Tuesday, January 15, 2013

Chomsky Debate

Initial contact:

Webb: "
Since you seem to think Adam Smith was such a great guy, I would like for you to examine his monetary policy momentarily. In Book I, Chapter V, he suggests that a corn standard is the best choice in the long run, while a silver standard is the best choice in the short run. Since this makes it more difficult for college students to pay off their debts--Smith thinks it is the optimum solution.

http://www.econlib.org/library/Smith/smWN2.html#B.I, Ch.5, Of the Real and Nominal Price of Commodities

Let us first look at some recent statistics from the US. In reality, there is not much difference between corn and silver production since 1960. Both have increased by nearly 300%.


Therefore, Adam Smith is obviously wrong in more than one way.

Furthermore, since 1960, integrated circuits have increased remarkably in relation to corn, and this has required an enormous amount of ingenuity, and even labor. And no, ingenuity and labor are not equal, or cattle would rule the world. So this begs the question as to why farmers with pitchforks should be worth more than the middle class. But of course, you teach at an institution that is in partnership with formerly Calvinistic Harvard, and even lowly M.I.T. has been granted a $10 billion endowment in its own right, which is why you love Smith so much. Fuck the college students; right? It's a good thing that you think the English monarchy is such a joke btw, because the middle class of England (and even Scotland) thought the same thing about Oliver Cromwell.

P.S. A monarch (Charles II) created the Royal Society of which your so called "Scottish" enlightenment developed. It doesn't bother the middle class of England that you see royalty as something that shouldn't be taken seriously, for the intellectuals and artists of the USA haven't taken learning institutions in Massachusetts seriously ever since the transcendentalists began pulling pranks on Unitarian zombies from Boston. Isachaar isn't so bad, but beware the Tribe of Zebulun. Even the groundwork of the US constitution was the work of a monarch. I'll take an Englishman of Judah over a "commie" from HSBC anytime.

The rents which have been reserved in corn have preserved their value much better than those which have been reserved in money, even where the denomination of the coin has not been altered. By the 18th of Elizabeth*13 it was enacted, That a third of the rent of all college leases should be reserved in corn, to be paid, either in kind, or according to the current prices at the nearest public market. The money arising from this corn rent, though originally but a third of the whole, is in the present times, according to Doctor Blackstone, commonly near double of what arises from the other two-thirds.*14 The old money rents of colleges must, according to this account, have sunk almost to a fourth part of their ancient value; or are worth little more than a fourth part of the corn which they were formerly worth. But since the reign of Philip and Mary the denomination of the English coin has undergone little or no alteration, and the same number of pounds, shillings and pence have contained very nearly the same quantity of pure silver. This degradation, therefore, in the value of the money rents of colleges, has arisen altogether from the degradation in the value of silver."

Labour, therefore, it appears evidently, is the only universal, as well as the only accurate measure of value, or the only standard by which we can compare the values of different commodities at all times and at all places. We cannot estimate, it is allowed, the real value of different commodities from century to century by the quantities of silver which were given for them. We cannot estimate it from year to year by the quantities of corn. By the quantities of labour we can, with the greatest accuracy, estimate it both from century to century and from year to year. From century to century, corn is a better measure than silver, because, from century to century, equal quantities of corn will command the same quantity of labour more nearly than equal quantities of silver. From year to year, on the contrary, silver is a better measure than corn, because equal quantities of it will more nearly command the same quantity of labour.*21"

Chomsky: "
Have no idea what this has to do with AS, or with anything I’ve said about him."

Webb: "The point I am making is that it would be helpful to at least disclose this side of Smith. He's a bit like a wild wolf. The potential is there. He even seems elegant on the surface. But although his diagnosis is correct in many ways, there are teeth in his prescriptions. Indeed, I like to call Smith and Keynes the Twins of Economics. They both share the same birthday, and they're almost polar opposites. Keynes believed in printing fairly large amounts of money to stimulate the economy (in comparison to elite metallic standards), but the problem is the money flows from a top-down perspective, which obviously creates an entirely different sort of authoritarianism: instead of the black and white world of the Wizard of Oz--bankers, construction workers, and real estate agents dominate society. I also find it strange that you have argued Mexico has been hurt in recent times by US economic policy. The second largest source of national income (besides oil) in Mexico has been worker remittances from the United States (until recent times), and the majority of this money was the result of the construction industry within the USA. And even though NAFTA has harmed Mexican agriculture, the country has benefited overall from an influx of manufacturing jobs, which is why many Mexicans are now choosing to stay within their own country rather than easily avoid any walls and/or legal barriers. Of course, you live in the northern USA, which lost those manufacturing jobs, and therein lies the actual problem."

Chomsky: "It would make perfect sense in a study devoted to AS, say an intellectual biography.  But I’m not writing that.

Mexico has been very severely harmed by NAFTA.  The fact that remittances is a major income source is one illustration of the harm to the Mexican economy, as is emigration altogether.  There have been manufacturing jobs, but it’s very fragile, in transit to even cheaper labor, and tends to be quite isolated from the general economy.  For details on all of this, see among others the studies by the Economic Policy Institute and Center for Economic Policy and Research, a lot available on line.  Those are surely among the reasons why Mexico has had about the lowest growth rate in Latin America since NAFTA – and it’s incidentally also why Clinton began militarizing what had been a pretty open border as soon as he rammed NAFTA through over public opposition."

