Friday, October 24, 2008

The NOT PC week, to 24 October

Phew, a busy week here at NOT PC -- a week in which the pollies talked themselves up, the economy headed on down, and NOT PC was reconfirmed as the fifth most popular political blog in New Zealand.

And here's what you seemed to like here over the last seven days or so -- and oddly enough, it's mostly on the tanking economy and the numb nuts responsible for it, unable to explain it, or have no clue how to extricate us from it:

  1. National Socialism
    National's "bold move" to "cleverly outflank Labour on economic policy" by socialising investment -- to allow Bill English to buy up New Zealand -- brings back memories of some dancing Cossacks, doesn't it? And makes it even clearer that a vote for National is now, without doubt, a vote for left wing socialism and State ownership.
  2. A lot of contra-cyclical nonsense
    A "Keynesian-style spend-up as an economic stimulus" is not what the doctor should be ordering. It's a treatment that's worse than the disease.
  3. REISMAN: It's Not Laissez Faire, Stupid!
    George Reisman is back from holiday, and he's written the most thorough review that I've yet seen of what caused the current crisis.  Read it.  That's an order.
  4. Nasty, brutish - and as stupid as a political journalist
    Who knew that when alleged economist Paul Krugman got a Nobel award for earlier more rational work, the prestige of the Nobel would be used to promote his current theme: the alleged horrors of economic freedom; and his favourite prescription: the need for bigger, more interventionist government. Well, we all did really didn't we.  But who would have thought the leaders of bigger, more interventionist governments would move so quickly to embrace his prescription!"
  5. More economic illiteracy in the wild, this time on "inflation"
    Despite Bernard Hickey's many virtues, he and his mainstream colleagues still don't have their head around what inflation actually is.  Which means they don't know the difference between a symptom and its cause, which means they can't see what caused the present problems.  But then, neither can the Reserve Bank.
  6. Lockwood Small-hands
    Yep , everyone's had a crack at Blockwood. And there are few who deserve it more.
  7. In defence of Joe the Plumber 
    A rare bit of colour in an otherwise colourless US campaign -- and no, that's not any kind of a pun -- Joe the Plumber seems to be "a thorough-going outlaw in the best sense of that term."

So yet again there's a fairly common theme there -- and with good reason methinks.  But don't forget the great art and architecture you might have missed, and whatever you do don't forget to check out this week's Objectivist blog roundup over at Rule of Reason.  It's bigger and better than ever before!

Enjoy your long weekend,
Peter Cresswell

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Beer O'Clock: Hallertau brewpub

Picture by NZ Life & Leisure Magazine

Beer O'Clock is all about trust. You trust the two 'regular' contributors, Stu and Neil, to tell you the real deal on good beer.  And I trust the two of them to send me regular posts that give the the real deal on good beer.

But ladies and gentlemen, I'm afraid we've been let down.

For the second week running, our two contributors, Stu and Neil, have failed to front.  And after due consideration, I'd like to point out that between them they support both of the two major parties, and that their failure to front can only be seen as a reflection on the integrity of those parties.

1511324055_e7ff93c127It's all about trust, you see -- and I trust you'll give the issue due weight in the voting booth on November 8.

  Now, in the absence of the tardy twosome, here's a link to the perfect spot to think about on a long weekend: a story about the Hallertau brewpub in Riverhead [hat tip Real Beer], a 20 minute drive west of the Auckland CBD -- a place I can personally recommend, and with some decent roads round about for sports car driving, the ideal place to head for on a fine Labour weekend.

A place you can trust as the ideal destination for the perfect beer.  Check out their website and plan your menu now. 

I am.
Hallertau_map

UPDATE:  Fear not my friends (don't you hate it when McCain says that), our two fearless beer hounds are hard at work on greqat things. As Greig reports in the comments, "Stu is busy making fantastic beer (which I've just finished imbibing), and Neil is also fairly thinly spread. I'm sure they'll be back."

In fact, I know they will be.  :-)

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The US presidential candidates in 25 words or less

Philosopher Leonard Peikoff has upped his game since the last Congressional elections. Here's his assessment of how the US presidential candidates look to him now:

McCain: "a tired moron"
Obama: "a lying phony"
Biden: "an enjoyably hilarious windbag"
Palin: "an opportunist struggling to learn how to become a moron, a phony, and a windbag"

(I shudder to think what he would make of our local morons.)  No wonder so many rational Americans, like Myrhaf, are abstaining.

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So where do we get tickets?

BustedBlonde cactuskatecartoon Now to more serious issues: the rumour of a mud wrestling match between Busted Blonde and Cactus Kate to resolve their apparent "differences" over their respective positions in the latest blog rankings.

 Apparently one of them has "issues."

All we'd like to know here is: where do we get tickets?

John Maynard Keynes: The destroyer of monies

SpotlightOnKeynes IN HER COLUMN IN THIS morning's Herald Deborah Hill Cone confesses to "swotting up on John Maynard Keynes."

For Galt's sake woman, why!?

The pity of it is, I've heard plenty of other good folk who're taking their copy of Keynes' General Theory down from the shelf and dusting them off. 

Poor things.  They'd be better off using them to light this year's bonfire. 

He's not easy reading, and since his "theory" is responsible for so much of the economic destruction of the last seven decades, there's no pot of gold at the end of it either.

As he said himself,

"...the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

When it comes to the appalling notion that it's a good idea to let government spending run wild and have government banks control and manipulate the money supply, Keynes is that very scribbler -- he still rules us from the grave -- and madmen in authority are still following him.

And haven't they done a good job!

KeynesGhostFrom extending the depression of the 1930s (massive intervention by the state to prop up wage rates and inflate credit took unemployment from 17.4% in September 1931 to 17.4% in January 1938, and the Dow Jones from 140 to 121 over the same period) -- to stagflation in the 70s -- to Japan's "lost decade" of the 90s -- to the "contra-cyclical" claptrap being talked up today -- for too bloody long the "practical men" have been the slaves of this defunct economist, to the general deficit of us all.

Keynes isn't popular because his ideas ever worked.  He's popular because his prescription for every economic ill was inflation of the money supply, increased government spending and massive government intervention -- unsurprisingly this snake oil proved enormously popular with inflationists, interventionists and proponents of big government snake oil.

Who would have thunk it?

"To such people," as economist Ludwig von Mises pointed out,

"the Keynesian slogans appealed strongly. Here they found what they were looking for.
    If demand lags, then create "effective" demand by expanding credit!
    If there is unemployment, print more money!
    If you want to increase "the real national dividend of useful goods and service," then "dig holes in the ground paid for out of savings!"
    And, first of all, do not save, spend!"

Hardly the sort of thinking one would want to dust off.  Mises institute president Lew Rockwell puts Keynes "general theory" in plain words:

    "The underlying idea in the Keynesian tradition is to attribute the length of the recession to insufficient effective demand, so it is up to government to give the economy a kick-start, change public psychology, spend money on anything and everything, stop the money hoarding and start the buying, inflate a bit here and there, drive down interest rates, run deficits for a while, and fool the workers into thinking they’re getting raises though their real wages are falling.
   
That's the traditional mix of policies that has been employed during every recession between the early thirties and the current day."

And just look at the results!  If deepening recessions and making them longer is your aim, then John Maynard Keynes is your man. If the most first lesson we learn that makes us adults is that there's no such thing as a free lunch, then Keynes is the man who made "free lunch" economics sound smart -- who said you could eat your consumption and and have your production too.  But you can't.

