Category Archives: Economics

The Never Ending Madness

Posted on by

Way back in the before times, I was involved in a unionization effort at the company I was with at the time. The Teamsters were trying to organize some part-time drivers and other similar sorts of labor. Most were guys working in these jobs were just doing it to pick up some extra money. It was a piece work deal. A man showed up and he was put to work on whatever was needed at the time. A small percentage tried to make a full-time job of it, but the hours were limited to 25 a week in order to discourage it.

Of course, a group of guys trying to make a career of washing cars or shuttling them to and from a location would always try hard to get more hours. When the company held the line, they contacted the union and the result was a union campaign. The Teamsters won by one vote, mostly by threatening the guys who were not interested. The result was they got a bunch of rules and new pay rates. The truly part-time wanted nothing to do with it and the original organizers were washed out one by one. It was a disaster.

It’s not hard to see something similar happening to fast food workers if they try to form a union. The companies will simply start automating the work and the result will be fewer people making slightly less, while the SEIU gets a piece of the action. Unions are not bad per se, but service worker unions prove little in the way of services to their members, while siphoning off a piece of their check. The SEIU is pretty much just a money racket for the Democratic Party, not a genuine labor movement.

The mathematics of fast food means it can never work. McDonald’s has about 25% of their costs in retail labor. That $7 meal you get in the drive through is a $1.75 in human costs. Doubling the wages does more than double the labor cost. It jacks up taxes and benefit costs. These franchises will have legal and personal costs associated with dealing with a union workforce. Since no one is buying a $10 union meal from McDonalds when they can get a $7 meal from some other option, the result will be ruinous.

Of course, what never gets mentioned is the fact that these jobs were never intended to be careers. They were originally for kids and adults looking for part-time work. The manager would make a career of it, but the front-line people were always intended to be temporary workers in a homogeneous society. That is, your kid got a job at McDonalds, working for someone who lived in the community. The franchise was locally owned, so it was like going to work for a neighbor. That was the point of franchising.

That meant a different relationship between the owners, customer and workers than we see today. Go into a McDonalds now and the staff are weird little brown people from another land. They barely speak English. The manager is just a employee from somewhere, working for a company that has twenty franchises. As the customer, you have no emotional attachment to the place, as it is run by strangers and owned by some out of town interest. The workers peasants with no better options.

It is something to watch in the coming years. Chick-fil-A relies on the old model of hiring locals needing part-time work. They pay better, but expect more. The experience is vastly better for the customer, as the people are pleasant, speak English and seem to care about doing a good job. No one talks about unions and the customers have no reason to think the workers need representation. McDonalds relies on indentured servants and illegals and their reputation has declined as a result. Which model will prevail?

Lesson From The Market: Software

Posted on by

I go to an upscale grocery store that is like Whole Foods, but without the preachy liberal nonsense. They sell all the fashionable stuff and they make sure to create an atmosphere that flatters their clientele. It has a coffee shop and bakery, so shoppers can have a latte and a muffin while they browse the organic food items. Of course, everyone uses the silly canvas sacks that are supposed to be good for the earth. It’s all pretentious and silly, but unlike Whole Foods, the prices are great so i tolerate the other stuff.

Anyway, I was at the checkout and I noticed they still use a character based computer software. Judging from the interface, I’m going to say it is written in COBOL. You can sort of tell by the blue screen with red highlights. It could be some form of business basic or maybe even Clipper/Foxpro. Regardless, it is old stuff, probably written for them two decades ago. They have scanners and scales, but that’s not revolutionary. Integration to these items was done long before the graphical user interface.

Checkout is fast and efficient. The clerks never struggle to price an item or look up some obscure code for a weird item. For the grocery chain owners, the point-of-sale system is perfectly adequate and they obviously see no reason to “modernize it.” From their perspective, this tools does the job that needs doing, so there is no reason to replace with a new tool. In the grocery business, margins are small, so anywhere they can reduce costs, they will, even if it means using a twenty year old software system.