Webb: "To be fair, in your article "Education is Ignorance" you mentioned how people merely read snippets of Adam Smith rather than the entire work in context, which is why I brought it up. 

Regarding remittances and emigration--this is largely a natural result of the Gravity Model of Trade, and I hardly see how construction remittances harm anyone in Mexico overall: they might lose some skilled laborers, but if more wealth goes back to Mexico than would occur if those laborers were working in Mexico--it is a net benefit. Growth rates aren't everything either. The USA has lower growth rates than China, but most of this is the result of convergence. Mexico's GDP per capita is $14,700. Guatemala's GDP per capita is $5,100. Honduras's GDP per capita is $4,400. And Nicaragua's GDP per capita is $3,100.

This has been going on for a very long time. I obviously do not take the Bible literally, but when Deuteronomy talks about Joseph pushing people to the ends of the Earth, I think it's fair to say people have been travelling to the poles ever since we've been coming out of the last ice age. Even the fabled Northwest passage is opening up above Canada, and one thing Adam Smith did note quite accurately is the power of the ocean in the transportation of goods, which is another reason why the northern nations have been dominant. It's actually frightening how much untapped potential the US, Canada, and Russia have. There are less people living in the US, Canada, and Australia combined than there were people living in China alone in 1950 (we've also had a third industrial revolution since then thanks to computers/internet), and from a spatial economic perspective, these nations not only have a centralized location, but they possess a ridiculous amount of coastline, freshwater resources, and sunlight. 

In the case of the USA, the main reason why the population is so low is in large part the result of harsh monetary policies that have made housing and education prices artificially high thanks to those goods/services being in bed with the Keynesian banks. Nevertheless, tuition wasn't really a problem in the UK in particular until devolution, which is probably why our universities still rank so highly in US News despite our small population size/natural resources relative to the USA. 

Of course, anyone from the USA that trusts political scientists/economists from Cambridge is a moron. The colonies make it too easy for us sometimes. ;)


Chomsky: "To be fair, in your article "Education is Ignorance" you mentioned how people merely read snippets of Adam Smith rather than the entire work in context, which is why I brought it up. 
Afraid I have no idea why you brought it up.  There was a good and very clear reason why I picked specific parts of AS that are omitted by those who tell us to worship him.
Regarding remittances and emigration--this is largely a natural result of the Gravity Model of Trade, and I hardly see how construction remittances harm anyone in Mexico overall: they might lose some skilled laborers, but if more wealth goes back to Mexico than would occur if those laborers were working in Mexico--it is a net benefit.
I presume you know nothing of the lives of undocumented immigrants, or of their families.  If you did, you’d be ashamed of yourself for writing the passage.  I happen to live among some of them, and know many others, and will not even comment.  But there’s good literature on the topic, if you are interested.
Growth rates aren't everything either. The USA has lower growth rates than China, but most of this is the result of convergence. Mexico's GDP per capita is $14,700. Guatemala's GDP per capita is $5,100. Honduras's GDP per capita is $4,400. And Nicaragua's GDP per capita is $3,100.
Convergence is an extremely dubious concept, as current specialist literature regularly explains.  Growth rates for Latin America are a radically different matter.  You can’t escape from the harmful effects of NAFTA that way.  And I’m frankly shocked at your comparison.  Do you know anything at all about the history of the Central American countries, and about the hideous record of US intervention?  Did it ever occur to you to look at the remarkable correlation between misery in the Central America/Caribbean region and US intervention?
I’m afraid I’ll skip the rest."

Webb: "
I presume you know nothing of the lives of undocumented immigrants, or of their families.  If you did, you’d be ashamed of yourself for writing the passage.  I happen to live among some of them, and know many others, and will not even comment.  But there’s good literature on the topic, if you are interested.

That's really funny coming from someone living in Boston when I actually live in Las Vegas. That's just to let you know how full of shit you actually are deep down and how honest I really am."

Chomsky: "
Glad to know how honest you think you are.
If you knew anything about immigrants, you’d know, for example, that there is quite a large undocumented Mayan community near where I live, with whom I’m in close contact.  And you might even know why they are still fleeing from Reagan’s support for virtual genocide, and its consequences.  Among many others.
But I’d prefer to continue to believe that you really do know nothing about immigrants here or their families in Latin America, or about the reasons for the devastation of Latin America that you bring up.  That’s a much more sympathetic view than the alternative: that you actually do know something."

Webb: "
First of all, even more than manufacturing in general, NAFTA has brought enormous competition to the electronics industry specifically. http://www.prnewswire.com/news-releases/mexican-consumer-electronics-industry-second-largest-supplier-of-electronics-to-the-us-market-131233479.html

between 2003 and 2009, Mexican electronic industry exports registered an average annual growth of 17.1 percent."

"Mexico has been responsible for exporting USD $71.4 billion in consumer electronics and devices in 2010, an increase of 20 percent over the previous year."
PR Newswire (http://s.tt/1bKGn)

I would say that when it comes to electronics in particular, that the Mexicans are converging rather quickly. Part of the argument against convergence is that it doesn't work quickly with industries that are subject to natural resources (poor soil and low infrastructure in developing countries), but that obviously isn't the case with engineering in Mexico.

