By Dan McLaughlin, on January 26th, 2010
Robert Shiller wrote a recent New York Times editorial, suggesting that the United States Government sell shares of the gross domestic product (GDP), similar to how corporations sell stocks. Mr. Shiller is obviously a very smart person. He is an economics professor at Yale University and authored various books on finance and the economy. He should know what he is talking about. So let’s look a little closer at his proposal.
People buy stocks of corporations because they have an underlying value. Yes, there are real assets that the paper certificate represents, but the fundamental value to an investor is the cash flow that is ultimately expected. In essence, a business sells shares in the present value of its anticipated future profits. The investor believes that the future dividends and capital appreciation will pay back the investment with an additional return. That is a very rational expectation. Those companies that perform well enough to have excess cash flow can reward the investors with dividends, or with capital growth and higher future earning potential if the money is plowed back into the business. Investors pay more for stocks of profitable ventures.
It is an obvious fact, one that is the foundation for investment in stocks, that the company owns productive assets and processes. It also owns all of the profits that those assets and processes earn. Because it owns them, it can also sell them to others. The business sells the right to future profits and cash flow in exchange for cash in the present.
Gross domestic product is a very different animal. It is a crude and rather arbitrary gauge of the productivity of all of the people in an economy. It is a measure of your wages, your business income, and your investment income added to that of everyone else. The assumption is that the higher the GDP, the more productive the population.
Mr. Shiller’s proposition is that, just as businesses sell shares of their earning potential, the government should sell shares of the GDP. They could issue what he calls “trills”, or trillionths of the GDP of the entire economy. The logic is that, if significant trill markets could be developed, it would be a vast new source of revenue for governments. Investors, like you, or like the government of China, would be able to count on a return from future economic growth, which would, presumably, mitigate the risk of investing in increasingly risky government debt alone.
There is one itsy-bitsy problem with your proposition, Mr. Shiller. The government doesn’t own GDP. It doesn’t own my salary, my business income or my investment returns, nor does it own anyone else’s. By selling a portion of GDP that it doesn’t own, it is stealing that productivity from the people. It is assuming that people are slaves of the state. It is nothing more than another clever stealth tax so that irresponsible politicians can spend more money buying votes and power.
Mr. Shiller, are you being dishonest, trying to scam the people of this country and any other country brazen enough consider it, or do you really not know what GDP is? Whether it is lying or incompetence, the result is the same. You are not telling the truth.
That is nothing new. Shiller is one of the large and growing breed of influential economists who don’t let truth or economic laws get in the way of shilling for politicians and big government. His 2009 book, “Animal Spirits”, was written in conjunction with George Akerlof, another smart, influential and arrogant economics professor, who’s idea of practical economics is to think of a problem in the world and then decide what he and government should do to fix it. The underlying assumption in the book is that economic cycles are caused by a mysterious psychological manifestation called “animal spirits.” According to them, it is the government’s job to direct those unruly spirits so they don’t get out of hand. Seeing that they have been actively directing those spirits for decades, we can see just how well that works out.
There really are generally accepted economic laws that even Shiller and Akerlof must recognize. True economics has helped to understand cause and effect relationships in societies. It is extremely unfortunate for the people of the world that the profession has been taken over by a bunch of scam artists. It is a black mark on the economics community that this proposal is treated with anything other than scorn and ridicule.
By Dan McLaughlin, on December 21st, 2009
Many decades ago, George Orwell wrote a book called Animal Farm. It used a farm as a metaphor for society and depicted the transformation of a productive enterprise into a totalitarian regime. The progress toward dictatorship took small steps that were held to be in the best interests of “the people.” Equality of conditions was affirmed as the highest ideal. The redistribution of wealth from the productive led to universal dependency and slavery, which are the ultimate end results of socialism.
There is no universal definition of socialism, so it may be helpful to state mine here. It is the idea that individual rights are subordinate to the good of society, as determined by those in power. The varieties of socialism only diverge over the degree of suppression of which particular rights.
The key phrase from the book, one that resonates so clearly today, is “All animals are equal, but some are more equal than others.” When it is all said and done, equality is only for the peons, the lesser folk, the non-intellectual, non-wealthy proletariat. The political leaders, the elite, represented in the book by the pigs, are above equality. They proclaim that they need their wealth and power to do what is good for society. As Dr. Evil of Austin Powers fame would mockingly say, “Riiiiiiiiight.” The most influential promoters of socialist ideals are fabulously wealthy. They have vast opportunities to put their money where their collective mouths are. Yet, those selfless acts of mercy are strangely absent.