I know of at least a dozen goodly sized companies that use legacy system for their business. In one case, they use a system written by a firm long defunct in a language long abandoned. The other use systems that are a decade or more out of date and no longer supported by the developer. I know of a large importer using character based software written in the 80’s. Most banks in this country rely on software written in the 1970’s, patched up over the last few decades. There’s lots of old code out there.

The point here is that good enough is good enough. As much as we think technology is a constant driver of innovation and change, it does run its course. The lesson from the market is that we may have picked all of the low hanging fruit from the computer revolution. While automation will continue, it will be much slower than the futurist would like us to believe. That growing pile of legacy code that is out there in the world will only make the process slower. We are quickly reaching the point of diminishing returns.

Our Most Dangerous President

Posted on by

The argument for forcing Nixon out of office was that he was an imperial president, who violated the norms of democracy. That is, he had no respect for the law and as a result a lawless environment evolved in the White House. It was, of course, a justification intended to hide the truth. Nixon was hated by the Left because he was an aggressive anti-communist in the 1950’s. The Left could never forgive him for his attacks on the Left, so they could never accept him as a legitimate president. He had to go.

The charges against Nixon were always nonsense, even on the dubious moral grounds promoted by the Left. Woodrow Wilson was recklessly used his power to suppress the media. He jailed 10,000 Americans for opposing his war. FDR trampled all over the concept of republic, promoting a program that looked a like Italian fascism. Compared to those two, Nixon was a piker. Most of the stuff Nixon was doing was done under his predecessors. Kennedy and Johnson loved spying on people.

That said, a healthy self-governing society should have a fair amount of transparency and the political class should be deeply invested in the rules. Once the people in office lose respect for the rules, the road to authoritarianism opens, as the rules lose their moral power. In other words, adherence to the rules is purely practical, rather than a matter of status within the ruling class itself. People obey the rules if they benefit them and violate the rules if that works. No one is ashamed of breaking the rules.

We’re seeing this with Team Obama. They figured out how to use the IRS as a political weapon, stocking the upper ranks with their people who set about harassing the political enemies of Obama. Today brings word that the Census Bureau has come in for similar treatment. They faked the unemployment numbers leading up to the election. That naturally calls into question all of the other economic reports. It may also explain how the regional reports never seem to square with the national statistics.

This is very serious stuff. In a modern economy, information is currency. Like money, it can be debased. When people lose faith in the currency, they lose faith in the entity issuing it. Trust in government is near record lows and that’s with a national media out waving pom-poms for the ruling class. Imagine where things go if the press throws in the towel on these people. It may not matter as no one trusts the press anymore anyway.

Of course, that same poll shows that the people no longer trust the most democratic institution in the nation – Congress. Fifty years ago, the alleged culture of lawlessness in the Nixon White House was enough to force out the president. Here we have actual corruption, real violations of the basic trust. Yet, the political class cannot bring itself to even discuss it, much less act on it. The old line about silence being consent is overused, but it applies here. Lawlessness is now the law of the land.

Of course, you have to wonder what else they are doing. if they are willing to abuse the IRS, are they willing to abuse the FBI or the CIA? They corrupted the FBI by installing true believers into the leadership layer. What happens if they do the same with the FBI? What are the chances the media would look into it? If they are willing to excuse the abuse of the IRS, why would they raise an alarm over other abuse? This sounds far-fetched, but ten years ago the IRA stuff seemed far-fetched, but here we are anyway.

Econometrics is not Science

Posted on by

Alex Tabarrok has posted a bit of troll bait on firearms and suicide. It’s troll bait because these studies are created to get attention. They do that by confirming some aspect of the narrative and decorating it with the veneer of science. A PhD, claiming a correlation between something lefty sees as a great evil and something that is bad, will get the the usual suspects buzzing about the author. Often, the authors of the paper will put together a cover letter for the media, so they don’t have to read the actual study.

In this case, guns and suicide is the issue. If it were a paper claiming to prove that religion makes you a bigot or lead in the water makes you hate socialized medicine, it would have a better chance of landing on TV, but guns still work in certain quarters of the Left. The paper itself is not worth reading, but the on-line debate is worth a read. The content of the debate is not all that interesting. It’s the nature of the debate. It reveals a lot about the sorts of people who are prone to accepting these sorts of studies at face value.