Also, notice how much higher the HDI is for the northern Mexican states closer to the border thanks to remittances.


Personal anecdotes don't hold water in economics anyhow."

Chomsky: "Your quite right about one thing: personal anecdotes don’t mean anything.  That’s why I didn’t offer any in referring you to the literature that refutes your beliefs about Mexico and NAFTA.  Or anything else apart from responding to your stream of hysterical insults.
I won’t repeat the sources, but you can check if you look.  What you present here is beyond meaningless, even by the standards of business PR.  Take the first.  Mostly multinationals, glad to exploit cheap labor and rotten working conditions in Mexico, with very limited linkages to the Mexican economy.  But I’m not interested in taking the time to educate you.  You can turn to serious sources, such as those I cited.
As for “remittances,” it takes either extraordinary callousness, or complete lack of understanding of the lives of immigrants here or the families in Mexico to even produce these words.  But I’m not your moral instructor either."

Webb: "
What you haven't offered is any actual data to support your beliefs other than empty promises whilst blaming me for remaining in "ignorance." This type of behavior is typical of sociopaths. As for myself, on the other hand, I've presented plenty of evidence from wikipedia, and other valid sources, but this is apparently below your pay grade at the illustrious M.I.T., which is a rich school near a Mayan community that somehow made its way to New England thanks to American/British/Israeli oppression. People in that part of the country haven't heard a story that ludicrous ever since Joseph Smith pitched the Book of Mormon, but then again, even the Mormon community does more for Mexico than Bostonians."

Chomsky: "
You’re quite right that I didn’t cite the data that refutes your misunderstandings.  Rather, I referred you to sources, the way matters proceed in rational discussion.  You also referred to sources, but as I pointed out, they are pretty poor even by the standards of business PR, for the reasons I mentioned.

You may try to evade all of this by a stream of slander, or by ridiculing those who have fled, and are fleeing right now, from horrendous atrocities backed by the US with the enthusiastic support of Ronald Reagan.  That tells us both something about you, but nothing more than that"

Webb: "
Where did I defend the policies of Ronald Reagan? Regarding the War on Drugs in particular, I am against it, as most economists are. I also disagree with militarizing the border and sending people back home. However, I also do not think the legalization of drugs would solve all of the problems, and that is in part why I mention the Mormons. 


Also, nobody forces Mexicans to come to the United States in the first place. They know the risks. I'm actually from Utah, and even though Mitt Romney is an embarrassment, the University of Utah is home to the only Marxist economics department in the country, which might surprise you. As a matter of fact, my family on my mother's side migrated from Boston to Utah (they ended up in Boston defending Charles II as Royalist highlanders from Scotland). Since Scots are matriarchal, I always tell people whom tell me I can love this country or leave it that my ancestors came over here on a prison ship, and that I'll be happy for them to negotiate a peace on my behalf.

Also, I'm not sure if you tried attaching a specific link, because I do see a paperclip on one reply, but I am unable to open it; so I would prefer a hyperlink if you do not mind. As far as I can tell, the only source I have received is that I should study material from the Economic Policy Institute and Center for Economic Policy and Research, which is a bit broad as far as rational discussions go.

P.S. I apologize for the bullying, but I am a Taurus, and it's all in good fun once you get to know me. Speaking of think tanks, at least I didn't pretend I was your friend and drink your wine and eat your food and embarrass you in front of the entire audience like I did with Hoppe and company down in Auburn. I actually spoke to you about this awhile ago. I'm not sure if you remember. Even UNLV isn't Rothbardian by the way. They actually gave him a pretty difficult time while he was there. As far as my book is concerned I gave up on it awhile ago. People believe what they want to believe. And the only way to make "money" on a book is to have octuplets these days."

Chomsky: "
Where did I defend the policies of Ronald Reagan?
You might find it amusing to read the letters you mistakenly believe you are responding to.  The question of your defending Reagan never arose.  Rather, your slanderous and depraved attacks on people fleeing the misery and destruction of the Reaganite wars – for which you and I share responsibility, but I don’t imagine that you can comprehend that.
 Regarding the War on Drugs in particular, I am against it, as most economists are. I also disagree with militarizing the border and sending people back home. However, I also do not think the legalization of drugs would solve all of the problems, and that is in part why I mention the Mormons. 
Why you bring any of this up I haven’t the slightest idea.  Or interest.

Also, nobody forces Mexicans to come to the United States in the first place.
While this does not sink to the depravity of condemning Mayans fleeing from virtual genocide, it comes close.  And to carry your comment further, nothing forces me to waste another moment with performances like this."

Webb: "
How in the hell am I responsible for Ronald Reagan, much less anything that the US government does? Unlike yourself, I don't even consider myself to be an American. I'm British. No joke. But it is a nice gesture to try and clean up after the other side while making extra money from microprocessors on the side and using poor people as an excuse. And let me know when any paper pushers from M.I.T. die fighting Mexican drug cartels instead of siding with marijuana smoking hippies during the Vietnam war, because your buddies sure as hell opened up Pandora's Box in that decade now didn't they?I almost forgot to add that it's really too bad Mao Zedong wasn't still around, because he was obviously a much lesser evil than a Catholic dictator in tiny little Vietnam. But that's the thing about Sagittarians. You care more about the means than the end. Look at Stalin."Rather, your slanderous and depraved attacks..."
At best it is libel since it is written, but you're obviously as bad at the law as you are at economics, which is why you're at M.I.T.


