and the federal reserve system that is the engine for both of of those.

Let me be clear: I'm not *just* talking about the current economic crisis. I'm talking about the repeated *pattern* of such crises, from the dotcom bubble, back to the recession of the late 80s/early 90s, and going back further to the economic problems of the late 70s and early 80s (i remember mortgage rates in the high teens, though I was too young to have one myself).

And I'm really not talking just about the US: it's clear that many if not most other countries are experiencing similar boom and bust cycles.

So why currency and banking? For one, it is my understanding that most countries now have the same basic system as the US, more or less the "federal reserve system". In particular, the bugaboos that I see are A) fiat currency, that is, currency not backed by something of intrinsic value (like gold), and B) fractional reserve banking, that is, the policy by which a bank can accept money from depositors based on the promise that *at any time, that depositor can have his money back*, and then they promptly turn around and loan the vast majority of it out (the exact amount that they have to keep is the "fraction" that they have to keep in "reserve").

This post in the NYTimes freakonomics blog is pretty typical of the reasoned, relatively politically impartial explanations and discussions I have seen about the economic crisis:

http://freakonomics.blogs.nytimes.com/2008/10/15/everything-you-need-to-know-about-the-financial-crisis-a-guest-post-by-diamond-and-kashyap/

Until this week, it appeared to be increasingly possible that there could be widespread bank failures that would impair the lending capacity of the banking system for a long time. We agree with the words of Ben Bernanke this week: “As in all past crises, at the root of the problem is a loss of confidence by investors and the public in the strength of key financial institutions and markets …”
Banks are vulnerable to loss of confidence because they rely on short-term funding.

Of course there's a lot more in the post, but I'm struck time and again by this same sort of message: the underlying problem seems to be that banks could fail, and the driving of that possible failure is "loss of confidence".

Take a step back: does it sound like a good idea to build the entire concept of a nation's prosperity and longevity on something as ephemeral as "confidence"?

Isn't there a small voice in the back of your mind that says "perhaps it should be based on solid principles that *can't* fail instead of 'confidence'"?

And to be really cynical: don't we have a special, pejorative term for businessman that rely on "confidence", that is, "confidence man"? And isn't that term reserved for a con-artist who only gets away with his cons because of the confidence his marks have in him?

Shouldn't, in other words, our *legitimate* banking system be based on something other than what con-artists based their success on? Or, put another way: if both con-artists and bankers depend on "confidence" for their success, are they really *different*?

These questions aren't just rhetorical when you dig into the details: there's a disturbing similarity between fractional reserve banking as it is practiced today and so-called "Ponzi schemes" as practiced by con-artists (such as the currently infamous Bernard Madoff).

Let's review Ponzi schemes (or more generally pyramid schemes): the con-artist hangs out a shingle advertising himself as a place for investors to invest their money at good rates of return. Investors originally come to him because of some sort of confidence in the con-artist: he has a good story to sell, he's a good salesman, he prints up glossy brochures, whatever. He tells the investors that they will get a good rate of return, and that they can take their money out of the scheme at any time. Original investors give him money, and he duly reports that they have made additional money. If the investors are convinced that their money is safe and growing in the scheme, generally they do not make withdrawals. For the few investors that do make withdrawals, the con-artist simply gives them back money he has taken from them and other investors. Often, the con-artist uses those withdrawers as "proof" to other current and potential investors that the scheme is legitimate, because look, that person got his money back and then some! Do you see the pattern? As long as enough investors have "confidence" in the scheme so that they leave the money in the scheme and don't withdraw it, the con-artist can continue taking money and spending it on himself without ever actually investing the money. The scheme can continue for as long as the confidence is sufficient to bring in more money than is being withdrawn, and in the meantime, the perception on the part of the investors is that things are going great, because on paper, they appear to be getting wealthy fast.

Of course, eventually what happens is that something happens and people start to lose confidence and withdraw their money, and the deception and con are laid bare, and many people lose a *lot* of money.

But wait! What if there were a *network* of con-artists, each running their own Ponzi schemes, that cooperated to cover each other's "runs"? In other words, if one scheme gets a "run", the other schemes step in and temporarily loan him the money to cover his run - in a short-term, for-interest loan naturally - until his investors get their confidence back? Once his scheme is flowing again, he can pay back those loans, and the crisis is averted for the whole collective of ponzi-schemers.

Except: can't that also fail if there is a *massive* loss of confidence in *all* ponzi schemes? At this point, the schemers can't borrow from anyone because they are all in trouble, short-term loans from other schemers dry up because none of them has the extra cash to spare, and what can happen is a domino effect as one after another scheme is laid bare and goes insolvent.

Unless, of course, there's a "lender of last resort": an entity that can print infinte money and that can step into the void and prop up the entire Ponzi-scheme industry when there is a massive, industry-wide "lack of confidence".

I admit that similarity is not "proof", but it's at least a warning flag: doesn't the above sound a *lot* like our current banking system, with "ponzi scheme" replaced by "bank", "con-artist" replaced by "banker", and "lender of last resort" being played by the Federal Reserve?

I am not at all convinced that that parallel is not accurate.

I suppose one legitimate question that I don't think I'll attempt to answer in this post is "well, so what? *If* it's the case that the banking scheme as currently constructed is at its roots a ponzi scheme *but it still provides great value to society* because, say, it "greases economic wheels" in a way that a less ephemeral system might not, then merely noting that our system *is* a ponzi system may not be enough to justify changing that. I'm skeptical that I could be convinced of that - again, look at the freakanomics blog and look how much it talks about the need to mitigate *exactly* the kinds of problems a network of ponzi schemes would have to mitigate to conclude (at least tentatively) that if we didn't have that scheme, we wouldn't have those problems to mitigate in the first place, and thus arguably wouldn't be having these periods of booms and busts - but I'll leave that on the table for some later day.

Meanwhile, let me return to this issue of banking. From the day I was a kid, I've been told and "understood" that when I made a deposit in a bank, it didn't actually *stay* in the bank, it was lent out to someone else. And I bought that (I believe I've blogged about the scene in "It's a Wonderful Life" where Jimmy Stewart sells this idea lock stock and barrel).

