Can't we all just not get along?

I was watching a recent episode of "Stossel" where he and CATO's David Boaz joined a meeting of college libertarians to speak about liberty and politics. For most of the show, Stossel proposed a topic, and then students asked questions of him and Boaz.

It is said that getting libertarians to agree is like herding cats. At a recent US Libertarian Party convention, former LP presidential candidate Michael Badnarik gave a speech urging his fellow libertarians to stop arguing with one another over the few things they disagree about, and to work together towards defeating the candidates with whom libertarians have much to disagree about.

I like Michael Badnarik, but I just couldn't disagree with him more. I think that the one advantage we libertarians have over people of other political persuasions is that we are grounded in philosophy. We're consistent from issue to issue, where other groups and parties waver, compromise, contradict. In the old days, "liberals" were people who believed in private property, individual liberty and limited government. Nowadays, that description could only be applied to liberals if it were printed in MAD Magazine or The Onion. I don't want that to happen to the term 'libertarian'. I want us to continue to force the issues on which we disagree and to pursue a more perfect philosophy that can convince us all to finally agree with one another. The same way libertarians believe that competition in industry produces the best outcomes for production, we ought to believe that the same is true in the realm of intellectualism.

So, if I had been at the microphone to ask a question of the two noted libertarians on stage I would have asked, "Am I crazy, or should we not continue the bickering and in-fighting in order to preserve our intellectual integrity and philosophical superiority over opposing political groups?"

10 Misconceptions of Inflation

I occasionally read articles by Jim Jubak of MSN Money when one of his articles is featured on MSN.ca homepage with a particularly intriguing title. Today, the catchy header on MSN was "Reasons to love inflation" [actual article titled, "10 reasons to love rising prices"].

No need to really follow the link, because I'll post his 10 reasons, along with rebuttals. In fairness to Jubak, about half of his ridiculous assertions are just silly--I guess his editor thought "10 reasons..." would entice more readers than, "A few reasons...." This article specifically addresses why Americans should love inflation, so he isn't pimping inflation for everyone.

1. Inflation keeps deflation from the door. Deflation can kill an economy (just ask the Japanese). With prices going lower every day, consumers have constant pressure to put off purchases because "it will be cheaper tomorrow." This is no way to run a modern consumer economy. Even the Chinese know it's a bad idea to discourage consumer spending. That's why savings accounts in China pay a negative real interest rate. Every yuan you save today is worth less tomorrow.

Sorry, Jim, I asked the Japanese and am waiting to hear back from the Chinese, but I'm still not convinced. You can't just make an integral assertion like this and then throw out a couple non sequitur non-points out to back it up. The reality is that deflation does not kill an economy, rather a decline in prices in necessary to correct prices that were driven up during boom conditions on speculation. The reality of the market is that people lose money when they make mistakes, deflation is one method by which this important liquidation occurs.

I will grant you that deflation is worse for people with low (or negative) savings, and since most Americans qualify in the category, deflation would hurt them. However, savings are the lifeblood of a healthy economy. That Americans are not prepared for economic reality, does not negate its necessity nor its inevitability.

2. Inflation gives us the illusion that we're making progress in our work lives. And that illusion provides critical grease for the economic wheels. Wouldn't a 5% raise feel good in 2011? Wouldn't it make you feel appreciated at work? You'd start to think that tomorrow you might be able to afford (fill in the blank). Even if that 5% raise was, once you subtracted inflation, equal to 0%, it sure would feel better than the honest-to-goodness 0% raises that many workers have received in the recent past. And workers who feel better -- even if as a result of an illusion -- are more productive (and less likely to throw a wrench at the servers).

Remember how I mentioned he was adding in fluff in order to come up with 10 reasons???

3. Inflation makes consumers feel richer, so they buy more. Policymakers are still trying to get the U.S. economy revving so that it produces more jobs. Waking up each morning knowing that your biggest asset, your house, is worth less doesn't make you want to strap on that American Express card and drive to the mall. (Don't give me this stuff about nominal versus real prices. We all live in a nominal world.)