Economist  Henry Hazlitt points out that the very first lesson of economics is, or should be, that

"the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

Keynes advice instead --  lapped up by politicians for whom "the long term" is merely the next headline -- was not to worry about the long term at all.  "In the long run," he said, "we're all dead anyway."  In fact, in the long run, we're all paying for the follies of fools like him and his followers.

He claimed that credit expansion "performed the miracle...of turning a stone into bread."

He said that "To dig holes in the ground, paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services."

And in the in the preface to the German edition of his General Theory, published in Nazi Germany in 1936, Keynes boasted that his theory was "particularly well suited for totalitarian regimes" and lamented that it was "less fit for the conditions prevailing in freer societies":

"The theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire."

Milton Friedman is rightly castigated for helping out Augusto Pinochet, but compared to Keynes -- the ultimate totalitarian's shill -- Friedman was clearly a piker.  This is not the sort of chap you'd like to have around your cabinet table.

AS A CONTEMPORARY OF KEYNES, Hazlitt produced a thorough book-length destruction of Keynes' tax-and-spend-spend-spend system that any serious student of Keynes really has to address.  Hazlitt concluded, in a sentence, that "all Keynes's recommendations for practical policy are unsound." In his introduction Hazlitt summarised:

    "I have analyzed Keynes's General Theory ... theorem by theorem, chapter by chapter, and sometimes even sentence by sentence... In spite of the incredible reputation of the General Theory, I could not find in it a single important doctrine that was both true and original. What is original in the book is not true; and what is true is not original.
    "In fact, even most of the major errors in the book are not original, but can be found in a score of previous writers."

If you don't wish to take advantage of Hazlitt's brilliant book-length critique -- and with a PDF version so easily available you really should if you're serious -- if  you're short of time and still insist on dusting off some Keynes, then several much shorter introductions to the destructive aristocrat and his frenzied notions can be found at the Mises Institute site and elsewhere:

If you genuinely want to understand how governments destroy our money, and the nostrums that back up the pillage, then this is a great place to start.

PS: Since this has gone long enough anyway, I can't resist concluding by posting Ayn Rand's observation of the whole field of "macroeconomics" which Keynes came to dominate is, but which is in effect,

"a science starting in midstream: it observed that men were producing and trading, it took for granted that they had always done so and always would—it accepted this fact as the given, requiring no further consideration—and it addressed itself to the problem of how to devise the best way for the "community" to dispose of human effort."

No wonder some of the more intelligent macroeconomists are questioning their calling.

And finally, here's one of Ayn Rand's many observations of Keynes (this from a brilliant article analysing modern-day mainstream economics called 'Egalitarianism & Inflation'):

     [P]roject the mentality of a savage, who can grasp nothing but the concretes of the immediate moment, and who finds himself transported into the midst of a modern, industrial civilization. If he is an intelligent savage, he will acquire a smattering of knowledge, but there are two concepts he will not be able to grasp: "credit" and "market."
    He observes that people get food, clothes, and all sorts of objects simply by presenting pieces of paper called checks—and he observes that skyscrapers and gigantic factories spring out of the ground at the command of very rich men, whose bookkeepers keep switching magic figures from the ledgers of one to those of another and another and another. This seems to be done faster than he can follow, so he concludes that speed is the secret of the magic power of paper—and that everyone will work and produce and prosper, so long as those checks are passed from hand to hand fast enough. If that savage breaks into print with his discovery, he will find that he has been anticipated by John Maynard Keynes...
    Perhaps it is harder for us to understand that the mentality of that savage has been ruling Western civilization for almost a century.
    Trained in college to believe that to look beyond the immediate moment—to look for causes or to foresee consequences—is impossible, modern men have developed context-dropping as their normal method of cognition. Observing a bad, small-town shopkeeper, the kind who is doomed to fail, they believe—as he does—that lack of customers is his only problem; and that the question of the goods he sells, or where these goods come from, has nothing to do with it. The goods, they believe, are here and will always be here. Therefore, they conclude, the consumer—not the producer—is the motor of an economy. Let us extend credit, i.e., our savings, to the consumers—they advise—in order to expand the market for our goods.
    But, in fact, consumers qua consumers are not part of anyone's market; qua consumers, they are irrelevant to economics. Nature does not grant anyone an innate title of "consumer"; it is a title that has to be earned—by production. Only producers constitute a market—only men who trade products or services for products or services. In the role of producers, they represent a market's "supply"; in the role of consumers, they represent a market's "demand." The law of supply and demand has an implicit subclause: that it involves the same people in both capacities.  
   When this subclause is forgotten, ignored or evaded—you get the economic situation of today...

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Quote of the Day - Jean Baptiste Say

As if he were talking yesterday, instead of 187 years ago, the progenitor of Say's Law said:

"Thus, it is the aim of good government to stimulate production, of bad government to encourage consumption."

Discuss.

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"Hong Kong solution" to bailouts and deposit insurance

"Free-market capitalism transformed Hong Kong from a poverty-stricken victim of the Second World War to its current prosperous condition," notes D.W. McKenzie in an article 'A Move Towards Market Socialism', and Hong Kong is now, or should be, transforming the argument on bank bailouts and the need -- nay, say supporters, the urgency -- of government-backed deposit insurance to put a halt to bank runs on healthy banks.

None of that destructive nonsense for Hong Kong.  When Hong Kong's Bank of East Asia faced difficulties, notes McKenzie, when depositors began to withdraw money en masse, what happened?  Did the Hong Kong government, what there is of it, move to bail it out or guarantee its deposits No, it didn't.  Instead:

    Hong Kong tycoon Li Ka-Shing began buying up shares. This move by Li Ka-Shing helped restore depositor confidence, and rightly so. The Bank of East Asia is well capitalized and has minimal stakes in Lehman and AIG. Of course, Li Ka-Shing made this move for personal profit, but this did help stabilize the financial situation in the Far East. The Hong Kong approach stands in stark contrast to the Bush administration's new policy.

And to the braindead approach taken by the rest of the western world.

Deposit insurance is a short-term solution to a long-term problem, for which as Li Ka-Shing demonstrates, there are much better alternatives.  For despite the illusion of security cast over such schemes, Government-backed deposit insurance is anything but. 

You see, government-backed deposit insurance, which sets up the taxpayer as the fall-guy for something over which they have no control, is inherently risky.

By offering a direct incentive to depositors to prefer riskier institutions with nose-bleed rates of return over safer institutions with more risk-free rates (confident in the knowledge that the riskier profits, if any, will be privatised while losses will be paid for out taxpayers' life savings) deposit-insurance schemes reward the shakier institutions and penalise responsible ones.

The incentives of such schemes are entirely the wrong way round, and are only exacerbated for depositors by the drop in bank savings rates mandated by Alan Bollard yesterday, giving depositors choosing a home for their savings an even greater incentive to "go risky."

Not something you want to hear if "recovery" is what you're after.  Or if repairing or flushing out unsound banks is your concern. Or if you're trying to restore a "liquidity crisis" engendered by a lack of faith in borrowers' ability to repay their debts, and "uncertainty that the balance sheetsof financial firms are credible" -- which the almost legendary Anna Schwarz points out as the cause of today's "liquidity crisis" -- when you know that the incentives all point towards more risk, not less.

And once you've put deposit insurance in place -- no matter how "temporary" you might think it's going to be -- taking it off is like opening Pandora's Box.  It's like taking off a wage-price freeze: all the "temporary" evils squelched by your scheme leap out, and all you're gonna be left with is hope. 'If that hasn't already been destroyed by then.

