Curt Doolittle

Theme: Incentives

  • THE GOVERNMENT REALLY DID IT: BANKING, BLAME, AND A COMMON TRAGEDY April 11th, 2

    THE GOVERNMENT REALLY DID IT: BANKING, BLAME, AND A COMMON TRAGEDY

    April 11th, 2009

    Dean Baker, on The American Prospect, posted an article entitled, The Bank Bailout: Were Bankers Victims of Predatory Lending by the Government?. But I don’t agree with him (for once), at least entirely.

    Dean,

    I hate to disagree even if slightly, but by creating so much money, and encouraging bankers to lend and failing to regulate (prescribe) the uses of that money, the government created a “tragedy of the commons,” where the only choice a business in a market has is to participate, lest he be put out of business by the competition of his rivals.

    This is simply another application of the Keynesian strategy: that printing money will compel people to spend (take action), because they will be harmed if they save (wait).

    But the problem is much deeper than that. It’s not a moral problem. It’s not a judgment problem. The level of understanding of the banking industry among bankers and mortgage brokers has become so trivial since we centralized banking using computing technology that any understanding of the banking industry was held in very limited hands, making them cumulatively ineffective hands. If you are the minority conservative voice in a company of others who seek to exploit opportunity, even opportunity that they don’t understand, you simply comply or get replaced.

    Early retirement caused by the use of all that credit money and its resulting asset inflation caused a lot of wise and older bankers to exit. The period of expansion caused by that money and the breadth of it led to the exit of the seasoned veterans who understood the consequences from the last time we did all this silliness.

    The educational system and its emphasis on quantitative risk evaluation created the equivalent of an inhibition in younger bankers against actually learning the business and understanding what kind of economic activity they were engaged in. They sought to become day traders rather than investors.

    There were a set of erroneous beliefs, and technical errors, and basic human foibles, that contributed to this problem:

    The economy (and housing) was flooded with credit in order to recover from 2001, in the hope that this would keep the consumer, and 70% of our economy, spending.

    The low cost of credit money, the high demand for people, and the profit opportunity for bankers, mortgage brokers, real estate developers, and construction labor rapidly expanded the number of people in the mortgage and banking fields.

    This increase in the size of the credit industry meant that the average person in it had less skill in understanding his or her actions, and their only logical means of competing with their peers was to participate in the feeding frenzy despite their lack of knowledge and experience.

    The senior banking talent either retired, had no memory of previous crises, or had no knowledge of economic theory, and if they were conservative they were overwhelmed by the profit-seeking majority.

    Reselling loans as packages made it easy for individuals to to mitigate personal risk.

    Information to estimate the current value of those securities when packaged and resold was lost.

    As a result, the meaning of the credit rating system when this packaging occurs was lost.

    The centralization of banking through the use of computers allowed executives to apply calculations to centralized lending, under the assumption that risk calculation is a scalable process.

    Society was deprived of knowledgeable bankers with whom they could interact at local branch offices.

    A class of “financial advisers” developed who misled consumers and savers with a pretense of knowledge, and the belief that any financial product is forecastable, when in fact, it is not.

    The educational system emphasized quantitative analysis, rather than deep knowledge of the industries, geographies, or people that they lend into.

    The banking culture emphasized risk, expressed using the convenient shorthand of market-priced collateral, rather than as risk expressed by understanding of opportunity versus the risk a lender estimates by virtue of his knowledge of the FUTURE of prices in a specific industry or geography.

    The only regulation that would have solved that problem would have been to require that 20% of the loan be held by the originating INDIVIDUAL, not bank, but INDIVIDUAL, so that the individual had the incentive to maintain sufficient knowledge of his properties, so that he could adapt to risk.

    But the cause of all those contributions was fiat and credit money.

    Banking is an art, not a science. It never will be a science. It cannot be. It is the process of funding entrepreneurship. It is not the science of evaluating risk, because we can never know that risk or that opportunity by any means other than experience, which is TESTED by quantitative analysis. That experience must be in the property and products and people we evaluate, not their presumed assets and collateral. It’s almost hard to say anything else out loud and not feel simply ridiculous for having done so.