Paul Krugman, a high profile New York Times columnist, is a so-called economist who, in spite of being an economics professor, actually rejects all economic principles in favor of demagoguery and ideology. Last year he was awarded the Nobel Prize in Economics by the unabashedly socialist central bank of the socialist, egalitarian country of Sweden. One of his hot topics is income inequality and he decries the large salaries of corporate executives, yet he has no conscientious objection to accepting $50,000 for a speaking engagement or a million dollar Nobel award. With his salary, consulting, speaking and sales of best selling books, he earns many multiples of the average income. He does not, however, volunteer to donate all of his excess to those who are under the average. Might that call into question his egalitarian motives?
George Soros is a multi-billionaire, who earned his wealth from free market capitalism. He has become a leading voice in international socialism and is putting together a panel of socialist economists to develop a “new economics.” Included on the panel is Joseph Stiglitz, another wealthy Nobel Prize winner in economics. He also happens to be on an advisory board to the Socialist International, called the Commission on Global Financial issues. Soros has committed $50 million to establish the Institute for New Economic Thinking. Rather than donating his billions to the poor all over the world, he instead, finds it appropriate to use his incredible influence to promote redistribution schemes for you and me and anyone not lucky enough to be one of the exalted elite.
Redistributionist President Obama and his wife Michelle both had high paying jobs before the presidency, and made millions on best selling books. Did they redistribute their own excess to the less fortunate? No, they lived instead like wealthy capitalists in their $1.6 million dollar home. At one time, he worked with the radical socialist ACORN organization, learning the Saul Alinsky method of community organizing, igniting division and agitation and fanning the flames of victim mentality. As president, he has a stable full of wealthy socialists and international bankers, who have no qualms about taking away your rights and redistributing your income.
We are at a dangerous crossroads. American government in all branches has become infected with socialists who would like nothing better than to see our nation crumble. They would replace our constitution, based on freedom and the rights of every individual, with the United Nations Declaration of Human Rights, which is an appropriate statement of rights for the former Soviet Union or the present North Korea.
The Orwellian “pigs” are taking over the farm. We, the people, are cheering them on. If we continue down this road, there will come a time when we are disarmed and dependent on benevolent government bureaucrats. Dependency is slavery. That is what socialism is all about. It is no surprise that many influential people tend to support socialism and “spreading the wealth”. They are, after all, the pigs who are “more equal.”
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By Dan McLaughlin, on November 12th, 2009
What’s A Trillion Dollars?
Economists are anticipating that the federal budget deficits will be in the trillions of dollars for a number of years. There are estimates that, with all federal efforts combined, the bailout and stimulus packages will be upwards of $7 trillion. I wonder if politicians who are so cavalier about using taxpayer money actually know how much a trillion dollars really is.
According to the Bureau of Engraving, a dollar bill is .0043 inches thick. That means that a stack of 100 new dollar bills would be .43 inches tall. A thousand is 4.3 inches. A million is a thousand thousands, so a million dollars is 4,300 inches. Converted to feet, that is about 358 feet high. A trillion is a million millions, so a trillion dollars would be a stack of money 358 million feet tall. If you convert that to miles, the dollar stack would stand 67,866 MILES high! It would wrap around the equator more than two times.
For another perspective, I saw an ad in the paper just this morning, offering bread for $1.99 per loaf. A loaf is 4 inches tall, so one dollar will buy a 2 inch tall loaf of bread. If, instead of using .0043 inches, the thickness of a dollar bill, we substitute 2 inches, the thickness of a loaf of bread that 1 dollar will buy, we get a much more dramatic view. A stack of bread that $1 trillion can buy would reach up more than 31 million miles. Given the price of $2 per loaf, that would be 500 billion loaves of bread.
Considering that there are roughly 300 million people in the United States, that is enough bread to give about1600 loaves to every man, woman and child in America. It is enough to give each of the 6.5 billion people in the world 77 loaves apiece. Our politicians certainly don’t buy loaves of bread with the money. So where does it go? Where does it come from?
The answer to the second question is that it comes from out of thin air. Modern money is the creation of the monetary authorities, in the case of America, the Federal Reserve and fractional reserve inflationary credit. Money is only as valuable as the goods it can be used to buy. Wealth and prosperity only come from production and never, under any circumstances, from money created by a central bank. When more money is made from nothing, with no increase in production, the primary effect is to increase prices. More dollars in the system changes the ratio of dollars to goods, and prices have to rise.
Prices should be decreasing significantly at this point in the downturn, lowering the cost of living for everyone, making everything easier to buy. They are, however, being propped up by your government. They are also establishing the next big wave of the cycle, and the choice in the near future will be runaway inflation or excruciatingly high interest rates.
Not too many years ago, the outrage was over politicians’ callousness when dealing in terms of billions. Billions lead to trillions, which lead to tens of trillions, then hundreds of trillions. Zimbabwe has put it in high gear with an inflation rate of over 1 million percent per year. Their government destroyed their monetary system and economy by making lots of money out of thin air.