Everything from the soft sciences starts with statistical correlation between one thing and some other thing. The idea is to create the belief that a causal relationship exists, where only (maybe) a correlation exists. The most famous of which is the claim that marijuana use leads to hard drug use. The fact that people prone to drug addiction would use the most common drugs first is hardly surprising. Claims that weed causes heroine use are easily disproved by the tens of millions of weed smokers who never use heroine.

The statistical methodology in this paper is sound and it is hardly shocking that more guns would mean more successful suicides. Guns are a great tool for killing yourself. It is exceedingly rare for someone to survive a gun shot to the head. People often panic and call for help when taking pills or slashing their wrists. They have ample time to contemplate their act before and during its commission. That and they can always call for help after committing the act. That’s not happening after the hammer goes click.

That said, it does not show that guns cause suicide. That would mean forming metal into a particular shape has some influence over the psychological well being of humans. Only a lunatic would think such a thing. Instead, they modify the claim to, “well the availability of the gun can lead some people to rashly elect suicide when they otherwise would have time to be talked out of it.” That assumes legal gun make gun more available. If you are planning to shoot yourself, you still have to buy the gun and that takes time.

In real science, cause and effect are tested. In fake science like this, cause and effect are inferred or implied, depending on the claim. In this case, the implication is guns cause suicide as the author goes out of his way to make the claim that other forms of suicide declined in his study. Even if the observation is accurate, the way it is framed is intended to lead people to a causal relationship. It’s not an outright lie, but it is dishonest, because the intent is to convince people of soemthing that is false.

That’s the issue with the soft sciences. They are too prone to these sorts of shenanigans by the Left. Much of it never replicates and much of it is politically motivated. The result is nutty ideas are lacquered with the respectability of science, despite being ridiculously wrong or misleading. That’s not to say there is no value in discovering statistical correlations. It’s just that it is a starting point to begin thinking about causal relationships and more complex statistical relationships.

Collapse Takes Time

Posted on by

One costly side effect of spread of mass media is that likable stupid people have the opportunity to spread nutty ideas. Walter Cronkite was a hugely popular because he perfected the avuncular style that people naturally trust. He seemed like a nice, thoughtful older man who was only there to inform the viewers. We now know he was a pathological liar and willfully misinformed his viewers on behalf of the Left

The cable news channels and network news operations are always looking for that person who can gain the trust of the viewer. If they can peddle the old time religion at the same time, that person is getting very rich on TV. A good example on the Right is financial pundit Larry Kudlow. On TV and radio he comes off as a super-nice, old financial hand, whose wealth of experience makes him uniquely qualified to assess the economy. He gets treated as a sage, despite being wrong about most of the things he discusses.

For all his wrongness, he is a good bellwether. He can be counted on to pitch the company line. In his case, the company is the GOP and the go along to get along gang of Conservative Inc. Seeing this today, we can assume that the GOP will be satisfied to say they are right, but otherwise do nothing to claw back some of the last five years. The signals are being sent to the party and its cheerleaders that the cost is clear. No one will expect them to actually do anything once they have some power.

The usual suspects will churn out some books about how to repeal this or reform that liberal policy. The GOP will offer up candidates long on complaints about the welfare state, but short on desire to do anything about it. The GOP will soon offer up a laundry list of things to fix it. The dynamic of the next 15 years as the boomers age off will be one where one party promises to fix it and the other promises to expand it. The logic of it is now off-limits. Instead, we are looking at a long losing fight against mathematics.

The line now from Conservative Inc is, “it will collapse under its own weight.” That’s true, but it will take 15 years. In a business, pushing off bankruptcy for fifteen years is a good thing. Most businesses don’t last that long. For government, the longer reform is delayed, the worse the cost of collapse is when it comes. In fifteen years, there will be a lot of white people expecting their checks and a lot of brown people expecting their free stuff. When the money runs out, things will get ugly in a hurry.

That’s the insidiousness of social democracy. You get the benefits up front, but push the cost way past the point when current office holders are gone. Whatever the structure, democracy ends up as a some type of tragedy of the commons. All of the incentives are for living in the moment and pushing the costs off to the next generation. It’s why every democracy ends in dictatorship. It’s also why the so-called conservatives are just fraudsters. They know this, yet they go along with it because it pays well.