The American economy suffered economic imbalances in conjunction with excess spending and debt which persist today. So naturally, the cure-all remedy for the mess is to drive people to spend more. This is absurd logic.

So what if policymakers are trying to rev up the US economy?--and by that, they are trying to induce spending and jobs, not fundamental economic growth. Just because policymakers are doing it doesn't mean it is correct policy. I thought this was an exposition to defend the policy of inflation, not to inform us of it and ask us to go along.

I also really love the deception involved here. 'Inflation will trick you cattle into thinking you have more wealth.' That, in and of itself is bad enough, but what's worse is that inflation doesn't just change the nominal wealth it redistributes the wealth in real terms. When all that new money comes into the economy, it doesn't magically appear pro-rata in everyone's bank out so that we all stay equally wealthy as before. The government and the lending institutions push that money out into the economy, primarily through politically targeted projects and big business. Wait, who am I kidding? I was being redundant; a politically targeted project usually is big business, in bed with government. In any case, that money isn't going to the middle class that policymakers are trying to trick.

4. Inflation makes consumers feel that saving is worthwhile. I've been trying to teach my kids to save. Do you know how impossible that is when banks pay 1% or less on the traditional passbook account? If it weren't for the free lollipop, there would be no way to get them to put a buck in at all. And we need inflation's help, not just in building a future generation of savers, but also in making the buy-on-credit-now versus save-to-buy-later decision tougher. Think there's any real incentive to save instead of just charging it when interest rates are so low? We need the whiff of inflation to push them higher.

This is hard to make sense of. I don't think Jubak is living in the real world or a free market fantasy land. You cannot save during periods of inflation. I cannot make that point clearly enough: YOU CANNOT SAVE DURING PERIODS OF INFLATION! Modest inflation like 2-3%, fine. But were talking inflation, not the standard year-to-year inflation we used to know. What drives inflation is low interest rates. In order to save your money, you put it away and earn interest. If the interest rates are low, though, and inflation persists, then you are saving your money in nominal terms, but you are losing wealth. (Remember how I mentioned inflation redistributes wealth?)

Then he argues that inflation will lead to higher interest rates. But this is just silly. We don't need inflation in order for this to happen. We need to remember that there is a true market for credit, just like everything else. We tend to forget this is the case because central planners have undermined this market through central banking. But interest is a charge for deferring consumption, and for incurring risk of loss/default. Savings are the supply. America has no savings so how can they have credit? You can't buy a product when there is no supply. Think about something really rare and ask yourself: does it cost a lot or is it cheap as dirt? A short supply of something, in this case savings, results in high cost of the product, in this case credit.

All the market fundamentals exist to justify massive increases in interest rates. But imagine someone with savings trying to get, say, 20% for his money. The bank is not going to pay it, they are getting money basically for free from the Fed because the Fed is printing money and lending it for nothing. Consumers won't pay the cost because the banks have all that cheap money that they can loan out for incredible profits at a low rate.

If you want high interest rates, why don't don't you try advocating for some sort of reforms in monetary control that will actually let the market determine fair and equitable interest rates in line with the economic conditions?

5. By eroding the value of money, inflation reinforces the value of concrete assets. That's important in a world that needs to do a lot of investing in finding and developing new supplies of commodities such as oil and copper. Anything that works to lower the relative cost of capital for these projects is a plus in industries with current supply/demand imbalances.

I can't make much sense of this statement at all. He may be suggesting that low interest rates, linked with the inflation, make financing capital investment cheaper so that oil can be sought out, drilled and refined. But, what about that whole thing he said a minute ago about inflation bringing about higher interest rates, which would have the opposite effect on capital investment? I can only hope this is not the point he wishes to make--except that this is frightfully the most coherent of the possibilities.

