Archive for the ‘Politics’ Category
Here it comes again, The Broken Window Fallacy.
I heard it just this morning, as a reporter for Fox News talked about the “economic stimulus” that would result from this hurricane. Paul Krugman has been beating this drum quite a bit lately, saying that America needs a disaster, a war, or even an alien invasion to “get the economy moving again.”
But destruction can’t create growth. Anyone who tells you otherwise has fallen for — or is trying to pull — the oldest trick in the book.
Let’s say I’m a shopkeeper who just had his window shattered by a little girl who was playing with a BB gun. Let’s call her “Irene.”
Irene shatters my window, so I have to pay the glass guy $250 to get it fixed.
Krugman and company will tell you that $250 becomes “stimulus,” but where did that $250 actually come from? I was planning to spend that money on a new suit, but now I have to fix my window instead.
The Keynesians are assuming that if Irene didn’t break my window, my $250 would just sit there forever, stuffed in my mattress for a rainy day. But I had plans for that $250. I wasn’t going to hoard it, I was going to spend it. If Irene hadn’t taken out my window, that money would have “stimulated” the clothing store instead.
Keynesians like to pretend that we’re all a bunch of crazy hoarders, rolling around in piles of unspent cash like Scrooge McDuck. But in a modern world, even saved money becomes part of the active economy. I don’t stuff my money in a mattress, I keep it in a bank, where it becomes capital for other people. My saved money is lent out to other businesses and used to finance productive investments.
Nothing is idle, nothing is wasted. When my window gets broken I have to withdraw $250 in saved capital and use it to replace something I already had. I can’t spend it on a suit, and the bank can’t loan it to their client who wants to open a restaurant. For the Broken Window theory to be true, you’d have to assume that I was holding $250 in cash and had no plans to spend it.
Just think about your own life. If someone broke your window tomorrow, would the repair cost come out of hoarded cash, or would you have to give up something else you wanted to buy?
We should feel bad for the people who lost property to Hurricane Irene because all the “stimulus” they’re about to spend on repairs was money they would have spent on clothes and cars and toys for their kids. Now all those plans are ruined, and they have to spend thousands of dollars just to replace things they already had.
This will certainly stimulate the construction industry, but what about the tailors and the auto makers and the toy stores who would have received that money instead?
Nothing good can come from destruction. Emergency spending doesn’t create wealth, it simply diverts resources that would have been spent on other things.
Hurricane Irene is a net loss for everybody, and it’s going to be a big one.
The first thing that went through my mind when I heard about Jeff Jarvis starting a revolution on Twitter tonight was “How the hell can I write a column about a #fuckyouwashington hashtag without using the word ‘fuck?’”
Then I saw somebody compare it to Howard Beale’s “I’m mad as hell” speech in Network. Have you watched that clip lately? The parallel is perfect. Howard doesn’t know what to do about crime, oil, or Russians, he’s just demanding that we do something.
The same thing is happening on Twitter right now. Nobody knows what to do about unemployment, corporatism, or the debt ceiling, they just want everybody to get mad about it right now!
Watch the tag for a while and you’ll notice that half of these tweets contradict the other half. Half the protesters think we should solve this by going hard right, the other half think we should solve it by going hard left.
But Washington is gridlocked because America is gridlocked. The outrage on Twitter is random and unfocused because there are actually three different kinds of anger at work here.
First, we have left and right anger, the friction you would expect when you have 30% pulling right, 30% pulling left and 40% stuck in the undecided middle.
But there is another kind of anger layered on top of that. The right wing guys aren’t really behaving like right wing guys and the left wing guys aren’t really behaving like left wing guys.
Republicans who were sent to Congress to cut spending and fight corruption are proposing half-measures and rolling over for the very people they were sent there to oppose. And this anger started long before the 2010 congress. Obama didn’t start the bank bailouts, Bush did. The incredible ramp in deficit spending started with Bush, too.
Obama ran as a hard left populist champion, promising to rise above corporate influence and bring the troops home. Now he’s starting new wars and raking in banker cash with both hands.
So there’s our third heat. The right can’t make things go right and the left can’t make things go left. Increasingly, Washington is working from a set of priorities that have no connection to the will of the people.