We’re Doomed – Again

Posted on by

In every time and every place there have been those predicting doom just over the horizon. Eventually, one of them is right and is often remembered long after by future prophets of doom. No one remembers the millions who were wrong, unless they flamed out in a particularly spectacular fashion or a psychologist wrote a book about them. It’s why predicting the end of the world is much more popular than predicting everything will be just fine. It’s all upside and no downside.

The HBD blogger JayMan has a post up predicting the end of the world. Those inclined to this sort of thinking will surely find plenty to recommend it. That’s the other thing about doom-saying. There’s a big audience for it. People really seem to like hearing that it is all going to come crashing down. maybe it is a form of class grievance that is acceptable, because it lacks the vengeful quality of Marxism.

I have not read the whole thing or had much time to mull over his arguments, but what jumps out to me immediately is the Great Depression Syndrome. This is a cognitive bias I just made up to describe the myopic view of economics history. The field seems to be entirely warped by that one event.  I suspect it is because it is the big economic event that gave birth to their profession. That and they don’t have reliable data for prior events.

Still, you would think someone would notice that the world was buggering along for a few thousand years before Keynes. The other issue is the cultural overhang. The story of the American empire starts with the Great Depression and World War II. The Boomers grew up hearing tales about their parents making it through the Depression to then beating the Nazis. Jews, of course, dominate the economics field, so they bring their cultural biases to the table. For them, economics is all that matters.

The Great Depression is not the standard we should be applying today. For starters, the Great Depression was not what romantics of today claim. It was bad for a lot of people, but it was not catastrophic for most people. In fact, most people did well enough and some people did really well. That and it was relatively short compared to other economic downturns. The Long Depression was worse and it lasted much longer.

It is probably fair to say that the Long Depression is a better analogue to today than the Great Depression. Instead of one big dive over the cliff, followed by a period of adjustment, there were a series of shocks around the world that fed on one another, leading to a global depression. Today, Europe has different troubles than the US, which has different problems than Japan, but all of these systemic problems are influencing one another, threatening the global economy.

Even so, it is not a great analogue. There are lessons to be drawn, but policy makers never learn from the past so it is left to history buffs. Read Currency Wars and you can get a nice easy to read on the history of the Long Depression as well as the Great Depression. Again, the main issue we have with drawing lessons from previous economic turmoil is we don’t have a lot of useful data from those eras. That and the modern nation is demographically different from anything in the past.

Then we have the this. He too suffers from Great Depression Syndrome. In his case, no pics of bread lines today means it is better than the 30’s, because he remembers seeing all of those pics of breadlines back in school. The 1930’s did not have sprawling black ghettos either. They did not have trailer parks full of meth labs. They did not millions of foreign peasants crossing in the country. It’s what makes comparisons between now and 80 years ago incomplete. These are two different countries.

Anyway, plenty of good stuff for the doom and gloom types. The most likely outcome is we stagger from crisis to crisis as the world emerges from the post-Cold War delusions and comes to terms with the technological and demographic realities. There will be a slow winding down of the American Empire and rapid change in American politics, as we descend into tribal multiculturalism. All transitions come with a price, so maybe it is a slow decline or a quick on, the good economic days are probably over.

The Price Of Gesture

Posted on by

The American Left is not longer an ideological movement with a practical political platform and a list of demands. Instead, it has become a secular religion, that engages in ritual and gesture to signal piety to those within the movement. To outsiders, these gestures often seem weird or dangerous, but to insiders they are the coin of the realm. The right gesture can lead to a rise in the movement, while the wrong gesture can spell doom.

Gesture politics, however, is not without its costs. It is one thing to look down your nose at those downscale whites voting Republican and shopping at WalMart. It is quite another to vote in people who seek to act on the rhetoric. White liberals voted for Obama and the Democrats because they hated the people who supported George Bush. They had no other reason to support a guy unprepared for even minor office, much less president.