Furthermore, when credit isn't based on a pool of savings, but on the whims of the gurus in the ivory towers, low interest rates result in viable economic projects competing for funds while non-viable projects. Thus, essential capital that should be allocated to vital oil exploration and ore mining will be siphoned off by retail and service ventures that seem profitable due to the incorrect market signals being sent to entrepreneurs by the interest rate. At least when all that inflation leads to high interest rates, it will make only the most essential ventures profitable--unfortunately, those profits will come on the backs of high prices.

6. Inflation is essential to ending the slump in the housing markets. Cheap mortgage money isn't enough to get buyers into the market when they're afraid that the price of the asset is about to slump. We need inflation's help to get us back to the good old days when homeowners could count on their houses being worth more (in nominal dollars, I know) every year. Inflation can make home ownership a no-lose investment again.

The slump in the housing markets is essential to correcting the mistakes that were made in the last bubble. Propping up bad investments is not a sustainable economic policy. People made mistakes, and they will lose money. The faster these mistakes are behind us, the sooner we can move on.

And once again, Jubak refers to tricking people into thinking or feeling that they are richer, or their assets have appreciated by simply putting a bigger number on their assets without actually having market conditions change to bring true value to the investment. Apparently inflation is good for Americans like sugar pills are great for serious medical conditions. Real medicine not required, a simple placebo will do.

7. And while we're at it, we need inflation to make debt loads more affordable long term. How? By shrinking the real value of that debt every year. Owing $450,000 on a mortgage is much easier if inflation is eroding the value of that debt every year by 3% or so. (Yes, inflation pushes up the price of credit, but as long as your own debt carries a fixed interest rate, you don't really care about the higher rates future debtors will pay.)

I'm reminded of a joke: two economists are walking down the street when one of them sees a $50 bill on the ground and says, "Look, $50!" The other man replies, "There can't be $50 there, someone else would have picked it up already."

In other words, you can't just rip off your creditors by riding a wave of inflation, they already jumped on that wave too. Prices reflect forecasts into the future, including the price of credit, interest.

8. Without inflation we have no hope of containing the U.S. national debt. The U.S. government needs inflation to reduce the real value of its debt even more than strapped homeowners do. As of January 20, according to the very frightening U.S. debt clock, the U.S. national debt was $14.1 trillion. That's roughly $45,000 in debt for every U.S. citizen (which is almost as big a burden as the $52,000 in personal debt per citizen). That doesn't count the unfunded liabilities for programs such as Medicare. Think there's much chance that burden will be sustainable in the long term without some help from our friend inflation?

Inflation is not an increase in wealth, it is an increase in figures. You can't afford more stuff just by inflating the currency. Any manipulation of the currency is really going to be a default. I don't think we should even call it a national debt anymore. It is not going to be paid. Either the Debt will be restructured, which although it is a default is at least honest. More likely, the money will just be printed and worthless dollars will repay creditors for the valuable savings they sacrificed. Jubak is arguing a case for fulfilling the accounting figures of the financial obligations, but I hardly see that as an issue. What good is balancing the accounts when the value has been squandered. If and when it comes time to crank the printing presses in order to liquidate the debt and many of the entitlements, accounting is going to be the least of our problems.

9. Inflation is also crucial to restoring personal and national financial discipline. At current interest rates, money is simply too cheap for the U.S. federal government and Congress to pay much attention. At current interest rates, the payment on the U.S. national debt comes to just $3.5 trillion a year (or $11,310 a year per U.S. citizen). That's a ton of cash, but it's not enough to crowd out spending on crucial government programs. Inflation pushes up interest rates so that Americans can't afford to build that lame weapons system in some congressperson's district. Then, whammo, we have a crisis on our hands. And we all know we're not going to fix this problem without a crisis.

This is the same fallacy Jubak has been falling for throughout his article. The interest rates create the inflation! Asking for inflation to cure low interest rates is asking for low interest rates. It's silly. It's like a dieter saying, "I hope I get full soon, because I want to stop eating." Just put down the knife and fork and have some restraint!

10. Best of all, inflation makes it easier to tell stories that begin "When I was your age . . . " Try this one for fun: "When I was your age, I used to pick beans in the hot sun for a whole day to earn just $1." That sounds pretty good, at least until your kids are old enough to figure out that a $1 in 1958 would be worth about $7.60 today. (Here's an inflation calculator they could use. Don't let them near it.)