Chomsky: "Acknowledged out of politeness, with sympathies for your desperation."

Webb: "
Actually, I've pulled quite a few punches with you. For instance, China actually had more people living there in 1840 than the US/Canada/Australia have today combined, and those population levels were sustainable for China, which means we're two industrial revolutions ahead of them (despite the fact that we have far more land, natural resources, economic diversity, and sea power to begin with). And the Chinese would be right to thank us, because they've used all of our amazing technology to have more than three times as many children since then, which we western imperialists are obviously responsible for, because even though we might be younger, we are obviously the ones in control. It's a lot like Ephraim and Manasseh.

I feel so desperate. :\"

Chomsky: "
No more politeness even necessary.  Just trashed, as future letters will be without acknowledgment until you manage to write something minimally rational."
Here's a link. http://www.biblegateway.com/passage/?search=Isaiah+9&version=NKJV

Webb: "Since you like to speak on the behalf of Scotland and Australia regarding the Queen of England and you make accusations regarding my free speech (when you've been such a traitor towards the USA all these years), I find it rather fitting. I don't care if you find my emails to be trash, because your address is obviously a dumpster."

Monday, November 16, 2009

Paradise Awaits

Some economists attempt to separate the field into microeconomics and macroeconomics.

I am not one of these economists.

Nevertheless, it is important to understand an opposing argument, so I shall attempt to briefly explain the hypothetical theory behind the creation of these supposed types of economics for those readers whom are unfamiliar with such terminology.

Microeconomics is said to be concerned with households and firms.

Macroeconomics is said to be concerned with national, or regional, economies.

A common metaphor that illustrates the difference between the two fields is that while macroeconomics deals with “the forest,” microeconomics deals with “the trees.”

Although such a metaphor as thus provides a slight amount of clarity, it is important to note that “forests” do not actually exist apart from trees, and that forests are much more than trees to begin with. To be sure, one may understand a certain area of biological activity is a forest, but in order to truly understand a forest, one must actually study the various aspects of the forest itself! Forests are composed of numerous minerals, bacteria, fungi, plants, trees, insects, animals, rain, wind, moonlight, sunlight, etc. One could even break a forest down into molecular, and even atomic elements if they had the time, means, and desire to do so.

Similarly, there is no such thing as a “macroeconomy” in and of itself. A macroeconomy is a collection of individual households and firms: one could not truly learn about a macroeconomy without first understanding its individual components.

It was for this reason that gross domestic product (GDP) was theoretically conceived by macroeconomic central planners; GDP is, by definition (as hollow, and simple, as it may be), “a measurement of the total amount of goods and services produced annually in an economy.”

In other words, if a barber cuts someone’s hair, GDP should increase by the final amount of the haircut. If an engineer builds a bridge, GDP should increase by the final cost of the bridge. If a gold mine is discovered, GDP should increase by the final cost of the gold that is mined (the discovery itself may not necessarily produce any benefits).

Newspapers often reference GDP statistics when they assert the United States’ (if not the world’s) economy is either growing or shrinking. For instance, when new home sales are a large percentage of GDP one year, a subsequent downfall in new home sales the next year may shrink GDP if the prices/units of the other elements of GDP do not increase enough to offset the decline in home prices/units (which is what happened in the United States recently).

The rate of growth, or decline, of GDP over a period of time determines whether or not the economy is said to be in expansion, recession, stagnation, or depression. For many mainstream macroeconomists, even unemployment statistics are not necessarily a major indication of a healthy economy, which is why some have been bold enough to declare the current recession to be over, as GDP increased in the past quarter of the current year, even though unemployment increased.

In any case, there are two enormous problems with the concept of GDP statistics in practice.

The first problem is found in the basic accounting of GDP itself.

It difficult to ascertain how many resources are required in order for the government (the US Department of Commerce is responsible for GDP statistics) to accurately count all of the “final goods and services” of a macroeconomy as large as the United States in the first place.

In fact, the first problem does not matter a great deal, for the second problem is far more difficult to address.

Rhetorically speaking, how do unspecialized economists and accountants qualitatively understand so many unique goods and services after they have counted them?

After all, quality is very important: Toyota did not take over the automotive market simply by building cars—they built better cars for the money consumers were willing to pay!

Of course, the simple answer to the rhetorical question is that even the greatest geniuses among humankind would be unable to understand so many goods and services! Medical doctors must attend school longer than most economists; yet, there are far fewer economists than medical doctors in the world. And even medical doctors specialize in particular areas of study: brain surgeons are commonly thought to be the smartest medical doctors of them all, but one would be unlikely to find too many brain surgeons whom understand dermatology as well as most dermatologists!

