"The Modern World Can't Exist Without These Four Ingredients. They All Require Fossil Fuels"

"Modern societies would be impossible without mass-scale production of many man-made materials....
    "Four materials rank highest on the scale of necessity, forming what I have called the four pillars of modern civilisation: cement, steel, plastics, and ammonia are needed in larger quantities than are other essential inputs. The world now produces annually about 4.5 billion tons of cement, 1.8 billion tons of steel, nearly 400 million tons of plastics, and 180 million tons of ammonia. But it is ammonia that deserves the top position as our most important material: its synthesis is the basis of all nitrogen fertilisers, and without their applications it would be impossible to feed, at current levels, nearly half of today’s nearly 8 billion people.
    "The dependence is even higher in the world’s most populous country: feeding three out of five Chinese depends on the synthesis of this compound. This dependence easily justifies calling ammonia synthesis the most momentous technical advance in history: other inventions provide our comforts, convenience or wealth or prolong our lives—but without the synthesis of ammonia, we could not ensure the very survival of billions of people alive today and yet to be born....
    "[T]hese four materials, so unlike in their properties and qualities, share three common traits: they are not readily replaceable by other materials (certainly not in the near future or on a global scale); we will need much more of them in the future; and their mass-scale production depends heavily on the combustion of fossil fuels...
    "Fossil fuels remain indispensable for producing all of these materials.
    "Ammonia synthesis uses natural gas both as the source of hydrogen and as the source of energy needed to provide high temperature and pressure. Some 85% of all plastics are based on simple molecules derived from natural gas and crude oil, and hydrocarbons also supply energy for syntheses. Production of primary steel starts with smelting iron ore in blast furnace in the presence of coke made from coal and with the addition of natural gas, and the resulting cast iron is made into steel in large basic oxygen furnaces. And cement is produced by heating ground limestone and clay, shale in large kilns, long inclined metal cylinders, heated with such low-quality fossil fuels as coal dust, petroleum coke and heavy fuel oil.
    "As a result, global production of these four indispensable materials claims about 17 percent of the world’s annual total energy supply, and it generates about 25 percent of all CO2 emissions originating in the combustion of fossil fuels. The pervasiveness of this dependence and its magnitude make the decarbonisation of the four material pillars of modern civilisation uncommonly challenging....
    "Modern economies will always be tied to massive material flows, whether those of ammonia-based fertilisers to feed the still-growing global population; plastics, steel, and cement needed for new tools, machines, structures, and infrastructures; or new inputs required to produce solar cells, wind turbines, electric cars, and storage batteries. And until all energies used to extract and process these materials come from renewable conversions, modern civilisation will remain fundamentally dependent on the fossil fuels used in the production of these indispensable materials. No artificial intelligence designs, no apps, no claims of coming 'dematerialisation' will change that."

~ Vaclav Smil, from his Time article 'The Modern World Can't Exist Without These Four Ingredients. They All Require Fossil Fuels' -- adapted from his new book How the World Really Works. Hat tip Jo Nova, who comments "Not the kind of article we’d [normally] expect to see in Time magazine. A 100% endorsement of the inescapable need for fossil fuels."

"People are asking the wrong questions about abortion...."

"People are asking the wrong questions about abortion.
    "To determine whether a foetus has rights, the questions we must answer [first] are not 'When does life begin?' or 'Is a foetus a human being?' Rather, the questions are:

    "What are rights?
    "Where do they come from?
    "How do we know it?
    "To whom do rights apply?
    "If you can answer these questions soundly—with evidence to support your answers—you can know whether a foetus has rights. If you can’t, you can’t. Indeed, if you can’t answer these questions soundly, you can’t know whether anyone has rights."

~ Craig Biddle, from his article 'Abortion and the Questions We Must Answer'

Exorbitant Money Creation + Unhampered Government Spending = Stagflation

Too much government spending and too-loose monetary policy lead to rising prices, and falling economic growth rates. The Keynesian theories on which continuing monetary expansion is based lead not to continuing prosperity but to stagflation. Keynesian garbage in, garbage polices and economics destruction out. The 

The problem is not just local, it is worldwide. Again and again, the belief has been proven wrong that central bankers could guarantee so-called price stability, and that fiscal policy could prevent economic downturns. The looming inflationary crisis is one more piece of evidence that interventionist monetary and fiscal policies are disruptive. Instead of a permanent boom, explains Antony Mueller in this guest post, the result is stagflation....

Stagflation—a Keynesian Curse

Guest post by Antony Mueller

“Stagflation” characterises economies that are plagued by inflation, combined with economic stagnation. This is where most of the world is right now, because of the failed (and failing) economic policies they have all followed. In this case, the conventional Keynesian macroeconomic toolkit of monetary and fiscal policy, that offers no help in fixing the crisis it has caused.

Rising price inflation rates and tanking economies are the results of the policy mix that has dominated past decades. It has become common to believe that decades of expansive monetary and fiscal policies would not cause price inflation; that the expansion was 'all under control'; that policies of so-called price stability had somehow 'tamed' the inflation caused by the state's usual money printers. 

As recently as 2020, economic policy worldwide followed the false consensus that combatting the fallout from the lockdowns with additional money creation and higher government spending would lead to an economic recovery without higher price inflation. It was blithely assumed that what appeared to work in 2008 -- flooding economies with newly-minted cash -- would also function in 2020. However, policymakers ignored the difference between the two episodes.

