economy

Peter Schiff is a mensch II: Interviewing OWS

Posted by

4

Peter Schiff tries to explain that high-wage earners are often the people who provide jobs and if you tax them at too high a rate, they are likely to just stop working hard and stop risking their capital, and people whom they employ will lose their jobs.  It is a compelling narrative if you are an employer, as are both my wife and I.  Craig Carter says something similar (If You are Thankful for Your Job, Hug a Billionaire):

Every time I hear the “Tax the 1%” meme, I feel personally threatened. I feel as though someone is out to destroy the economy and create the kind of conditions in which I could, potentially, lose my job. The war against the rich is really a war against the middle class and it is based on emotional manipulation, rather than reason. The people who are involved in it may be sincere, but they are much too gullible.

Maybe economics should be a compulsory subject in high school and maybe we ought to start purging socialists out of our universities so that free market principles once again dominate the curriculum. OWS and liberal/socialist propaganda is getting out of hand and people are getting hurt.

I don’t think Peter Schiff would argue with Dr. Carter on that point.

Hat tip:  Monty Pelerin

How monetary policy works: Quantitative easing explained

Posted by

0

Monty Pelerin (h.t. Barry Riholz) offers this morning the following video at his blog to explain Quantitative Easing:

Yet I have called into question the usefulness of the metaphor of printing, since central banks create most of the money in our world today through electronic transfers, i.e., they do not print at all, but it becomes oh so much money on debit cards and bank balances.   I.e., no wheel barrows are needed, because banks can create a trillion dollars of money, and it takes up no space.  It much more like the Corner Gas reality as I pointed out in my post “A Canadian explanation of global monetary policy“.

You keep using that word IV: fiat

Posted by

0

Economics has become a pseudo-science and one of the reasons why the education bubble is real and will result in the demise of the university system.  It will collapse under its own weight of stupidity.  Here I am a university-trained PhD telling you that much of what goes on in academics is just a bunch of  fantasies created in the mind of the scholars.  In my own field it consists of such scholarly imaginations as Q, the Secret Gospel of Mark, or the anti-Semitic source theory of the Pentateuch (JEPD [pdf]).

So it is not at all surprising to me to learn that the same foolishness inhabits other fields of study, including economics.  So now a certain Prof. Willem Buiter has produced a blog post entitled, “Gold – a six thousand year-old bubble“.  Rather than just simply admit that gold has intrinsic value because of its rareness and unique properties, Prof. Buiter, that colossus of economic brilliance, concludes that mankind throughout recorded history has kept gold in a bubble.  In my view, wisdom would dictate that 6000 years as a currency would make gold the most secure form of money known to man.  But alas, then Prof. Buiter writes these lines:

Gold has become a fiat commodity or a fiat commodity currency, just as the US $, the euro, the pound sterling and the yen … [snip] are fiat paper currencies. (From Financial Times Blog, [snip because of 30 word limit imposed by Financial Times])

The term fiat actually refers to currencies with nothing, such as gold or silver, backing them.  Such currencies are predestined for failure as the temptation to make too much of it seems to derive from human nature.  On the other hand, gold has intrinsic value, so it requires no backing.  To call gold a “fiat” anything is as stupid as Nouriel Roubini saying that gold has no intrinsic value.  These economists don’t even understand what the terms “fiat” or “intrinisic” mean.  This is disgusting and pathetic and it is no wonder that the world is in such economic chaos with such dunderheads running the show.

For the correct definition of fiat currency, see Investopedia.

And now for the video clip, which I dedicate to Prof. Buiter :

Gold versus paper currencies in the aftermath of war

Posted by

2

To understand the value of gold as a currency with intrinsic value versus paper currencies which have only derivative value, it is perhaps helpful to consider what happens when a war comes to a conclusion.  The victors, if they ask for tribute or war reparations, will only accept gold.  Consider that throughout history, when conquerors overtook cities, they would strip them of gold and silver and other precious real goods, such as when Alaric sacked Rome in 410.  They didn’t say, “Oh please, would you print some images of the Emperor and give them to us.”  Instead, the barbarians forcefully took away the intrinsic wealth of the city.

In our more recent past, we see that the United States has been able to force its paper currency on the losers of wars.  At the end of the Civil War, the Confederate dollar became worthless paper.  The loser cannot make the winner accept its paper.  Then, at the end of World War II, the US was able to begin to impose its currency on the rest of the world, until it became the world’s reserve currency.  Originally the US dollar was a derivative for gold; but  afterwards, Nixon took it off the gold standard, and it became a purely fiat currency.  But had the United States not won World War II, we’d be speaking German and Japanese and Yen and Marks would have become the world’s reserve currencies.

At the end of World War I, the Treaty of Versailles imposed war reparations upon Germany, mind you not in the paper currency of the Weimar Republic, the Deutsche Mark, which became so much wallpaper in a few years, as it began to fill the wheel barrows of the country.  No, the treaty required that the Germans pay back their debt in gold.  Funny, isn’t it?  How is it that the loser of a war can impose upon the winner the acceptance of a metal which has been in a 6000 year bubble?

Efficiency or Property Rights: Thomas Woods’ comments on the Chicago School of Economics

Posted by

0

This was originally posted at City of God.

Thomas Woods, in his book The Church and the Market, spends a little time in the first chapter distinguishing the Austrian and Chicago schools of economics. One major difference between the schools is on the issue of central banking and monetary policy. We’ve had occasion to discuss this on the blog in the past, and I’m not particularly interested in raising it again here. However, Woods brought to my attention another difference which is of much greater concern to me, and this is over a moral issue. The difference is this:

The classic case in Chicago law and economics, famously described by Ronald Coase, is the example of the train that emits sparks that set fire to a farmer’s crops. (The example occurs prior to the introduction of diesel engines.) Either the farmer or the train will have to bear the cost of this damage. On the basis of strict liability, of course, the farmer has the right to the property in question and therefore the right to enjoy its fruits unmolested. The train should compensate him for his loss or install some kind of spark retarding device. But Chicago decides this case in such a way that overall wealth is maximized. (25)

Thus economic efficiency becomes an ethical value that is weighed against the property rights of people. The Austrians vehemently disagree with this point. They argue

that the rights of property should not be compromised in order to satisfy any wealth maximization calculus, and that as a rule strict liability should be observed. (They offer these critiques in their capacities as moral philosophers rather than qua economists, a point to which we shall return in our discussion of economics as a value-free science.) Walter Block has described it as “evil and vicious to violate our most cherished and precious property rights in an ill-conceived attempt to maximize the monetary value of production.” (26)

Woods provides one quote from a defender of Coase to make clear that the Chicago school explicitly teaches what he says they teach:

In defense of Coase, Chicago economic Harold Demsetz argues that “[e]fficiency seems to be not merely one of the many criteria underlying our notions of ethically correct definitions of private property rights, but an extremely important one. It is difficult even to describe unambiguously any other criterion for determining what is ethical.” Here is efficiency analysis with a vengeance. (26)

Now, I’m not sure any other way to describe this theory besides the words Block used: evil. Quite clearly, this is a form of coarse utlilitarianism, and one which will undoubtedly help the well-connected over against those who have little wealth. And I think this point is something where those on the left and those who support a view of property rights as natural rights (be they conservative or libertarian) can find agreement.