But the more I think about it, the more something doesn't smell right. For one, symmetry is usually a good sign. When I take out a loan from a bank - that is, when they give me money on the promise that they'll get their money back later - I do not take it on the basis that the bank can come and get their money any time they want. In fact, I have a very measure timeline over which they will get their money back: they get a certain amount once a month, for a fixed period of time. Because I know exactly what that schedule of repayment is, I can safely manage spending that money in a way in which I will never be "surprised" by a "run" on the money I've borrowed from the bank. The bank does not need to have "confidence" that I have the money: they have a schedule saying exactly when they will get the money paid back, and in the event that I fail to keep to that schedule, they have the collateral that I've put up against that loan, e.g. my house in a mortgage loan.

But the lack of symmetry is startling. In terms of first principles, there is no difference between a bank giving me money for me to eventually give back, and me giving the bank money for them to eventually give back to me. And yet, the terms are completely different. When I give the bank money - at least in a standard deposit - the bank does not have a schedule on which to give it bank to me. Instead, it is as if they took a loan from me that I can insist at any time I want the entire balance back, instantly. Who would take a loan like that? It seems clear to me that the same reasons an individual doesn't take a loan like that - basically, because it makes the money unusable - are the same reasons such a loan would have no value to a bank. And yet, they take it... just like the con-artist takes the money into his Ponzi scheme on the false promise that all of his investors can have their money back in total any time they want. The second that bank actually *does* something with that money, they've made it so that they cannot keep their promise to all of the people they have taken a loan from.

Doesn't that sound like it could be a root cause of a lot of ills? We have people signing contracts that they know they cannot keep, and this is the fundamental basis of the federal reserve system. It *is* a ponzi scheme, and it is therefore no wonder that the scheme depends on the "confidence" of the people who have given their money into the scheme in the mistaken belief that the schemers can actually keep the contract they made with them.

And all seems great while confidence is high, as in all Ponzi schemes: the depositors leave their money in the scheme and see great numbers on paper and feel wealthy and may even go out and spend more on consumer items and other immediate consumption than they normally would, and that money goes into the hands of the people who sold those products and they feel confident and continue to spend the money, all because on *paper*, they have a lot of wealth stored in the ponzi scheme.

That spending/consumption has a reverberation in the system, though: it represents withdrawals from the ponzi schemes. Ponzi schemes can survive a certain amount of withdrawal - as noted, they pay withdrawals from others' deposits - but they can be a victim of their own success: as people see a *lot* of wealth on paper, they feel more comfortable withdrawing that money *for the consumption we just mentioned*. As that spending continues, the Ponzi schemes start to get closer and closer to the breaking point. They are of course still exuding confidence: they have to, that's what their scheme is based on. But ironically, too much exuded confidence continues to prompt depositors to take their paper wealth and spend it, bring the schemes to the popoint of ruin. The first schemes to hit this point will survive by the trick of borrowing from other schemes, but if the depositor's behavior is widespread, eventually they are all going to hit the edge, and the whole system is going to come crashing down.

Note that this crash can also be exacerbated or caused by externalities that cause a lack of confidence, e.g. 9/11, but the dynamics here seem to indicate that even without the externality, the system is bound to run into boom/bust cycles.

I'm not in any way saying that this is a thoroughly educated economics proof, but it sure does pass at least the "laugh test" for me. It is plausible, it is explanatory, it is predictive, and those predictions match the general pattern of what we've seen historically, as well as even the descriptions of what we are seeing in the responses to the current crisis: it sounds like a group of ponzi schemers trying to figure out how to keep their scheme afloat. Look at the specifics: the banks are "trying to get credit flowing again", or in ponzi-speak, the ponzi schemers are trying to get enough above water that they can start covering each other's "runs" again. In fact, the term "run" is explicitly used in the discussions of the banking industry's problems!

So if this is true, then how to fix it? I think it starts right at the bottom, in the relationship that banks have with depositors: no one should ever agree to a contract that they can't keep. Just as a person taking a loan from a bank does not falsely promise to pay back that loan whenever the bank wants it and backs up their loan with something tangible that will go to the bank if they can't otherwise pay the bank, a bank should only make contracts with its depositors that it can keep. If it takes in a depositor's money based on the notion "you get your money whenever you want", then it needs to *keep that money*. No fractional reserve banking *on that kind of a deposit*. True, the banking industry would need to change a little, but that's kind of the whole point here, right, if it's the banking system that's at the heart of the boom/bust cycles, then we *want* to change the banking system. If a bank is just going to keep your money in a vault - literally just be a safe place to store your money, the way it is adverstised - they inevitably you are going to have to pay them for that, just as you pay the UStorage place to keep your stuff in storage. The free market will eventually work out good compromises and rates here.

Where will banks get money to loan out, if not from deposits? Basically, they need to "borrow" money from individuals in the symmetric way that individuals borrow money from banks. One way in which this concept exists today is in the form of "certificates of deposity". A CD is analagous to a loan: the bank does *not* promise that the money can be had at any time in its entirety, but instead agrees to a fixed schedule for repayment, with some extra interest on top. Because the bank knows that this money can't be "run", it can figure out how to loan that money out *and still pay the money back on the schedule that it agreed to*. Think about it: when you get a loan, say, it is not uncommon to think "I'll need to pay back this loan starting next month, so I'll put a bit of the loan aside to make the first few payments; I'll then use the rest to buy the car I wanted, and I know from my analysis of my cashflow situation that I'll be able to start making the payments from my salary starting in a couple of months." That is, you can spend the money from the loan while still carefully planning on how to pay back the loan. With a CD or other "loan" like instrument, a bank can do exactly the same thing. They will know their payback schedule and the payback schedules of the loans *they* have made, and it's an easy accounting exercise to make sure that they can meet their obligations. Note that the bank is not in danger even if their outstanding loans go belly up, as long as they did their homework in evaluting the collateral: if the loan defauls, they take the collateral and convert it into the cash they need to pay back their CD holders. To be sure, such a bank can *purchase* insurance to cover the very small chance that they lose money on a loan and cannot quite cover a CD obligation, but as that should be very rare and a very small amount of money, such insurace such be inexpensive relatively speaking, and of course the bank should account for that cost in the interest it charges on its outgoing loans.