They did it because it felt good. When Obama was inaugurated, Progressive around the country held parties as if he was the savior and the rapture was upon us. It’s not that they thought he was Jesus or that he had supernatural power. They certainly acted like it, because that signaled their devotion. In a way, Progressivism is a meta-religion, in that it has all the rituals and spiritualism of a conventional religion, without the supernatural core, like a deity or a pantheon of deities. It’s very esoteric and mystical.

But, all that gesturing comes with a price when it results in public policy. ObamaCare was never a thought out policy. What passed was nothing like he ran on as a candidate. His proposal was a gesture to show his virtue. The final product was a collection of give aways to Democratic constituencies. The result is wrecking ball unleashed on an already fragile health care system. The cost for that is now coming due.

But people with no pre-existing conditions like Vinson, a 60-year-old retired teacher, and Waschura, a 52-year-old self-employed engineer, are making up the difference.

“I was laughing at Boehner — until the mail came today,”

Waschura said, referring to House Speaker John Boehner, who is leading the Republican charge to defund Obamacare.

“I really don’t like the Republican tactics, but at least now I can understand why they are so pissed about this. When you take $10,000 out of my family’s pocket each year, that’s otherwise disposable income or retirement savings that will not be going into our local economy.”

Both Vinson and Waschura have adjusted gross incomes greater than four times the federal poverty level — the cutoff for a tax credit. And while both said they anticipated their rates would go up, they didn’t realize they would rise so much.

“Of course, I want people to have health care,” Vinson said. “I just didn’t realize I would be the

one who was going to pay for it personally.”

Amazingly, whole generations of Americans have been raised to think insurance is this magic well of money that is there for you when you don’t feel like spending your money on stuff like health care. Of course everyone should have access to this magical resource. It would be unfair to do otherwise. The Left really thought the only reason everyone did not have insurance was that the dastardly insurance companies were withholding it.

One of the strangest aspects of health care debates is that no one can comes to terms with the fact that all goods and services are rationed. There are no exceptions. They are either rationed by price, as in a market, or they are rationed by a monopoly of supply, usually a state monopoly. In the former, charity can mitigate the realities of the market place. This was common until it was outlawed. In the latter, there is no mitigation and the result is always pretty dreadful. Those are the choices for health care.

Fake Companies

Posted on by

Is Facebook a real company? That sounds like ridiculous question, because they have a huge market cap and have thousands of employees. That certain looks like real company, even if they are not wildly profitable. Enron had a huge market cap and hired thousands of people, but they turned out to be an accounting fiction. No one thinks Facebook is cooking their books, but there is good reason to wonder if they are what they seem.

For example, dig around in how they make money and what you learn is they are mostly an advertising platform. Newspapers and magazines are advertising platforms too, but none are worth tens of billions. In fact, most are worth nothing as they can’t generate enough cash to cover their expenses. That does not mean Facebook is a cash furnace, but it raises the question of why they can make this model work and no one can figure it out, except for Google, which is a monopoly player on the internet.

Then there is the fact that it is an awful advertising platform. Go find a single person who has every looked at, much less clicked on, one of their ads. People talk about TV and radio ads all the time. The talk around every Super Bowl is about the commercials. No one has ever mentioned a Facebook ad – ever. There’s never been a viral video or ad that started on Facebook. In fact, it is always the other way around. The ad is created on traditional platforms and is hared by users of the new platforms.

That’s worth something, for sure, but is it really so unique to Facebook that they can command a huge market cap? More important, why would ad makers bother paying to be on Facebook, when a clever ad will end up on social media anyway? It seems that the main business model of Facebook depends on ad makers never noticing that ads on social media have no impact on their sales. At some point, they will notice and go back to those traditional advertising methods and not pay Facebook for their service.

Then there is the fact that no one knows how many people are actually on Facebook or any of these social media sites. They say about 80 million accounts are fake, but they are not counting the tens of millions of dead accounts. They are not counting the millions of accounts dedicated to pets or dead people or hobbies. Anyone who as ever run a message board knows that about 10% of accounts create 90% of the posts.