We may never get to the point where we have a million percent inflation rate, but if we don’t start holding our elected officials accountable, they will destroy our economy, even more so than they have so far. From the ridiculous and irresponsible things that they keep doing, that destruction actually seems to be their goal.
The first question above, where does all the money go, is a very good one. It’s all a deep, dark secret. In spite of the rhetoric about transparency, you won’t really see where most of it goes. I’m sure that bailout millionaires will be grateful for your contribution to their investment fund.
A trillion dollars is an incredible sum of money. Incredible sums invite incredible abuse. Maybe something good will come of this whole mess. Just maybe, the people of this country will finally see through the scam that both Republicans and Democrats in congress have been perpetrating for decades. Maybe we will start to see some real change in the next few years when hundreds of crooked Washington politicians are kicked out.
Hey, anything’s possible when people use their heads, isn’t it?
By Dan McLaughlin, on November 9th, 2009
A few years ago, Arnold Kling, an economics professor at George Mason University, presented an interesting description of the type of health care system that Congress is planning to impose on all Americans. With Medicare’s unfunded liabilities in the multiple tens of trillions of dollars, it is like the Titanic sailing full speed ahead with icebergs all around. It is ultimately going to sink. There is no avoiding it on the current path. The proposed health system will add many trillions more in unfunded liabilities. It is the equivalent of adding more passengers to the Titanic and more icebergs to the freezing water.
The utopian vision underlying the plan is a world where everybody can have everything without paying the price. Dr. Kling described an “iron trilemma” in healthcare, but I think that it can be modified and generalized for any type of social program. It is like a three legged stool that needs all three legs to stand. The first leg in the modified version is access. The system must be designed so that nobody is excluded. The second leg is the goods. Participants must be able to get the latest, greatest and best quality stuff available. The third leg is cost. The overall financial burden of the system must be minimized.
It is obvious that you cannot have all three legs at one time. If everybody has access to everything, including the most expensive procedures, goods and services, then the cost will be sky high. If everybody has access and the overall costs are minimized, then, necessarily, expensive goods and services must be cut out, no matter how much some individuals desire them. If, instead, the system provides the expensive goods and services, then in order to keep the overall costs low, some people must be excluded from access to those services. Whichever pair is chosen, the stool must fall over. The three legs, universal access, unlimited consumption and low cost, cannot exist together. The claim that the proposed system will increase the number of people covered without decreasing quality and availability of medical goods and services to each and, at the same time, significantly cut the cost of health care in America is absurd. It is an impossibility. Something has to give.
One of the assumptions is that, under the government plan, waste and fraud will be cut out and greedy profiteers will be reined in. An obvious question comes to mind. If the government is able to root out waste and fraud and greed, why has it not done so with Medicare/Medicaid, the government monetary system, the military, banking, the education system, the bailout fiasco, cash for clunkers, and on and on. Politicians have not done so, and will not in the future, because they benefit greatly from fraud, waste and greed. Saying that government cuts waste and corruption is either a blatant attempt to distort the facts or it is an indication that they are totally out of touch with reality. Either one of those characteristics in our leaders does not bode well for the American people.
The overall cost of the present system is very high because of the interaction of the legs of the trilemma. Employer based insurance and government insurance programs cover a significant portion of the population. There is significant access. Government mandates on insurance plans have forced them to cover a host of very expensive treatments for uninsurable events and diseases. New, expensive treatments are being developed all of the time, which participants, insulated from the true cost, strenuously demand. The participants get the goods. Government’s injection of hundreds of billions of dollars into the health system has caused a rapid inflation in the prices of health services, and has distorted the supply and demand for them. The overall costs, the third leg, must be high.
The central planner’s paradigm is the fundamental error in the present health care discussions, the idea that some smart person can and should design a universal system which will fit every person in the country. In reality, health care is merely a market for goods and services. Nobody plans a market. It is made up of the billions of interactions of the participants as they attempt to achieve what they value the most. Since nobody can know what each individual values most, what sacrifices he or she is willing to make for the things desired, what goals they have for themselves and their families and the assumptions they make about the present and future environment, nobody can make decisions for them better than they can make for themselves. Individuals make tradeoffs every day about what they want and the costs they are willing to incur. The cost tradeoff must be on an individual basis. The aggregated cost of the system is absolutely irrelevant. When people make their own decisions, markets work; they attempt to get the most value for what they give. They try to maximize benefits and minimize costs.
Think about it. Our food supply system is incredibly complex, involving hundreds of millions of people with widely varying tastes and budgets, hundreds of thousands of separate farmers, merchants, traders, and restauranteurs, all with their own objectives and needs, and vastly different geographic areas. No central busy-body plans our meals for us, yet Americans get fed every day at a very reasonable price. The overall cost is low because individuals are responsible for their own expenses and decisions. The same could happen with health care if all of the government induced distortions were removed, including pretax employer based insurance plans that get dropped when changing employers, mandated coverage for all insurance plans, which eliminates low cost alternatives to consumers, anti-competitive and monopolistic government programs, and the use of hundreds of billions of dollars of tax money, which inflates prices and distorts the true markets beyond recognition.