    Any entrepreneur of any experience will tell you that bankers are noticeably from the bottom of their graduating classes, they are disastrously ignorant of both their industry and the economic importance of it, and they have too little general knowledge to evaluate risk OR opportunity. Bankers simply aren’t very wise. They are notoriously ignorant. We are all aware of lawyer jokes, in which the lawyer is immoral. But there are plenty of banker jokes. They’re just not that funny. Jokes about dim people simply aren’t funny. But, like all stereotypes, such bits of cultural analysis are indicative of an underlying semi-truth.

    Investment bankers are generally very young, very bright opportunists who have won a lottery. But they have little or no understanding of business. The few that do are older and in smaller companies. Those same people in the larger companies are simply final decision makers. But investment banking has become a variant of movie production: the trick is to put together any deal that you CAN – not any deal that you SHOULD. Instead, the operating principle of investment bankers is that you SHOULD put together any deal that you CAN get away with. This tragedy is only possible because we have allowed the creation of instruments that divorce the person who evaluates the opportunity from the risk inherent in the opportunity. Instead of facing that risk, he simply resells the product and escapes from the effect of his judgment. His incentive is to do what he CAN, regardless of his knowledge, instead of what he SHOULD because of his knowledge.

    In a world of credit money, the recursive effect of lending and asset price inflation means that our perception of risk as mitigated by collateral is simply WRONG. Bankers are not in the collateral business like they seem to think they are. There isn’t any rational concept of collateral when prices are determined by the momentum of credit money. There is no collateral to measure, so bankers are not in the collateral business, they are in the insurance business. They just don’t know it.

    I don’t blame bankers at all. I blame the government for its use of fiat and credit money in a century-long attempt to foster entrepreneurship and increased productivity (and therefore the illusion of full employment), and the political expediency of social programs (the need for which was caused in no small part by the use of credit money) by the use of general liquidity rather than targeted liquidity (loans for a specific purpose not just for any purpose).

    We did NOT get the productivity increases. That same credit money, when regulated by the use of the concept of collateral, forces money behind mature commodity businesses that are calcifying, and starves smaller, more innovative and niche-serving businesses. It reduces consumer choice, hinders innovation, and forces investment capital into high-risk, high-reward opportunities (gambling) instead of production increases.

    We all know that capital chases capital to the point of failure. Some of us know that excess capital creates failure. But very few of us know that risk and collateral are concepts whose value lies in the assumption that few people are lending and prices are relatively stable over the course of the loan. That value does not apply to a circumstance where everyone is loaning for everything and therefore the collateral cannot be priced. When collateral cannot be priced, and the entire credit system depends upon a system of calibration between collateral, loan, and risk, then the entire system simply rests on an erroneous assumption.

    The economy is a representation of human memory. The stock market is an expression of overlapping “forgetting curves” and “learning curves.” Individuals, families, companies, industries, governments, cultures, and civilizations require common knowledge, or general understanding, in the form of memories, in the form of narratives, for general planning, organizing, forecasting, and acting in the real world. They need memories, in all their richness and complexity.

    They need property, too. They need property to break the world up into actionable components. The world is as incomprehensible without property as it is without numbers, money, time, technical knowledge, and mythology.

    We have invented a lot of tools that allow us to make more precise or complex COMPARISONS of our choices between multiple, complex things. But these comparisons are REFINEMENTS of our GENERAL KNOWLEDGE that is far less precise. We use analysis to TEST our more general comparisons. Just as we use accounting to test whether we made a profit from a sea voyage or from a month of complex activity, we use our other quantitative tools and logical tools to test our perceptions, both post and ante. But before we can make comparisons, we must first have perceptions. And to be of actionable value, those perceptions need to be of some sort of thing we can act on that’s unique in space and time, it must have a production cycle (property), and it must be scarce or specialized enough that acting upon them in a division of knowledge and labor is meaningful (profitable).

    In other words, we have to have memories and habits that we compare to test or determine small improvements. And we must make those decisions in real time during whatever cycle of production we participate in. This real-time participation means that we are limited in the number of things we calculate. It means those things we calculate must not change much over time. It means that there are no general rules external to our experience that help us form our theories, only our experience and knowledge. It means that our methods and tools simply test and refine our more general habits and judgments. It means that we simply cannot have purely scientific knowledge of assets and banking. We have to have knowledge and wisdom about the behavior and use of property and people that is marginally sufficient for us to compare against alternatives by the use of those tools.