I was worried we weren't going to get any more fluff, but he managed to squeeze one more in there. Jus tfor fun, I'll disagree with Jubak on this as well. What do old people say? "I used to walk 10 miles in the snow, uphill, against the wind, both ways, to get to and from school." Old farts don't want to tell their grandkids about the candy bars that were "only a nickel". That sounds like grandpa was living in a utopia of free-flowing chocolate and jolly rancher raindrops. No, grandpas should be rooting for free market currencies and the consequent deflation. When our grandchildren are at the store buying 50-cent Mars bars, we can tell them about how Mars bars were $1.25 in our day, and we can throw in , just for good measure, "you youngins don't know how good you got it!"

The wisdom of central banking

"Cheap money is not a long-term growth strategy."

That is the sage warning from Bank of Canada governor Mark Carney, and he's absolutely correct. Which begs the question, why is this an economic strategy that is deemed legitimate in the first place?

Carney's wise words restated, cheap money is a short-term growth strategy. Although that is not necessarily true by inductive reason, it must be so. Surely, cheap money would not be a viable tactic if it was not conducive to growth in either the short- or long-term.

By the BoC governor's own logic then, economic growth fueled by cheap money is unsustainable. That the national economic policy, as set by the Bank of Canada, is unsustainable should frighten and confuse us all! What is a bubble, afterall, but unsustainable, short-term economic growth?

Some people, hellbent on rationalizing the insanity of the ruling elites, would claim that a rollercoaster of ups and downs can still produce long-term overall growth trends. I fully concur with this assessment, however I find that it is indicative of the shortcomings of Keynesian thinking. This type of analysis subjects the components of the economy into aggregates that need not be considered to any substantive degree, and instead observes the statistical outcomes of the composition. But inside these aggregates of long-term winners are many, many losers, all the people who were guided by central planners into unsustainable, doomed-to-fail investments by the conditions that spurred short-term growth. To these people, economic conditions that guide investors into prudent, sustainable activities are paramount to their welfare. These conditions, unfortunately, are brushed aside in favour of politically expedient government action. When will we learn?

Liberals have no business making attack ads

Below is the most recent ad from the Liberal Party, attacking Stephen Harper for the "Fake Lake" for the G20 Summit. I've been hearing the voiceover on the radio many times per day recently as I listen at work. After hearing it a few times, I actually began to think about it--so in a sense, the advertisement worked.


[from Liberal.ca]

First off, I'm completely and utterly annoyed with practically everything Harper does as PM, and I cannot think of one single thing to do with the G20/G8 meetings that I support him on. Furthermore, from listening to talk radio at work the last week or so, I can't think of a single person I heard call into any of the shows to support "Fake Lake" or much of anything to do with the meetings either, and even the seemingly conservative-leaning hosts haven't had anything good to say about the Summit expenditures themselves.

With that in mind, the Liberals are not advertising Harper's boondoggle in order to raise awareness, or to get a point across about the validity of the expense(s). It is purely an effort to attack the opposition on one of its mistakes. And therein lies the problem.

For one, I think that if you polled Canadians, asking us if we think the Liberals would have spent similarly outrageous amounts of money to host these ridiculous meetings, most of us would say yes. The fact that the public probably does not believe that the Liberal Party would have done things fundamentally different indicates that there is a sense of hypocrisy in the ad. Perhaps they genuinely believe over at Liberal headquarters that they would have tightened the purse-strings--such naivety should no more be rewarded than the inherent hypocrisy of the ad.