The truth is that governmental calculators of GDP do not bother themselves too much learning about actual goods and services, much less the various techniques and processes microeconomic entities use: engineering, chemistry, physics, specialized labor, etc. These intellectual frauds only care about some goods and services people are willing to pay for in monetary units, and bureaucratic statisticians often manipulate the collection of the goods and services they supposedly measure in order that their selections will fit the “mathematical” percentages they wish to report.

GDP does not account for matters such as freely created software programs and/or charity; GDP fails to represent the value of students whom learn on their own from books rather than teachers; GDP fails to measure the entrance of formerly copyrighted books, music, and other forms of intellectual property into the public domain; and perhaps most humorously, GDP does not measure the value of new mathematical proofs, as mathematics does not have a great deal of monetary value directly, since mathematics in and of itself is not patentable, which is quite ironic, since most economists are absolutely infatuated with the subject. And even when GDP actually recognizes elements of the economy, GDP often severely understates inflation in certain industries, while it severely overstates deflation in other industries!

The real estate industry is heavily favored by GDP, while cutting-edge technologists are mostly left to fend for themselves. Of course, this may seem obvious today—given the fact that the recent real estate bubble left many Americans desolate—but even this bubble has not completely burst whatsoever, thanks to the assistance of the Federal Reserve and the United States government. Conversely, the technological investments of the 1990s have produced many real returns people were never expecting during the dot com monetary era; however, the simple fact of the matter is that the benefits of this technology have been ignored by most Americans in favor of complete nonsense according to their purchasing patterns, while the government itself cares very little about the glorious blessings our real intellectuals have bestowed upon us. Indeed, humanity often acts in this matter, as Galileo would surely explain to us if he were alive today.

To empirically prove conventional GDP is nonsense to the less enlightened mind, and to also prove that the recent real estate crash did not sink prices nearly enough, let us visually examine the growth of certain technology during the past twenty years, as humans often have a tendency to lose track of the past when it is not relatively recent.

Although computers were already in development well before the 1980s, I would like to show screenshots from video game consoles from the middle of this period until today in order to illustrate some of the technological growth that has occurred thus far, as graphics are much easier to comprehend than technical specifications.

Let us begin with the Nintendo Entertainment System, which was originally released in the United States in 1985.

Four years later, in 1989, the Sega Genesis came to America.

Sony would enter the home video game market in 1995 with the Playstation.

Microsoft followed Sony in 2001 by releasing the Xbox.

Today, current video game consoles consist of the Microsoft Xbox 360, the Sony Playstation 3, and the Nintendo Wii.

And not only are the graphical capabilities of these systems far superior to their recent predecessors, but today’s consoles possess online functionality, they can store thousands of songs on hard drives, and in the case of the Nintendo Wii especially—they have far more advanced controls. In fact, Microsoft is already working on a project that will even leapfrog the Wii’s controls, even though Nintendo has already made their own drastic upgrade in the form of Wii MotionPlus!

Furthermore, interestingly enough, even according to the consumer price index, which is a measure of inflation according to the US Department of Labor, the video games of today are even cheaper in terms of most ordinary consumer products than older games were for the original Nintendo Entertainment System! In other words, not only have video games increased enormously qualitatively, but one could trade in fewer cans of soup (if video games could be bought with soup) for an average modern game. If we used gold as a monetary measurement—especially today (as of November 14th, 2009)—we shall find that an ounce of gold can buy nearly three times as many video games as it could in 1985!

The main point that needs to be taken away from all of the above screenshots of video games, however, is that the video game industry is only a fragment of the technology industry as a whole!

Now, we can access the “morning” paper online (which is updated throughout the day and night), most of the magazines we used to pay for have more free internet content than they used to include in print only a few years ago, Wikipedia has virtually eliminated encyclopedia salesmen, we have video phones that are easy to use (barely anyone cares enough to try to use them), and we even have blogs where we can post ideas fairly easily for the entire world to view (like this one). Yet, all of the stuff in this paragraph alone almost entirely originated in the past ten years—once again—after the dot com bubble burst!

In the meantime, during the past twenty-five years, the average home has not changed a great deal in size, quality, energy efficiency, etc. As for undeveloped land itself—land has barely changed at all in only twenty-five years (unless a supernatural event occurred, such as Hurricane Katrina).

Imagine, for a moment, what would happen if the average video game designer became absolutely infatuated with procuring dollar bills. They would be able to create home designs far faster than the average architect: a $50 Xbox 360 game contains an enormous amount of virtual design—far more than the blueprints for the average home. Also, let us think what would occur if robots built standardized housing frames at more and more rapid rates every year. Pretend the chemists and physicists of Intel worked for a few years designing stronger and more geometrically sound skyscrapers rather than incomprehensibly small structures for microprocessors. If all of this were to occur, the real estate industry would completely collapse (in fact, the real estate industry will collapse sooner or later anyhow).

So, should we kill all of the economists for stealing the profits of these technological pioneers?

Certainly not.

But should we at least abolish the Federal Reserve?

What would be the point?

To even assert that the Federal Reserve needs to be abolished is to admit that they actually have real power and influence to begin with, but reality has already proven otherwise. If the computer industry continues to develop the way it has during the past twenty years, it will not be long before we live in a completely virtual world in tiny boxes in the real world stacked on top of one another.