In the aftermath of the financial crisis of 2008, the stimulus policies did not immediately turn into price inflation, as it's commonly measured, because the newly-created money remained largely in the financial sector and it only spilled over into the real economy in a big way in rocketing house prices (exacerbated in NZ by sclerotic land and housing policies). Outside of this generational calamity, the main effect of the policy of low interest rates was to support the stock market and to provide a windfall to financial investors. While Wall Street flourished, Main Street was left on the sidelines -- and while profits surged, wages remained stagnant.

But this time it's different. In 2008, the production side of economies were 'mismatched' due to the earlier credit expansion, but still intact; but this time, they are severely damaged by a major pandemic.  The crisis of 2008 left the capital structure of the real economy intact. Due to the lockdowns, however, this is no longer the case. Consequently, severe interruptions of the global supply chains have happened. In such a constellation, new stimulus measures further weaken already fragile economies. 

The present situation is less like 2008, which most of of us still remember, and more like the oil price shock in 1973 -- which too many current economic practitioners and advisers have forgotten. At that time, like now, the external shock hit an economy rampant with liquidity. Stimulating the economy by fiscal and monetary expansion produced not prosperity but long-lasting stagflation. Back then, along with “stagflation,” the term “slumpflation” was coined to characterise an economy that is mired in a deep slump that then gets devastated by price inflation.

When stagnation and recession show up together with price inflation, the conventional macroeconomic policy becomes impotent. Applying the Keynesian recipe to an economy whose capital structure is still intact inflates bubbles; but applying it to one who capital structure has already been ravaged invites disaster.

Intentionally or by ignorance, policymakers neglected the long-term effects of their doing. Going this wrong way led to such aberrations that policymakers and their intellectual bodyguards even tended to believe that some truth could be found in the alchemy of the so-called modern monetary theory and market monetarism.

The consequences of these policy errors have now come to light. They are particularly grave because they were committed by all major central banks and the governments of all leading industrialised countries. They all follow the concept of “inflation targeting.” Other than timing, there has been not much difference among the policies of major Western economies. Japan is a special case only insofar as its policymakers have applied the Keynesian recipe for over three decades by now.

Let us have a look at Japan first and then at the United States -- who both offer lessons for New Zealand.

Japan

Japan began applying vulgar Keynesianism as early as in 1990. Faced with a slight downturn after the boom of the 1980s, instead of allowing things to cool down, the Japanese leadership instead insisted on going on with the show.

Yet, the more the government began to accelerate public spending and increases the fiscal stimuli, the less its spending policy produced economic recovery. Even when monetary policy fully supported the government’s expansive fiscal policy, the hoped-for recovery did not materialise.

John Maynard Keynes, on whose theories this "rescue" was based, once advised that policy-makers should ignore advice that such loose spending would lead to destruction in the long run -- "in the long run," he quipped, "we're all dead." But Japan's short run is now the long run: its policy mix of fiscal and monetary expansion has been going on now for three decades. In recent times, the Bank of Japan even doubled down, setting extremely low-interest rates and finally resorting to negative interest rates (NIRP). In the meantime, public debt as a percentage of the gross domestic product (GDP) rose to a whopping 266 percent (see figure 1).

Figure 1: Japan: Policy interest rate and public debt as a percent of GDP

Source: Trading Economics.

Despite its magnitude, this stimuli did not lift the Japanese economy out of its quagmire. Instead, economic growth remained anemic for a quarter of a century (figure 2).

Figure 2: Japan: Annual economic growth rates of real GDP

Source: Trading Economics.

As an “early starter” in applying vulgar Keynesianism to its 'macroeconomy,' the Japanese economy was also early to suffer from productivity stagnation. Unlike economies like the United States, France, Germany, and many other industrialised countries, which have continued with productivity gains over the past decades, after it had begun with its extreme Keynesianism in the 1990s Japan's has moved sideways (and New Zealand, for slightly different and equally tragic reasons, has followed a similar path -- figure 3).

Figure 3: Productivity per hour worked: Germany, United States, France, Japan, New Zealand

Source: Our World in Data.

It is important to note that one of the most devastating effects of the Keynesian policy mix is its effect on productivity. A country’s long-run economic progress (or growth, as it's often called) is mostly the result of productivity gains. Labour productivity is the main determinant of wages. A slowdown in productivity precedes the economic decline. When the output per unit of input tends to fall, even lower interest rates will not stimulate business investment. The marginal productivity of debt, already low, diminishes even faster -- and further. 

And when government then jumps in to compensate for this “lack of aggregate demand,” things get even worse because governmental enterprises are fundamentally less productive than the private sector.

The United States

Confronted with the financial crisis of 2008, the US government abandoned any sense of economic responsibility and decided instead to launch a series of stimulus packages. The American central bank provided full support, drastically reducing its interest rate.

As a result, the ratio of public debt to GDP rose from 62.6 percent (in 2007) to over 91.2 percent just three years later (in 2010), reaching a full 100.0 percent in 2012. The next two boosts came in the wake of the policies to counter the effects of the economic lockdowns, when the ratio of public debt to GDP rose to 128.1 percent in 2020 and to 137.2 in 2021 (see figure 4). It took less than fifteen years to more than double an already barely-sustainable debt -- and, unfortunately, New Zealand governments chose a similar destructive trajectory.

Figure 4: The United States: Policy interest rate and federal debt as a percentage of GDP

picture4.png

Figure 4a: New Zealand: Policy interest rate and government debt as a percentage of GDP

Source: Trading Economics.

In the face of the crisis in 2008, the American central bank brought down its interest rate quickly from over 5 percent in 2007 to under 1 percent in 2008 (NZ's meanwhile dropped its rate from 8% to 2.4% over the same period). After a short-lived period when the American central bank tried to raise the interest rates, the consequent market reaction of falling prices of bonds and stocks induced the Fed to resume its policy of “quantitative easing” that combined low interest rates with the massive expansion of the monetary base. 