If the country was going consistently right or left, at least 30% of the voters would be happy. But we’re in the middle of a serious recession and our politicians seem to be broadcasting from another planet.
Every day they go on TV to stoke the fear, scaring us with words like “crisis” and “default,” each demanding that we blame the other side.
That part is working. Americans are angry and afraid. You told us there was a crisis and we believe you. But we’re not blaming “the other side” — we’re blaming everybody.
Thirty percent of voters will blame the left for anything that goes wrong and 30% will blame the right, but 40% in the middle are ready to blame both of you.
Playing political games with loaded issues is nothing new, but this time everybody knows it’s a game. Voters aren’t stupid. They’re watching cable and reading blogs. They’re listening to talk radio and swapping conspiracy theories on Facebook.
Everybody knows you guys are running the clock out, waiting for the next election. But you can’t have it both ways. You can’t go on TV to scare the shit out of us every day and then expect us to wait patiently for 2012.
You can’t use words like “urgent” and “crisis” and then waste our time with Kabuki theater.
Either the situation is urgent and needs to be solved now, or it’s all just an act that can wait for 2012. This isn’t 1954, gentlemen. The voters are on to you now. We know you’re playing a game and we know you’re using us as chess pieces.
That’s why #fuckyouwashington is trending on Twitter. We’re tired of being pawns.
Every politician in Washington needs to pay attention to this outrage and remember who they’re working for.
Smart money says Greece will calm down in a week or so.
Europe and its respective banks will come up with some kind of delay tactic and push the day of reckoning back a month or two.
I can’t imagine what this compromise will be, but these guys have gotten so good at hiding consequences and shifting money around, only a fool would bet against them.
They can push it back for another month or another year, but eventually something will have to be done about Greek debt. The banks, the governments, the creditors, and the politicians involved will come up with some kind of solution and that solution will become the model for all the toppling dominoes that come after.
The reckoning will be slow but inevitable. The welfare states of Europe have finally reached the Keynesian Endpoint. These economies are so screwed up, so crippled by waste and malinvestment, the amount of stimulus required to sustain the bubble is greater than the amount these nations are able to borrow.
Libertarians have stumbled over this for decades because we always expect the collapse too soon. We see the fundamental contradictions in these economic models and say, “Well, that won’t last.”
Libertarians have been predicting the failure of the Euro since 1999. The model is fundamentally unsound, but they’ve held it together for a decade, and if they can figure out a way to kick the PIIGS out, they may hold on for a decade more.
Consider the Soviet Union. Mises knew the experiment was doomed in 1921, but it took 70 years for the contradictions to catch up with reality. In that time the Soviet Union used force, fear, nuclear brinksmanship and sheer weight of numbers to become a worldwide superpower. The flaws in the system were evident from day one, but they kept the plates spinning for a lifetime.
People wasted their whole lives waiting for this impossible system to break down, and when it finally did, no one was more surprised than the economists.
The modern welfare state isn’t quite as old as Communism, and mixed socialism isn’t nearly as fragile as the real thing. Our prices may be insane but we still have them.
This Greek thing may fizzle in a few days, or we may be facing a full-on Berlin Wall moment, as the contradictions inherent in the welfare state finally become too obvious to ignore.
Greece was the birthplace of democracy, and it may be the place where democracy starts to die. What happens when people take to the streets demanding the impossible? Ask any ten people on that street today and I’ll bet eight of them believe that things can go on just as they are, if the people just want it enough.
There’s no fundamental problem here, the politicians just aren’t listening to us. We don’t need tax hikes, we don’t need spending cuts, we just need to elect a group of politicians who will stand up and say, “No! Screw your austerity measures! We’re going to keep things just the way they are.”
France and Germany will throw up their hands and say, “We give up! The Greek people have spoken! Give them the credit card back.”
But that’s not going to happen. That’s what these rioters don’t understand. They still think this is a political problem. But we have stepped beyond the bounds of politics and entered the realm of finance. The Greek voters can vote any crazy shit they want on each other, but they can’t make France and Germany give them money.
