Saturday, November 05, 2011

Are you an Occupier or a Tea Partier, or … ?

The Occupy Wall Street movement has quickly spread across the world. While their goals are still vague, some general trends have begun to appear. So just where do you fall? Are you more aligned with #OWS, the Tea Party, or somewhere in between? Take the test and find out!

OWS Quiz

OWS quiz

(The idea is based on “The World’s Smallest Political Quiz.” Check it out, http://www.theadvocates.org. Hat tip Bastiat Institute and YAL at Ohio State paper, The Rubicon.)

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Friday, November 04, 2011

Is debt necessary for recovery?

The chaos in Europe over Greece is the chaos of Keynesian economics in microcosm: the complete and utter explosion of the notion that over-spending and borrowing is the key to growth, progress, recovery or “stimulus.”

As Robert Murphy makes plain:

Since the crisis began, one of the dominant themes in arguments over proper government policy has been the Keynesian view that it is crucial to prop up total spending. The added twist during this particular recession is the crushing burden of private-sector debt, which allegedly makes it all the more urgent for governments to
run fiscal deficits themselves.
    In a
previous article I dealt with so-called deleveraging and argued that it was a good thing, both for the indebted individual or firm, as well as the general economic recovery.
    However … it's important to revisit the topic in a more elementary fashion: [specifically, the] casual claim that debt reduction would by sheer accounting cause total spending to fall. This is simply wrong.

Not wrong in the sense you can quibble about it over a couple of jars, but wrong altogether. Wrong in fact:

Imagine a simple world with three people: Cathy the Capitalist, Larry the Landowner, and Willy the Worker. Initially we are in a stable pattern where every period, the following transactions occur:

  • Larry pays Willy $1,000 to work on his land and harvest food.
  • Willy pays $100 in finance charges on his outstanding debt of $500 to Cathy, which is rolling over at the interest rate of 20 percent per period. (Willy each period just pays the finance charges, keeping the outstanding carried balance intact at $500.)
  • Willy spends his remaining $900 on buying some of the food from Larry.
  • Cathy spends her $100 in interest income on buying some of the food from Larry.
  • Larry eats the remaining food that he hasn't sold to Cathy or Willy.

In this scenario, every period $1,000 is spent on food, the only finished good or service. As officially measured — notice that it misses Larry's "home consumption" — gross domestic product (GDP) for this simple economy is $1,000 per period.
    Now suppose that Willy listens to those who say we should work hard and be debt free, and decides to become debt free. In this particular period, the following might happen:

  • Larry pays Willy $1,000 to work on his land and harvest food.
  • Willy pays $100 in finance charges on his outstanding debt of $500 to Cathy, which is rolling over at the interest rate of 20 percent per period.
  • In addition, Willy pays another $500 to Cathy to extinguish his debt to her.
  • Willy spends his remaining $400 on buying some of the food from Larry.
  • Cathy spends her $100 in interest income, and her $500 in principal repayment, on buying some of the food from Larry.
  • Larry eats the remaining food that he hasn't sold to Cathy or Willy.

Now in this scenario, total spending is still $1,000, and measured GDP is still $1,000. Larry the Landowner wouldn't see a drop in demand for his food. Willy reduced his consumption and saved much more out of his income this period, but this didn't affect even nominal income because Cathy's consumption filled the gap.
    Maybe our scenario isn't likely, depending on various assumptions we can make concerning Cathy's spending habits, but it is certainly possible. So we see that an economy can start out with one person having a large debt, then becoming debt free, without necessarily altering total spending or total income, even when measured in nominal (i.e., dollar) terms.

See. Simple. Even if borrowers stop spending, that doesn’t mean lenders will.

But still, if Cathy is dis-saving, isn’t that a bad thing?  And couldn’t it be said that if Cathy consumes, then there’s not real net aggregate debt reduction in the above scenario?

Yes, Willy paid down his debt by $500, but Cathy in a sense "dissaved" by letting her own financial assets fall by $500. If we like, we can say Cathy's debt started out at -$500, and then ended at $0, meaning her debt "increased" by $500.

So does that explode the argument? Well, no.

I can still show how Willy can pay off his debt without causing total money expenditures to fall, and without anyone in the community even suffering a drop in financial assets.
    To see this, revert to our original scenario, where Willy owes Cathy $500. As before, Willy decides to pay off his debt, through much higher saving. But this time, imagine the following occurs:

  • Larry pays Willy $1,000 to work on his land and harvest food.
  • Willy pays $100 in finance charges on his outstanding debt of $500 to Cathy, which is rolling over at the interest rate of 20 percent per period.
  • In addition, Willy pays another $500 to Cathy to extinguish his debt to her.
  • Cathy spends her $100 in interest income on buying some of the food from Larry, as she always has done.
  • Larry issues $500 in new stock shares for his landholding corporation, which Cathy buys.
  • Larry pays Willy $500 to plow a parcel of his land that was previously uncultivated.
  • Willy spends $400 + $500 = $900 on buying food from Larry.
  • Larry eats the remaining food that he hasn't sold to Cathy or Willy.