Then, in early 2020, still trying to escape from the bear-trap of quantitative easy, it also began trying to "ease" the economic effects of the lockdowns with its patent brand of monetary salve, deciding to continue with its expansive monetary policy. And not just to continue, but to accelerate! In due course, the central bank’s balance sheet rose to $7.17 trillion in June 2020, reaching $8.96 trillion by April 2022. Once again, New Zealand's Reserve Bankers followed the lead.

Figure 5: Balance sheet of the US Federal Reserve System & NZ Reserve Bank

Source: Trading Economics.

As figure 5 shows, the Fed had tried to trim its balance sheet somewhat from 2015 to 2019 when it had brought down the sum of its assets to $3.8 trillion in August 2019. Yet beginning already in September 2019, many months before the lockdown was implemented, the balance sheet of the American central bank began to expand again and reached over four trillion before the additional big increase happened due to the fallout from the lockdowns. (And, once again, NZ's central wbankers followed their 'expansive' lead.)

Since the time before the financial crisis of 2008, the assets of the Federal Reserve System rose from $870 billion in August 2007 to a whopping $4.5 trillion in early 2015 and to around nine trillion US dollars in early 2022.

Even when inflation rates began to rise towards the end of 2020, the US central bank had kept its policy of tapering small and refrained from tightening. The monetary authorities had simply abandoned the objective of reining in the money supply, becoming instead almost Wall Street's banker. Each time they tried to tighten monetary policy, the financial markets began to tank and tended to crash. As soon as the central bank began to raise its policy rate of interest, the bond market began to tank and took the stocks down with it. In 2022, it was not different. Yet in early 2022, the policymakers could not shrink back. Different from the episodes before, the price inflation had begun to skyrocket (see figure 6, and NZ following in almost lockstep, figure 6a).

In the first months of 2022, stagflation became fully visible. While price inflation rose, the rate of real economic growth began to fall. In the first quarter of 2022, the US inflation rate moved up to a rate of 8.5 percent, while the real annual growth rate fell by 1.4 percent. Similar things were happening in the South Pacific.

Figure 6: United States: Policy interest rate and official consumer price inflation rate

Figure 6a: New Zealand: Policy interest rate and official consumer price inflation rate

Source: Trading Economics.

Of course, none of this should come as any surprise. With global supply chains in disarray, and national protectionism on the rise, the assistance that came from the expansion of international commerce after the crisis of 2008 is no longer with us. The lockdown of economies has severely hurt the global system of supply chains -- and now, a huge monetary overhang meets a shrinking production. The war in Ukraine, which started in February 2022, is not to blame for the distortions, albeit it will make them more severe.

Conclusion

The levee broke. Price inflation is on the rise. This is the result of the accumulation of liquidity that has been going over decades. There is the risk that things will get worse because the world economy has been severely wounded by the lockdown. More so than only mild stagflation, a “slumpflation” looms on the horizon as the world economy gets mired in the morass of a deep slump combined with steeply rising price inflation.

But the problem was not inevitable -- it is a result of specific policies followed out on the basis of flawed economic theory. Local politicians are right in one way to blame the problem on global issues -- the problem is that this destructive Keynesianism is everywhere, and as long has it is, so will the problems.

* * * * 

Author: Dr. Antony P. Mueller is a German professor of economics currently teaching in Brazil. See his website and blog. A version of this post previously appeared at the Mises Wire.

Q: How do you cure inflation? A: You stop printing money.

INTERVIEWER: How do you cure inflation?

HAYEK: You stop printing money.

~ Friedrich Hayek, from an interview with Meet the Press, Hat tip David Henderson, who points out that Hayek later goes on to explain it more accurately: "In a sense, stopping the printing presses is a figurative expression, because it is being done now by creating credit by the Federal Reserve System." And it still is!

“Reason and free enquiry are the only effectual agents against error.…"

“Reason and free enquiry are the only effectual agents against error. … Reason and persuasion are the only practicable instruments. To make way for these, free enquiry must be indulged; and how can we wish others to indulge it while we refuse it ourselves.”

~ Thomas Jefferson, from his Notes on the State of Virginia, written around 1782, Hat tip Gary Judd QC, who reckons that in here we can find laid out the principles of a civilised society. (And he's right, you know!)

"Another load of politician's promises..."

 

Seen on my way to work this morning, and too good not to post. Prestige Loos clearly know their shit.

"There was a time when a community would understand that with a more or less fixed resource base, the more the government spends the less is available for the rest of us."

"There was a time when a community would understand that with a more or less fixed resource base, the more the government spends the less [is] available for the rest of us. They would also have understood, perhaps only dimly, that governments cannot manage productive forms of enterprise.... The government is desperate for money to cover the massive debts it has wracked up.... they are going to have to cover their debt from the only source available, from the people who live [here]."

~Steven Kates, from his post on Australian Interest Rates and [Their] Deficit [NZ graph from Trading Economics]

"...censorship is a concept that pertains *only* to governmental action." [updated]

"Freedom of speech means freedom from interference, suppression or punitive action by the government -- and nothing else. It does not mean the right to demand the financial support or the material means to express your views at the expense of other men who may not wish to support you. Freedom of speech includes the freedom not to agree, not to listen and not to support one's own antagonists. A 'right' does not include the material implementation of that right by other men; it includes only the freedom to earn that implementation by one's own effort. Private citizens cannot use physical force or coercion; they cannot censor or suppress anyone's views or publications. Only the government can do so. And censorship is a concept that pertains only to governmental action."