Many people bring up the fact that there are families who are so poor that they cannot afford health care, and conclude that the health care system should make special provision for them. They are appropriate targets for the charity of individuals and charitable organizations, and through the centuries, those charitable people and organizations have cared for poor, the disabled, the destitute. Charity is most certainly important, and it is right and good for individuals and organizations to help the poor. Health care and charity, however, are vastly different entities. Mixing them confuses the issues of both and hurts the poor more than it helps.
Our three legged stool in health care is tipping over because it cannot possibly stand over time. If health care in America is to stand strong again, we must throw out the stool and the socialist ideals that support it. We must let Americans stand on their own two feet and take individual responsibility to pay for whatever level of health services and/or insurance that they desire and can afford.
By Dan McLaughlin, on October 5th, 2009
“Those who do not remember the past are condemned to relive it.” That celebrated quote by long gone philosopher George Santayana is familiar to most people because it is so true. Sadly, people and nations choose to forget.
The Holocaust Museum in Washington D.C. is a stark reminder of a not-so-distant history, a grim and disturbing past that many believe cannot happen again. Those people are wrong. Extreme concentration of power, contempt of the governors for the rights of the governed and worship of a powerful leader as savior lends itself to the conditions that have always ended in disaster for a nation and its people. Museum visitors who are aware of contemporary politics likely come away from it with a disturbing sense that something is eerily familiar in that history.
The rise of the Nazis in Germany didn’t just happen overnight in the 1930’s. The people were conditioned over a long period. Many actually cheered the rise of the Fuehrer as a powerful and charismatic leader, someone to regain their proud heritage after the humiliation of World War I. While Hitler was not academically accomplished, he was a genius with a goal that prodded him for many years. He had a plan and came to power within the existing system. He was named Chancellor by the President, with significant support from powerful parties.
The ultimate political accomplishment which allowed Hitler to elevate himself to dictator was the passing of the “Enabling Act.” As described by William L. Shirer in his classic book, “The Rise And Fall Of The Third Reich”, “Parliament had turned over its constitutional authority to Hitler and thereby committed suicide.” They abdicated their role as a check against power and allowed a domineering politician to take his stand among the coldest and most brutal totalitarian rulers the world has known.
The Bolshevik Revolution in Russia in 1917 capped a series of events over many years. The people of Russia suffered oppression at the hands of the Czar and revolutionaries used unrest and chaos to seize power. What they didn’t comprehend is that a government ostensibly of “the people” could multiply the oppression and terror on the people. Hitler, Lenin, Stalin, Mao and so many others who legitimized themselves as saviors of the masses put their ideologies above the people. Countless millions suffered brutal deaths at the hands of cold ideology.
On the other side of the coin, the American Revolution did not happen overnight either. England’s war with France over colonies to the north meant that the British colonies benefited from benign neglect for an extended period of time. Independence and a mentality of freedom grew up over dozens of years. The revolution was merely the natural culmination of a long train of events. The embedded tradition of individual liberty set the stage for an America that quickly blossomed into a nation of prosperity for the common man.
For decades America has been on a different course. It is not to the point where a dictator can take over without a fight. America is, however, definitely heading down that path, like most other Western countries infatuated with socialism. Progressivism started in Germany in the late 1800’s. The conscious objective of the welfare state was not charity, but rather to make the German people dependent on the government. Dependent people can more easily be bent to the will of the state. Contemporary American government is consciously, actively and progressively making Americans dependent.
The harsh reality is that dependence and freedom are opposites. Slaves are totally dependent on their masters. They have no rights, no powers, no property and no dignity. They will, however, likely have some level of security and some food for their bellies. Freedom, on the other hand, is difficult. It may entail periods of failure, hunger, struggle and rebuilding. But free individuals are the most likely to rise from the hunger, the failure and the struggle to become more, to have more and to live more.
If Americans, including the poor, want to prosper and improve their own lot, we need to un-elect all those politicians who would make us dependent. We are at a turning point in our history. We can continue over the cliff to our demise or we can turn back and begin again to honor those characteristics that made America great: freedom and personal responsibility.
Benjamin Franklin gave us another profound thought, which cannot be denied – anyone who trades liberty for security deserves, and will soon have, neither.
By Dan McLaughlin, on September 1st, 2009
The existence of unalienable rights of individuals is an honored tradition in America, rooted in the philosophy of the classical liberal thinkers. The rights to life, liberty and property mean that nobody has the authority to take the life, liberty or property of anyone else. They apply to any person in any social arrangement.