    In other words, banking is not a process for applying scientific knowledge. It is a process of entrepreneurship and accumulated wisdom, tested by methodological tools so that we can reduce our errors.

    The physical world stays the same while we pass our highly perishable scientific knowledge from generation to generation and increase its depth and complexity, falsify it, add to it, or whatever we do with it. The thing we have knowledge about stays constant. We are researching a universe that is invariant.

    The human world is not invariant. It is inconstant, kaleidic, and created by our actions. It is the cumulative expression of human memories and all our market activity both creates and reflects it. The stock market is not scientific, nor is banking, risk, or any other aspect of the economy. It is not rational in the sense that we often use the term. It is not only a function of incomplete knowledge and asymmetrical knowledge, but of the learning curves and forgetting curves of each participant, who has limited processing power and who, in a division of knowledge and labor, benefits almost entirely from specialization that ensures his processing power necessarily fosters ignorance of some other aspect of human life.

    Knowledge of property and its use does NOT SCALE. That’s the reason we have property: to break the world into comprehensible and known components that we can use to cooperate with each other by exchange and therefore specialize and increase production. This is the most important principle. Knowledge of property cannot scale and the stability of any price, including any collateral, is an illusion. There is no numeric or formulative substitute for personal human knowledge of economic activity. None.

    Risk is not measurable AT SCALE, because we cannot measure the unknown, nor can we predict large corrections. In other words, risks cannot be summed if they make use of prices.

    Priced collateral is not meaningful in a world of credit money, which at every moment invalidates any price.

    We should seek to maximize opportunities at lowest cost, not maximize interest at minimum risk.

    Banking is a knowledge problem, not a mathematical problem.

    We need to de-financialize savings and retirement, because there are no means of forecasting such things over time, and any assumption of perpetual growth is fantastic.

    Our educational system seeks to treat finance, economics, and sociology as disciplines open to quantitative analysis in order to establish rules, rather than the virtue of collected history and wisdom, and a record of the quantitative analysis and expressed rules as a history that is constantly open to interpretation.

    Our educational system seeks to teach people formulae which are invalid so that they can avoid collecting accumulated wisdom, rather than seeking to endow them with accumulated wisdom and the analytical tools to interpret currently collected data for comparison to accumulated wisdom. Educators make this mistake in order to simplify the job of TESTING students, who, if subjected to tests of accumulated wisdom rather than technical expression, would fare far worse and consume much more of the educator’s time.

    Our educational system seeks to grant social science the same argumentative weight as physical science, confusing the fact that in physical science we discover something that exists already. In social science we manufacture the future, and that there is nothing to be discovered, only created.

    Our political system seeks to replace governance by religious conformity with governance by economic efficiency as a means of justifying the accumulation of power in order to advance the interests of groups, and to do so when economic efficiency is impossible to determine and risk is impossible to measure. This is instead of increasing the rate of production and seizing and exploiting every possible opportunity for every individual independent of his class or group membership, which would allow all groups to benefit by the success of other groups by the use of credit, rather than for some groups to profit at the expense of others by privatizing wins and socializing losses.

    Our political system seeks to pit groups against each other by the use of laws, to hold themselves unaccountable for production by the use of tax, and to tax people according to income so that they can keep them servants of the state, rather than facilitate group cooperation by the use of credit , to hold themselves accountable by funding the state by the collection of interest, and to tax tax citizens by their balance sheets so that they can become independent of the state.

    Some classes in society use banking, credit, and interest to socialize losses and privatize wins, using fiat and credit money that is paid for by all, but offers rewards that are collected by few. This does decrease prices for all. But it also creates class warfare.

    So, bankers are what we made them. The blame is ours, not theirs.