~ Ayn Rand, from her column 'The Fascist New Frontier,' collected in The Ayn Rand Column

"For years, the collectivists have been propagating the notion that a private individual’s refusal to finance an opponent is a violation of the opponent’s right of free speech and an act of “censorship.”
    "It is 'censorship,' they claim, if a newspaper refuses to employ or publish writers whose ideas are diametrically opposed to its policy.
    "It is 'censorship,” they claim, if businessmen refuse to advertise in a magazine that denounces, insults and smears them . . . .
    "And then there is Newton N. Minow [then chairman of the Federal Communications Commission] who declares: 'There is censorship by ratings, by advertisers, by networks, by affiliates which reject programming offered to their areas.' It is the same Mr. Minow who threatens to revoke the license of any station that does not comply with his views on programming—and who claims that that is not censorship....
    "[This collectivist notion] means that the ability to provide the material tools for the expression of ideas deprives a man of the right to hold any ideas. It means that a publisher has to publish books he considers worthless, false or evil—that a TV sponsor has to finance commentators who choose to affront his convictions—that the owner of a newspaper must turn his editorial pages over to any young hooligan who clamors for the enslavement of the press. It means that one group of men acquires the 'right' to unlimited license—while another group is reduced to helpless irresponsibility."

~ Ayn Rand, from her article 'Man's Rights,' collected in The Virtue of Selfishness

Hat tip Gus Van Horn, who observes that the misunderstanding she identifies persists today; that the complaints made by "collectivists" in Rand's day "are basically identical to the ones conservatives like to make about various social media outlets today" -- and that while Elon Musk's heart appears to be "in the right place" on free speech, he still seems to labour under the illusion that "support for free speech merely means support for whatever the government happens to allow." Which is simply not the case.

To be clear [says Van Horn], while I often disagreed with the way Twitter moderated its platform, I appreciated then (and do now) that it is, ultimately, its owner's property to do with as he pleases. 

    But that doesn't make it any less disturbing to see Elon Musk riding in like the white knight he intends to be -- but spouting the same nonsense about (what the left has caused everybody to regard as) "censorship," thereby helping pave the way for the government to come in and impose the real thing.

 That said, argues Truth on the Market, while acknowledging that "Musk’s idea that Twitter should be subject to the First Amendment is simply incoherent" -- and, worse, by further confusing folk about who can censor whom, perhaps pave the way for real censorship to grow legs (disinformation commissars, anyone?)-- "his vision for Twitter to have less politically biased content moderation could work."

There has been much commentary on what Musk intends to do, and whether it is a realistic way to maximise the platform’s value. As a multi-sided platform, Twitter’s revenue is driven by advertisers, who want to reach a mass audience. This means Twitter, much like other social-media platforms, must consider the costs and benefits of speech to its users, and strike a balance that maximises the value of the platform. The history of social-media content moderation suggests that these platforms have found that rules against harassment, abuse, spam, bots, pornography, and certain hate speech and misinformation are necessary.
    For rules pertaining to harassment and abuse, in particular, it is easy to understand how they are necessary to prevent losing users. There seems to be a wide societal consensus that such speech is intolerable. Similarly, spam, bots, and pornographic content, even if legal speech, are largely not what social media users want to see.
    But for hate speech and misinformation, however much one agrees in the abstract about their undesirableness, there is significant debate on the margins about what is acceptable or unacceptable discourse, just as there is over what is true or false when it comes to touchpoint social and political issues. It is one thing to ban Nazis due to hate speech; it is arguably quite another to remove a prominent feminist author due to “misgendering” people. It is also one thing to say crazy conspiracy theories like QAnon should be moderated, but quite another to fact-check good-faith questioning of the efficacy of masks or vaccines. It is likely in these areas that Musk will offer an alternative to what is largely seen as biased content moderation from Big Tech companies.
    Musk appears to be making a bet that the market for speech governance is currently not well-served by the major competitors in the social-media space. If Twitter could thread the needle by offering a more politically neutral moderation policy that still manages to keep off the site enough of the types of content that repel users, then it could conceivably succeed and even influence the moderation policies of other social-media companies.
Let the Market Decide
    The crux of the issue is this: Conservatives who have backed antitrust and regulatory action against Big Tech because of political bias concerns should be willing to back off and allow the market to work. And liberals who have defended the right of private companies to make rules for their platforms should continue to defend that principle. Let the market decide.

 

"...allow people long dead to talk inside our heads."

"For 99 percent of the tenure of humans on earth, nobody could read or write. The great invention had not yet been made. Except for firsthand experience, almost everything we knew was passed on by word of mouth. As in the children’s game 'Telephone, over tens and hundreds of generations, information would slowly be distorted and lost.
    "Books changed all that. Books, purchasable at low cost, permit us to interrogate the past with high accuracy; to tap the wisdom of our species; to understand the point of view of others, and not just those in power; to contemplate — with the best teachers — the insights, painfully extracted from Nature, of the greatest minds that ever were, drawn from the entire planet and from all of our history. They allow people long dead to talk inside our heads. Books can accompany us everywhere. Books are patient where we are slow to understand, allow us to go over the hard parts as many times as we wish, and are never critical of our lapses....
    "Books are key to understanding the world and participating in a democratic society."