This is opposed to modern liberal thinking, which is the negation of liberty of the individual and imposition of the will of society. Socialist mentality has introduced a whole host of additional positive rights which assume that society owes everyone a minimum standard of living and access to a full slate of services. Those additional rights deserve a closer look to see if they are truly universal and unalienable.
If two people exist on a desert island, both have rights, just as they do in an advanced industrial society. Neither has the right to injure or kill the other person, to enslave him or her or to take property that he or she acquired legitimately through his or her own efforts. These are the basic rules for all human cooperation and for societies based on true justice. It is legitimate to engage in voluntary trade that benefits both parties, but it is not legitimate to use force or coercion to get a benefit at the expense of the other person.
Does either person have a right to food, water or shelter? They do have a right to use their resources, their skills and strength to provide for their own needs, but neither has the right to have the other provide for them. Can person A legitimately force person B to give him medical care? Even if B was a doctor, the only way that A can enforce a right to any level of health care is to violate the rights of B. Thus, that positive right to health care is a spurious and illegitimate claim.
In any society, however, whether made up of two people or billions of people, all parties are better off if they cooperate. B can provide medical services, but A can provide other valuable services, and they will both benefit if they give each other value for value they get. They can each concentrate on the things they do best and depend on the other to provide for other things.
In the event that A becomes disabled and cannot provide any value to the relationship, does A now have a right to the services of B? The answer is unequivocally no. There is no right to violate the rights of others just because one cannot provide for oneself. That does not mean that that B should let A perish just because A has no right to B’s help. Charity and compassion are also important parts of the human condition, religion, tradition and ethics, and it is considered good for B to help A in time of need. The Good Samaritan is a famous and useful analogy that illustrates true charity. It highlights voluntary aid to others, using one’s own resources. It has nothing to do with A having a right to B’s property or service, but only demonstrates the good will of one person for another.
In a larger society, the rights of the individuals hold the same significance. The fact that advanced medical services are available on a wide scale does not mean that any individual has a right to any level of health care. Medicine is merely a valuable service that people provide. Voluntary cooperation is the essential characteristic of any free society, but no medical person owes anyone else medical service. It is based on mutual agreement about value given and value provided.
There are many charitable organizations and millions of charitable people who are willing to give of their time and their resources for the benefit of others. It is fitting and proper that they do that. It is not fitting and proper for organizations or individuals to use the force of the state to coerce others to do charity. Using the government to take money from others for enforced charity is still aggression against the rights of others. It is counterproductive and displaces true charity with violence.
There is no right to health care. The path to a prosperous society where the poor and disadvantaged are most likely to have their needs met is paved with respect for the basic unalienable rights of each individual, being bound only by the equivalent rights of others.
By Dan McLaughlin, on June 22nd, 2009
Socialism is alive and well. In America, as elsewhere, however, the socialist movement isn’t and never has been a worker’s movement, as it has been made out to be. Socialism has been, from the start, a movement of intellectuals. It festers on college campuses. It is a framework constructed by very smart people who think that ordinary people are too stupid to run their own lives. Those less capable underlings need wise, educated people, like the intellectual socialist class, to tell them what to think, what to buy and not to buy, and to determine what is good and bad for them and their families. Workers of the world, they consider you to be the incompetent slugs who cannot manage your affairs.
Since the beginning, the workers of the world have been used as pawns for the wealthy and intellectual socialist elite to achieve political power. Together, the Kim Jong Ils, the Robert Mugabes, the Maurice Strongs and George Soroses of the world control billions of dollars in personal wealth. Not your typical working class guys.
While Karl Marx gave the pseudo-theoretical justification to the revolutionary class struggle approach to socialism, he was not of the working class, nor was his benefactor, Freidrich Engles, a wealthy industrialist. The inevitable Marxian state dictatorship is not made up of workers, but rather the political elite. The workers become slaves wherever Marx’s flavor of revolutionary socialism is forced upon them.
Fabian Socialists use a very different method than the Marxists. It is the gradualist approach, which uses the institutions of a society to turn public opinion against voluntary markets and individual freedom. It seems that they have been very successful over the last few decades, as a large share of American politicians and high level bureaucrats are either closet socialists or outright, self avowed socialists.
The problem with socialism is that, whether it is the brutal Marxian version or the patient Fabian version, it is still slavery. It is the forfeiting of the rights of the individual to the state. Ultimately, there can be no middle way. There can be no mixed economy in the long run. Socialism is the abolition of voluntary markets. To the extent that socialism wins out, freedom loses. The ultimate expression of socialism is totalitarianism because people don’t give up their freedom voluntarily. The only way to make people obey the will of the state is with the iron fist.
