Tuesday, 19 April 2011

The fact and fiction of collapse [update 2]

When the world’s economy began collapsing four years ago in a mountain of malinvested private debt—debt built on a pile of counterfeit capital—Presidents Bush and Obama rolled the dice and plumped for government debt to take up the slack. They plumped for “stimulus” to “kick-start” activity, and for corporate welfare to prop up those whose props had just collapsed.

The end result of the pile of govt cash was to only make things worse. The crash was a sign that too many malinvestments has been made—the “stimulus” only served to prop up the bad investments, and  ensure those bad positions would continue as zombies for many years to come, sucking the life out of any green shots that might have appeared in their absence.  And the creation of new government debt only served to suck out real resources from where they were needed—creating profitable new businesses—and to make the world’s govts, and this U.S. government in particular, among the most indebted in history.

All that money, poured down a black hole that only made things worse.  As some of us said it always would.  The only” growth” has been in govt debt, and in govt power.

And now, as American govt debt heads towards the abyss, the only surprise that the likes of Standard & Poor’s has called the debt “horrendous” is that anyone, anyone at all, is surprised—let alone that this long-overdue recognition of economic reality would cause commodities and  stock markets to tumble, gold to rise, and headless chickens to squawk.

And as govt power grows with each crisis and each call to “do something,” it becomes increasingly difficult to see the difference between the fact of America today and the fiction of Atlas Shrugged. See what I mean [hat tip Objective Standard]:

No wonder that Atlas Shrugged, first published in 1957, is now at number four on Amazon’s list of best-sellers

UPDATE: Some audience reactions after Atlas Shrugged: Part 1 screened in Colorado:

UPDATE 2: And Peter Schiff points out that Standard & Poor’s are always too late to the Party!

But then Standard & Poor’s is one of only three with government-granted monopolies on their “ratings.”


  1. I am re-reading Atlas Shrugged (having last read it as a teenager) in anticipation of seeing the movies and I am shocked by how prescient it is of present day New Zealand. Most chilling is that many of the story's despicable laws are recognisable for their current day New Zealand counterparts.

  2. No sooner had I written the above comment than the very next webpage I navigated to had this article about the High Court fining Telecom for "anti-competitive conduct:" http://www.nbr.co.nz/article/telecom-fined-12m-over-data-tails-case-ne-91142.
    Straight out of Atlas Shrugged!

  3. Talking about "government granted monopolies", take a look at the latest weird shenanigans around patent law: http://www.scotusblog.com/case-files/cases/microsoft-v-i4i-limited-partnership?wpmp_switcher=desktop


  4. Hehe, all you Ayn Rand worshipers just don't get it do you? The reason for economic disasters we've seen over the last 5 years or so, were due to greedy of Wall St players. It means that those predators needed to be regulated and not let them exploit the system. Rand's Atlas Shrugged doesn't even apply to the recent financial/economic crisis. More regulations are needed to stop Wall St players from sucking the blood out of the economic system rather than less regulations.

  5. @Bez: Patents are not a govt-granted monopoly. They are a recognition that, as Atlas Shrugged portrays, your ideas are your property.

    PS: To avoid confusion, please put your name in the 'name' field instead of posting anonymously. It would help us all. Ta.

  6. @Li Cheng: You are in serious error. The economic disaster happened at the core of the most regulated parts of the economy: housing and banking. (You might have noticed they are both patrolled, controlled and run either by central planners or central bankers.)

    And the problem was compounded by the ineptitude of the ratings agencies themselves, which three agencies themselves have a government-granted monopoly in every major western economy.

  7. Its funny how Jol Thang or Judge Holden resurrected as Li Cheng.

  8. Kurt, Jol/Judge and Li don't appear to be the same person. Li actually put forward an argument (albeit one full of errors) rather than just making snide remarks and lying.

  9. Sean Fitzpatrick20 Apr 2011, 08:40:00

    Li Cheng - leaching?

    Just wondering.

  10. The following is a good reading whether you're in the Austrian camp (non- mathematical economics) or not. I had also posted the same link on Matt Nolan's blog on blog post Is Economic Theory Pro-market.

    The Economic Crisis is a Crisis for Economic Theory

  11. Twr, may be Li is not Jol Thang then?

    PC, you stated that "they plumped for “stimulus” to “kick-start” activity", which I recalled Jol Thang in a previous thread here @ Not PC that there is published evidence that stimulus package does work. Is there any truth to that claim or its just an imagination?