~ Carl Sagan, from his 1995 book The Demon-Haunted World: Science as a Candle in the Dark

Once again, we face an economic crisis (stagflation? crash? debt bonfires?) from which few appear to have long-term answers. As guest reviewer David Weinberger outlines, Lawrence White's book does a masterful job of reconstructing the twentieth-century's contest over economic ideas of our time, helping to explain why the noisiest economists today seem to have so little of sense to say .... and from whom the most sense (and best answers) might be found.

'The Clash of Economic Ideas': The Perfect Book for Understanding Our Economic Climate

guest review by David Weinberger

Few books on economics today are readable, let alone interesting, but Lawrence White’s The Clash of Economic Ideas (2012) is both. It offers a lively overview of the major policy debates of the last century and the economists who shaped them, and in so doing it provides helpful context to make sense of our current economic landscape.

For example, what caused economists to move away from free-market ideas? Contrary to what many assume, it was not the Great Depression. Dr. White explains that two ideologies developed in the late-nineteenth century: first a political movement known as “Progressivism,” and second an intellectual movement known as the “German Historical School.” Together they encouraged the belief that “experts,” or self-anointed leaders of a newly emerging “scientific” mode of inquiry, should use the government to direct other people’s lives. Furthermore, early forms of Marxism and Socialism were also seducing intellectuals into self-flattery at this time. It is thus no wonder that in the US, federal power was significantly expanded around the turn of the 20th century, through legislation such as the Sherman Antitrust Act, the Hepburn Act, the Federal Reserve Act, as well as the establishment of the federal income tax. [And here in New Zealand, the illiberal Liberals with the persuasive influence of Pember Reeves were busily ramping up the engine of state for the First Labour Government to then manufacture NZ's Welfare State.]

Moreover, the growth of government power was hardly unique to these places. In fact, major countries around the globe centralised their economies in even more destructive ways. The disaster of Soviet communism is well known. Lesser known, however, is the economic record of Nazi Germany. An important section of the book delineates the extent to which the National Socialist German Workers (Nazi) Party exacted control of the economy under Hitler, which included exchange controls; a centralized “Four Year Plan”; nationalised agricultural policies; import quotas; price and wage controls; rationing; and decrees dictating the quantities of goods that businesses must produce. Put simply, the Third Reich was no friend of free markets.

As much of the world degenerated into centralised graveyards during the 1930s and 1940s, capitalism remained under fire due to the mistaken belief that it caused the Great Depression plaguing the globe, which cast serious doubt on free-market solutions. Nevertheless the mercurial F.A. Hayek -- fresh from his best-selling success with The Road to Serfdom -- emerged to combat this erroneous view. Together with others including Milton Friedman and Karl Popper, they launched the Mont Pelerin Society in 1947 to reintroduce the virtues of free enterprise and classical economic principles, and to expose the folly of central planning.

Building on the insight of earlier economists like Ludwig von Mises, one of their arguments against centralisation was that government planners face an intractable “calculation problem.” In a free economy, businesses plan based on information provided by prices on the market, which are determined by firms and entrepreneurs freely bidding for resources. If a business plans a project that cannot cover the cost of resources plus earn a profit, it means that the fruit of that project—the final good or service—is not in high enough demand by consumers to render the use of those resources worth the cost, and the business should not proceed. This profit-and-loss calculation is vital for planning and growth, both for individual firms and for the economy, and its absence lies at the heart of what is wrong with central planning. Lacking market prices, central planners have no way to know whether their plans cover their costs, which leads to a squandering of resources and wealth so monumental that even basic necessities like food go unproduced. Hence the widespread famines engendered by communist states.

Moreover, consider the fate of the consumer in each of these cases. While we often hear that under capitalism corporations “exploit” customers, the truth is that in a profit-and-loss economy consumers are ultimately the ones in control. They decide the price of the products and services that corporations produce, not the other way around. Firms survive by pleasing consumers, by producing goods and services that their customers want, which is all the more reason why price signals are imperative for planning, as even minor miscalculations by a business can mean the difference between survival and failure. Under communism, by contrast, the consumer counts for nothing and state planners face no consequences for exploiting them while recklessly devouring resources. They, not the desires of the customer, dictate what resources get created and in what quantities.

White does a masterful job of reconstructing issues like these - including a masterful takedown of the Keynes/Fisher fiscal and monetary meddling that still plagues us today -- and readers will walk away with a good introductory grasp of the economists and ideas that animated the policy debates over the last hundred years. For that, it is well worth a read.

* * * * 

David formerly worked at a public policy institution. Follow him on Twitter @DWeinberger03. Email him at davidweinberger916@gmail.com. His article previously appeared at the Foundation for Economic Education.

"Why do consumers, who interact with markets every day, have essentially no idea where prices come from?"

"Why do consumers, who interact with markets every day, have essentially no idea where prices come from? I think it’s because they have zero incentive to learn. If I’m a price-taking customer buying in a competitive spot market, then all that matters to me is the price. I could have a crazy theory about where the price comes from that involves the phases of the moon and the appetite of my pet cat. Or I could have a sophisticated theory based on supply and demand analysis. The market won’t punish me for my crazy theory any more than it will reward me for my sophisticated theory. In many areas, knowing something makes you better at it. Knowing about ocean currents and weather patterns makes you a better sailor. Knowing about chemistry and physiology makes you a better pharmacist. But knowing about supply and demand does nothing to make you better at grocery shopping. This is one of the virtues of free markets–they require precious little economic knowledge from their participants. On the other hand, this is one of the great challenges of economic education. People have little tangible incentive to learn and understand economics."

~ Washington Uni economist Ian Fillmore, quoted in 'People Don't Understand Prices'

"Once upon a time there were Progressives who actually believed in progress..."