The societies that appear to be mixed economies now are not really mixed. They are free markets that are in the process of being overrun by socialism. They are precursors to the socialist state. It is a very uncomfortable idea, but the United States is actually a very long way down the road in that direction. Most Americans are simply normal, good natured, busy people who want to live their lives without being bothered by politics, except for a few days during election season. Unfortunately, those who wish to take their freedom from them are very happy to work diligently all year round. Fortunately, it is not an inevitable progression, and it has been reversed in the past, when the people vigorously fight against it.
Things are happening startlingly quickly. The events of the day have many politicians reciting the mantra, “Never let a good crisis go to waste.” The consolidation of power needs crisis for legitimacy. Some of the things we are seeing now have never happened in this country in my lifetime, nor that of most living Americans. A disturbing number of people have forgotten or have never learned what it is to be an American, a citizen of the only country the very foundation of which is freedom of the individual and responsibility for one’s own life. It is time for Americans to sit up and take notice that history repeats itself when people forget, and history is often not pretty.
These events have happened in the past, even the recent past, in other countries. History is littered with the ashes of egalitarian workers paradises, or the corpses of the workers themselves. Members of the political class under any form of highly centralized government, whether they are made up of corporatists, czars or commissars, necessarily use the common person for their own benefit.
Marx’s famous words from the Communist Manifesto, “Workers of the world, Unite!”, is an appropriate theme for today. With its obvious tendency to create mass misery, the workers should realize they must unite against socialism for their own benefit.
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By Dan McLaughlin, on June 9th, 2009
June 5th is the birthday of John Maynard Keynes, a brilliant economist whose influential work during the 1930’s changed the course of history. He has had a great deal of influence on generations of economists, including advisers to our current president and congress. It’s too bad he was wrong in virtually all of his innovations.
Keynes is considered the father of macroeconomics, one of the two major divisions of modern mainstream economics. Microeconomics is the description of reality, the study of how people interact and how markets work. Macroeconomics, on the other hand, is the study of how government can efficiently manipulate markets and people.
In the present world, economic reality and truth is largely ignored. The vast body of brilliant intellectuals involved in economics occupy themselves with building and analyzing macro models for government to more easily control the economy. They use their massive mathematical and analytical brainpower to try to develop more clever and complex models to predict the future and show politicians which strings to pull.
It can be clearly seen that the macroeconomists have failed miserably with their interventions to achieve a stable economy and well being for the people. It was a vast experiment over many decades and is a profound and horrible tragedy. All macroeconomists who promoted the interventionist state should be ashamed that they brought this great country to its knees. They should be crawling under a rock in embarrassment. That is not the way of the intellectual, however. The problem, they say, is that they didn’t intervene enough.
All of the macro models and manipulation are built on false premises. The first one is that government intervention can be successful at bringing long term to people in an economy. The second one is that they should intervene, even if success was possible.
Keynes’s conceived that, by measuring and controlling aggregates, such as aggregate demand, total unemployment and gross domestic product, the central planning gurus pulling the strings could make everything coordinate, put everyone to work and advance toward a post scarcity utopia.
The coordination problem is one that central planners have always had to deal with, and the former Soviet Union was one of the clearest examples of the problem and its results. The abolition of voluntary markets and the institution of central planning after the Bolshevik Revolution resulted in mass starvation and deprivation for many millions of people. Lenin was forced by reality to enact the New Economic Program in 1922, the limited reinstitution of markets, to prevent further deaths and possible overthrow of the regime.
Macroeconomics is, in its very essence, the rationalization of central planning. The core fallacy with all of macroeconomics is that data aggregated over a large, diverse area can be used to coordinate the activities in each locality and each transaction between actors in the markets. Each locality in a vast economy has its own peculiarities of weather, geography, demographics, culture and a host of other characteristics. The people each have their own goals, hopes, dreams, advantages and limitations.
It is not possible to impose a uniform solution on 300 million different people over millions of square miles of coastline, mountains, deserts and tundra. The problems and opportunities for small desert communities is vastly different than those of northern metropolitan centers. Macroeconomic policy is necessarily a generic solution to particular problems. The inevitable result is discord, waste and conflict. Because macroeconomics is inherently political, the macro solutions pit one group against another for control of the strings.
This brings us to the second inherent weakness of macroeconomic policy. Even if it was possible to have efficient macro solutions, it is wrong to impose those solutions. A slave owner might become an expert at wringing the most productivity from slaves. That he is able to do so does not mean he should. He should, rather, not enslave them. He should respect their rights and only enter into voluntary trade.
The same applies to national governments. Many people assume that it is a proper role of government to use coercion and confiscation to make people do things that will increase employment, aggregate income, gross domestic product or any other artificial measure. People in a free country, however, are not slaves of the state. Whether a policy will increase GDP or not does not give a politician the right to interfere with the voluntary interaction of market participants.
J.M. Keynes was indeed a brilliant man. Like so many brilliant people today, he was profoundly wrong and arrogant in his wrongness.