So government deposit insurance is not the salve so many think it is.

But, I hear you cry, NZ has no tycoons with the wealth to back up local banks in the manner of Li Ka-Shing!  Then more's the pity for us, I say. 

Have you ever asked yourself why we don't?

UPDATE 1:  ANZ-National Bank has just issued the best statement  of its financial health:

"The bank has announced a profit of $1.16 billion saying its New Zealand arm performed well, benefiting from volatility in the global market."

Good for ANZ-National.  Naturally, the unions are whining.

UPDATE 2:  And it doesn't take long for the "Law of Unintended Consequences" to kick in does it.  What to do you think is the result of the unfortunate conjunction of  taxpayer protection for riskier finance companies and Bollard dropping bank rates?  Surprise, surprise: "Investors are “rushing” to finance companies to invest money."  [Hat tip Visible Hand in Economics]

I think I should take up economic prediction.

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Wisdom supporting liberty - Jules Dalou, 1889

                         Dalou_Jules_Wisdom_Supporting_Freedom (1)

When liberty has never needed the support of wisdom so desperately, it's a pleasure to discover gems like this, from back when the French knew how to do sculpture and the world knew how to appreciate it, posted at blogs like The Aesthetic Capitalist -- where you can go to learn much more about this small 24" wonder.

As Keats said, "Truth is beauty..."

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Thursday, October 23, 2008

REISMAN: It's Not Laissez Faire, Stupid!

I won't say much more than this: George Reisman is back from holiday, and he's written the most thorough review that I've yet seen of what caused the current crisis, and why -- and of all the reaction to it, and and what needs to be done now.

He covers the braindead "Marxist" media reaction; the rush to blame laissez-faire (as if!); what, and who, is really responsible for the crisis; and where, if we're not careful, we're going to all end up.

Read it.  That's an order. Read it all.  And then use it -- take what you know, and make what you know heard more widely.

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NZ blogosphere rankings

nzblogosphere Tumeke's Tim Selwyn has done another sterling job in ranking NZ's political blogosphere for another month -- you can see the new top twenty in Tumeke's side bar

Quite a few movements, most of them due to the increasing tribalisation of the blogosphere over the election period, and one of particular relevance to this blog: it's moved back up from seventh to fifth, for which I have to thank you, the readers.

So that looks to me like you lot have enjoyed what seems to have almost become NOT PC's primary focus over the last few weeks: providing rational commentary on governments' pursuit of economic destruction. I hope so.

Other big moves:

  • Clinton Smith's Double-Standard takes over from Russell Brown's Public Address at number two.  That's a big move -- there was a time when Public Address and Kiwiblog were the unassailable "Big Two."  For the Double-Standard to knock it off PA in just one year is quite some move, attributable perhaps to the help from both the Ninth Floor and NZ's biggest union making it essentially the country's first "full-time" professional blog.
  • The Chris Trotter/Matthew Hooton blog zooms up seven places to seven: a well-deserved move.  Love them or loathe them, if you haven't yet heard the spin these two can put on an issue, you have yet heard what a spin doctor can do to an issue.
  • The Green Party's Frog Blog drops five to nine.  Also richly deserved. Instead of being an outreach tool for the Greens' anti-industrial ideology, as it once was, Frog has more and more become a blog for the already-converted -- and with the collapse of the world's financial centres, the Frog's whining schtick has rapidly become less relevant.
  • No Minister drops four to ten.  A big drop for a big group of bloggers.  I blame the blue-tinted specs they've all put on for the election period that've been blinding them to what's really going on in the world.
  • And in other moves: the often hilarious Dim Post deservedly moves up four to twelve; the much quoted newbie Roar Prawn roars up to enter the top twenty at thirteen (unlucky for some, but); the stodgy Inquiring Mind drops four to fifteen; Poneke has obviously written about one bus trip too many, continuing its slide -- this month down to seventeen; and (as if to show the world's changing) the often rational Visible Hand in Economics enters the top-twenty at nineteen.

So that's one tribalist up, several tribalists down, and a new enthusiasm for rational economic commentary.  To my mind that should make Paul Walker's resolutely non-tribal and remarkably rational Anti Dismal much more visited than it is.  Check it out.

Anyway, congratulations to all the big movers, commiserations to those who've lost their place -- and for readers: take the opportunity to use Tim's hard work to check out a few new blogs when you get the chance.

Cheers, PC

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WSABHD?

BusinessDunce Alan Bollard has just dropped the Reserve Bank's cash rate by a full percentage point.  One whole percentage point.  Think about that while you think about these comments, from Mike Shedlock's Global Economic Trend Analysis:

We are in this mess because the pool of real savings has been depleted and it is time to stop spending and replenish savings.

And these comments from Frank Shostak's article 'Good and Bad Credit':

    Neither the Fed nor the Treasury is a wealth generator: they cannot generate real savings. This in turn means that all the pumping that the Fed has been doing recently cannot increase lending unless the pool of real savings is expanding. On the contrary, the more money the Fed and other central banks are pushing, the more they are diluting the pool of real savings.
    We suggest that decades of reckless monetary policies by the Fed have severely depleted the pool of real savings. More of these same loose policies cannot make the current situation better. On the contrary, such policies only further delay the economic recovery.
    By impoverishing wealth generators, the current policies of the government and the Fed run the risk of converting a short recession into a prolonged and severe slump.

So now you've read those comments, and you've had a chance to think them through, and keeping in mind Henry Hazlitt's "one lesson" -- i.e., that "the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups" -- here's a few questions for you to consider:

  1. What Should Alan Bollard Have Done (WSABHD)? 
  2. And what, in your view, will be the effect of what he has just done on the pool of real savings?
  3. What will that do to our chances of real economic recovery?
  4. What's the single best way to "unfreeze" the flow of credit (NB: you can cheat on your answer by reading Shostak's answer two-thirds of the way down here).
  5. Have central bankers like Alan Bollard and Ben Bernanke learned the correct lesson from the Great Depression?
  6. When will they admit they've failed and resign?

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Bailouts won't help; cheap credit won't help

A market watcher who gets it right: Dr. Doom: Bailout Won't Help Markets Much - CNBC

    The $700 billion US financial rescue plan might give the market a temporary boost, but  eventually stocks will fall again, Marc Faber, the analyst know as "Dr. Doom," told CNBC.
    Faber, editor & publisher of “The Gloom, Boom & Doom Report”, said he doesn’t believe that the recent efforts to ease the global credit crisis will help.

He's right.  Market need to correct, not to be meddled with.

    “It will work temporarily in the sense that some confidence is coming back into the market,” Faber said about the bailout plan. “First we’ll get the bounce from an oversold level and I suppose afterwards it will drift because the global economy is decelerating at an unprecedented pace, and the governments in the Western world, they try to reignite credit growth, and I think it will fail.”

It will, for sure. Real credit growth comes from the pool of real savings, not from the central bank's credit spigot.  Turning on the central banks' credit spigot doesn't increase that shrinking pool, it further denudes it -- a fact of which Alan Bollard has just shown himself to be utterly ignorant.

    [Faber] didn’t have anything positive to say about the coordinated moves by foreign countries to inject liquidity in their banks.
   
“In general, I believe market led solutions are better than government interventions and there is no evidence that government interventions bring an improvement,” he said.

None anywhere.  Not one example.  None at all.