Secondly, I don't accept the discourse of modern politics which avoids philosophy and focuses on singular events, which avoids root causes and focuses on symptoms. There is a root problem with the Harper government that is in the philosophy of its members. That money was squandered on a stupid pond is symptomatic of this philosophical underlying problem. Had money been thrown away one time because of a mistake in judgment that was consistent with a sound philosophy of governance, I believe it could and should be overlooked, to a reasonable extent. And this draws us back to the first point: the Liberals also suffer from a lack of sound philosophy which manifests itself in unique symptomatic errors. Maybe instead of a pond, they would have wasted millions on some other boondoggle. But because the two parties share the same affliction, we can be sure they will both exhibit similar symptoms, even if we can't forecast what those symptoms might have been had the other party been in charge.

Thirdly, even if the attack was not hypocritical, it's horrible discourse. If the Liberals were worth voting for, I wouldn't be writing about philosophy today because they would put out an ad that carried that message to the people themselves. They would differentiate themselves from the Conservatives at a philosophical level instead of at the symptomatic level--practically, the superficial level. They would point out the difference in their views on government and explain how such manifestations as a phony lake would be inconceivable if they were running the show.

Clearly, this is not the case. The Liberals and Conservatives share a common ideology underneath their rhetoric. I guess the moral fo the story here is that when political allies are trying to draw attention to how different they are from one another, the people should always remember to take notice of the opposite, how very similar they really are.

Ann Coulter vs. Human Rights

I don't know anything about Ann Coulter. I have seen her on TV for maybe 5 minutes, and I've heard of the titles of a couple of her books. Other than that, I just know of the occasional controversial quote the media pundits pick at for a few days. She seems to be a religious and political nut, but I'm in no position to make that judgment.

She should be able to say any nutty thing that she wants to: hateful, disrespectful, idiotic, etc.

Believing that you're right, and being unwilling to open the issue up to discussion is just saying "fuck off" to anyone who happens to disagree with you. How does that encourage people to open their minds, let alone change them? The way we deal with these people today is to institute oppressive laws, to vilify the individuals and to treat their ideas as taboo and "just plain wrong". When we vilify them automatically for their ideas, we're pushing them into a defensive position that causes them to strengthen their resolve on the ideas even more than if we just ignored them and let them be. When we decide an exchange of ideas is no longer necessary, we can expect good speech to be limited as well, and that only helps the spread of bad ideas.

We should be doing the opposite. We should focus on the ideas and not the individuals. The bad speech should be drowned out by good speech. The debate should be open and accessible for all, so that any listeners should never have to rely on the bad speech they hear as the only speech they hear. The answer to bad speech is more speech.

Beyond that, we should enthusiastically engage the individuals who hold these unacceptable views, and offer them the chance to share their ideas with us and to listen to ours. When we invite them into an intellectual discourse, we're inviting them to share our viewpoint and to change--or at least to be less hateful to those of us who see things differently.

Sunlight is the best disinfectant; we should be bringing bad ideas to the forefront, exposing them as flawed and offering our peers an opportunity to change their minds. Isn't that better than "fuck off"?

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A little off-topic but shares my broad concept of the free market of ideas: watch Penn Says: Love of Truth and a Little Bullshit. I believe it's not only bad--intellectually bad--for people to believe in bullshit and not engage in the free market of ideas, it's also intellectually wrong to believe in something so obviously right and close the door on exchange of ideas. Al Gore likes to say, "the debate is over"; the debate should never be over.

"When you announce that you believe in something that you feel but you can't prove, you're just saying "fuck off" to everyone who doesn't happen to feel that....Questioning things that others have faith in is just another way of saying, "I'd like to share this feeling with you, give me something we can test in this world we agree to share." -Penn Jillette

Representation

I'm very troubled by the way government works to pass laws. The US health care reform was a great example of that. Forget the backroom deals, the hundreds upon hundreds of pages of legalese that nobody actually read, the reconciliation process and all the rest of the ugly mess that is democracy in action in the US Congress.

I'm annoyed to see a divided issue like this settled with growth in government. The issue of health care was fairly evenly split. There was a slight favour among people towards not passing the bill, but let's just call it even for all intents and purposes here. The Congress is made up of representatives, including the aptly named, House of Representatives. Supposedly, democratic government is all about representing "the people". But when an issue is divided as the health care issue is in the US, how do you possibly represent the people? Half want more government, half want less. The Congress cannot represent the people's will with either an increase or decrease of government intrusion, nor can the even keep it the same or balance it out.