'From Wealth is Good to Wealth is Bad,' etc.
- diagram from Stephen Hicks's book Explaining Postmodernism

"Once upon a time there were Progressives who actually believed in progress, who despite their flaws did believe in a brighter and better future. These were supplanted c. 1970 by a new Left with the new motto 'Learn to live with less, you hate-filled greedy bastards!' The Apollo programme was the last hurrah of the old Progressives, and Earth Day environmentalism was a manifestation of the new Left that supplanted them.
          "Now those actually-for-progress Progressives had some major flaws. One was a willingness to bulldoze people’s personal plans in favour of their own Big Plans For Society. Another was to seriously underestimate just how poisonous socialism and government regulation are to an economy. But they still favoured a better, brighter, more prosperous future in a way the 'Learn to live with less!' Earth Day leftists did not."

          ~ commenter 'Deep Lurker' at Samizdata 

"The NZ Reserve Bank is now in panic mode...."

 

"After keeping the cash rate so low for so long, and embarking on a $53 billion quantitative easing programme, the [NZ Reserve] Bank is now in panic mode. Those having trouble paying back their mortgages in the next few years can blame our RBNZ Governor [Adrian Orr] and Finance Minister [Grant Robertson]. They encouraged a borrowing binge to buy [and borrow against] houses at wildly inflated prices, financed by dirt-cheap credit, turning a blind eye to the breach of the target to which they mutually agreed, and not learning the lessons of the global financial crisis in 2008.

    "The RBNZ was once lauded around the world for making NZ exceptional. It pioneered inflation targeting. We became the gold standard [sic] of monetary credibility.

    "Now, our hard-fought success and huge reputation built up over thirty years lie in ruins.... our RBNZ Governor and Finance Minister have driven a truck through the single most important agreement underpinning our economic security since 1989."

~ Auckland Uni economics professor Robert MacCulloch, from his op-ed 'The case against the Reserve Bank & Finance Minister'

 

Out-of-focus on inequality

“People who focus on inequality often seem to forget a historical fact: market economies have allowed a great many people to get rich and to get out of poverty. This effect is unprecedented in history. ... The speed at which the market economy allows sections of humanity to get us out of poverty should make us marvel."

~ French economic journalist Jean-Philippe Delsol, from his essay 'The Great Process of Equalization of Conditions' collected in the Anti-Piketty: Capital for the 21st Century, pp5-6 [readers of The Anti-Piketty, says this review/summary, will be innoculated against Piketty’s ill-considered analysis and policies]

 

Piketty's (and David Parker's) blind spot

Since Revenue Minister David Parker is such a fan of French statistics-diddler Thomas Piketty (the man who claims the world is ripe for “participatory socialism”), and it is Piketty's principles that seem to be guiding Parker's just-announced "far-reaching" fiddling with the tax-and-surveillance system, it's worth reminding ourselves of one of Piketty's major blind spots; that, as Steve Fritzinger points out in this guest post, while they're both happy to attack (and tax) wealth, neither he (nor Parker) apparently have any idea how that wealth was created, and whom it really benefits ...

Piketty's (and Parker's) Blind Spot

Guest Post by Steve Fritzinger

In an old joke, President Bush (it doesn’t matter which one) claims that the problem with the French is that they have no word for "entrepreneur." I don’t know if that joke is supposed to be on the Bushes, the French, or both. I do know that readers of French economist Thomas Piketty’s book Capital in the Twenty-First Century might be convinced that the joke is actually true.

Piketty’s opus is an economic tome 700 pages long. It purports to show that the central problem with capitalism is that return on investments automatically grows faster than the economy as a whole. If true, that phenomenon would allow a small group of investors to grab an ever-increasing share of the world’s wealth. Eventually, those economic overlords would essentially own everything. All the land. All the machines. All the opportunities to live a happy life.

In Piketty’s view, the only thing that has saved us from this fate so far is the wholesale destruction caused by a pair of world wars. If not for that silver lining in an otherwise very dark cloud, average people would already be little more than serfs, living at the pleasure of a filthy-rich leisure class that produces nothing.

Since its publication, Piketty’s book has received its share of praise and criticism. On the left, progressives believe Capital is the ultimate justification for their political program. Free-market economists, on the other hand, have questioned his data sources and methods. Pundits on both sides have debated his policy recommendation of a global wealth tax to leech away the riches’ ill-gotten gains.

Other commentators are better qualified than I am to judge the empirical quality of Piketty’s work. I’d like to concentrate instead on his peculiar blind spot.

For a book about wealth, Piketty is shockingly incurious about where wealth comes from. In the first half of the book, the word "entrepreneur" is only used in the technical accounting sense of income earned by working for oneself. The idea that the entrepreneur takes risks and works hard to build new businesses is almost completely absent.

To Piketty, wealth is something that is inherited or something that one lucks into. People who receive income from investments aren’t frugal. They aren’t engaged in the socially useful activity of capital formation. They are not funding new businesses or shepherding new products to market.

In Piketty’s view, they are “rentiers,” a word that a French-speaking acquaintance tells me has unseemly, possibly even dirty, connotations. It implies that the rentier never lifts a finger. Like a Mafia Don, the rentier receives a cut of all the economic activity that occurs in his “territory” simple because he controls it.

As someone who has had his share of success and failure with investing, I can tell you that generating above-average returns for decades is not as easy as Piketty thinks. As famed tech investor Marc Andreesen noted in a recent interview, “The funny thing about Piketty is that he has a lot more faith in returns on invested capital than any professional investor I've ever met.... He assumes it's really easy to put money in the market for 40 years or 80 years or 100 years and have it compound at these amazing rates. He never explains how that's supposed to happen.”

