On the inanity of Elizabeth Warren’s now famous quote

Sorry my progressive friends, but Warren’s quote is nonsense. It ignores the most basic principle of a freer (not free) market – that wealth is generated on both sides of the vast overwhelming majority of transactions. Her quote implies a zero-sum thinking about the economy. It is false and I believe dangerous. It implies that everything you have done is at the expense of others. I hope none of you believe that.

Capitalism is, by definition about paying it forward. Farmers, factories, software companies, and consultants produce things (food, goods, services, and knowledge) that are of greater value to the purchaser than to the buyer. What is more, they create these things that are for the betterment of customers whom they do not even know today. In other words, they are being altruistic. Altruism being defined as “other centric.”

The roads, schools, and police to which Ms. Warren refers have been paid for, their makers have received just compensation. Where did the compensation come from – the people in the first place, but how did the government get this money? By claiming a share of the profits. In effect, Ms. Warren is claiming a double debt.

Ms. Warren while intending to  or not is also making a great limited government, public choice theory argument, namely for schools, roads, and police. If government (and it should be the local government) were ONLY using tax money for the building roads, the education of students, and the funding of police, the tax burden would be much less. Instead we bailout failing companies, start endless wars on ideas (drugs, poverty, and terrorism to name a few), and now are taking over the healthcare industry.

The US federal government is quickly becoming a large and in debt insurance company with guns.

Personally, I do not think corporations should be taxed at all. There is mounting evidence that high corporate taxes result in lower wages for workers. After all, businesses just view taxes an expense. If the budget line item for taxes is made higher, then another line on the budget has to get reduced. Often that other line is wages and salaries.

Now, I am no corporatist. I think the bailouts were a travesty of justice, but notice this was government action once again interfering with the market.

Both governments and corporations are made up of people, flawed human beings. To paraphrase Milton Freidman, is political greed somehow nobler that economic greed? At least with economic greed a) the corporations have no guns (save those than make them) therefore cannot force me to buy something (even if it “for my own good,” see the mandate provision of Obamacare) and b) if we don’t like what a company sells we can quickly vote with our wallets rather than once every two, four or six years.

Economics in One Game

Earlier this month I spoke to the Allen Area Patriots, a local Tea-Party related group with the goal of making basic economics more understandable to we (myself included) non-economists. The title of the presentation is Economics Made Simple.

This is an extended version of the material that Ron and I use during the Firm of the Future Symposium.

Part 2 of 7 is mostly the game and can be skipped without losing any major content.

For those interested I also created a follow-up reference guide as a post which includes the slides and links to source materials.

ET HORA LIBELLUM DELENDA EST

Economics Made Simple Resource Guide

Many thanks to the Allen Area Patriots for having me as a guest speaker this week. I hope they enjoyed the session.

First, here are the slides:

 

As a follow up for them, I have created a short, but deep list of resources for anyone who might want to dig a little deeper into the topic of economics.

Books

On the Web

Blogs

ET HORA LIBELLUM DELENDA EST

The Diamond Planet

A recent cosmological discovery got me thinking once again about the what George Gilder and others term the materialist fallacy. From a Reuters report from last Thursday:

An exotic planet that seems to be made of diamond racing around a tiny star in our galactic backyard in an undated image courtesy of Swinburne University of Technology in Melbourne. REUTERS/HandoutAstronomers have spotted an exotic planet that seems to be made of diamond racing around a tiny star in our galactic backyard.

The new planet is far denser than any other known so far and consists largely of carbon. Because it is so dense, scientists calculate the carbon must be crystalline, so a large part of this strange world will effectively be diamond.

Materialists, including many of my Libertarian friends who favor a return to the gold standard, will have to conclude:

  • This planet is more wealthy than we are. After all it is a diamond with the mass Jupiter.
  • We would be better off if this heavenly body were to break free of its orbit and be sent on a path to impact (or maybe just orbit) the Earth. Perhaps T. Boone Pickens and DeBeers can concoct a plan to (as they say in the Beltway) “effort” this.
  • The really good news is that there are likely more of these throughout the galaxy and universe for it is only recently that we as a species have been able to detect these orbs.

This is materialist wealth creation at its finest!