  12. @KUrt: I've sen none. Neither from the Great Depression, nor from this Great Recession.

    The closest I suspect you'll find is the likes of Paul Krugman et al suggesting that any "stimulus" applied to the wound was insufficiently profligate--that even more should have been pissed up against the wall in the hope that some of it might have stuck.

  13. @KUrt: I've sen none. Neither from the Great Depression, nor from this Great Recession.

    The closest I suspect you'll find is the likes of Paul Krugman et al suggesting that any "stimulus" applied to the wound was insufficiently profligate--that even more should have been pissed up against the wall in the hope that some of it might have stuck.

  14. OK Peter, here's a definition, from your own blog:

    “monopoly” - the latter situation applies only where a government uses its coercive power to protect a business from competition.

    There you go

  15. @Bez: As I said above, patents are not a govt-granted monopoly. They are a recognition that, as 'Atlas Shrugged' portrays, your ideas are your property.

    Is this a contradiction? No.

    Patents on new inventions, copyrights on books, drawings, musical compositions, and the like, and trademarks and brandnames, do not constitute monopolies. True enough, they reserve markets, or parts of markets, to the exclusive possession of the owners of the patents or copyrights, or trademarks or brandnames, and they do so by means of the use of [the government’s] physical force inasmuch as it is against the law to infringe on these rights.
    “None of these rights represent monopoly, however, because none of them is supported by the initiation of physical force. In all of these cases, the government stands ready to use physical force in defence of a pre-existing property right established either by an act of personal creation or by the fact of distinct identity.. .
    “The fact that the government is ready to use force to protect patents and copyrights is fully as proper as that it stands ready to use force to protect farmers and businessmen in their ownership of their physical products [or once used to] and to come to their rescue when they are set upon by trespassers or attacked by robbers [or once used to].”
    - George Reisman, ‘Patents and Copyrights, Trademarks and Brandnames, Not Monopolies,’ in his book 'Capitalism: A Treatise on Economics.'

  16. Reisman uses a circular argument there, by first assuming that "intellectual rights" are property rights. Most will agree that property rights are deserving of protection, or stated differently, that the concept of property brings with it a right to defend against aggression. That in itself is no ground to equate ideas with property, let alone to use that concept to do precisely the opposite, to create an entitlement to aggression against someone who rightfully uses his own property in a certain manner.

  17. Bez, are you arguing for the theft of intellectual property rights? If you are, and your thinking gains the majority, then I hold out reduced hope for the future. This type of thinking will result in poorer outcomes for all, as new technology will not be pushed to market or even developed as there will be no financial reason to do so.
    There is an argument to be made that if the reverse is the case, and intellectual property rights, namely patents are given the due legal respect they deserve, that the economic crisis we find ourselves in today, can be traded out of. This is of course on the proviso that only if the govt slashes spending, and stops wasting other peoples' money on dead-end expenditure (no doubt Jol/Sludge or his ilk will try to argue "but what about police, military, etc..." when clearly these are necessary expenditures, as they are used for the protection of property rights, which is where the limits of government should be).

  18. @Mort: I am not arguing for theft at all, my position is that Ip is not property, hence it cannot even be stolen.
    Your argument that state granted monopolies are in some way beneficial for innovation is theoretically incorrect and cannot be empirically proven; it is a purely emotional utilitarian argument. The reason that it is theoretically incorrect is that patents in effect reduce and place a strain on innovation. Especially when you consider that it is not even necessarily the inventor who obtains a patent, plus the friction costs of the system, plus the abuse as witnessed by the SCOTUS submissions that I linked above.

    While I agree that the only conceivable function of govt is protection of property rights (and even that could probably be organized better in a free market), that still doesn't make ideas property. All it shows is that you NEED govt to make that so, i.e. IP is property by the barrel of a gun, stated differently and in economic terms, the concept of scarcity, which gives (subjective) value to property, does not fundamentally apply to IP, but must be created artificially, i.e. through govt.

  19. @Bez: It is not the concept of scarcity that gives value to property. That is your fundamental error, right there.

  20. "@Bez: It is not the concept of scarcity that gives value to property. That is your fundamental error, right there."

    You can't be serious Peter. Pray tell, what is the basis for value in your concept of economics.

  21. Just to put it to your attention, Peter, another case of IP monopolies gone berserk: http://en.rian.ru/world/20110421/163630520.html

  22. @Bez That link does show a ridiculous implementation of IP. I'm not sure how you get from bad IP implementations to it being OK to copy movies, software etc?


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