They can’t force the bond market to pretend they have good credit when they don’t. All they can do is default, or leave the EU entirely. Sounds fun, but the moment they do that, Greece becomes a third world country again.
Imagine what the world must look like to these Greek politicians. For decades politics has been an awesome job. All you had to do was get elected and hand out money all day. All you had to do was sit at your desk and write checks from an infinite pool of money. Go home for brandy and a cigar and spend all night thinking up new ways to say “Yes!”
But then somebody pulled the credit card. Goldman Sachs is on the phone telling you you have to say No. Not only can you not hand out new money, you have to go back to your constituents and ask for most of it back!
You made promises based on somebody else’s credit, and that credit has just run out.
(I suspect politics will be a lot less fun now that the default answer has shifted from “Yes!” to “No!” And it’s going to be a lot harder to find people to run for office now that the job has changed. How will we know when politicians have finally accepted reality? Expect resignations, lots and lots of resignations.)
This is the real lesson we’re about to learn from Greece. Who really controls a democratic country — the people in the streets, or the guys who hold the credit card?
The citizens can riot, I suppose, but I’m afraid these protests are going to look a lot like Egypt. You can’t stage a revolution from the Middle Class. Send out the police, bust a few heads, spread some tear gas around, and these guys will go straight back to their homes. The people who protest for more welfare aren’t the kind of people who start revolutions.
They’ll kick out the old politicians, but the new ones won’t be any better. The new guys can promise whatever they want on the campaign trail, but they can’t make the money come back. Voters will elect people who say they can make the money come back, but none of them actually can.
Say it with me, “When it finally comes time to cut spending, it won’t matter who the president is.”
And that is life at the Keynesian Endpoint. What happens when voters demand the impossible? In the old days this would be simple. Germany and France would demand repayment of their debt and if the Greeks didn’t cough it up, the bigger countries would invade.
Good old-fashioned military conquest. How many of our wars have actually been large-scale debt collections? (Most of them? All of them? I’d look it up but I’m not sure I could sleep tonight.)
Military conquest isn’t really a “thing” anymore. I suspect we’ll end up with some European Union “supervisors” sent over to “help the Greek transition” to austerity. They’ll have bodyguards, of course. And politicians that oppose them, well, I’ll be very interested to see what happens to them.
This is all just a Greek thing, of course, an isolated scenario that has no bearing on Spain, Ireland, Italy, or Portugal.
And it certainly has no relevance for the United States. We don’t need any pushy foreign countries buying our debt. We invented a bank to do that for us. Nope, no austerity for us. We’ll just keep adding zeroes to the end of prices until our debt goes away.
We won’t even have to print new money. None of that tacky Zimbabwe shit for us. We do all this on computers now.
Imagine how efficient hyperinflation will be in the age of the Internet. We can change prices as fast as we want and machines will do the math.
Somebody with the unfortunate handle of “Pastabagel” has written a delightfully snarky post about Foucault vs. Chomsky, where he identifies Chomsky’s core audience (socialist teens who think the United States is a kind of global father figure) and makes some accurate (and depressing) observations about political power.
The root problem with Chomsky is that he either doesn’t understand or is deliberating obscuring the difference between “force” and “coercion.” He doesn’t want to acknowledge the difference between voluntary and involuntary action. No choice is completely uncoerced. By Chomsky’s definition, hunger is a form of coercion. Scarcity is coercion. So the only way to achieve his perfect world would be to abolish scarcity.
Libertarians make a much more limited distinction between voluntary and involuntary action. You signed a contract because you’re hungry, but you signed the contract. Your employer is getting a bargain because you’re hungry, but he didn’t directly cause your hunger. All we can do is make sure you’re free to find another job once your belly’s full.
Conditions imposed by scarcity are not force. These conditions are imposed by nature, not man. We can’t dictate political terms to nature. We can’t abolish scarcity by popular vote. Politics only applies to the actions of human beings.
We can’t abolish hunger by popular vote — all we can do is make violence, fraud and theft illegal, and focus our attention on fighting scarcity.
Only crazy libertarians believe that, of course. The last 100 years of political thought, the entire foundation of our modern world is based on the idea that we can abolish scarcity by popular vote.