No "confidence" is needed in such a system. There is no "ponzi scheme" element to such a scheme. It works because it is a series of contracts that are actually intended and guaranteed. There cannont be a "run" on such banks.

It's pretty clear that individuals would participate. How many would choose to just keep their money in a bank for a fee? Probably not too many: they know that they can make interest on that money in a CD, so they'd probably choose to put most of their excess into CDs, leaving enough in the bank to cover immediate cashflow. Thus, most of the money would still be available to the banks for loaning. But that money would not require *confidence* to loan back out, it would simply require *accounting*: there's no risk that the holders of CDs can "run the bank", and so banks can lend it out with clarity about their obligations and determinism about what they do and will hold and when.

So in my naive, non trained-economists view, this appears to solve the problems with "runs" on banks and "confidence" while still allowing capital to flow throughout the economy. It allows banks to make money, but arguably less money than they currently make, for the benefit of reducing the "boom/bust" cycles that seem to naturally flow from the ponzi-scheme setup that most of all current nations currently have. And it eliminates the need for a "lender of last resort" and thus the currency manipulation on the part of the Federal Reserve or its equivalent in other countries that seems to contribute to many woes (admittedly, I haven't gone into that much here, but this post is long enough).

So much for "democracy"

2008-12-19T10:29:00.000-08:00

When I was younger, I went through a phase in which I read a lot of espionage/conspiracy fiction (Ludlum, Follet, etc). One of the reasons that phase ended rather abruptly was that I got frustrated with what I deemed at the time an overly used lack of realism: time after time in these books, things happened that the characters got away with some major, obvious lie/conspiracy that I thought they would *never* get away with in the real world. "As soon as any inclination of that got out, those people would be toast" thought I, "the people would not stand for that."

I'm considering going back to the genre: I'm coming to see, over and over, that that scenario is not unrealistic, because I'm watching it play out over and over. The first example where this really hit me was the Iraq war based first on the claims that Iraq had WMD - something I knew was *not* true from information I gleaned while working at the time at a major government facility from whose population some of the inspector teams in Iraq were drawn, and watched in horror as our government baldfacedly lied to our population *and the swallowed it, burped, and asked for more* - and then the so-blatant-even-Joe-the-plumber-could-figure-it-out bait-and-switch that no, it wasn't WMD, it was that Iraq was involved with Al Quaeda and 9-11, yeah, that's the ticket (with a nod to Jon Lovitz' compulsive-liar SNL sketches) (or do I have the sequence of these lies reversed?).

Well, that's old news, but we sure have a whopper staring at us today: President Bush is going to end-around the democratic process and give the automakers the bailout that Congress denied them:

Mr. Bush made his announcement a week after Senate Republicans blocked an automaker bailout that had been negotiated by the White House and Congressional Democrats. The loan package announced by the president includes requirements that are roughly identical to those in that bill, which was approved by the House.

I have my complaints about government even when it is an actual democracy, but ours is not even that any longer: in what kind of "separation of powers" is it possible for more than one branch to do exactly the same thing? That's not "separation of powers", that's "or'd" powers: this thing gets done if branch A wants it done or branch B wants it done...

I just can't see how everyone isn't either going apoplectic or hanging their heads in shame for their own complicity and stupidity. A few short months ago, our populace sat quietly by as our government instrumented an extraordinary power grab, authorizing the staggering sum of 700Billion dollars (estimated by most to really be several times that figure by the time we are done) based on weak and hurried arguments about the eminent collapse of our economy and passed only on the promises to "trust them": that the use of these funds would be specific to the "saving" of the financial industry.

And yet

The money to aid the automakers will come from the Treasury’s $700 billion financial stabilization fund.

Wwwwwwwhat?? That wasn't what we signed on for (to the extent that we signed on at all)! Where is the outrage? How far away are we from just having a system in which Congress just authorizes a huge sum of money for the government to spend on whatever they want, without any debate, due process, accountability, etc?

How the *fuck* do you take extraordinary measures to authorize the partial nationalization of an industry and a huge hidden tax on everyone (that 700 BN dollars is essentially newly minted money, meaning it comes from every one of us by devaluing the money we already have) based only on our trust that you'll do what you said you were going to do with that money and then mere *weeks* later use that money to run roughshod over the democratic process by having the executive branch essentially make the "laws" that congress voted down, and have no one go ape-shit about it??

This isn't theory, this is in-your-face reality, and yet I *still* don't see the outrage that even the most stringent defender of our system should be expressing at this violation of that very system. I don't see how these thing fail to shake the religious belief in "government" or "the state" as our omnipotent, omniscient God. Where is the *thinking*, people?

Doesn't just wanting "change" mean something was seriously wrong?

2008-11-23T13:09:00.000-08:00

Much of the rhetoric around Obama's successful election campaign, as well as the economic problems that are facing the country and world, can be summarized in one word: change. To take a representative quote:

Nobody knows exactly what they should, but anything is better than nothing.

This from New York City mayor Bloomberg, discussing government bailout of companies in the wake of the stock market crash, on the September 21 edition of Meet the Press.

Something really bothers me about this line of "thinking", and I think I can explain it with a little mental exercise.

Imagine a game in which the object is to get the highest score on a scale of 1-100. The game allows you to make "moves" when it is your turn; for simplicity, let's just say it's some set of moves numbered from 1 to n. What the moves actually *are* isn't important for this thought exercise. In fact, the moves are completely meaningless to the players: the game does not tell you ahead of time what the relationship between the moves and scores is. The game also does not tell you ahead of time how many moves you will get to make. All you know ahead of time is that each move gives you some score between 1-100, and to simplify the thought process a little, let's assume that the game also tells you that if you just randomly pick rules, your average score will be 50, that is, the distribution of scores is some symmetric curve around 50 (it's probably best to just think of a constant distribution, that is, every score from 1-100 is equally likely).

So, basically, it's a guessing game: you make a random move, you get a score. The game might end at that point; you don't know. Your score in the game is the score of your last move.

Note, however, that you don't *have* to make a different move. If you're happy with the score you have, you can keep choosing the same move and getting the same score.