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"Soft landing"

Remember how central bankers were telling us soothingly in recent times that their meddling with our money was all in aid of bringing about a "soft landing"?

Have you noticed how long it's been since you heard the phrase "soft landing"?

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The best garden shed in Hamilton

GardenShed

One of the great things about good clients and good architecture is that once you develop a grammar for the primary building in a group, the rest of the 'collection' almost design themselves -- as a prime example, this garden shed, designed by some very fine clients as a perfect 'garden wall' addition to their main house.

In particular, I love the way the rain chain and the 'slots' in the boundary block wall play off each other, and the way the sunlight comes through upon the decking.  Very nice.

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Wednesday, October 22, 2008

Nasty, brutish - and as stupid as a political journalist [update 3]

JohnBoyJunior Whatever qualifications the Herald's John Armstrong has either as a journalist, or as a student of politics, he knows less than zero about economics -- and since he's paid to write about it (or since he's taken on the task unquestioned) -- he should learn a few basics, particularly before he starts peddling advice on the front page of the country's largest daily.

"Never mind inflation," says the numb nut right across this morning's front page, "recession needs big promises." And by "big promises" he really does mean a multi-billion dollar "spending splurge."  "infrastructure spending," says the ignoramus, "is ... the responsible thing  to do right now."

Sheesh, where on earth do you start with something as dumb as that, when all your reason tells you to respond by running screaming into the street yelling "No it fucking isn't, dumbarse!" ?

Do you point to Arnstrong's abject failure (along with most of his colleagues, unfortunately) to understand inflation?

Or do you start with the frankly destructive New York Times article by "Nobel-Prize winning economist" Paul Krugman that Armstrong points to and on which he relies, which maintains (correctly) that "All signs point to an economic slump that will be nasty, brutish — and long," and then demands as a solution that "increased government spending is just what the doctor ordered." 

Now, a prescription like this is sure to get the attention of big-spending interventionist governments and their supporters everywhere -- and of course it has ever since Krugman's hero John Maynard Keynes first opened his mouth with it seventy years ago -- and it has here too:  Helen Clark is now talking it up, and feeling her big-spending interventionist muscles. And John Key, too, is getting set to fill the same neo-Keynesian prescription that will attempt to cure the disease by giving us more of what caused it.

It's a National-Labour coalition, folks, both taking their cure from the same doctor.  Pity that the doctor is a quack whose prescription amounts to blood-letting as a cure for haemophilia.

You want to see nasty, brutish and long?  Then just look at what Krugman's neo-Keynesian prescription did in the thirties, as described by Dominic Lawson in last week's UK Independent:

    John Maynard Keynes, rather than Ludwig von Mises, is the economist whose name is currently being invoked on the airwaves in Britain. in his own day, too, Keynes obliterated Mises: it became fashionable to believe that Roosevelt's New Deal was a kind of successful rudimentary application of Keynesianism.
    Yet Roosevelt's policy of massive intervention by the state to prop up wage rates and inflate credit gets a much better press than it ever deserved. Consider this: in September 1931 the US unemployment rate was 17.4 per cent and the Dow Jones industrial Average stood at 140. By January 1938, unemployment was still at 17.4 per cent, and the Dow Average had dropped to 121...

So, no support there for Krugman's snake oil, unless your eyes can't see past the words "massive intervention" without heading off into excited hallucinations of Michael Cullen or Bill English wielding an open cheque book .

We've been over this before when the doctor quack got his prize.  Getting a Nobel for work on "analysis of trade patterns and location of economic activity," doesn't mean you know jack shit about what to do in times of recession. And he doesn't.

I won't repeat at too great a length what I said the other day, quoting Ludwig von Mises, about this phoney failed prescription for recovery

  • -- that interventionists would be right if their antidepression plans were to aim at a radical abandonment of credit expansion policies
  • -- that the problem is not to elaborate infrastructure projects, but to provide the material means for their execution
  • -- that the fundamental error of these projects consists in the fact that they ignore the shortage of capital goods 
  • -- that while the only real problem is to produce more and to consume less in order to increase the stock of capital goods available, the interventionists want to increase (somehow) both consumption and investment
  • -- that  the interventionists want the government to embark upon projects which are unprofitable precisely because they are unprofitable
  • -- that the factors of production needed for their execution must be withdrawn from other lines of profitable employment that consumers consider more urgent, and the production of which would otherwise provide the means of formenting a genuine recovery
  • -- and that the interventionists don't realise that such public works must considerably intensify the real evil, the shortage of capital goods, while destroying the very basis on which this shortage is to be remedied.

Okay, I will repeat myself (and Mises) just a little, but in the face of such destructive crap as is peddled on the front pages of our newspapers this really needs to be pointed out repeatedly: if you take away the capital resources that producers need in order to recover (which is what deficit spending does); and if by extra spending you continue to inflate costs, when it is the very correction of lower costs that is needed in order for producers to recover, then you are destroying the very means by which recovery is going to happen.  Understand, no?

You see, unlike Krugman's hero Keynes, whom history should record as the theorist who managed to extend the Great Depression of the thirties for more than a decade, Mises really did know what he was talking about.  As Lawson outlines,

   In his 1912 work, The Theory of Money and Credit, Mises declared that the corruption and distortion of money by the state and bankers ... was the principal cause both of inflation and – to coin a phrase – boom and bust...
    As the chief economic advisor to the Austrian government in the 1920s, Mises put his theories into practice and slowed down inflation in his native country (which, as a Jew, he later fled). He used his "cycle" theory to forecast that the "New Era" of apparently permanent prosperity in the 1920s was illusory, and that it would end in runs on banks and depression: The Wall Street crash of 1929 was exactly what Mises had predicted.

And today's Misesians predicted the present crash as well -- as you can see by checking the 'Who Predicted This?' section of the Mises Institute's Bailout Reader.

I won't labour the point that Krugman didn't get his Nobel for his grasp of what to do in a recession, but do you notice in the bullet-pointed summary above the repeated references to capital goods, part of an economy's capital structure?  What Krugman is fundamentally ignorant of, as Robert Murphy so carefully explains here, is capital theory -- of the existence and make-up of the economy's capital structure, which in the final analysis is what an economy really is,and which has been all but destroyed by the commodities bubble, the housing bubble and by the whole misallocation of resources brought about by the huge inflation of the money supply in recent years -- and which would be all but destroyed by the capital consumption implicit in Krugman's shiny short-term bottles of snake oil.

That, the economy's capital structure, is what fundamentally needs to be fixed -- but Krugman and Clark and Key and co don't even know it exists!

SushiChopsticks To be one up on all of them, and I promise you it won't take long, take a look at Murphy's entertainingly simple model of what a capital structure looks like, and how easy it is to screw it up, using a "hypothetical island economy composed of 100 people, where the only consumption good is rolls of sushi."

See how easily a man of Krugman's talents can screw up even a functioning capital structure (which is after all what the central bankers did with all that counterfeit capital they were creating at such volumes), let alone what they'll do to the economy now it's on life  support, and they want to take away the very oxygen it needs to survive.

Remember: nasty, brutish and long will be the result of following Krugman's exhortations to the interventionists to spend more.  But they'll still insist on you taking their medicine.  Why?  The answer's obvious: Have you ever seen a politician turn away an argument that says they can spend more?  Never happened. 

But it's the job of political journalists to know enough to tell them when they're wrong.  Sadly however, most of them -- like Armstrong -- don't appear even to know enough to tie their own shoes.