As for Communism—the only people that are more ignorant, and unfortunately, more “powerful,” than mainstream macroeconomists are professional politicians. In case the reader has already forgotten, GDP is calculated by the U.S. Department of Commerce (more specifically, the U.S. Bureau of Economic Analysis), and the President of the United States is theoretically in charge of such. If the President of the United States does not even understand how the macroeconomic monetary system works, he certainly makes a poor philosopher king—to say the least of the matter.

President Obama is not a medical doctor either; yet, he believes he can fix health care. A common nutritionist has the solution to America’s health care woes—we need to stop eating junk food (smoking and unprotected sex do not help either).

Of course, when I said such people as professional politicians are powerful, once again, I was not speaking of true power; instead, these individuals have merely convinced themselves, and most unenlightened people, that they are as thus. The only thing more hysterical than a lawyer being in hypothetical control of a nation’s economy as complex as the United States is the idea that the average voter is wise enough to select the best individual for the job when they themselves are more than likely even more ignorant than their “leaders!”

It may be sad, or even blasphemous, for some people to admit this, but it is true—I personally find it to be funny.

Instead of feeling distraught, however, at the very least, one should, perhaps, feel an inclination to write plenty of thank you cards to all of the scientists, engineers, and real medical doctors whom have changed the world unknowingly, or unappreciatively, for all of us—they are true angels unto humanity.

Tuesday, February 3, 2009

High-speed Rail: A New Superhero

The United States’ economy is not nearly as capitalistic as most people believe. The recent automotive bailout is only a sliver of the truth, which is to say that the entire U.S. automotive industry has been a nationalized entity since the Eisenhower era—if not well before this time. At the very least, it is impossible to argue against the fact that the National Highway System has indirectly benefited auto manufacturers more than any public works project has benefited a private industry in history! Indeed, it is safe to say that automobiles would be a niche market in the world if it were not for the United States various governments’ insistence on building larger and larger roads.

Unfortunately for the American people, automobiles have never made much sense. Trains are far more efficient at carrying large amounts of cargo. Some government officials have finally begun to realize this simple truth. While not ideal, the California High Speed Rail Authority offers some interesting statistics: a 255 mile trip from Los Angeles to Fresno could be completed in 1 hour and 24 minutes by rail (at an average speed of approximately 182 mph); yet, it would cost less than the same trip in a car. [1]

Perhaps even more importantly, “In 41 years of high-speed train operation in Japan, there has not been a single passenger fatality, largely due to the separation of the rail line from roads and the myriad of safety features and operating procedures incorporated into the service.”[2]

The U.S. National Highway Traffic Safety Administration recently bragged on its web site, “New Data Showing Record Low Highway Fatalities!”

What’s this new record low?

Estimates show 31,110 people died on U.S. roads from Jan.-Oct., compared with 34,502 in 2007 during that same period.” [3]

And yet, we care so much about the relatively small number of people who died on September 11th?

What is more, even the proposed rail system for California is a travesty—it is a much better idea for the state than more highways/automobiles, but it is absolutely ridiculous how long construction of the service is expected to take. Even an “initial segment” of the system may not become operational until 8 to 11 years. Oddly enough, despite the fact that the California High Speed Rail Authority seems to be aware of the Japanese rail system, a simple search of Wikipedia will show that “Construction of the (Tōkaidō Shinkansen) line began on April 20, 1959 under JNR president Shinji Sogō and chief engineer Hideo Shima. It was completed in 1964, with the first train travelling from Tokyo to Shin-Ōsaka on October 1 of that year." [4]

In other words, the Japanese constructed a rail segment 40 years ago at almost twice the speed of the Californian construction proposal—of course, the modern train for California will be much faster, but then again, technology is also far more advanced today. A technical explanation would be far too long for this blog, but an even better abstract comparison may be the construction of the Union Pacific railroad in 1865. “The rails of the 'First Transcontinental Railroad' were joined on May 10, 1869, with the ceremonial driving of the 'Last Spike' at Promontory Summit, Utah, after track was laid over a 1,756 mile (2,826 km) gap between Sacramento and Omaha, Nebraska/Council Bluffs, Iowa in six years by the Union Pacific Railroad and Central Pacific Railroad.” [5]


1. http://www.cahighspeedrail.ca.gov/map.htm

2. http://www.cahighspeedrail.ca.gov/images/chsr/20080123171537_ImplementationPlan.pdf

3. http://www.nhtsa.dot.gov/

4. http://en.wikipedia.org/wiki/T%C5%8Dkaid%C5%8D_Shinkansen

5. http://en.wikipedia.org/wiki/Transcontinental_railway

Monday, January 26, 2009

Why Buy Government Bonds?

There is a common assumption that government bonds are safe assets during times of crises, but is there any logic behind this?

Today, the national debt stands at around $10,600,000,000,000.

While one could divide this number by the population of the United States in order to find each citizen's share of the burden, this would be incorrect from an economic standpoint, as children and the aged do not usually pay taxes. A much better number to divide the debt by would be the amount of the potential U.S. labor force, which even includes those whom are currently unemployed: in 2008, the labor force of the U.S. stood at 155.2 million.

Therefore, each citizen in the labor force owes about $68,387 to the government.

If you are purchasing government bonds today, you are betting that each citizen will pay you back your money through what is left over from their taxes.