The Western world is so in love with this, so committed to the idea of voting away scarcity, they have borrowed trillions of dollars, destroyed decades of productive capacity, and created gigantic bureaucracies trying to turn lead into gold.
Even now, at the end, we’re committed to it. We’ve reached demographic critical mass, when the ratio of workers to consumers has become unsustainable. We’ve tried every trick in the book — shifting blame, unbalancing trade, and finally printing money, but the laws of nature remain the same.
We’re so determined to vote ourselves rich we’ve actually made it easier for human beings to enslave each other. We’ve created regulatory levers that concentrate power in the hands of bureaucrats who can be bought, sold, and traded like baseball cards.
Why bother competing in the marketplace when you can just fly on down to Washington and make your competition illegal?
We’re wasting trillions in productive capacity deciding how to carve a finite loaf of bread while fewer and fewer people are devoted to baking it.
But Pasta isn’t talking about money or scarcity, he’s talking about power — about the fundamental laws that create power and the prerogatives of those who wield it.
Chomsky is presented as the starry-eyed teenager who wants the world to be fair and Foucault is the cynical adult who wants to deal with the world as is.
The video clip below illustrates this fundamental conflict between “should” and “is.” Foucault is saying that even if Chomsky were to wave a magic wand and abolish “the system” tomorrow, the ostensibly neutral institutions of psychiatry and university education would rebuild it.
Foucault is referring to the educational system as an oblique source of power, but in my lifetime it’s become overt. The monolith of public education is obvious, but the university system is now about as “private” as the NHS.
Pasta is annoyed by all this talk of “should.” People with guns and money make the rules and people with guns and money are allowed to break them. Democracy was supposed to be our ultimate hedge against this tendency, but a funny thing happened on the way to the coliseum.
This is the crisis point we find ourselves at today. The utopians may have lost a few battles, but I think they won the war. Politicians who’ve spent a century telling us we can vote ourselves rich are now facing a population who believes them. Europe finally reached a point where even the most fervent true believers were forced to acknowledge the reality of scarcity.
They bit their lips and implemented “austerity” — 4% cuts in response to 40% deficits — and voters are rioting in the streets. Austerity parties in Spain, Germany, Greece, and the UK are all facing disaster at the polls. You told us we could take 8 weeks off and retire at 55 and that’s damn well what we’ll have. Scarcity is somebody else’s problem.
We’re about to face a crisis that democracy can’t solve. And I’m not just talking about Europe.
D.C. Comics stirred up controversy all over the Net last week when Superman promised to renounce his American citizenship.
It happened in Action Comics #900, in a story written by David S. Goyer. In it, Superman joins a group of pro-democracy demonstrators in Iran, creating an international incident. Iran claims he’s acting as an official representative of the U.S. government and calls it an act of war.
The story opens with Superman getting scolded by the president’s National Security Advisor. Superman accepts the rebuke and says he can no longer tolerate having his actions associated with the U.S. government. He declares his intention to appear before the U.N. and renounce his citizenship.
Superman reminds us that he’s an alien and should therefore look at the “bigger picture.” He says, “I’m tired of having my actions construed as instruments of U.S. policy.”
This story can be interpreted in two ways. The first (most charitable) interpretation is that Superman is giving up his citizenship for our own good. He wants to protect America from the consequences of his actions. Viewed in this light, renouncing his citizenship can be seen as Superman acting in America’s best interests.
But most comic readers, and most people who hear the news, are not going to interpret it that way.
There is a very ugly subtext in this story. Superman is essentially “getting in trouble” for doing the right thing. The U.S. is ready to declare him an enemy of the state. When he first lands at Camp David, a Marine sniper is pointing a Kryptonite bullet at his head.
This is not a pro-America story. People are reacting to it emotionally because Superman is a powerful symbol – a distinctly American symbol, carried forward into another time.
There are a lot of cultural forces in conflict here. I’m fascinated by this story because it’s a great example of how our culture has changed since Superman was introduced.
There are two big trends driving this story. First, my generation is obsessed with the idea of bringing comic book heroes into the adult world. Comic book films are a billion-dollar industry, and modern comic books aren’t really aimed at kids anymore.