Like him they're mostly just bone from the neck up.

UPDATE  1:  Fortunately, one party at least understands that politicians spending money we don't have is not the answer, and nor is impeding the very people whom we need to be more productive.  I speak of course of Libertarianz two-part economic plan: their Don't-Spend-So-Goddamned-Much Plan  and their Get-The-Hell-Out-Of-The-Way Plan

Looks like on the evidence of his last paragraph here-- if not his earlier pledge to keep growing the state, -- Roger Douglas, at least, has been listening.  There's hope for him yet.

UPDATE 2: Austrian economist and senior lecturer at the Mises University Robert Murphy is interviewed on the boom, the bust -- and Krugman and Tyler Cowen and even "rational expectations" theorists -- and why Mises' Austrian Business Cycle Theory explained and predicted the bust, and the others didn't.  Listen here.  Good topical stuff.

UPDATE 3: Dumbarse.  After all that, I didn't even give you the link to Robert Murphy's superb article on the 'sushi economy.'  It's here.  And it's worth it.

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Lockwood Small-hands

From the "they're all as bad as each other" file, this time on immigration:
While Winston First wants to cut immigration by one-fifth (though for the life of me I don't know why that's news), the Greens are looking at a 'One-Child' policy for New Zealanders so we can make room for all those hundreds of thousands of climate refugees the world isn't filling up with.

Meanwhile, National's Blockwood Smithspeak apparently is only interested in allowing in Asians with large hands and Islanders who can use a toilet and who shower regularly. Story here (hat tip MikeE)

Tell me again why politicians are qualified to run our lives for us?

UPDATE 1: Perhaps I can earn back points with Cactus by saying I like her comments on this.

UPDATE 2: The Hive reckons it's a beat up.  Decide for yourself: Stuff has audio.

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The dictatorship of the middle class

While unreconstructed leftists like the losers at The Double-Standard talk blithely about "trickle down economics,"  they appear blithely unaware that perhaps the best example of "trickle down" currently in operation is Labour's Welfare for Working Families -- the govt takes money taken from you by force, clips the ticket and gives a small portion back, in return for you showing your gratitude in the appropriate way: in the voting booth.

They're also unaware that their American hero Barack Obama -- who Oprah Winfrey calles "The One" and John McCain calls "that one" -- has now moved on to something new: Trickle Up Economics.  Michael Hurd explains:

      Sen. Barack Obama's philosophy of wealth creation should be called "trickle-up" economics. He believes, and states over and over again, that the worker - and the middle-class employee - is the central unit of economic activity. Karl Marx had a name for this idea. It was called the labor theory of value.
Marxists and Obama liberals believe that the little guy creates wealth and that the rich (i.e., those making more than $200,000 a year) steal that wealth from the little guy. Obama liberals see their mission as one of returning that wealth to the little guy. Incredibly, they not only see this as morally just; they see it as economically feasible and desirable. They actually believe this is the way to create and expand wealth.
The next time you hear Mr. Obama say, "Let's spread the wealth around," this is what he means. It means he ignores the indispensable contribution of the innovator, the risk-taking entrepreneur and the capitalist. You ignore them at your peril because these are the originators of wealth. Without them, there will be less and less wealth for Mr. Obama to redistribute.

The politicians don't care if there's less wealth around. But you should.

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The shape of things to come?

First, Argentine president  Nestor Kirchner "began tightening  restrictions on private pension funds last year, requiring them to  keep more investments in the country as part of an effort to sustain a five-year-old economic expansion."

And now, his wife and successor Cristina Fernandez de Kirchner, is about to seize those pension funds.  Reports Bloomberg:

    [Argentine] president Cristina Fernandez de Kirchner will unveil a new pension fund plan at 4 p.m. New York time today, the country's social security administration said in a statement. Fernandez will nationalize the system, giving the government control of $29 billion in retirement accounts, La Nacion reported, citing government officials it didn't identify. 
    "
It's horrible,'' said Jaime Valdivia, who manages $1 billion of assets for Emerging Sovereign Group in New York. ``We're going back to the dark ages. Not even in times of the worst financial stress did the government ever think about taking over the private pension system.''

In times of financial stress, all bets are off, aren't they.

As the reader said who sent me the note, "You'll note the parallels, no doubt..."

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More economic illiteracy in the wild, this time on "inflation" [updated]

NZCPI "Inflation highest in eighteen years," wails Bernard Hickey and many others, but I'm choosing Hickey to complain about simply because he had the nicest graph.  See:

"Frightening," huh?

So what have I got to complain about? Well, despite Hickey's many virtues, he and his mainstream colleagues still don't have their head around what inflation actually is.  It's not inflation of prices, stupid, it's the injection of currency or credit into an economy by government.  In other words, it's inflation of the money supply.

They're not aware at all of the difference -- the crucial difference between a symptom and its cause -- between the price inflation over which they wring their hands in displeasure, and the monetary inflation* which cause prices to be higher than what they would be otherwise

Which means they don't even know that monetary inflation exists, or is the real problem.  Which means they have no idea that the fundamental cause of the world financial crisis (on which they now comment as if with some expertise) was the rampant monetary inflation and artificial credit expansion.  Which means they have no conception that low general price increases in recent years (as measured by the CPI) have obscured the large monetary inflation to which we've been subjected, and are due to real increases in productivity (due in large part to the internet revolution) and the flood of cheaper electronics and ever-cheaper Chinese goods which the monetary inflation has left us unable to enjoy properly.

It was these "deflationary" influences that allowed the rampant monetary inflation of recent years to go unnoticed by all the pundits, even as the huge and destructive credit expansion it represents was out there doing its damage in the wild -- under cover of a phony bureaucratic "price stability" (as I explain here).   Instead of enjoying the fruits of these good things, they've instead allowed governments and their central bankers to distort the whole price system and rort the free market on which we all depend.

You see, far from inflation being "at an 18-year high thanks to historic price rises" as this Herald numb nut describes it, inflation -- real inflation -- has been high for nearly all of those eighteen years.  Take a look at the Reserve Bank's own graph showing the  rate of year-on-year expansion of the various measures of the money supply since 1982:
RBNZ-Monetary_Inflation

Frightening, huh? That horizontal line all those coloured lines are hugging is not the 5% line, but the 10% line! (See if you can spot some of our major slowdowns when credit contracted, and that period of huge price inflation in the eighties when  Guess Who was in charge.) 

You might notice while studying the figures that even in April last year M3 was being increased at a year-on-year rate of 14.7%!  And even in August this year (the latest figure the Reserve Bank provides) Notes and Coins were increasing at a rate of 6.6%, M1 at 7.0% and M3 at 7.2% on a year-on-year basis.

If you want inflation then, you sure as hell know where to look -- and it's not in Bernard Hickey's pretty-looking charts.

It's not just frightening because this monetary inflation has been so enormous, and so enormously destructive (see for example this story of how the credit bubble caused the housing bubble, or this story showing how our present problems are due to a Fed-induced distortion in the capital structure -- a capital structure that mainstream commentators don't even know exists!)  but especially frightening because the monetary inflation has been so widely unnoticed.  Instead of being able to enjoy the declining prices due to cheaper electronics and cheaper Chinese goods -- and the increased productivity due to the internet revolution -- the Reserve Bank instead inflated the money supply by injecting currency and credit into the economy, causing the hugely destructive housing bubble and all the various malinvestments around the place that still need to be shaken out.