And where do taxes come from?

The private sector.

If the economy is experiencing a recession, and if the private sector is in bad shape, there will be less federal tax revenues available to pay back government bonds.

How does the government fix this problem?

They issue more debt at a lower interest rate in order to pay back the old bonds.

The only reason the government can do this is because today's bond buyers are essentially dumber than yesterday's bond buyers: in other words, the government is a Ponzi scheme.

Unless the government issues bonds at a negative interest rate (it should be self-explanatory to a bond buyer why this would be a stupid investment since it would be better to hold onto cash), the principal of the national debt will still be higher, which will offset the lowered rates. In other words, the taxpayers will still owe more money.

One could think of it this way: if an individual takes out a loan for $10 at a 10% rate for one year, they are essentially obligated to pay their lender $11 back at the end of the year. If the individual can not pay the $11 loan back at the end of the year, they could borrow another $11 in a year, but even if they can convince a new lender that they should only be given a 5% rate, they will now owe $11.55 at the end of the second year! In other words, the second lender is essentially dumber than the first lender, because they offered a lower rate to an individual that failed to pay their debt on time; what's more, there is even greater risk involved on the newer lender's behalf, since the borrower must pay even more money back at the end of the year.

The only reason an even newer lender might accept such a scenario the third year may be because they believe an even dumber lender is going to come along the fourth year, but the scheme is mathematically doomed to end when the interest rate is below -100%, and/or when the entire economy is consumed by the legalized fraud. This could take decades, but the problem will slowly accelerate.

And if one thinks massive monetary creation should save government bonds, they'd be dead wrong. Inflation results in higher interest rates and higher prices, and therefore, the real value of the bonds will still be lower--if hyperinflation occurs, the bonds will be worth almost nothing--unless they are used as collectors' items in a few hundred years.

To those whom say we are experiencing deflation at the moment, let me remind you that it was not long ago when the housing market was said to produce infinite returns.

Sunday, January 25, 2009

The Unimportance of Immigration and Outsourcing

Throughout our history, mankind has found itself more than willing to brutalize those brothers and sisters among us whom are less fortunate than ourselves.

And for what reason?

Many of us are simply cowards.

The difference between the adult world and the playground is slim.

Protectionist sentiment often arises when jobs in auto manufacturing are shipped to Mexico, but no one seems to mind when robots take over, much less when cars last longer.

Some complain when Indians "steal our jobs" in call centers, but it is extremely rare for frustration to be voiced over easy-to-use electronics.

Amazon.com and other online retailers have destroyed thousands of jobs for cashiers.

Larger airliners have eliminated incomes for pilots.

Better fertilizers have destroyed the careers of thousands of farmers.

Computer programs have overthrown many accountants, paralegals, and even lawyers.

Toothpaste prevents dentists from putting more food on their table.

What is the real difference between technological efficiency and global efficiency?

The Answer: None.

Thursday, January 22, 2009

The Real Price of Housing

Many non-economists tend to forget that riches are a matter of ratios. In other words, how much value does one person's labor/production command in comparison to that of another? This is a simple, yet extremely powerful point to consider--like air, or even sunlight--we tend to take it for granted, even though our existence revolves around it.

Most modern economists tend to believe deflation is a bad thing: they say, "when deflation hits, it causes a negative downward spiral, and government spending/false money are needed in the short-run in order to smooth everything out--the free market will be there when we get back."

There is one small problem with this type of thinking, and that is when an economist such as myself asks, "ok, so who gets the government spending/false money?"

We have seen exactly who gets the money today. Bankers that caused a real estate bubble, and even car manufacturers who caused an oil bubble, and to a certain extent, the mindless individuals known as the poor and generally ignorant American workers whom did not educate themselves enough and/or prepare themselves enough for a future without even more unemployment insurance than they had originally bargained for. Now do not be offended that I do not sugar coat my thoughts, because the truth is powerful, and it will set you free: for at the end of the day, the middle class, and the university systems, have certainly not been bailed out nearly as much--and without these two pillars--the economy will be in far worse shape in the future.

Once again, riches are about ratios.

How much power (monetarily, socially, or otherwise) do you get for your hard work?

If you are an electronics engineer especially, the answer is--not much.

Let's see why this is the case. Pretend you work for Intel. Even though your market is a duopoly (and a weak one at that given the state of AMD lately), you are still expected to double production every two years given Moore's law. If you do not, your customers will simply continue using their old computers for as long as possible--considering some computers run for well over five years, this is problematic; therefore, to solve this problem, you must give your customers more value from their purchase in the short-run than they would find from waiting to buy a processor in another two years.

In other words, even though your customers are expecting deflation, your business is still around.

So why do so many economists think deflation is a bad thing?

Dear reader, you've more than likely been living in a dream world. You see paper and you think it is worth something. Well, it can be worth something. I was on digg.com today, and I found this.


A $5,000 house.

Now, this is obviously a poor home compared to what many of us live in. But one must think of all the money (and labor) they would pour into a conventional home that costs, let us say, $100,000 at the moment.

Is such a $100,000 home truly twenty times better?

Well, a first-time home buyer would probably be convinced by society that they should pay interest for such a $100,000 home given the past (homes have usually gone up in value).