Talk radio has similar numbers. They say 1% of listeners will ever attempt to call the show and comment. In fact, this is so well known that the number of calls is considered more reliable than the ratings numbers. Similarly, comment sections in news sites see the same sorts of numbers. It’s called the Pareto Principle. That probably means the number of active users on Facebook is a fraction of what is claimed. Worldwide it is still a big number, but no where near what the ad men think they are getting.

Now we have the ultimate fake company going to market. Twitter is pretty much just an open RSS feed for idiots. Unlike Facebook, Twitter does have the ability to jam ads in your face on a mobile platform. That’s the Achilles heal of Facebook. These social media sites are best used on a phone or tablet. That limits ad space to nothing. Those microscopic ads at the bottom of apps are hilarious in their pointlessness. Twitter crams them into your feed and makes you look at them.

In theory, twitter can claim they are forcing users to see the ads and they can estimate how many people see them, based on user activity. Facebook really can’t do that as their ads are on the side or exist as corporate pages. Twitter still loses money, but at least they can plausibly claim someone is looking at their ads. The trouble is, most of their users may be fake. Rachel Maddow famously pumped up her Twitter followers by paying for fake accounts to follow her.

Again, we see the same problem as with Facebook. There’s no way to know how many users are really on their system. By the way, web sites had this problem too. Sites would claim millions of hits when it was just bogus traffic stuffing. Advertisers figured it out and sites can no longer fake their stats. The same scams are at work with social media, bu the ad buyers simply don’t understand how this stuff works, so they have not been able to see the problem. It will happen and when it does, the ad money goes away.

That gets back to the original question. Are these real companies or just elaborate confidence games designed to skim from the ad market? A real business provides a product or service. Facebook and Twitter provide a gateway and they operate like toll takes, but no one really knows if there is anything on the other side. Even if there is, why should these firms have exclusive rights to charge tolls? In the end, they don’t offer a product or service that has vale, so eventually, they go away.

In China Everything Is Fake

Posted on by

One of the weird things you see in illicit drug markets,  is the intolerance for a specific form of fraud. Just about anything goes in the drug game, except for fake drugs. If a dealer gets caught passing off baby laxative as cocaine, he is going to be dead. It is not just that he ripped off his customers. It’s that he cheats his fellow drug dealers. The guy selling fake stuff raises everyone’s costs and risks. The faker gives everyone a bad name.

It is one of those truth about the marketplace that everyone just accepts. No matter how rough the trade, every deal is based on trust. It’s why pawn shops willingly cooperate with the police to counter theft for similar reasons. Their customers are not going to solicit a business that supports burglary. Antique dealers try to uncover fakes as it undercuts their business. Why spend big money on an original when you can get a fake?

None of these measures stop the fakers, of course, but part of every organic market is an organic mechanism to police the market. Counter-intuitively, highly distributed markets can do this better than centralized markets. It’s why industries like music and movies lobby the state to crack down on forgers. Unlike the drug dealer, the record company cannot kill a downloader. Hollywood cannot go around breaking skull in movie theaters when they catch a guy pirating a film. They turn to government for that.

There is a vast middle ground where most of us live and that’s where fakers can cause the most trouble. For example, a site like National Review will post something like this in their article queue. It is not an article, but an advertisement dressed up to look like an article. National Review agrees to place ads like this in their article queue in order to trick people into clicking on the link, thinking it is legitimate content.

Magazines now have multi-page advertisements made up to look just like one of their normal stories. Even more strange is the ad in question here is itself full of fake stuff. The whole xenoestrogen stuff is largely nonsense, at least as it relates to organic food. Plants have all sorts of tricks to ward off pests. That’s just one of the many ways life has evolved over millions of years. Calling something organic has come to mean “good” and in morally good, but it is important to remember that cobras are organic too.

Putting that aside, this is deception. it is just as much a forgery as the guy printing fame art or selling fake drugs. The market place for ideas is a marketplace like the drug trade or the art trade. It relied on the participants acting in good faith and maintaining a high level of intolerance for fraud. When the creators of the market for conservative ideas are embracing wholesale fakery, it calls their integrity into question.  In the case of conservatives, it simply confirms what everyone has suspected for a long time.