So let's recap: Put simply, price inflation just measures overall changes in the price of stuff.  This is what gets commentators excited.  Yet monetary inflation, which is generally the cause of the overall rise of the price of that stuff, and much else much more damaging besides, is the bit the commentators ignore.  And for their commentary, which ignores the biggest elephant in the room, they get paid good money.

Go figure.

And capitalism?  Where does that fit in?  Well, you'll note that the Reserve Bank is a government institution.  The country's money supply was nationalised a long time ago -- and the commentators who now blame capitalism for the present crisis never even noticed.

------------------------------------------------------------------------------------------------------------------------

*Explaining monetary inflation, Ludwig von Mises explains it is :

a large increase in the quantity of money in the broader sense that results in a drop in the purchasing power of the monetary unit, falsifies economic calculation and impairs the value of accounting as a means of appraising profits and losses. Inflation affects the various prices, wage rates and interest rates at different times and to different degrees. It thus disarranges consumption, investment, the course of production and the structure of business and industry while increasing the wealth and income of some and decreasing that of others. Inflation does not increase the available consumable wealth. It merely rearranges purchasing power by granting some to those who first receive some of the new quantities of money.

UPDATE: So the take-home message is this:

  • if you're a reader of financial journalists and you find them talking about price inflation without talking about monetary inflation, then understand they're not telling you the most important part of the story. Write them a letter and tell them so.
  • if you're a financial journalist yourself, then how about you start doing your bleeding job.  Distinguish between price inflation and monetary inflation, and start reporting the extent of the more important of the two. (And who knows, you might eventually come to realise why a rise in oil prices isn't actually "inflationary" at all.)
  • if you're one of those "economists" whose job is making predictions -- all of which are almost always wrong -- then instead of just "predicting" what Alan Bollard will do with the OCR, how about working out how much extra credit creation will be going on to make that interest rate work, and explaining the damage it will be doing.  In other words, start doing your fucking job.
  • And if you're Alan Bollard, then get a fucking grip, and stop inflating the damn currency.  If you do nothing else (insert obvious jokes here) just do that much.  Or that little.

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A comment request

Anonymous I must confess that I'm getting increasingly frustrated with commenters who comment only as "Anonymous," not only because there's no way of knowing which particular "Anonymous" one is replying to, but because most anonymous comments aren't worth the electrons it takes to display them.

Even a nickname gives you something on which to build a reputation for intelligent or at least entertaining commentary.

So might I politely request all commenters to give themselves a name.  It's not difficult.

When you comment here, you'll see a layout like the one displayed on the right.

If you insist on using the 'Anonymous' button -- and there's really no need to - but if you do, then at least leave a name at the bottom of the posts.

But far better to use the button marked "Name/URL," and give yourself a name.  That's all it takes, and once you've done that your same name comes up on your comment each time you publish here.

Just try it, huh, and make reading and replying to comments easier.

UPDATE: By the way, if you post anonymously with a contribution little more than "Vote XYZ Party" you'll be deleted.  If you're going to have spam, at least make it colourful.

Joshua Tree - William Wray

            Joshua Tree 12x12.copy

Yes, it's a simple picture of a Joshua Tree at sunset.  Or is it?

What sort of journey is the painter, William Wray, taking us on -- and how is his use of colour the key to unlocking the whole story?

Let painter Michael Newberry explain, in another of his brilliant Aesthetic Commentaries.

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Tuesday, October 21, 2008

What student doesn't want money?

I've been reminded that student readers have only a week-and-a-half to go to get in your essay in the CIS Ross Parish Essay Competition -- and with $3000 and only 2000 words to write, why not stay home from the pub for one afternoon to crank out something decent.

You're required to answer the question "Does liberty lead to decadence? "  As a reader suggests to me, you could argue that yes, liberty does lead to decadence, but since when has decadence been a bad thing? It's a hell of a lot better than wowserism.

Or you could take the tack -- since the root of the word decadence is "decay" -- that only without liberty is decay inevitable, since only with liberty can the law of diminishing returns be overthrown.

If you take either approach, then feel free to send me half your winnings. 

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Bernanke calls for more steroid abuse

9e864910d723a232a431 When Federal Chairman Ben Bernanke sees a problem, he always has the same solution:  Bailout, stimulus, liquidity, injection of credit, stimulus, stimulus, stimulus...

You see a pattern there?  He's like a cheap quack -- a doctor whose quick fix for all his patients, whatever their ailment, is a handful of steroids to keep them going in the short term, regardless of the long-term damage he causes.

His latest call for more billions for yet another stimulus package -- billions of dollars "to help improve access to credit by consumers, home buyers, businesses and other borrowers" -- which follows Congress's first multi-billion dollar "stimulus package" in the American spring that is supposed to have "kept the economy afloat through the summer" -- which was followed by trillions of dollars in bailouts, buy-outs, credit injections and the partial-nationalisation of the American banking system  ...

Ben is a Pollyanna with a printing press, and he's banking on it, quite literally, to fix everything.

Is anyone else starting to think this guy hasn't got even the beginning of a fucking clue?  How many shots of fiscal bloody stimulus are enough, for Galt's sake, before you realise you're a busted flush!  How long before someone with a brain says to him, "put down the printing press, Ben, and move away from the patient." 

How long before the son of a worthless banker leads the whole bloody world into a fully fledged crack-up boom.

The economy is now on life-support from years of steroid abuse -- the collapse of the inflationary housing bubble caused by years of easy credit; the consequent flight into liquid assets that's caused the credit crunch, presaging the beginning of an inflationary depression; the desperate need to flush out the malinvestments that years of monetary inflation have produced -- and he wants to keep feeding this zombie economy the same steroids that caused it to lose its brain, and to keep feeding the economy's remaining resources to the malinvestments.

But the economy faces risk of "protracted slowdown," the Fed chairman says, oblivious to the reasons for the slowdown (years of steroid abuse by the Fed).  "Another shot of fiscal stimulus may be needed now to help the U.S. economy recover from what could be a drawn-out slowdown," says the Fed failure.  He hasn't even the first idea of what caused the slowdown, he has no conception that the slowdown represents the market trying to recover from years of steroid abuse, but he has one tool in his kit-bag to fix the "problem" that is the only sign of health. 

It's insane. What's needed now is not to keep consumption up -- especially not if it's paid for with truck-loads of printed money -- but correction.  Markets need to correct.  Prices need to change to reflect what things are worth now.  Misallocations of resources need to be corrected. Businesses with failing lines need to trim them and put their resources instead into things more profitable.

More and more billions of dollars of printed money will only prop up the bad way things are now, and prevent things changing to the way they need to be -- and to make it worse, the money Bernanke prints and prints and prints will be paid for out of the real resources businesses could have used to fund a real recovery.

It's time to shoot the doctor.

Oil UPDATEJeffrey Tucker points to the collapse of oil prices as an example of one of the benefits of the collapse of the inflationary credit bubble that Bernanke is desperately trying to stop.

    In a saving grace of productivity downturns, gas prices are falling dramatically, as much as $1 lower than a month ago. Fabulous news! This eases the tremendous pressure on airlines faced with declining ticketing, car dealerships with tight credit standards, and consumers who confront a recessionary environment. Everyone these days is cheering the lower prices...
    In general, ..., most people are happy about low prices for gasoline. This is a model we should use for understanding price trends in the economy at large. Gloriously, the prices of oil reflect commodity prices in general, which continue on a downward trend that began in July. Yes, the price declines probably reflect a slowing economy. No, there is nothing wrong with this, contrary to Bernanke. Falling prices are a boon for consumers, a port in a storm. The worst mistake the government could make today would be to attempt to reverse this.