But what if the $5,000 home becomes 15% larger the next year, yet drops in price by $500 a unit thanks to mass production?

At that point, your home's value would fall, all else being equal, because it competes with the much cheaper dwelling.

And what if people begin to worry about expensive homes holding their value now?

At that point, more people will buy the paper homes.

In other words, homes would become consumption rather than investment.

If some engineers from various fields worked on these types of creations, and if they were created by better and better machinery every year, eventually, people would begin to think of a home as being useful in and of itself. This is what drives technology, and this is what drives the economy.

We have become so fixated on our belief that homes will increase in value, even though they haven't given us anymore pleasure per se, that we haven't realized how much we get for our labor every time we turn on our computers. While bankers have been bailed out for propagating the herd like mentality of irrational exuberance, our scientists and engineers have begun to suffer.

There is no such thing as overproduction in the long-run. In the short-run, we may all lose money in some ways, but we would gain it back in others. If nearly everyone went bankrupt from their home values plummeting today, we could buy a new home for virtually nothing after a few short months of cooperation.

Today we believe in Obama, but I am asking you to believe in yourselves.

Monday, October 13, 2008

The Ridiculous Federal Government Pt. 1

Many people seem to think there are plenty of good reasons for nationalized departments of various forms (agriculture, education, etc.), and the vast majority of folks today believe the military should certainly be controlled by the President of the United States. Let me explain why these notions are so ludicrous.

Imagine you are hungry. Your refrigerator and cupboards are running low on food, however; therefore, you visit a grocery store in search of sustenance. The only grocery store available is a nationalized chain, and prices are constant across the board no matter where you live (in other words, a box of cereal costs the same in San Francisco as it does in rural Alabama). The only difference in a geographical item's price may be found in its final delivery cost (shipping and handling).

A perfect example of this in the modern world (and in the private sector, no less) would be an online store of some kind, so let us say that the type of food demanded does not spoil easily during transport. If you live in a major city with a large economy, you would benefit from prices that do not discriminate on the sole basis of your local economy, because wages are rightfully higher in your area: in other words, the real cost of the food from the online grocery store would be cheaper for you since your wages buy more. This is the way that the economy should work, however, because a larger city would enjoy economies of scale.(*)

More specifically, to see why metropolitan areas should be able to buy items at a discount, let us say there are groups of buyers in two cities: one group is in Los Angeles, California, and the other is in Cheyenne, Wyoming. The geographical area of the group of buyers from L.A. will probably have almost four times as many residents per square mile; therefore, when this group reorders supplies, a cumulative order to the online distribution center will be almost four times as effective, all else being equal. And if the online store uses a larger truck to deliver the food to Los Angeles, only one driver and one trip may be needed, while three or four separate trips/drivers may be needed to deliver the same amount of food to the citizens of Wyoming over the course of time.

The problem with government, however, is that it turns this logical notion of economies of scale on its head. By using income percentages to bill people in Los Angeles and Cheyenne for the same amounts of goods, the citizens of Cheyenne are given more for their money! If a worker in Los Angeles makes $10 an hour, they will pay $1 an hour to the government at a 10% tax rate; let us say this will go towards a federal purchase of weapons. If a similar worker in Cheyenne only makes $8 an hour for the same task, they will only pay $.80 an hour at a 10% tax rate towards the same federal purchase of weapons. What is more, if a war breaks out, citizens of Los Angeles are more likely to be targeted due to their city's greater value! Therefore, the citizens of Cheyenne are given even more security than the citizens of Los Angeles for about 20% off.

The Soviet Union is an excellent example of what happens as a result of so-called centralized planning (which ironically results in decentralized methods of production/distribution). Rather than allowing the invisible hand to distribute resources effectively through what spatial economists call the gravity model (this is similar to the natural models of physics), the Soviets built communities that could not sustain themselves far away from their needed input sources. Once the Soviet Union fell, many small communities became ghost towns. This is why it is so difficult to transition back towards a free market economy once a nation has been centralized for so long.

This is also why a person that argues against federal programs faces an uphill battle as a result of the programs in question having already been in place (bridges to nowhere are not only sunk costs, but more importantly, they result in an enormous number of free riders). Even though a centrally planned economy may not make economic sense in the long-run, it would be almost impossible to convince the unproductive citizens otherwise in the short-run. Usually, such citizens procrastinate in attaining self-sufficiency until the market overwhelms the best efforts of the government's planners, at which point even more suffering results than would have been the case if the situation had been adverted earlier.

*(Brick and mortar retail prices are traditionally higher in populated cities due to relatively higher real estate values in such areas: higher metropolitan rent/property expenses are partially passed on to consumers. This issue was addressed by David Ricardo when he claimed landlords capture the increased production of capitalists while workers remain at subsistence, which is a result of diminishing returns to land. We can reasonably factor landlords out of the equation today thanks to inventions such as the Internet. Furthermore, modern real estate prices are higher than they should be in a free market as a result of the inflationary policies of the Federal Reserve, which also harm low-income workers (renters) in metropolitan areas more than competitive workers in rural areas: not only are low-income workers in metropolitan areas not granted the offsetting capital gains metropolitan property owners enjoy, but furthermore, larger portions of metropolitan low-income workers' wages are captured by landlords.