So, let's consider playing this game. You must start by making some random guess, and you get back a score. When and why would you choose to make *another* guess? Clearly, if your score is less than 50, it is *always* a good idea to make another guess, because the expected value of your new move is higher than your old one, and you'd rather end up on a better score. If your score is already over 50, it only makes sense to guess again if you have some way of predicting how many moves the game might go on; otherwise, if you guess again and get a lower score, you run the risk of the game ending and thus ending up with a worse score. Since the rules of the game dictate that you *don't* have any way to predict how many moves the game will last, guessing when you are over 50 is at best risky, and perhaps suboptimal.

In either case, it's important to note the following conclusion: the *only* time when it makes sense to randomly guess a new move is when you are already below the halfway mark.

Now let's pull this back to "change": according to Bloomberg and the apparent social, government, and MSM consensus, *any* change right now is better than none at all. Any *random* change; IOW, they are advocating that in our game, we definitely should take another move and randomly get a new score. In the context of our game, this implies that the current "score" must be less than 50, must be less than "halfway".

Do you see the dilemma? Assuming of course that our game is a decent analogy for the "economy" and generally for "society" - and it's clear enough from centuries of failures, mistakes, tragedies, rise and fall of ideologies, etc, that the relationship between the "moves" that government can make and their "economic score" is nearly random (this follows mathematically from the highly nonlinear and thus chaotic nature of economic and social systems) - this means that either A) after 232 years of being "in charge", our government is still scoring less than halfway in this game, or B) random change is *not* the optimal move.

In either case, our government is failing us: either they have failed to achieve the halfway score that a monkey throwing darts at a dartboard to run the economy would achieve (the median of our distribution), or they are now embarking on a venture that is going to make things worse on average.

The point really is: change for change's sake is never a good idea unless you are in the total crapper.

I realize that Democrats will be happy to conclude that the economy *is* in the crapper and that it's the republican's fault, and thus random change *does* make sense. Sorry, you don't get a pass: economic momentum spans far more than the term of one president or congress, and includes the consequences (usually unintended: politicians don't have much incentive to think longer-term than the duration of their terms, unlike private parties who have incentives to think in terms of spans of time that are at least their lifetime long and oftentimes the lifetime of their children and children's children) of decisions made many decades ago. The current economy cannot be laid at the feet of Republicans or the Bush administration; it's a bipartisan failure, tracing some of its origins to events such as the imposition of the individual income tax and the creation of the fraudulent Federal Reserve system that go back almost a decade and which had the complicity of every congress and president since, Republocrat and Demopublican.

If I had hired "government" to run my economy and the solution they gave me after 232 years was "random change", well, they'd be fired.

And isn't that what the government is? People that work for us? Doesn't the preamble say "for the people"?

I say we fire 'em, and look for a group of people who has something better to sell us then "change". How about, you know, an actual *plan*?

Government, MSM still using fear to fool the sheeple

2008-11-19T15:40:00.000-08:00

I used to have a particularly sensitive friend. The first time I disagreed with him about something, he told me politely that he understood that I had a right to disagree with him, but the way that I had chosen "was not the right way". Fair enough, said I, we're friends and I'll try a different way next time. So, next time I tried a different tact, and got the same message, perhaps a little less friendly this time: "that's not the right way". Over time, I tried several other methods, and got increasingly strident declarations that that was not the way to disagree with him. Growing frustrated, I started to ask "well, what *is* the right way?" He always avoided the answer and instead just pointed out the ways in which my previous methods were poor. Eventually, I started to realize the truth: there *was* no right way. All attempts had been tried and all rejected; no alternatives were left. He would never *say* this, though, there was always the implication that somewhere there *existed* a "right way", but I was just too dense to find it. I eventually came to the conclusion that this was just a way to keep me from ever disagreeing with him, that he was taking advantage of the courtesy and friendship that I was extending him to create an asymmetric relationship, and our friendship drifted apart from reduced trust and poor communication.

The point? I'm ok with being told that "X is not the right way", as long as, you know, there actually *is* a right way. You have to meet me halfway. If you take away *all* of the choices, then my failure to find a "right way" is not *my* fault, it's yours.

And this is exactly the way that the government and main stream media (MSM) are treating us, the sheeple. On many important subjects, they keep telling us "*this* is not the right way, this is something to *fear*", but then when you conclude "well, then the opposite way must be the *good* way, right", they take away *that* option too: "No, that is also the wrong way!"

Take for example global average temperature: the government and MSM are creating a huge state of fear about the possibility of global warming. They are spending tax money on "solutions", they are threatening "carbon taxes", they are punishing car makers for not making efficient enough cars, they are punishing citizens for driving by taxing gasoline for no other given reason than social engineering, and all in the name of "stopping global warming". Well, ok then: surely this means that global *cooling* must be good, if global warming is bad? Oh hell no. Global *cooling* would lead us to ice-ages, and be a move towards the thermodynamic death of the planet, etc. So wait: warming is the wrong way. Cooling is the wrong way. So what's left? Is staying exactly the same temperature really the *only* thing that doesn't justify sufficient panic and fear for the government to sieze more power? Is that even *possible*, given that temperatures regularly move around?

You haven't left any *right* answers, and that means it's *your* fault.

Now take the economy. Over in Reason, Jacob Sullum has a nice list of all of the things that used to be good but are now bad in connection with the economy. I don't really have much to add to his post, so I'll just copy some of it:

Loose credit is bad, and so is tight credit.

We were told that loose credit created the current mess; we're now told that tight credit is the thing to fear. Which is it? You can't take *both* of them and tell us they are *both* the "wrong thing". You have to leave an alternative, or else it's *your* fault.

Rising home prices are bad, and so are falling home prices.

In both home and retail prices, we were told that it's bad that prices are going up, usually with some tear-jerker about how some joe average can't buy a house or a glass of milk. Now that home prices are going down as are retail prices, we are told this is bad, usually with some tear-jerker about how mary-average had to lose her house or because falling prices mean that we'll have a recession. Which one is good??? If you tell me they are *both* bad, then you're just manipulating me because all you want is for me to fear.

Consumer spending is bad, except when it's good.