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The "human face" of New Zealand's socialist medical system

The Herald has three more tales showing the "human face" of New Zealand's socialist medical system:

Patient 1 - Aug 2006: A suspected retinal detachment in Whangarei is referred to specialists at Auckland DHB.
Ten days later: No word from Auckland; patient asks Whangarei doctor to follow up. Auckland confirm they have the referral.
Feb 2007: Still no action from Auckland. Patient again asks doctor what is happening. By then the condition has worsened too much for the treatment.
Nov 2007: Patient's left eye is removed.

Patient 2 - Aug 2006: Patient found to have narrowing of arteries after a minor stroke.
Dec 2006: MidCentral DHB (Palmerston North) surgeon refers patient to a specialist at Capital and Coast DHB.
Oct 2007: Patient asks for update, discovers Capital and Coast has no record of the referral. Another referral made.
Nov 2007: Capital and Coast DHB has no record of second referral. Patient has a second, more serious stroke.

Patient 3 - May 2007: Patient discovers blood in his urine, tells GP. Tests indicate possibility of prostate cancer. Patient is referred to Counties Manukau DHB.
The health board misplaces the referral.
Six weeks after the referral was sent it is actioned. Patient prioritised as needing review in four to six weeks.
Oct 2007: Only after GP asks health board why nothing has happened is the patient reviewed. He is diagnosed with prostate cancer. It had already spread to his bone.

As Liberty Scott says, this "are not the sort of thing Michael Moore describes when he waxes lyrically about how socialised health care is so wonderful," but it is what characterises socialised medicine -- and I know several NOT PC readers with your own horror stories who can easily easily confirm these cases are not unique.

Can someone tell me why New Zealanders put up with being stolen from to fund this die-while-you-wait monstrousness.

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In defence of Joe the Plumber

Lew Rockwell defends Joe the Plumber, a rare bit of colour in an otherwise colourless US campaign -- and no, that's not any kind of a pun -- who seems to be "a thorough-going outlaw in the best sense of that term."

    The whole Joe the Plumber saga began when Joe Wurzelbacher from Toledo, Ohio, confronted Barack Obama about the candidate's tax plans. He wanted to know if Obama would raise his taxes. In particular, he was planning to buy a company with a revenue of $250,000 per year. "Your new tax plan is going to tax me more, isn't it?"
    ....But the New York Times did some digging and discovered — horror — that Joe is doing plumbing without a proper business license. How dare he call himself a plumber! A license is required by Toledo, not just one license for a partnership but for everyone who is called a plumber. Joe has not taken the training courses, is not a member of the union, and cannot legally call himself a plumber.
    The press reports on this were explosive, with reporters speaking as if they had caught this guy red-handed and completely discredited him. But what about the complete absurdity of the idea that you have to have a license in order to have the right to fix someone else's sink? This is Soviet like, but deeply entrenched in American professional life.

And no less true, sadly, in New Zealand professional life.

    By practicing plumbing without a license, Joe is bucking the system in a truly heroic way. He shouldn't be condemned for this. He should be celebrated as a freedom fighter. He has a lot more to complain about than just taxes. It is the state itself in all its incarnations that is his true enemy. He ought to demanding answers from the politicians about their regulatory schemes to further restrict competition in a wide range of areas (banking for example!).
   
Most ridiculous is the idea that he shouldn't be called a plumber because he doesn't have a license. Here we see how licensing attacks even the use of our language. If he is doing plumbing, he is a plumber. Period.

Wonder what the Architects' Institute here would say about such an argument?

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Fawcett House - Frank Lloyd Wright

             Fawcett004 
Fawcett001Here's a Frank Lloyd Wright house I don't know too much about, except that it looks characteristic of his late-period work, and it came across my desk as a house for sale.

It was built in 1961 and is for sale right now in a place called Las Banos, two hours from San Francisco, for the bargain price of US$2.7 million.

Details (and more pictures) here if you'd like to make an offer.

              Fawcett003

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Monday, October 20, 2008

A lot of contra-cyclical nonsense [update 2]