Side note and bonus material:

I am not sure why, but my brain was reminded of this classic Bugs and Daffy cartoon. Enjoy!

ET HORA LIBELLUM DELENDA EST

On the Gold Standard

During my state senatorial campaign last year I had the privilege of meeting some really great people from all around the political spectrum.

imageOne of the most interesting is Wayne Richard who ran for the Texas House from Plano. While he did not get his party’s nomination he has parlayed his run into a successful radio show, Stand with Wayne, which is broadcast Saturday mornings at 10am on KVCE 1160 AM here in Dallas.

Earlier this week Wayne posted what he called an editorial on Fiat Currency. Wayne calls himself a conservative not a Libertarian, so it is interesting in that this is one issue where I part ways with most Libertarians and, in this case Wayne.

While I am all in favor of auditing the Fed, I do not think we need to a) end the Fed and b) go back to a gold standard. What we need is to reduce regulations that would allow more competition for the Fed, i.e., private money. Some of this can be based on gold, but not necessarily.

The problem is that the gold standard (or any other metal based currency) is based on some false premises.

First, that the metal itself has intrinsic value. It does not. Many astronomists believe that most gold on the planet resulted from impacts of meteors, either as a delivery system or a result of the violent impact. Ask yourself this, if a giant all-gold meteor where to impact the Earth, would we suddenly become wealthier? No, those of us that might survive would not care about gold anymore. Gold has value because we mutually agree it has value, in other words for the same reason fiat money has value. Milton Friedman spoke eloquently about this in his series Free to Choose.

 

Second, metal monetary standards promote the idea of wealth being a zero-sum game because there is only so much gold we have discovered. This is wrong, but it is also dangerous. Wealth is a human construct. Wealth and money, for that matter, are spiritual goods. Note, not religious, but spiritual, they are based on a belief system. For more on this idea, I highly recommend Rabbi Daniel Lapin’s book – Thou Shall Prosper.

In all, I agree with Wayne’s distrust and diagnosis of the poorly run government run monetary policy, but I disagree with his implied prescription of returning the United States to the gold standard.

Singapore and Jamaica

In 1959, Singapore and Jamaica were economic and population equals. Over the next 40 years something incredible happened. Singapore has become an economic powerhouse while Jamaica has stagnated.

image

In the above Gapminder graph, the yellow dots plot Jamaica’s course while the red dots chart Singapore’s. What could possible explain this?

I believe the answer is in supply side economics. While both nation have similar needs from a population and climate standpoint, only Singapore has focused on creating supply for others. Jamaica’s belief has been, “We need, so it should be given to us,” while Singapore’s has been, “We have created and provided, and it has been given to us.”

Really? This is all it takes to stop global warming?

OK, this headline from MSNBC really set me off – G-8 agrees to cap on global temperatures.

The article begins, “The Group of Eight industrialized nations joined with developing countries in agreeing Wednesday that average global temperatures shouldn’t increase by more than 2 degrees Celsius in a significant new acknowledgement in the fight against global warming.” Really!

The hubris of people to think that all they have to do is vote and it shall be so is incredible. Do they really think that is all they have to do?

Global warming (or climate change as it is now known – in an obvious attempt to hedge against the globe cooling) comes down to four questions.

  1. Is the temperature of the earth rising?
  2. If it is rising, is that bad?
  3. If it is rising and it is bad, is human activity the cause?
  4. If it is rising, and it is bad, and human activity is the cause, can we do anything to stop it and at what cost?

The answers are: Probably, maybe, no one really knows, and a lot.

I would say that there is some consensus among scientists that the mean temperature of the Earth is rising, but and this is a big but, is that bad? It might be, but it might not be. Far more people, about ten times, die of exposure to cold than to heat. Warming a little would reduce the death tolls.

Despite what you hear in the media, while there in consensus on warming, there is very little to no consensus that it is attributable to human activity. It is all conjecture, there is no scientific proof.

What there is proof is that the costs would be astronomical both in terms of real dollars and in terms of keeping developing countries from emerging out of poverty.

If you are really interesting in reading the Inconvenient Truth spend some time at the Cato Institute’s page devoted to the topic.