The conventional wisdom would be to compromise. Both sides can choose their battles and both can get some benefit from compromising, so goes the theory. But even for the sensible tone and spirit of working together, compromise is ridiculous. That compromise is the solution assumes that both sides have equal legitimacy (turning issues into only two-sided affairs is a bit simplistic, but it's for simplicity's sake). Both sides aren't equally legitimate. If some people want more government, they need to impose their will on those people who do not want more government. Those wanting less government are not imposing their will on anybody to achieve that goal, they are merely deferring to private contract any additional particulars that the 'more-government' people might like to have. And what's more, even just keeping things the same, which seems like the reasonable thing to do in most cases, is in fact illegitimate versus reducing government. Once again, to keep things the same means to impose your will on those who want less government burden.

This brings up a lot of questions now about when a suitable majority is reached. If 75% of people want more government, then certainly they have a sufficiently-large majority over the rest to enact their goals, right? Well, for me that is certainly false. Nobody has the right to impose his or her will on another person, no matter how many people agree with him/her, or how few people agree with the minority. With 99% of people desiring one thing, the tiny one percent is no less entitled to be free from the majority than if it were 51-49 or even.

For the purposes of this blog, I don't need to get into this issue though. My point is that we should at the very least be discussing what a suitable majority is. For people like me, it is 100%, and though others might disagree with that, would they disagree that a representative government has to have the support of more than just 51%? 60? 70? 80? I hope most people would concede that 51% is not sufficient.

On the second point, it bothers me that the margins of success were so small in both chambers of the Congress on the health care reform. For the House, a body of 435 members, the vote was decided by less than ten votes--approximately 1.5% won the day! We may not be able to accurately determine public opinion on any given issue. Due to the fact that health care reform was high profile, multiple polls were conducted to help us get a reasonable estimate of where the people stood. On smaller issues, and other more technocratic issues on which many people will not be well-informed and which the media are uninterested in, such polling may never take place. In these cases, it's expected that the voter's have elected the right person to cast the right vote. And again, is 51% support enough to justify a law that burdens 100% of the people? I don't think so.

This also brings up a corollary with regards to repealing laws. If, for argument's sake, we determined a 75% super-majority to be necessary to pass a new law, shouldn't we similarly require only a 25% minority to vote favourably to repeal an existing law?

To sum up, shouldn't we be tweaking our government processes? Are they really working for us in the spirit of "representational government"?

A touch of irony caught my eye

While checking out some of the day's news on Google I came across a headline, "Students at Queen's Park to protest poverty."

Reacting to the first line of the article, "Hundreds of student protesters...[forced] road closures and traffic snarls for part of the afternoon," I couldn't help but chuckle at the irony.

The way to end poverty is to get out of the way and let entrepreneurs engage in production and trade. Forcing road closures and traffic snarls not only effects commerce and trade, but also the quality of life of those whose free time was ruined, which is probably more important. Afterall, we work so that we can produce a more enjoyable standard of living, not just for the sake of production.

I could have just let it go with a chuckle over the irony had these students been addressing serious solutions to poverty (of which we in Canada really know nothing about, but I digress...). Instead, the protests were pushing predictable ideas of more government interference in the wealth-producing private sector in order to redistribute funds.


The article goes on to mention that the students were also concerned about rising unemployment and rising tuition set against the backdrop of the current recession. The students are concerned about their futures, and for good reason. If only they understood about the debt they are inheriting, they would have far more reason for concern about the future. My one-year old niece is on the hook for $15,000 of federal government debt, just waiting for her in the coming years. And due to the policies of the same government, I have trouble forming an optimistic outlook for the job market she will be participating in.

We are on the verge of discovering what real poverty is all about. Thankfully, Canada hosts a great deal of opportunity with the vast resources that could be put to good use in a free market. If only we let the private sector produce wealth, it will pull us all higher.