The current crisis was blamed on too much consumer spending. Now we are being told that the solution to the current problem is more consumer spending. Which choice are you leaving me??? Clearly, all you want is to make me fear what is going on *no matter what is going on*, because otherwise you'd leave me *an option*. You left me no options; that's not my fault, that's your fault.

Is this just pointless anger on my part? Is there an actual *result* of this?

Only if you count 700 billion dollars as a concrete result. Remember when the government and MSM told us that if congress did not immediately grant 700M dollars for the purposes of buying up bad debt that the economy would crumble immediately? Remember when the sheeple baaaed their acquiesence, frightened into accepting whatever we were told?

It would follow, then, that if those bad debts were *not* bought up, either the economy should collapse, or the government was full of shit, right?

But: the government has not bought a *single* bad debt. It's been 45 days, and yet, the economy hasn't collapsed: no lines at the grocery store, no tent cities in my back yard, no anarchy. Hmm, what happened? We *did* let the government print 700 *billion* new dollars, right? That's over 2000 dollars for every man, woman, and child in this country, right? They convinced us that they needed that money for a very specific purpose to prevent a very important and specific disaster from occurring, right?

What happened? After they got the money, they changed their mind:

In front of Congress, Paulson argued for the 700Bn to purchase *bad debt* *across the spectrum of financial institutions*, saying that purchasing actual institutions was the wrong way:

I'm saying that the model you are looking at is the model where we go to people that absolutely need to sell and say, "If you want to sell, give us something."

The model we're looking at is -- and -- and what we believe it takes to be successful here -- is to go to a broad group of institutions, and a very, very wide range of institutions that own these assets, and have them participate.

Shortly thereafter - after the fear caused by the government and MSM, not fear caused by anything except their own failure to *give us another alternative other than fear* - after receiving his 700Bn dollars, Paulson exhaled and changed his mind:

“Our assessment at this time is that this (the purchase of toxic assets) is not the most effective way to use funds,” Treasury Secretary Henry Paulson told a news conference.
Paulson said the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.

Fucking slimeball.

And all I hear is "baaaaaaa". The sheeple get manipulated into giving 700 *billion* dollars and then sit back and baaaa while the baldfaced lie that generated the 700 billion is admitted by the person that asked for it.

To be clear, this is like my going to a family member and asking them for money because I have cancer... and then turning around a few days later and saying "nah, I didn't really have cancer, I'm going to Tahiti."

Baaaaa.

Another failure of government and "the commons"

2008-11-09T11:20:00.000-08:00

One of the reasons often advanced for large government is management of "the commons": things that supposedly don't work well as privatized spaces, that must be managed centrally "for the good of all". This is the command-and-control "solution" to the "Tragedy of the Commons."

In practice, though, the history of government management of commons is pretty poor. Again, for reasons I don't fully understand, the psychology of the masses is that they give a pass to this poor track record while imagining far worse management under a private system. I'm not sure where this myopia comes from. All I can do is continue to catalog the list of failures.

In this article, the FCC's opening of the electromagnetic frequency band currently occupied by broadcast television is discussed. I'm sure that most people have never considered whether the government's management of the "frequency commons" has been good: it just *is*, I get my television on my rabbit ears, and that's good enough. But it has it really been good? Is this opening up a sign that government management of the commons works?

Or is it the case that *this should have been done long ago*? As the article says

The television industry's shift from analog to digital broadcasts will leave "white spaces" -- that is, unused portions of wireless spectrum.

IOW: *digital* use of the spectrum is *far* more efficient than analog use.

And yet: due to government management of the commons, inefficient analog use of extremely important parts of the spectrum has been dictated by government policy for *far* longer than it needed to be, and is *still* dictated in other parts of the spectrum, e.g. the spectrum used for FM radio. There is no technological reason to hog the current FM radio spectrum for analog digital broadcasts, and doing so is actually suppressing many potential technological/product advances.

Digital broadcasts over the EM spectrum could work just like internet communication and cell-phone communication: in terms of "packets" that have "addresses" that allow multiple communications to go on simultaneously on the same "channel". (The TV/Radio equivalent for cell phones would be if each and every cellphone had its own band of the EM spectrum, a situation that would allow for, oh, approximately 100 people to have cell phones). The government's inefficient management of the broadcast TV and radio spaces have suppressed interesting technologies such as personalized radio (in which each person receives a separate "radio station"). Look for example how many programming choices Sirius/XM pack into a single frequency for an insight into how many more choices we could have.

The obvious approach to problems of "Tragedy of the Commons" is to avoid "commons" altogether, via division of the supposed commons into pieces that can be separately sold and operated privately.

Clearly, some situations lend themselves more easily and readily to "privatization" than others. As someone said to me recently when I suggested that *if* there's a "problem" that needs to be solved in "global warming/climate change", that rather than advocating the usual government-control "solution" to a "commons" problem, perhaps the solution is to get rid of the commons altogether: "you want to privatize air?" While I certainly don't accept clever soundbites as a substitute for actual logic and rationality, I'll give that some things lend themselves more easily to "privatization".

Having said that: I don't see the EM spectrum as one of them. Particularly in the digital age, there's arguably not even a "commons" since multiple parties can share the same frequency. But even before that, there's no reason that parts of the spectrum couldn't have been sold. Different frequencies largely are independent, and different geographic regions of a single frequency are largely independent (with the exception being at points on the boundaries). The frequencies could have been sold by a reasonable geographic distribution. If this had been done, it would have incentivized individual owners to most efficiently use their frequency, which would have encouraged solutions like the digital mutliplexing *long* before now.

Does the near "tie" between Repubs and Dems mean anything?

2008-11-08T16:44:00.000-08:00

I have a theory - and I've been too lazy to spend more than shower time considering it - that there's a fundamental reason that US elections come up so even election after election (yes, Obama is crushing McCain in the electoral college, but the popular vote is pretty close... and it has been pretty close - with some oscillation back and forth - for a long time), and that that reason is that basically that they are both equivalent. I don't think I can prove that this virtual "tie" *has* to be caused by this "equivalency", but I suspect that you could make an argument that *if* you had more or less equivalent parties, it would result in the election pattern that we are seeing.