    Source date (UTC): 2019-08-16 09:28:00 UTC

  • **PROGRESSIVE IS REGRESSIVE ON INCOME TAX AND ONLY PROGRESSIVE ON BALANCE SHEET

    **PROGRESSIVE IS REGRESSIVE ON INCOME TAX AND ONLY PROGRESSIVE ON BALANCE SHEET TAX**

    April 14th, 2009

    James Kroeger, in a comment on Economist’s View in response to “Just How Progressive Is the Tax System?” makes the point that the Republicans are producing worse self-taxation by their policies. My first objection is that people don’t make purely economic decisions, they make decisions that perpetuate their ability to produce income for their alliances and perpetuate that alliance. Prices are sticky, but so are organizations. (Which economists don’t seem to recognize often enough: value-neutral economics, or solutions that emphasize efficiency, miss the point of human cooperative activity altogether.) Traders seek profits from transactions. But business people seek to perpetuate the revenue stream from their alliances, because their highest cost is in developing those alliances and creating the habits within those alliances. Too much of economic theory has evolved either from traders or in response to political activity and at the expense of understanding entrepreneurs who are, disproportionately as members of the population, the people who PRODUCE that economy.

    To: James Kroeger

    James, I don’t disagree with your political point, but tax on an income statement is not progressive, while tax on a balance sheet is.

    Many small business people suffer great risk and deprivation and reap the rewards of their investment all at once, then we penalize them for that hard work UNFAIRLY because of progressive taxation. If we taxed on balance sheets, allowing people their windfall so that they could secure their retirement, then taxed MUCH MORE AGGRESSIVELY those who accumulate wealth – NOT INCOME but WEALTH – then the entire Republican Party base would would happily turn to the Democrats. There would emerge a productive alliance in the country instead of an expanding divergence between the people who produce most of the jobs and take almost all of the risks (the small and medium business owners) and the majority of laborers – white, blue, and gray collared – and the capital, large business, and political classes, who are a minority playing a class warfare game simply because we tax income rather than real wealth.

    Most economists still analyze income instead of wealth and refer to income as wealth, which is fallacious. It’s another side effect of the fact that taxation produces data that can be analyzed, which leads to more analysis and deduction based on faulty logic purely because the data to produce faulty logic is readily available.

    Progressive taxation, if it prevents people from retiring on their own merits and loaning their money to younger generations so that the power of compound interest is preserved, is not progressive (redistributive is the right term). It’s actually destructive – socially and economically destructive.

    This single issue is the primary source, known or not, understood or not, of the small- and medium-sized business community’s support of the Republican Party. Income taxation is a relic and a destructive one. Progressive taxation is sensible only if it is not actually destructive. It is only not destructive if it is based upon accumulated wealth, not income.

    I’m entirely in favor of soaking the rich as long as it’s actually the rich we’re soaking, not the middle-class entrepreneur who has sacrificed for a decade to secure his retirement and with full knowledge of how important securing that retirement is. (There are also enormous side effects that distort capital throughout the economy because of this error in taxation.) Income has almost NOTHING to do with wealth. Wealth is important only because it can be used to lend money to younger workers, or to create jobs by funding more profitable status-related products and services.

    Another politically important point: Entrepreneurs are in their roles primarily because they are better able to forecast the future and habituate activities that manufacture it. They are EXTREMELY sensitive to security because they live in a world of much higher personal risk-taking, inordinately higher total work hours, and much more emphasis on long-term horizons. They are entirely cognizant of taxes and are anti-government for this one reason: income versus accumulated wealth. Again, this single issue is what causes the Republican-small business alliance.

    I might argue that we are really, by the process of progressive income taxation (which I’m arguing is regressive in practice) rather than progressive balance sheet taxation, unjustly taxing the middle class and depriving them of comfortable retirement, depriving the economy of its most knowledgeable investors in small business, which creates the majority of new jobs, and concentrating wealth in large corporations that become political rather than economic entities and who are, by virtue of their size, able to disrespect consumers and perpetuate market conditions that, we expect, should and could be neutralized by competition from smaller entrants. And what’s really horrendous is that we accomplish all of this destruction as a ruse to mask the fact that what we are really doing is taxing the middle class at an accelerated rate in order to prevent capital flight by the truly wealthy and in order to create class warfare from which the state can benefit by usurping freedoms in order to resolve disputes that have been created precisely by the process of taxation. At least, that’s how it appears.