The second trend is more cultural. Superman is a Modern Age hero, but we’re living in a postmodern century. Superman came from a world of sharp contrasts and clear lines, when good was good and evil was evil – a four-color hero making black and white choices.
But that world is long gone. Even in childhood, our national fairy tales have been replaced by lessons about moral ambiguity. Our kids are trained to accept all cultures equally, to consider all perspectives and feel sympathy for underdogs.
Our parents and grandparents were taught to worship America. Modern kids are trained to question America – to look for chinks in our national armor and focus on America’s mistakes.
But Superman wasn’t made for this world. He was made for an older, simpler world where America was always right and its enemies were always wrong.
Modern storytellers have done amazing work, redefining old-fashioned heroes for a postmodern world. The shelves are full of outstanding books based on this contrast, from Mark Waid’s “Kingdom Come” to Brad Meltzer’s “Identity Crisis.”
But Goyer’s story doesn’t strike the same note with me. It feels ham-handed and coarse – turning Superman into a political creature in a way he was never meant to be.
Goyer’s presentation of Superman as an alien isn’t just a postmodern conceit, it’s a betrayal of the character. Superman’s story is an immigrant’s story – an old-fashioned immigrant story lifted straight from the ’20s and ’30s.
He came to America as a child and adopted our values. In those days, that’s what America was – a set of values that anyone could adopt. It didn’t matter where you came from; if you were willing to work hard, play fair and deal honorably with your fellow man, you could wear the label “American” and be part of something that was bigger than any national identity.
Superman was the ultimate symbol of this transformation, proof that anyone could come from tragedy and ascend to greatness. But now America has changed. Our perception of America has changed.
Modern children don’t see America as a set of values anymore. Today America is just another nation on the map — no better, and often much worse, than the others. Superman is an unambiguous symbol of good, and a good hero can’t represent an evil country.
That’s the statement I think Goyer is making in Action Comics 900. America isn’t good enough for Superman anymore. How can he stand for “Truth, justice and the American Way” when we can’t even define what the American Way is?
The concept of an American Way has been swept aside, replaced by a postmodern muddle of guilt and shame. I understand the temptation to throw stones at DC Comics, but I would rather use this as the springboard for a larger discussion.
Does superhero morality really belong in the adult world? Can we see America in context and still be proud of it? Can we admit our mistakes and still celebrate our virtues? Is patriotism a feeling we must “grow out of” as we study history?
I think there’s still room for an American Way in the 21st century. I think we can celebrate America without ignoring history, and I think there’s still room for patriotism in the American heart – not the blind, childish patriotism of our youth, but a mature, adult patriotism that keeps America in context and takes honest pride in what we’ve done.
Republicans are celebrating (prematurely) now that Obama seems to be on board with preserving the Bush tax cuts.
I believe that tax cuts are always good, but doing something good for the economy is not the same as fixing the economy.
A friend of mine said recently that Keynesianism is a religion. Paul Krugman is using an unfalsifiable argument when he defends money printing and government stimulus. Sure, our predictions were wrong and unemployment is getting worse instead of better, but imagine how bad it would have been if we had done nothing.
Now Republicans are in exactly the same boat with tax cuts. Obama has called their bluff. They got what they wanted and preserved tax cuts for the “rich,” but what if the economy doesn’t improve?
What will the Republicans say? “Well sure, our predictions were wrong and unemployment is getting worse, but imagine how bad it would have been if we had let those tax cuts expire.”
Same unfalsifiable argument, same blind faith.
Tax cuts are really just another kind of stimulus. You can argue that private stimulus is more effective than government stimulus but even if we grant that, it misses the point.
The economy is not struggling because we lack “liquidity.” Demand for credit is going down, not up. There’s no monetary “shortage” out there. The problem is malinvestment. The succession of bubbles we’ve had in tech stocks, real estate, and bond markets have shifted the focus of the economy to things that cannot produce sustainable profits.
We have too many construction workers, too many bureaucrats and far, far too many real estate and finance professionals performing jobs that do not generate real wealth.
We have to regroup, refocus and retrain. Trillions in bad debt needs to be recognized, restructured and discharged. Hundreds of banks need to fail, thousands of mortgages need to be discharged and hundreds of executives on Wall Street need to go to jail.