Yawn

2008-11-04T21:11:00.000-08:00

Today is one of those days where I get left out... kind of like the finals of the national hockey league: two teams are going for the championship and not only do I not favor one of the teams over the other, I don't even fucking care about the sport.

I have friends who are ready to party in the streets until midnight or cry in abject despair at the elections. I have seen people right poetic declarations about how the world has changed, how this is a great day for the world, etc.

Me? I'm looking for reruns of Family Guy. Yawn.

You know, the thing is: I'm jealous as hell. I get it, I really do. I was reading "the Uptight Seattlite"'s column in this week's Seattle Weekly and the emotion expressed there gave me a lump in my throat:

let us first take a moment to soak in the joy. We've become so accustomed to shame, fear, and anger these past eight years that joy may be an unfamiliar sensation. Do not be alarmed. On the contrary, sink into it like a healing bath after a long, cold day. Let it wash over you, the feeling that your country is a place where you belong after all. The relief that your fellow citizens have turned out to be not bigots crouching in the caves of ignorance, but patriots standing tall in the bright light of reason.

*This* is the way I *want* to feel. I envy those who feel it now. If my preferences in government were ever met, I think the feeling would exceed even this, for after all, democrats waited only *8* years to get one of theirs back into the presidency, they spent the last 4 of those with a congressional majority, and they've always pretty much held 50% of this country. Contrast that to those of us who champion civil society: we've *never* had a president, we've arguably only ever had one congressman (Ron Paul), we regularly poll about half of a percent in elections etc, and there is virtually *no* hope of an advocate of civil society becoming president in this country in my lifetime. Not that I hold "suffering" up as a noble endeavor, but if you'll indulge me for a moment: no democrat (or republican) has suffered like I have.

It's an emotional issue. I envy those who feel like this, and I want it, and its incredibly frustrating to know I'll never get it, and it takes a certain amount of heroic will or stupendous stupidity to somehow keep soldiering on knowing that.

And it sometimes requires some venting:

Like there's a fundamental difference between the Republocrats or the Demopublicans. Have either decreased the size of government? Have either balanced the budget? Have either moved in the direction of respecting individual's decision making over their own desire to run other's lives and make others' decisions for them? Have either advocated *anything* except "give me the power and I will solve all your problems for you?"

I know you Democrats thing that now things are going to "change", but I've got news for you: they aren't going to change in the *slightest*. The two major parties are just factions of the same party. The concept that there is a fundamental difference is an *illusion*. Please enjoy your day in the sun, your day of optimism, because it will come crashing down around you shortly in abject disappointment. Given the democratic majority's complete inaction on Iraq, I have doubts that Obama will do the one decent thing that he could do: end the fucking genocide in Iraq. Get us the fuck out. Stop pissing our money down a shithole. Even if he *does* do that, I expect that that will just be a prelude to sending the troops back out to every bywater that has issues, following the Clintonian fiction that the US military is paid for by the people so that he can try to play humanitarian and savior across the world. Hey, I'm all for humanitarianism, but it's a *private* matter, not one that our government should be attempting to do with a military that the people paid for *to protect them*. It's dishonest and theft.

And the scary thing is that Obama's *strongest* point is probably his approach to foreign affairs. The economic mess we have now? It's going to get far worse under increased socialism (I won't regularly make this kind of defensive statement here - it's my space, and I don't want to waste my time saying boring, obvious things - do not mistake my use of the term "socialism" here for some sort of McCain sympathy. I consider *McCain* to be a socialist for the most part, as both the republicans and democrats have increased the size of the federal government at the expense of individual decision-making. McCain's pathetic campaign attempt to discredit Obama as a "socialist" is purely coincidental to my use of the term).

For those who think that Obama represents Americans "coming together to help each other out": you can't *force* charity. By definition, if it was forced, it's no longer "charity". You can't force someone to do something voluntary; it's a logical contradiction. So while I understand the urge - my own advocacy of "civil society" *is* a humanitarian, "let's treat each other better" advocacy - it is unfortunately doomed from its conceptual start if the urge to be humanitarian is implemented via coercion.

It's the grand paradox of civil society, and one I will return to again and again until I fully understand and learn to harness it: the more you want to control things to be civil society, the more you have to resist the urge to control.

Trying not to kill the goose that laid the golden egg

2008-11-01T10:19:00.000-07:00

Over in Reason, Ronald Bailey takes a first, partial step towards redeeming his awful recent record with respect to the global climate change issue. Bailey has long represented a voice of, well, reason, in the area of humanity's responses to scientific issues. In the last 6 months or so, he has done a dramatic turn-around on this one issue, throwing aside years of hard-won understandings and instead drinking the cool-aid of government intervention.

In this article, though, he returns to his rational roots. The article addresses a special issue of The New Scientist detailing "The Folly of Growth," whose general theme is "Economic growth is folly because "our economy is killing the planet."" Bailey outlines the insane extrapolations made by the authors in this issue and the extent to which they are willing to use those doomsday predictions to begin the lobbying now for stronger big-brother states, with some clearly laying the groundwork for a truly frightening big-brother *world* government.

But Bailey throws off his recent big-government costume and lays out the same fundamental arguments that are so devastating to his own foray into government control over carbon emittance: that we've seen these kind of doomsday scenarios before and careful monitoring and non-panicked action proved to be the best course of action; that the extrapolations made by these apocalyptic prognosticators ignore the demonstrated history of technological advance; that it is generally *non-privately* owned commons that have (predictably: there's a reason it's called the "tragedy" of the commons) suffered the worst degradations; and, most importantly, that rather than being a *cause* of environmental neglect, economic growth is the great *reducer* of environmental neglect.

On the issue of "shrinking forests", for example, Bailey says

It is true that tropical forests are shrinking in poor countries in which such forests "belong" to the government. However, a 2006 study published in the Proceedings of the National Academy of Sciences found that "among 50 nations with extensive forests reported in the Food and Agriculture Organization's comprehensive Global Forest Resources Assessment 2005, no nation where annual per capita gross domestic product exceeded $4,600 had a negative rate of growing stock change."