    From that viewpoint, the imbalance is HEAVILY slanted in favor of the ultra-wealthy and horridly, immorally against the middle class.

    If, further, we look at the accumulation of wealth from the financial sector, which is created by the act of redistribution via fiat and credit money, then we are actually paying the wealthy to become wealthier at the expense of both the middle and working classes. We are privatizing wins and socializing losses on a massive scale.

    So if your argument is a political one, I think that it is also a solvable one. Change to progressive balance sheet taxation rather than income taxation, then unify the country around a single majority political movement (at least fattening the middle and marginalizing the ultra-socially-active on both left and right), return the value of compound interest, secure more retirements, create more and better investors, decrease capital concentration in large corporations that don’t suit the wants of consumers because they create barriers to entry, and reduce redistribution to the finance class at the expense of the middle and working classes.

    Small things in large numbers have vast consequences. (So to speak.)

    Curt

    2 COMMENTS

    Erick

    April 14th, 2009 at 11:29 pm

    Taxing balance sheets is an interesting idea.

    How will this impact speculative activity and venture capital? VCs tend to invest small amounts in many projects hoping that one creates a huge payoff. Do you see more people switching to this type of compensation structure?

    Is the goal here to stimulate people with a large savings into creating structures and organizations that invest that wealth?

    After a person saves enough for retirement, what role do you see him playing in society?

    CurtD

    April 18th, 2009 at 8:01 am

    EricK

    RE: “…After a person saves enough for retirement, what role do you see him playing in society?…”

    I see that person using accumulated knowledge to apply that knowledge in the form of capital to his industry so that we may increase productivity. In other words, what people have been doing for a very long time: lending to the generations that follow, so that in youth we have opportunity, and in age we have security. Much more than this, but it’s the most direct answer to your question. People would band together, just as they do now, but even more so.

    RE: “…Is the goal here to stimulate people with a large savings into creating structures and organizations that invest that wealth?…”

    Yes. The emphasis is on the people with the KNOWLEDGE of industries needed to make such investments. WHat we’re doing now is putting our investment criteria in increasingly ‘ignorant’ hands. “Financializing” the process of investment, rather than developing knowledge necessary to make great investments. Or, as fellow Hayekians would say: “it’s a knowledge problem.”

    RE: “…Taxing balance sheets is an interesting idea…”

    Yes. It isn’t something I expected. The risk is of capital flight, which will keep downward pressure on taxation, but individuals who are social contributors, not by charity but by their tax payments, can claim status, and create a status competition. I don’t want to get into the sociology of urban environments but we have destroyed that social process over the past century and we probably need to recreate it, if we are going to have any society at all. This may not seem a ’scientific’ ambition, but it is. I’m just a bit short of time right now and can’t make that argument here. Taxing balance sheets rather than income statements is a better way of capitalizing the society. Also, the vast majority of people are subject to a taxation process that is highly costly, and where they don’t actually pay taxes at the end of the process.

    RE: How will this impact speculative activity and venture capital

    Capital becomes less expensive for everyone in the lower three quintiles, because there is less risk and more reward to the investor in the risk stages. (I’m assuming you understand the various investment strategies employed by the venture industry.) This should produce an environment where more risks are taken, in more industries, with lower herd behavior, and where each risk requires a lower return.

    RE: “…Do you see more people switching to this type of compensation structure?…”

    I’m actually trying to solve the credit-money versus sound-money conundrum: where credit money produces speculation and booms, but makes it possible to sized more opportunities to decrease prices and increase production than does sound money. Where credit money allows a citizenry in a nation state to compete against other citizens in other nation states without paying bankers the majority of the wins from production increases simply because of the scarcity of hard money, and instead capturing those wins in order to fund the government and social services. (The relationship between these statements may not be very obvious but it’s very important.) I would much prefer that the compensation structure be weighted toward productivity increases and profits than to speculative gains. Again for a variety of reasons. But I’d like to do that by decreasing downside costs, so that we can spend most of our efforts not on profiting from shifting around each other’s investment money, and siphoning off the herd, but by accumulating productivity increases in more places in the economy more quickly. (I hope that makes sense. I’m assuming a lot of knowledge on your end.) We have produced huge paper increases in wealth recently without those same increases in productivity. Therefore that wealth cannot actually produce what the ‘prices’ (asset values) tell us that they can. It’s just not possible.