About halfway through the book, Piketty admits that his depiction of the rentier might be a little harsh. He assures the reader that he uses the word only in a narrow, technical sense and means no insult by it.

But this admission comes after hundreds of pages discussing rentiers and would-be rentiers who are willing to lie, cheat, and even murder to keep or gain their coveted status. Piketty frequently turns to characters from Jane Austen and Honoré de Balzac novels to illustrate just how bad “rentiers” are. After that litany of capitalist villains, methinks the economist doth protest too much. An inattentive reader might miss Piketty’s disclaimer and come away thinking pitchforks and torches are in order.

Though his ideas of how productive capital works might be a bit off, there is one form of capital that does closely match Piketty’s expectation. That is political capital. Having powerful friends is the closest you’re likely to get to a risk-free, high-yield investment.

Take, for example, former U.S. Secretary of State Hillary Clinton. Clinton claims that when she and President Clinton left the White House in 2001, they were worse than “dead broke." They were actually drowning in debt. Today, the Clintons enjoy a fortune estimated to be worth more than $100 million. From dead broke to the 1 percent of the 1 percent in 12 short years. That’s a rate of return that should make professor Piketty quake in his boots.

Far from fearing the returns on political power, Piketty sees it as the solution to our problems. He proposes the creation of a worldwide 80 percent annual wealth tax, with periodic extra assessments, to both tax away huge fortunes and fund government programs Piketty thinks are needed to reduce inequality. Enforcing this tax would require the equivalent of a global, financial NSA capable of tracking every economic transaction everywhere and a global police force to make sure no one dodges his or her obligations.

Piketty seems oblivious to the abuses inherent in such an organisation.

Seeking to protect us from a potential economic elite who would have too much control over our lives, Piketty would give more power to the existing political elite that already has too much control over our lives. Fortunately, Piketty himself admits that there is no chance of nations implementing his schemes. That won’t stop progressives from trying, though. The amount of damage they are likely to inflict on the world might make the rest of us wish we were living in a Balzac novel.

* * * * 

Steve Fritzinger is a business consultant in the Washington, D.C., metro area. He the regular Economics Commentator on the BBC World Service Business Daily programme, where he uses Austrian Economic ideas to explain current events and other puzzles. He wrote the annotated version of “Fear the Boom and Bust,” the first Keynes/Hayek rap video, and blogs at 2nd Hand Ideas. Steve is a founding member of Liberty Toastmasters, a DC-based group dedicated to helping liberty advocates develop public speaking skills, and is a member of Liberty on the Rocks DC.

Privacy...

"But the odd thing about this life is always that you spend half your time trying to get people to listen to you and the rest of the time trying to get them to leave you the fuck alone."
          ~ musician Tom Waits, from a 2011 interview

The "anti-imperialism of idiots" + "the Americocentric delusion" = Putin?!

"The anti-anti-Putin Left are most usefully described as 'campists,' whose geopolitical philosophy is summed up by the phrase 'the enemy of my enemy is my friend.' America is the font of all evil, therefore its opponents must have something going for them.
    "The British-Syrian writer Leila Al-Shami calls this 'the anti-imperialism of idiots': 'This pro-fascist Left seems blind to any form of imperialism that is non-western in origin. It combines identity politics with egoism. Everything that happens is viewed through the prism of what it means for westerners....' Russia’s unprovoked war of imperialist aggression is as inconvenient to campists as China’s oppression of the Uyghurs. Either they must find a way to blame America after all or they must downplay the issue. Left-wing support for corrupt authoritarians such as Venezuela’s Nicolas Maduro and Nicaragua’s Daniel Ortega is disappointing enough, but sympathy with Vladimir Putin, Bashir al-Assad and Xi Jinping is symptomatic of a morally broken worldview."

~ Dorian Lynskey, from his column 'Why the Left is split over Ukraine.'  Hat tip Perry de Havilland, who observes sagely that a similar criticism also applies to certain libertarians/conservatives in the grip of the Americocentric delusion...

#ANZAC: "year after year, the numbers grow fewer, who remember what it was we're not forgetting"

'Sacrifice,' by sculptor Rayner Hoff, inside the Australian War Memorial in Sydney's Hyde Park

"It's gratifying, in a way, that we start Anzac Day every year with a commemoration of a shambolic dawn landing that kicked off a pointless and wholly tragic military campaign that snuffed out some of the best young men of two young nations. It's not a victory march, but a sobering commemoration of the destruction of war.
    "This is healthy. This much is good.
    "'Lest we Forget!' we say"
    "It's said every year. And yet year after year, the numbers grow fewer who remember what it was we're not forgetting....

"THE MYTHOLOGY OF ANZAC is that the battle at the Dardanelles gave birth to two nations. If that’s true, it is an odd birth, fathered out of failure by way of disaster.
    "[And] the reason they embarked [was] not to beat the Hun, but to save the Czar [and] gift Constantinople to Russia.... as an altruistic gift to an 'ally' who was the most autocratic in Europe ... the price for the sacrifice to be paid for in the blood of those Australian, New Zealand and British young men and their families....
    "In the end, the attempted occupation [of the Gallipoli peninsula] was decided upon partly because in any bureaucracy once plans are begun they are very hard to stop, and partly too as an altruistic gift to an “ally” who was the most autocratic in Europe, who had shown no sign of earning British trust -- the price for the sacrifice to be paid for in the blood of those Australian, New Zealand and British young men and their families.
    "Such is the code of sacrifice under which the decision was made to go.... [in pursuit, said Churchill, of] 'a victory such as the war had not yet seen.'
    "It never would. It never could.
    "Instead, it all turned to omnishambles. The only thing in the end about which anyone had anything about which to boast was a successful and well-executed withdrawal.
    "It was a bloody mess that achieved nothing, that could achieve nothing, purchased at the price of a wholesale sacrifice of young lives that could have meant something. It was a total unmitigated disaster, but at least, now, dear reader, some reason for the whole, sordid shambles might be clearer.
    "The reason however for commemorating the shambles as the botched 'birth' (in some way) of our nation is very much less so."