That is, that economically advanced countries are *saving* forests, not shrinking them. In fact,

the Consultative Group on International Agricultural Research points out that the "main threat to tropical forests" comes from slash-and-burn agriculture practiced by poor farmers who have no other option for feeding their families.

On the issue of technological advancement and previous "scares", Bailey does not explicitly mention the world starvation scare of the 1970s led by Paul Ehrlich, but he does refer to it obliquely:

Between 1980 and 2005, the world's farmers nearly doubled crop production while increasing cropland only 7 percent. If farmers around the world produced crops as efficiently as American farmers, global cropland could be cut in half.

For those with short memories, it is imperative to point out that the starvation scare of the 70s was just as prominent and highly touted as the current global climate change scare, and drastic measures involving the use of force to control behavior of the multitudes were advocated as the only way to stave off a pandemic that was predicted to kill as many as one *billion* people (the global climate change literature is actually pretty bereft of actual predictions of the damage that is supposedly to come as a result of their dire predictions, but nothing I've seen gets anywhere *close* to predicting a billion dead. It is something I'd like to understand better: what is the current state of analysis of the *consequences* of the global climat change scenarios, assuming that the change actually occurs? Mostly I've seen vague mentions of rising sea levels; while that clearly has some negative consequences to those living in low-lying areas, it's clear that these would be gradual changes, and so presumably would kill *no one* in any sort of eminent disaster way, right? If it takes 50 years for an area to flood, isn't that sufficient time to save those lives? Clearly at an expensive cost, but I still count lives as the most important resource). That we didn't panic and kill many people in the pursuit of saving more has turned out to be a *very* good decision. Technology improves rapidly and there's every reason to be careful about over-reacting before we've had a chance to let technology, and it's bigger brother economic growth, play themselves out. (I know for example that there are researchers working on ways to "sequester" excess carbon at the bottom of the sea through clever application of microbes to the problem. I have no idea if that is a promising approach, but the fact is, there *are* many lines of inquiry that can be made into these issues).

Kudos to Bailey for returning to his roots: reason, thought, and working together via civil society over panic and the urge to forcibly control.

Poor private property rights can kill economies/investments

2008-10-24T10:45:00.000-07:00

The issue and theory of "private property" has been analyzed to a level of depth that even I find somewhat tedious, and I don't really have interest at this time in contributing at that level. At a macroscopic level, though, I think it's important to understand what this seemingly "theoretical" concept, this "tool of greedy capitalists" gives people. To that end, I saw a conversation recently amongst people interested in the possibility of investing in land in India:

Yep, the lack of transparency is a big issue.

No one knows who owns the land as the govt. records are not reliable/can be forged. Apartments/houses are a little

better as u get the keys and can rent/occupy. :)

Off late, the Indian land investments have become a typical pyramid scheme with the land changing hands

multiple times within a short period.

Even if it is scrutinized carefully and the deal is closed, you never know who can show up at your doorsteps tomorrow claiming that it’s their property, by creating fake documents and using political influence and sometimes anti-social forces.

Private property - like all contracts - provides *predictability*. A simple and basic result from computational theory is that the accuracy of a computation is limited by the predictability of the processes being computed. When people are making decisions, that is a computation: it's a computation in which we are trying to optimize "future value" over the set of possible decisions (I'm attempting here to use just enough of the language of computational theory to be illustrative, without having to give a primer on the entire field). It follows, then, that for people to make good decisions, they need predictability in the systems within which they are making those decisions. Private property and contracts in general are a wonderful manmade tool for providing that predictability and thus driving good decision-making and an efficient economy and society for all people.

We see here the opposite: without reliable private property conventions/laws, predictability goes out the window, and the ability to make good decisions goes with it. We are left either with people who make bad decisions (e.g. those that are getting taken in by the pyramid schemes mentioned above), or those unwilling to participate at all because they know that they can't make good decisions.

Pragmatically, the cost here is less investment in Indian real estate and thus lower real estate values even for those that are honest and above-board. And who is *really* getting screwed here? It's not the rich: they are the ones abusing the system, sitting on top of the pyramid schemes, using their influence with government to get decisions to go their way. It's the rest of society that is paying: entrepreneurs trying to pull themselves up out of their economic level get rebuffed as their property is taken by influence and fraud, the poor who invest in their property to make it better and lose on that investment, etc.

It's ironic that many people see private property as an instrument of the rich against the poor, when it is fact a *protection* of the poor from the rich (or at least, the dishonest rich).

Greenspan's stock slides further

2008-10-23T16:51:00.000-07:00

There is a lot of interesting things to comment on in this article on Greenspan's testimony to Congress in the face of the financial meltdown:

http://www.nytimes.com/2008/10/24/business/economy/24panel.html

Mr. Cox replied, “There’s no question that somewhere in this terrible mess many laws were broken.”

This probably isn't the most important part, but it sits with the theme I've been running with lately: what good are "laws" when the government doesn't actually stop anyone from *breaking* them? We see this problem over and over: the disconnect between "we'll pass a law for X" and "X actually happens." The record is clear: the correlation between passing a law for something and it actually happening is pretty slim. I sometimes think people get confused by social "laws" and scientific/physical "laws", which are entirely different concepts but unfortunately share the same word: physical laws are inviolable (note: there's a much subtler sense in which that isn't entirely true, but that's a subject of some later philosophical note, not a political note), whereas social laws are really just threats: do this, and this other thing will probably happen to you. Like any threat, sometimes it will work and sometimes it won't, and sometimes it will have weird, perverse consequences.

In either case, the point stands: we *passed* a bunch of laws that supposedly should have stopped this from happening, but "many laws were broken." So where were our law enforcers? What good is it to pass laws that don't actually do anything? Isn't this just a cheap facade of "doing something"?

Will we remember this when the inevitable call comes to prevent this from happening in the future by passing even *more* laws? It astounds me that when pouring gasoline on a fire doesn't put the fire out, the majority respond by pouring even *more* gasoline in the fire in the thought that *this* time, it's going to work.