By Dan McLaughlin, on May 21st, 2009
“The Limits Of Power” is an engaging book that explores the contemporary imperialism of the United States Of America.
Most of the facts that Andrew Bacevich puts forth in the book are quite true. The central core of the book, the weakness of the idea of American exceptionalism, is indeed valid. That exceptionalism and the resulting imperialism is, in the long run, more of a threat to American citizens and society, and indeed the whole world, than most foreign powers. Even though he gets that right, he harbors some essential misunderstandings which only serve bring him to some misguided conclusions.
His premise is that, because Americans have a fetish about freedom, they have succumbed to consumerism and dependence on foreign oil and other goods, in order to live the good life. This dependence has put a premium on military might to protect the freedom to consume. He sees this as the primary cause of the Middle East conflicts. Americans protecting their interests, using the false front of freeing the people of that region from tyrants, use military might to protect their supply of cheap oil.
He is writing from a background as a retired army colonel. Thus, when he speaks of The United States, America or Americans, he is generally speaking of the collective political apparatus of the state, not about the people at all. This does set the tone for much of the book and his outlook. There are times, however, when he does use the terms to describe individual people, consumers in the “crisis of profligacy.” This mixture serves only to confuse the logic of his arguments.
A fundamental error in his logic, which affects most of his conclusions and recommendations, is that he misconstrues the notion of freedom. The only coherent understanding of freedom is that it has limitations only in the responsibility to refrain from interfering with the freedom of others. That is not the understanding of freedom that Bacevich uses. He states that “freedom has an underside.” His statement in the first section of the book is telling. “In the aftermath of the attacks on the World Trade Center and the Pentagon, Washington’s resolve that nothing interfere with the individual American’s pursuit of life, liberty, and happiness only hardened.”
It may be that politicians wanted Americans to think that they were interested in preserving freedom, but everything that they did resulted in the destruction of freedoms for Americans. As he noted later in the book, American politicians and military leaders used the pretext of freedom for Middle East countries to initiate aggressive military and political intervention in the affairs of foreign countries, with the objective of installing friendly governments. Yet he doesn’t grasp his own inconsistent understanding and misuse of the term throughout his discussions.
Through much of the book, that disconnect was quite disturbing, because I agree with much of what he said. Imperialism is weakening America, morally, politically and financially. American politicians are trying to impose on the world standards that they themselves refuse to abide by. Frequently, however, I would be jolted by something that didn’t fit, conclusions that were wrong. It seems to come down to the idea that freedom is the problem.
In his conclusion, he comes close to being right, but then veers off course by construing that international relations are only political or military. He refers to his master, Reinhold Niebuhr, saying “Yet he [Niebuhr] understood that a nation satisfies its interests more easily when those interests are compatible with the interests of others.” What he is stating is the essence of free trade. When people are free to trade with whoever they want on whatever terms they want, the interests of each are made compatible. Lack of coercion creates benefits of cooperation for both parties.
Where he goes wrong is to believe that the interests of American politicians are the interests of the Americans. That is the root of most economic fallacy and problems in international relations. The self interest of politicians is almost always at odds with the self interest of citizens. Bacevich treats them as one and the same. On the very last page, he quotes Neibuhr again, “social orders will probably destroy themselves in the effort to prove that they are indestructible.” The reality is that politicians will destroy social orders because their own self interest is in power, and power ultimately destroys freedom and progress.
Bacevich’s entire line of reasoning seems to be based on his understanding that “Freedom is the alter at which Americans worship, whatever their nominal religious persuasion.” That unrestrained pursuit of life, liberty and happiness leads to the outward projection of military might to protect American’s right to buy stuff for cheap. That has led to a dependence on foreign countries for cheap oil and cheap goods. The American standard of living is thus, according to Bacevich, the result of imperialism. The conclusion is that Americans must accept a lower standard of living in order to bring the imperialist government in line. If they keep demanding stuff, the government will feel obliged to get it for them.
There are, in fact, many people who do worship at that alter that Bacevich talks about. But the freedom he is talking about is not freedom with any coherent meaning. That false freedom denies that anyone else has freedom to pursue their own self interests. Because Americans are free to trade does not in any way give any philosophical support to the idea that they have a right to force others, domestic or foreign, to trade with them on terms that they themselves set. That is not freedom, in any coherent sense, but rather the use of coercion, the rejection of freedom of others. True freedom is, in fact, a two way street.
Americans have no right, whatsoever, to the petroleum resources or any other goods of any nation or person. If every Middle East country stopped producing and selling oil, that would probably be harmful to Americans in the short run. That fact does not give the American military or the CIA the right to interfere militarily or politically in the workings of any of those nations. Americans can and would adjust. But moreover, that scenario is highly unlikely to ever happen. The fact that Americans are dependent on foreigners for oil means that they are dependent on us for other things. When Americans pay in dollars, foreigners have to buy something from Americans to use those American dollars.