In this final scenario, consumption spending is $1,000 while net investment spending is $500, meaning official GDP is $1,500 — it has actually risen 50 percent! [Just another example of how risible is the GDP Delusion.] At the same time, Willy paid off his debt, while Cathy swapped a $500 bond for $500 in stock shares, so that (considering just these two) there has been a net reduction in indebtedness in the community.
    But what about Larry? Has he simply replaced Willy as the new debtor in our economy?
    No, he hasn't. Although Larry took in $500 while raising funds for his corporation, he is not indebted to Cathy, and so we can't say that his financial decision during the period somehow offset Willy's debt repayment. Cathy doesn't have a debt claim on Larry; instead she owns equity in his corporation. There is a whole literature in finance on the
important differences between debt and equity, including the fact that debt financing makes a firm leveraged, whereas equity financing does not.
    It's not even the case that Larry will have to reduce his future consumption in order to make dividend payments to Cathy (to justify the initial valuation of her stock at $500). So long as Larry's $500 investment is sound, the new field will increase future harvests, possibly allowing Larry to maintain his original consumption of food even though Cathy now has an ownership stake in the net profits of the business.

Conclusion?

Contrary to the assertions of pundits like Paul Krugman [who Murphy skewers in his full post], an economy does not need mountains of debt — whether government or private — in order to grow. Corporations can still raise needed financing through issuing equity. There are pros and cons to debt financing, but it isn't necessary for a strong economy.

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Question for the Day: Is anyone fiscally responsible?

Here's your question to consider this morning:

If Labour were to take office, they plan to spend $15.6 billion more than they take in; meanwhile National plan to continue spending more than $13 billion more than they take in.

So should either of them be consided fiscally responsible?

Thursday, November 03, 2011

Can they bankrupt the country? Yes they can.

 

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Question for the day: On the EQC

Given that both the Blue Team and Red Team were respectively defending the Earthquake Commission last night and and promising to give it even more money, here’s the question I’d like you to ponder today:

Is there any good reason for the Earthquake Commission to exist?

Here’s a few things about that question to consider:

  • prior to the earthquakes, the EQC was sold as the virtual investment arm of God, with an unlimited pot of money just waiting to repair everything; post-earthquakes however it turned out the pot was virtually empty, and what it mostly contained was government bonds, i.e., billions of dollars of IOUs payable by the taxpayer.
  • prior to the prior to the earthquakes, the EQC was sold as being the first port of call in an earthquake with the money to bail out home-owners. What people only realised after the earthquakes however (and quite why it took so long to figure it out, I don’t know), was that $100,000 doesn’t go very far these days.  And that waiting for it from a government department takes forever.
  • prior to the earthquakes, the EQC was sold as being well resourced and efficient; post-earthquake however it was discovered that EQC had to actually employ people to do the jobs of assessing and paying out on claims—jobs other insurance companies were already fully staffed to do.  From whence did EQC pull all their new employees to duplicate what other insurance companies were doing? From either those same insurance companies (denuding them of their own trained staff, and slowing down their work) or from the ranks of the illiterate and the innumerate (which explains the content of so many of EQC’s assessments).
  • prior to the earthquake, home-owners might have thought the $100,000 payout from EQC  would have been a supplement to their main insurance payout. Little did they know however that they would have to wait for the their main insurance payout until some time after the EQC had got around to deciding whether or not they would get one, and how much (if any). Which has meant months and months and months of delays, and tonnes and tonnes of paper as EQC proves once again that if you want delays and obstructions, then give your task to a bureaucracy.

So with that preamble, what do you think?

Is there any good reason for the Earthquake Commission to exist?

Yes, or no?

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Around Europe by stereotype

Zero Hedge has a few maps of European according to the worldview of various countries(Zero Hedge)

Here, for example, is how the Greeks see the rest of Europe:



The Brits:



The U.S.:


The Vatican:


And as a special bonus, how Silvio Berlusconi sees the rest of Europe:


More here.

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Wednesday, November 02, 2011

“Don’t steal music”– Townshend

imageIllegal downloaders of Rihana and Lady Gaga were pinged overnight by the Recording Industry Association of New Zealand (RIANZ), who asked Internet Service Providers to send copyright infringement notices to 42 customers that the association has accused of internet piracy.

The first of many such notices that will be sent out as a reward for stealing music.

Almost at the same time, The Who's Pete Townshend used his inaugural John Peel Lecture in Salford, England to attack illegal music downloaders as thieves, which they are, and Apple as

a "digital vampire" that is "bleeding" artists and "destroying copyright as we know it.”

Townshend, who first began dreaming about the internet back in 1971, urges Apple's iTunes “to use its power to help new bands” in a similar manner to the late John Peel, and the independent record labels he helped champion.