As for Greenspan himself, his fall-from-grace in my eyes is falling as fast as what little net-worth I once had. Of course, that started long before it did for most people: for many, he was the wizard of wall street for much of the last 10 years. For me, his fall from grace started long before that, when he went from being a free-market advocate to holding the reins of one of the more vile tools of central government: central banks. I'm hardly alone in that assessment, and so it doesn't add much for me to repeat those criticisms in depth here (short version: central banks are dishonest at best, since they issue fiat money and as such tax the populace in a hidden way via inflation, and at worst they are a contributor to and even a reason *for* pointless "wars" like the Iraq "war", the "war" on drugs, and the "war" on terrorism. It's part of the machinery of the state of fear and control, and Greenspan should *know* better, he was trained in free markets and decentralization and he's become a turncoat to those ideals).

However, it's worthwhile picking on him for the further capitulations he commits in this testimony:

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.

This reminds me of the question illustrating false premises: "Have you stopped beating your wife yet?" Implicit in this exchange is the patently *false* and absurdly so assumption that what Greenspan presided over was "deregulation ideology". Putting aside the inherent sophistry in the term "deregulation" (there is only *regulation*; "deregulation" is a manipulative attempt to convince people that the norm is "regulation", and that anything different is somehow abhorrent and risky), no system with as much central control as the Federal Reserve system can possibly be called "deregulated". I invite you to try minting your own currency and trading in it to see just how "deregulated" the issue of currency in this country is. The fed owns a monopoly on the production of currency, and it prints more whenever it feels like doing so. The private equivalent would be buying stock in a company and then having them print more stock willy-nilly, without compensating you for your now devalued stock. It would never fly in the private sector, which Greenspan pays lip-service to as a "free marketeer", but he's perfectly happy to pull the puppet strings of a deceptive monopoly.

What exactly is the "flaw" that Greenspan has now had his epiphany about?

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.

What bothers me about this is now no longer does Greenspan not stick with the principles that formed his origin, he doesn't even *understand* them any longer.

Free-market theory does not say that institutions in a free market *will regulate themselves*. Any 5th grader can see the flaw in that: institutions are composed of people, and people will in the aggregate do what is in their self-interest (with some asterisks that aren't important in this screed). Of *course* institutions need regulation. Even the hardiest anti-free marketeer wants the majority of its businesses to be private, for the benefits of competition and consumer choice on the quality of those businesses has been displayed over and over (I hear no call, say, for the government to take over the car manufacturing business).

What free-market theory properly applied to the problem of regulation says is not that businesses will be self-regulating, but rather that *regulation itself is a business*, and thus like other businesses, the "regulation industry" will be better as a private industry because of the benefits of competition and consumer choice.

Of course we need regulation of our businesses, but we need a private industry in "regulation". Government would not be good at making cars because forced monopolies have no incentive to be efficient, innovative, etc; the same applies to a forced government monopoly on "regulation". Indeed, the failures of our government system to regulate are glaring at us all in the form of zeros in so many bank accounts and foreclosure signs on so many yards. Why do we give a pass to a system that is clearly not working?

Greenspan was intellectually brought up in an environment of free-markets; that he would make this crucial blunder of understanding is at least as unforgivable as his turned-back at the aspects of free-markets that he does understand.

Bloomberg and Term Limits: Wow

2008-10-23T14:21:00.000-07:00

New York City Council Votes to Extend Term Limits

After a spirited, emotional and at times raucous debate, the
New York City Council voted, 29 to 22, to extend term limits,
allowing Mayor Michael R. Bloomberg to seek re-election next
year and undoing the result of two voter referendums that had
imposed a limit of two four-year terms.

Read More:
http://www.nytimes.com/?emc=na

I don't know if I have much more to say other than "Wow". This is democracy in action?? The hairs on the back of my neck go up when I see something like this, it reminds me of the kings and tyrants of old changing rules on the fly to suit their personal agendas. What kind of "rule of law" do we have when the rulers get to change the laws??

Like the previous post, I put this one down as another black mark against our current system: this is a failure of government.

The government protects us from crime?

2008-10-22T20:55:00.000-07:00

Anyone who knows me knows that one of my most abiding passions is the advocacy of "civil society", which is basically an advocacy for what is at least a very different direction in "government" and at its most is an advocacy for an end to the concept of "nation-state" as it has been practiced over the last couple of centuries. This is not the post to go into the detail of all of that, but part of the intellectual process of that advocacy is an honest analysis of our *current* system as part of the process of comparing alternatives and the current system on even ground.

Detractors of my ideas are dedicated to the notion of finding flaws, of finding ways in which the resulting society would be less than perfect. I'm perfectly ok with that: that's part of a rational process of evaluation. What I find very *irrational* is that those same people are unwilling to honestly assess and see the flaws of the *current* system. My contention isn't that the alternatives I'd like to consider and ultimately advocate are "perfect", just that they are *better* than what we have, in large part because what we have now does not, frankly, set the bar very high.

In that line, I find the following datapoint interesting. Supposedly, one of the "failures" of my advocated systems is that they are "weak" on law and order (because most of my suggestions involve much smaller and less powerful governments than what we currently see in the world). The implication is that the current system is particularly strong on law and order, that the government protects us from criminals and other bad doers.

But does it really do a very good job at that? Or have we just become habituated to its failures to the point where we don't notice them? I've read in many places - and largely been convinced by - the notion that in fact, our police force does not actually *protect* us from criminals at all. For the most part, police don't *stop* crimes; they catch criminals after the fact. Is that really "protecting" us from criminals?

I was privy to a particularly poignant (to me, at least) illustration of this notion the other day, associated with etail giant Ebay: out of 15,000 Ebay employees, a full 3,000, or 20%, work in their anti-fraud department. Think about that for a second: fraud is a *crime*, and those that commit fraud are criminals. Isn't it the government's job to protect us from criminals? Then why does Ebay need to hire 3,000 people to *protect themselves* from criminals? This isn't a handful of security guards, this is an enormous overhead on a company. There's basically *no* expectation that the government is going to help prevent this fraud. The police force have basically just said "you're on your own".

The list of failures of the current form of government (and I'll comment mostly on American government since that's what I know best, but the American system isn't different enough from other major western countries - and many eastern countries are worse - to really distinguish. My comment, IOW, are not limited to America) is something that I want to capture here over time, and this sure seems like an interesting place to start.