It does not stop there. According to this story in the Economist, academic papers are also being forged. The market for fake term papers is well developed. Even before the internet, there was a market for term papers, and essays among undergraduates. Today, the internet makes it a thriving market, so colleges now employ software to combat it. You can probably outsource your thesis if you are so inclined. Since few of them are every read, who’s going to notice if your thesis is mostly recycled from prior work?

To no one’s surprise, the epicenter of this new fraud is China. There’s always been an embrace of banditry among the Chinese.  We get the term “sand bag” from China. In the colonial days, Chinese tea merchants would put sandbags at the bottom of casks to defraud the British. It is a bandit culture with no history of integrity. There are companies that have to use special coding on their boxes to distinguish their product from the fakes, as the Chinese will fake even the most mundane things.

Like the fake news story, fake research has a terrible trade off. If no one can tell the real stories in a magazine from the ads, people stop buying the magazine. If we can no longer distinguish real research from fake stuff from China, we no longer do research because no one can trust it. This is the great challenge to the West posed by China. If they are to remain a part of the developed world, they have to play by Western rules regarding fraud and theft. If they can’t do that, then they have to be isolated and excluded.

That’s not so easy when China can offer Western counties access to a billion cheap workers and unlimited ecological degradation. Making batteries in China is cheaper than making them in California, because the Chinese government does not care if the workers die and the land is poisoned. The battery maker is willing to tolerate some theft, but can the rest of us tolerate it?  Is that a good trade? What’s good for business is not always what’s good for society. Otherwise, we would still have slavery.

The Cult of Modern Economics

Posted on by

Economics is not a STEM field, even though economists try hard to convince people it is a branch of mathematics. It is a social science decorated with mathematics. That gives it the veneer of respectability that a field like sociology lacks. That said, it often resembles a cult, in that it has developed an internal logic and language that makes perfect sense to those inside, but seems weird and nutty to those outside. For example, they treat Maynard Keynes in the same way Mormons treat Joseph Smith.

Anyway, the buzzing over the Fed’s sudden course change is a good example. This is a fairly typical example. It does not mention Keynes, but the the belief that creating credit money is always and everywhere a good thing is on display. The intellectual trap they have made for themselves is quite clear. If credit creation  adds to the GDP, then it is always good to create debt. There are no conditions under which it can be bad so expanding he money supply becomes a permanent part of the economy.

No one ever stops to wonder how this can be so? After all, if it were that easy, it should have worked all the other times it was tried. The answer, of course, is to say it is different this time. The “new normal” meme has become the get out of jail free card for every utopian dreamer. In the case of economics, any doubts about endless credit creation is waved away with the line, “things are different.” In other words, everyone is supposed to just take what economists say on faith.

Economics is the religion of modern times. In a previous age, rulers would have a holy man or a shaman to endorse his polices. Today, the economists provide this role. In Obama’s first term, Christine Romer was trucked into the White House to tell Obama and the country that the math” said a reckless spending spree was just what the economy wanted. That’s when the “multiplier effect” got loose in the conversation. Since then every minor economic shaman has some theory about a multiplier effect.

The nuttiness is on full display at this site. These guys have built out a series of interactive charts to show various “multipliers” and the impact of the current fads in the faith. For the record, they are making sport of the whole idea by showing the nonsense of it all. The fact is, government spending fueled by debt is great until you run out of people willing to lend you money. Then you become Detroit. Quantitative easing, which is just credit creation at below market rates is just a clever way to disguise it.

By pumping the extra money into assets like stocks, purchasing power is destroyed slowly, rather than in hyper inflation like you see with old fashioned money printing. At some point, the new money will leak into the real economy. Americans have been getting poorer slowly, but seem to be figuring out what has happened to them.Adjusting for inflation, the government share of the economy has more than tripled in the last forty years, per capita and adjusting for inflation.

 

 

In addition to the growth of the state at all levels, the amount of debt, both public and private, has exploded: At every stop along the way, modern economics has told our rulers that this was the right policy. The result is a massive, incompetent government systematically beggaring the public. More critically, it has allowed for the transfer of social capital to massive global companies and financial institutions. The price of cheap goods is living among strangers who you don’t dare trust as neighbors.