But he reserved the greater part of his ire for today’s bedroom pirates who demand a right to the fruits of his and his colleague’s labour without paying for it.  Townshend, who has deservedly earned a small fortune from royalties, concedes that many a creative person much earlier in their career than he “would prefer their music to be stolen and enjoyed than ignored.”

This is the dilemma for every creative soul – he or she would prefer to starve and be heard than to eat well and be ignored.”

It is not them he blames (far from it) but the thieves, the pirates, the the music “fans” who illegally download music and starve those they claim to admire. Says Townshend, accurately:

They may as well come and steal my son's bike while they're at it… I wonder what has gone wrong with human morality and social justice."

Here’s The Who:


The Who - Music Must Change 1979  (posted by IvorTheEngineDriver)

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Fixing what?

Welfare Commentator, Lindsay Mitchell, talks to Libertarianz about her research which shows that negative social outcomes are more closely aligned to being on a benefit than being poor.

But what about National’s new welfare policy?

It’s unambitious as hell.

Lots of name-changing just hides its lack of substance.

And what sort of policy to minimise the cost of welfare—the single highest spend by this over-spending government—starts by spending even more? Around $130 million more every single year...

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Question for the day: About “entitlements” [updated]

Here's a question for you to consider this morning.

Is a welfare cheque an entitlement?

Yes, or no?

Feel free to explain why. Or why not.

Don Watkins Q&A Question 4 from The Undercurrent on Vimeo.

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Tuesday, November 01, 2011

The question after last night’s televised debate …

The question after last night’s televised debate: does John Key lie?

Answer: Yes, he does.

The Kiwi Future?

What happens when more and more New Zealanders refuse to pick up the paddle and start working for themselves?

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Monday, October 31, 2011

Roger Kerr 1945 – 2011

image

As many of you know already, the always combative Roger Kerr has fought his last battle. He died on Friday night after a year-long illness.

Roger was on point for most of the reforms that constitute the opening up of post-Muldoon Fortress New Zealand, and the formation of the freer markets that were the result. He was singularly successful both in persuading New Zealand’s corporate moguls that ending protectionism was in their long-term interest, and that they should fund a permanent organisation, of which Roger became head, to promote the necessary “permanent revolution” for which Roger saw that first freeing up as just the beginning.

Unfortunately, that second revolution never came, being lost in the blancmange of spud-like Compromise, comradely Clarkism, and now Smile and Wave Nothingness.  But never for a moment did Roger give up the battle.

He will be sorely missed. As Lindsay Perigo said of his departure, “The best tribute we can pay is to continue his valiant battle against statism.”

This 2011 interview with Lindsay, which would have been one of the last he gave, gives a taste of The Great Man:

And from Roger’s blog, which will never again host a Friday Graph, comes this announcement of a service to honour Roger’s life to be held on Thursday 3 November at 2.30pm at Old St Paul’s in Wellington.

A selection of public tributes to Roger:

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The story of The White House

imageStupid story of the day, from this morning’s Herald: a woman bought and transported a 100-year-old Epsom villa to a new site overlooking the Kaipara Harbour, a house that for all its life has been painted white.

Both sites are within Rodney Hide’s City of the Supersized Bureaucracy, in which planners have been given wider powers.

What those planners told Julie Cotton is this: in Epsom, the only colour you have permission to paint you house is white.  But in Kaipara, virtually the only colour for which you don’t have permission to paint your house is white. (Yes, dear reader, in the Brave New City anything that isn’t prohibited is made compulsory.) From the Herald story:

_QuoteThe villa had been painted white its whole life - a council heritage requirement for a house of that age in Epsom - and the Cottons wanted it to stay that way.
    However, shortly after moving it to Tapora, the family were told by a council inspector they had to paint the house one of 50 dark colours, including green, brown, or black.
    The order was based on the West Coast Policy Area, which states parts of the North Rodney area landscape are highly exposed to the risks of development, meaning the colour and material of houses should complement the surrounding environment

Yes, that’s right, the RMA, the District Plan and Rodney’s planners have all been insisting that this house, which can’t be seen from any road, must essentially be painted in camouflage in order not to offend non-existing passers by. So that poor Julie Cotton, who always wanted “a big, white house on a farm,” is now instead faced with painting her house to look like an army barracks.

Just another story from this Brave New City.

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Lock up your babies, it’s election season

Now the rugby’s over we’re straight into the far less entertaining election season in which not a hand will not be shaken nor a baby left un-kissed.

Every election is the same. This time at least it’s a mercifully short, four- week popularity contest, but it’s still the same advance auction of stolen goods in which class and race hatreds are polished,  bigotries burnished, statistics  tortured, economics ignored, and taxpayers and producers taken for granted.

The hand kissing and baby shaking started with a rush over the weekend.

But also, there was this:

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Rich Pricks in New Zealand

Direct from Libz TV: Rich Pricks in New Zealand, by Libz Wel-Cen candidate, R-Dawg Cutting, featuring The Milminator.

Sunday, October 30, 2011

The dangers of faith

Richard Dawkins speaks with an extremist Muslim … but no communication was possible.

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