Tax cuts are great, but tax cuts can not fix the fundamental problems with this economy.
Picture the economy as a big bucket with a small hole in the bottom. You’ve got a water hose that represents cash — money, liquidity, stimulus, tax cuts, whatever. Good investment stays in the bucket and raises the water level, bad investment leaks out of the hole.
You notice the water level in your bucket going down and you panic. You grab the hose and sure enough, the water level rises again, as long as you keep pouring water/cash into the bucket. But this action does nothing to patch the hole. You’re still leaking money out the bottom. In fact, when you add money into the system, velocity increases and the leak gets worse.
Congress comes along and has to make a choice. Are we going to let these tax cuts expire and reduce the flow of water into the bucket, or are we going to let things continue as they are?
Expiring the tax cuts would hurt the economy, i.e. reduce the total amount of water in the bucket, but they would also reduce the amount of bad investment leaking out the bottom. Allowing the tax cuts to continue will preserve the current rate of flow into the economy, but will do nothing to fix the fundamental problem.
Somebody needs to stand up and shout, “Hey! You’ve got a hole in that bucket!” and find a way to patch it. (In real life, this person is Ron Paul.)
But instead of listening to these people, politicians are arguing amongst themselves. Republicans say, “We need to cut taxes and pour hot water into the economy!” Democrats say, “The government needs to spend more and pour cold water into the economy!”
The only time they agree is when they get together on TV to shout, “Shut up, you idiots! The bucket’s fine! We’re just not getting enough water from the hose!”
This is the basic premise of the Austrian Business Cycle. Our efforts to patch the bucket may disrupt things and lower the total water level for a time, but the whole system will be healthier when we’re done. The repairs will be messy, but the repaired bucket will hold more water in the long run.
So no, I’m not expecting tax cuts to fix the economy. Honestly, I was hoping the Democrats would repeal them. This would serve two purposes. First, it would cause a surge in unemployment and provide evidence that tax cuts for the rich finance jobs for the poor. And second, they would force a lot of marginal companies to go bankrupt and help deflate the stock bubble on Wall Street.
We’re at the point where we must abandon our current tasks so we can focus our attention on better ones. Cutting interest rates and preserving the tax cuts encourages people to stick with the (failed) course they’re currently on.
A tax increase could provide a much-needed reality check to people who are currently addicted to easy money, reducing the “water level” so much, ordinary voters might even notice the hole in the bucket.
It’s a uniquely perverse way of looking at tax policy, but this is the world we live in.
So what should we do? Increase interest rates and stop the crazy flow of money that is making this problem worse. Free money from the Fed is encouraging all kinds of distortions in the market, to the point of rewarding blatant corruption. It must be stopped before things can get better.
The question is, will we stop it voluntarily, or will we have sanity imposed upon us, by a bond market that doesn’t believe our promises anymore?
I realize some of you may be skeptical of this claim, having witnessed no appreciable tiger activity in your area. But that very absence of tigers is proof that my plan is working. Imagine how bad our tiger situation would be if we had just sat back and done nothing, as many pro-tiger elements in our legislature have suggested.
Building on the success of our intial Tiger Reduction Program, I would like to propose another round of Tiger Reduction, known henceforth as TR2.
While there can be no permanent solution to the problem of tiger attack, I am confident that the deployment of TR2 will reduce the risk of tiger attack by 30-60% in the 1st quarter of 2011,
In the past year, we have heard many objections to TR2. Some critics believe the theat of tiger attack is overblown. Some believe the $250,000 price tag is too high. Some have expressed concerns about the bonds being routed through my former employer, Duff Savings and Loan.
I would like to assure you that I have no formal connection to any of the board members at Duff Savings and Loan and that the subject of tiger bonds was not discussed at Thanksgiving.
So please, don’t consider the cost of this action against tigers. Consider the cost of inaction on your family, and the benefits of the tiger-free community that we continue to enjoy.
P.S. I would like to remind everyone that the animal attack observed last spring was perpetrated by a puma and that puma attack prevention is beyond the scope of this program.