More economic illiteracy to point out today from both commentariat and cabinet, from both NZ and overseas.  I blame their teachers. 
First up is Cactus.  Yep, in getting the right end of the stick here she's got the wrong end of supply and demand when she says:
It took me one day being in Hong Kong to realise that the price in a market is not necessarily a straight and easy supply = demand equilibrium, but whatever the seller knows you are willing and able to pay for it.
Wrong on the first point, but dead right on the last.  It doesn't matter a damn what you or a government valuer think your house (or your car or your hour of pointless labour) is worth: it's only worth what someone wants to pay you for it.  Something for vendors (and minimum-wage advocates) to think about in coming months.
You see, whatever your teachers might have told you, demand is simply desire backed up by the ability to pay.  The value of your goods brought to market depends on how many other people are offering the same or similar to you, put in the same room with those desiring to buy them backed up by their ability to pay.  Bingo.  That's supply and demand, although it's not an "equilibrium" at all: it's a (cough) "double-coincidence of wants." What's that mean?  It means that you want that money more than you want the goods -- and seeing your bills and the maintenance payments on your first wife piling up, you want that money desperately; whereas the buyer wants the goods more than he wants the money -- and seeing you sweat, he knows he doesn't have to pay as much money as you first said.
Like I said, I blame her teachers for not knowing she was disagreeing with herself.
Anyway, as she points out -- and as a perfect illustration of "demand" being "desire backed up by the ability to pay": there's been "immediate moves" by Aussie house sellers to up their prices to match Kevin Rudd's pre-Xmas bonus to first-home buyers.  (Much like owners of NZ rental properties up their rates to match their tenants Accommodation Supplement -- making this a gift to owners of NZ rental properties.  But I digress.)  Another example of how the important lesson pointed out by Henry Hazlitt is, or should be, the very first lesson in economics, i.e., that
the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
I blame Kevin Rudd's teachers for not knowing the lesson themselves.
Anyway, onwards to more ignorance at The Hive where they say "We agree fully" (their words) with this economically illiterate crap (my assessment) from the Herald's John Armstrong.  Yes, John Boy Junior again, ever the economic illiterate, who starts by observing (correctly) that "the pretend [election] campaign is having to make way for the real one as the international crisis has worsened," before slipping as usual into blissful know-nothing illiteracy:
    Labour has now grabbed the bull by the horns, using the likelihood of the country's slipping into a deep recession as an opportunity to demonstrate political leadership.
See what I mean?  In what exactly does Labour's "political leadership" consist, one wonders?  Turns out it's in abject economic ignorance, on which the other team is now steaming hard to catch up...
    [Labour] is now proposing a Keynesian-style spend-up as an economic stimulus. A December mini-Budget would bring forward rail, road and other construction projects to keep people in work.
    In what is termed "counter-cyclical economic management", Cullen is saying paying off debt during the good times has provided room to borrow to stave off the bad times.
Now here one can only blame the teachers.  A "Keynesian-style spend-up as an economic stimulus" is not what the doctor should be ordering -- or The Hive or Armstrong applauding.  Quite apart from being a nonsense phrase even on its own terms, "room to borrow" is not the same thing at all as "able to pay."
Remember that point?  Desire is one thing. Being able to pay for your wishes is another thing altogether.  (And governments, and Michael Cullen, use the power of economic ignorance to get you to pay for their desires.  Brilliant, huh.) 
Once you grasp the nature of government economic management and that simple economic point, that every wish has to be paid for if it's ever going to come true, then you'll understand that Government deficit spending doesn't stimulate the economy at all (if it did, a decade of then-record US deficit spending in the thirties wouldn't have prolonged the depression for a decade) because unless you've got the cash flow to match your spending, you're taking real capital away from the pool of real savings.  And who you're taking it away from is producers, real producers, who would have used those real savings to build real things that show real profits, not to build things like electric train sets and large holes in the ground. That's not stimulus, it's rank stupidity -- taking resources out of the mouths of the productive to pour down black holes marked economic ignorance.
And what's this about "counter-cyclical economic management" leaving us ready to face the bad times?  Have any of these people noticed the NZ government is only making us ready to join the bad times?
Even if Cullen hadn't pissed away eight years of unrepeatable economic golden weather and had actually followed the prescription of "counter-cyclical" prudence he claimed to have followed, contrary to the claims of most of the mainstream economists (there's those teachers again) that would have left us no better off.  Why? Because the whole theory is a crock.
Since the theory is so widely held; since it's still -- unfortunately -- so widely taught; and since whichever of the main parties takes up the reins in a month's time so much of New Zealand's real wealth is going to be wasted on it in the coming years, let me quote at some length Ludwig von Mises' explanation of exactly why the theory is a crock.  If you can't afford to watch your money being wasted, then you can't afford not to read on and find out exactly how it's going to be wasted, and why:
The Chimera of Contracyclical Policies
    An essential element of the "unorthodox" doctrines, advanced both by all socialists and by all interventionists, is that the recurrence of depressions is a phenomenon inherent in the very operation of the market economy.
    But while the socialists contend that only the substitution of socialism for capitalism can eradicate the evil, the interventionists ascribe to the government the power to correct the operation of the market economy in such a way as to bring about what they call "economic stability."
    These interventionists would be right if their antidepression plans were to aim at a radical abandonment of credit expansion policies. However, they reject this idea in advance. What they want is to expand credit more and more and to prevent depressions by the adoption of special "contracyclical" measures.
    In the contest of these plans the government appears as a deity that stands and works outside the orbit of human affairs, that is independent of the actions of its subjects, and has the power to interfere with these actions from without. It has at its disposal means and funds that are not provided by the people and can be freely used for whatever purposes the rulers are prepared to employ them for. What is needed to make the most beneficent use of this power is merely to follow the advice given by the experts.
    The most advertised among these suggested remedies is contracyclical timing of public works and expenditure on public enterprises. The idea is not so new as its champions would have us believe. When depression came in the past, public opinion always asked the government to embark upon public works in order to create jobs and to stop the drop in prices.
    But the problem is how to finance these public works. If the government taxes the citizens or borrows from them, it does not add anything to what the Keynesians call the aggregate amount of spending. It restricts the private citizen's power to consume or to invest to the same extent that it increases its own. If, however, the government resorts to the cherished inflationary methods of financing, it makes things worse, not better. It may thus delay for a short time the outbreak of the slump. But when the unavoidable payoff does come, the crisis is the heavier the longer the government has postponed it.
    The interventionist experts are at a loss to grasp the real problems involved. As they see it, the main thing is "to plan public capital expenditure well in advance and to accumulate a shelf of fully worked out capital projects which can be put into operation at short notice." This, they say, "is the right policy and one which we recommend all countries should adopt." [7] However, the problem is not to elaborate projects, but to provide the material means for their execution. The interventionists believe that this could be easily achieved by holding back government expenditure in the boom and increasing it when the depression comes.
    Now, restriction of government expenditure may be certainly be a good thing...
And it sure would have been if we'd seen it.
But it does not provide the funds a government needs for a later expansion of its expenditure. An individual may conduct his affairs in this way. He may accumulate savings when his income is high and spend them later when his income drops. But it is different with a nation or all nations together. The treasury may hoard a considerable part of the lavish revenue from taxes which flows into the public exchequer as a result of the boom. As far and as long as it withholds these funds from circulation, its policy is really deflationary and contracyclical and may to this extent weaken the boom created by credit expansion. But when these funds are spent again, they alter the money relation and create a cash-induced tendency toward a drop in the monetary unit's purchasing power. By no means can these funds provide the capital goods required for the execution of the shelved public works.
    The fundamental error of these projects consists in the fact that they ignore the shortage of capital goods. In their eyes the depression is merely caused by a mysterious lack of the people's propensity both to consume and to invest. While the only real problem is to produce more and to consume less in order to increase the stock of capital goods available, the interventionists want to increase both consumption and investment. They want the government to embark upon projects which are unprofitable precisely because the factors of production needed for their execution must be withdrawn from other lines of employment in which they would fulfill wants the satisfaction of which the consumers consider more urgent.
    They do not realize that such public works must considerably intensify the real evil, the shortage of capital goods.
    One could, of course, think of another mode for the employment of the savings the government makes in the boom period. The treasury could invest its surplus in buying large stocks of all those materials which it will later, when the depression comes, need for the execution of the public works planned and of the consumers' goods which those occupied in these public works will ask for. But if the authorities were to act in this way, they would considerably intensify the boom, accelerate the outbreak of the crisis, and make its consequences more serious.[8]
    All this talk about contracyclical government activities aims at one goal only, namely, to divert the public's attention from cognizance of the real cause of the cyclical fluctuations of business [which is their earlier inflationary credit expansion]. All governments are firmly committed to the policy of low interest rates, credit expansion, and inflation. When the unavoidable aftermath of these short-term policies appears, they know only of one remedy--to go on in inflationary ventures.
Mises' prescient comments come from his book Human Action, from the Chapter 'Currency & Credit Manipulation, Section 5: Credit Expansion' -- which is happily online right here.  It's as up to date as next week.
Why not print out Mises' description of what's about to happen and keep it handy over coming months, and just check back occasionally to see how damned accurate Mises' description of the coming capital consumption will be.  It won't be pretty, but at least you'll have the chance to learn something -- as long as you forget what your mainstream economics teachers taught you back in high school.
UPDATE 1: Now here's an Economic Plan to I can agree with -- one that's serious about the scale and the nature of the economic crisis:
    With chill economic winds blowing and all the mainstream political parties either unaware that the global economy has changed while they've been out campaigning, or abjectly clueless what to do about it, Libertarianz finance spokesman Mr Darby released the only credible plan to confront both galloping government deficits and collapsing financial markets.
    "I call it the Don't-Spend-So-Goddamned-Much Plan," he says.
Great stuff (read on here).  And looks like it's a two-parter, with more to come shortly...
UPDATE 2:  And here's the second part and it's a beauty -- and urgently needed:
    "The response of the mainstream political parties to the global economic crisis has been universally appalling," says Libertarianz party leader Bernard Darnton. "First denial, then promises of deficit spending of both the type and degree that helped delay recovery from the Great Depression for more than a decade" ...
   
"This morning, Libertarianz finance spokesman Mr Darby released the first part of our plan outlining what government can do to prepare New Zealand to weather the crisis: the Stop-Spending-So-Goddamn-Much Plan. This afternoon," says Darnton, "I'm announcing the crucial second part."
   
"I call it the Get-The-Hell-Out-Of-The-Way Plan."
And a damn good plan it is if I say so myself -- the only credible plan I've seen -- the only one which doesn't call for growing the bloody state, which every other moron is promising to do.  Read it here.

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