Bacevich suffers from the illusion that dependence is a bad thing, and that Americans would be better off by being independent of any country for any good. It is a very sound and widely accepted economic principle that international trade between individuals makes all parties better off. Thousands of different factors give comparative advantage to different regions, different cultures and different people. When someone concentrates on what they are good at and trades for what they are not good at, they will likely be significantly better off. The braoder and more international the structure on which comparative advantage can be pursued, the higher the standard of living will be for all involved. It is not dependency but rather interdependency.
The notion that nations trade is a fallacy that promotes imperialism. Nations don’t trade, the people of the nations do. Neither they nor their state apparatus has any right to coerce others to trade with them.
A more realistic line of reasoning to me is that economic freedom created prosperity. That prosperity allowed the possibility of large, powerful government that was capable of imperialism. That large government and its imperialism are a threat to the very freedom that created the prosperity. Thus, massive government and imperialism must be resisted by all people interested in true freedom and future prosperity. If the individuals in America were held responsible for their own lives and were free to trade with people, at home and in other nations, unhindered, and the people in other nations were free to trade with Americans without coercion and the threat of military force, America would be a shining star among nations in the world. Terrorists would not target Americans, because American military would not be using force for economic blackmail and political benefit. America’s military prowess could be deployed in true defense, not interfering in the politics of other nations. As Bacevich states, “We don’t need a bigger army, but rather a smaller foreign policy.”
By Dan McLaughlin, on May 20th, 2009
Free market fundamentalism is a disparaging term that attempts to emasculate the credibility of anyone who is in favor of the free market, who believes that a voluntary society is morally justified and gives the best result. People have been trained to think of fundamentalists as dangerous, crazy people, so the strategy is to paste the descriptive term “fundamentalist” on someone who thinks that the government has exceeded its bounds, has screwed things up enough already, and that it’s time to try freedom again.
Freedom is ownership of your own body and your property, to use as you see fit. The only restriction is that you can’t infringe on the rights of anyone else. My freedom to swing my fists ends where your nose begins. The opposite pole is slavery. It is the absence of rights and lack of ownership of your body and property. Totalitarian socialism is slavery taken to its obvious and necessary conclusion. All citizens forfeit their rights to those of “society”, or the dictator, who poses as the all knowing mind of society. The opposite of free market fundamentalism is slave market fundamentalism. In all cases, slavery has been and is possible in the long run only if government is an active enabler or participant. Since government is the enforcer of slavery and the eliminator of voluntary markets, a synonym for slave market fundamentalism could be government fundamentalism.
The choice that we need to make is whether we want to move in the direction of freedom or in the direction of slavery.
Though America is still among the most free countries, we actually haven’t had truly free markets and free society for a very long time, only less oppression than others. We have the freedom to vote, but that has evolved into a license for legalized theft. Freedom has been replaced by bribing voters with goodies. Both major parties are big government fundamentalists. Both want to be the master. They differ only in their approach and target audiences.
We have the freedom to buy things, but that freedom is bound by the requirement to use the legal tender created by government, which is constantly being manipulated and systematically devalued. Our present economic situation is due to the boom and bust cycle inherent in our national monetary policies of interest rate distortion, loose credit and expansive money supply. At this time, nearly 98% of the value of the dollar has been inflated away by the Federal Reserve Bank since its founding in 1913.
We have the freedom to work, but that freedom is bound by a complex maze of regulation and distorted incentives which discriminate against the poorest and least skilled people in society. We are free to earn money, but that freedom is bound by confiscatory taxes of approximately 40% of national income to support unproductive government. It is a huge and growing parasite on the productive people in society.
We still have some level of freedom in our health care choices, but it is heavily bound by the chains of protectionism, regulation, and distortion by floods of federal dollars. Of any of the markets in America, health care is one of the least free, the most heavily bound by bureaucratic strangulation. It can be no surprise that it is also one of the most wildly distorted.
Education in America at all levels is a wreck and failing us and our children because of central planning by the government education monopoly. Any alternative is made very expensive and, in most cases, impractical. There is little freedom in education.
I am a market fundamentalist. I think freedom is right and is the definition of justice. Since free markets are merely freedom in all its forms, the only other alternative is to move toward slavery. Any person or business that doesn’t violate the body or the property of anyone else should not be subject to the whims of a politician. Any business that does violate the body or property of someone else should be punished for whatever violation they commit.
A distorted legal system that doesn’t protect rights, or corrupt officials that don’t punish wrong doers, are absolute necessities for slavery and oppression to flourish. A government of bureaucrats that imposes arbitrary, detailed rules on everyone is a form of slavery. Freedom and dignity include not being told what to do by a master, whether that master is a slave owner or a government bureaucrat. The move away from free markets is the move toward government fundamentalism.
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