~ excerpted from NOT PC's posts 'Lest we forget what?' and 'But what were the ANZACs fighting for, Grandad?'

"...how counterproductive to define one's beliefs in opposition to a hated other group"

"For the record: Both 'sides' of the media divide offer varying amounts of actual information laced with propaganda. Anyone who accepts any of it uncritically -- or reflexively rejects any of it -- is not really getting news.
    "Consider how many conservatives out there have joined the hippies in becoming anti-vaxxers or buy into stupid arguments against masks.
    "Often, there is little evidence that they support (or at least think people should be free to take) either measure -- but oppose the government forcing people to do so; there's just blind opposition based on blanket (although understandable) suspicion of traditional media and, perhaps a conspiracy theory or two... [demonstrating once again] how counterproductive defining one's beliefs in opposition to a hated other group can be."

~ Gus Van Horn, from his post ''Fake News,' 'Faux News;' To-may-to, To-mah-to.'

"...money rots" [updated]

Source: RBNZ

"In a world where central banks actively court inflation, money rots."

~ Lionel Shriver, from his 2016 dystopian novel The Mandibles [hat tip Cafe Hayek]

 

 

UPDATE:

Ludwig Von Mises nailed it in 1923 with his essay 'Stabilisation of the Monetary Unit' (collected in On the Manipulation of Money and Credit [pdf], p. 43):

"Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism."

"Moral bitterness is a basic technique for endowing the idiot with dignity."

"People hope that if they scream loudly enough about 'values,' then others will mistake them for serious, sensitive souls who have higher and nobler perceptions than ordinary people. Otherwise, why would they be screaming? [...]
    "Moral bitterness is a basic technique for endowing the idiot with dignity."

~ Marshall McLuhan, from his 'Hot and Cool Interview' [hat tip Memes, Dreams and Reflections]

Governance...

"[H]ow will he who does not know how to govern himself know how to govern others?"
          ~ Miguel de Cervantes, from his novel Don Quixote

Where is PC…?

 … and why is this place important historically?

"The bamboozle has captured us..."

"One of the saddest lessons of history is this; if we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. We're no longer interested in finding out the truth. The bamboozle has captured us. It's simply too painful to acknowledge, even to ourselves, that we've been taken."

~ Carl Sagan, from his book The Demon-Haunted World: Science as a Candle in the Dark [hat tip 'Laughing in Disbelief']

"So use it for what it's good for: draining Russia of talent..."

"If we aren't using our embassy in Moscow for granting asylum paperwork and visas for Russian dissidents, we might as well expel the Russian ambassador and staff and recall our own.
    "The main benefit of suffering their continued presence here is that it lets us keep an embassy there.
    "So use it for what it's good for: draining Russia of talent, to the benefit of dissidents seeking freedom, and to the benefit of NZ as a whole."
        ~ Eric Crampton, from his post 'If we're going to have an embassy in Moscow...'

"A picture is not an argument" -- Global Warming Edition

"National Public Radio (NPR) recently published a largely pictorial article, titled “Meet 5 women documenting the effects of climate change around the world,” composed of photographs taken by women that supposedly, 'highlight climate change.' In reality, what these women covered in dramatic photographs are the impacts of civil strife, government corruption, and natural weather events, on communities, not harms of human-caused climate change.
    "The article suggests that extreme weather is worsening globally, impacting different communities in different tragic ways. Even the International Panel on Climate Change disagrees with this fundamental point, and a comprehensive analysis of the IPCC data on extreme weather by the Global Warming Policy Foundation’s Ralph Alexander, Ph.D., concludes that 'Careful examination of the actual data reveals that if there is any trend in weather extremes, it is downward rather than upward.'
    "Data show that climate related deaths are way down worldwide in recent decades compared to the past, shown in the image below. 

  

  "[... ]Taking pictures of people in distress after severe weather events, then attributing their suffering to man-made climate change is uninformed at best, and cruel exploitation at worst. The impact of natural disasters globally can be reduced in developing countries as they have in the developed world through human innovation, adaptation, and economic growth. The harms resulting from war and government corruption have nothing to do with climate change and won’t be solved by cutting carbon dioxide emissions. Directing focus away from the real causes of human struggles in at-risk regions of the world serves no one but the journalists in pursuit of accolades from the like-minded mainstream media for pursuing the progressive political cause of expanding government control to fight supposed climate change."

~ Linnea Lueken, from her post 'NPR Wrongly Blames Climate Change for Suffering Caused by Civil War, Corruption, and Weather'

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“I hold that the picturist method of resolving disputes is espistemologically corrupt; .... it makes reaching a conclusion on a contested subject not easier, but literally impossible.
    “I do not object to pictures used merely as illustrations, after it has been made clear that the pictures have no evidentiary significance. What I object to is pictures used cognitively, in an abstract discussion, i.e., pictures used to try to solve, or even help solve, a problem in philosophy or politics. A picture used in such a manner represents the antithesis of thought, of logic, of rational argument." ~ philosopher Leonard Peikoff
A Picture is Not an Argument #QotD - NOT PC