    An aside:

    Politically, the divide between republicans (small business and social conservatives) and democrats (large business and labor, and social progressives) can probably be drastically narrowed if we converted from the Law,Tax and Income society to the Credit, Interest and Balance Sheet society. THe first is for farmers. The second for complex societies. And if we resolved that conflict of interest, by moving away from our existing model to the model I’m recommending, then it at least appears we would marginalize the radicals on both ends of the spectrum. It’s not like we’re doing anything new here in the contemporary world. These processes have been understood for a very long time. Class warfare of this nature simply leads to despotism and chaos. I’m suggesting that I might have produced a solution to the problem of the urbanization of man.

    Source date (UTC): 2019-08-16 09:27:00 UTC

  • **NYT: A RESPONSE TO “A COUNTRYWIDE TALENT EXODUS?”** April 28th, 2009 There is

    **NYT: A RESPONSE TO “A COUNTRYWIDE TALENT EXODUS?”**

    April 28th, 2009

    There is a quite a bit of activity these days around the idea of talent flight due to increased taxes. Not necessarily by choice, but no less than Andrew Lloyd Weber is among the critics. He’s hardly a right wing sympathizer, but he’s given the issue some momentum. Participating in the debate, the NY Times site posted an article, “A Countrywide Talent Exodus?” and it’s attracted a few postings both inside and outside the US, some from the UK. My response, reproduced below, was to a series of UK entries, one suggesting that tax sheltering is a question of political will rather than pragmatic incentives. Another suggested the UK was in better shape in the past. I felt compelled to respond with my usual theme. Again, I’m finding it far more interesting to read the comments than the postings these days. Bloggers are like any public set of intellectuals. They get their position by taking risks, then once they have some notoriety they stop taking them.

    When the vast majority of taxes are paid by a small number of people, the people no longer are citizens, they are dependents. New York City is supported by perhaps as few as 50,000 or 55,000 families. If just 1/10th of those people flee, the city will be permanently and irrevocably bankrupt.

    As a person with significant knowledge of sheltering methods, their multitude, and ease of implementation, my opinion is that the concept that sheltering is a “political” issue is a mistake. It is profoundly easy to shelter money in this world once you have even a little of it, no matter what country you’re in. It is harder in the more developed countries only because there is more money to be made by keeping it in legitimate circulation. The issue is simply whether it’s worth one’s time and effort to shelter it or not. Al increasing taxes beyond the point of willing payment does is make it worth the time and effort for those with wealth to shelter it. Sheltering is nothing more than a black market. Black markets always develop due to over-regulation and over-taxation. And there is no evidence in history that they can be stopped, except by understanding that such over-regulation and over-taxation is simply the cause of the problem.

    As for the results of government in the UK, I don’t understand some of the statements above. You can use government to bend the laws of nature for a short time, but they will always be restored to norms. World competition guarantees that fact. The UK was rapidly becoming one of the poorer countries in Europe, and that trend was reversed in the Eighties. I remember the change. I remember when travel to the midlands and the north felt like a trip back in time to the Second World. That has all changed in my lifetime.

    Do not mistake the problem of a state fooling itself because of some math by overconfident economists, justification by incompetent philosophers, the greed of political opportunists, and the consequential use of centralized banking, cheap credit money, and impossible financial instruments as a reason to regulate human commerce. Instead, simply require that bankers hold 20% of any originated loan, and stop offering general credit (credit for unspecified uses) and instead offer targeted credit (for home buying or capital investment) in order to keep people from using it for consumption. Consumption helps laborers in China. It does not help UK citizens. This one “regulation,” which is simply an obvious bit of logic, will stop most financial misuse. It will also have the side effect of disallowing the state from pushing money into an economy, because the bankers will simply not lend if they cannot dispose of the loan without risk.

    And, by the way, kill your immigration laws. There is no reason for sanctuary any longer. And, consequentially, there is no need to subsidize London’s business community with cheap labor at the expense of the rest of the country. The problem is just as bad in the US, it’s just less localized, and we have a bigger economy.

    Source date (UTC): 2019-08-16 09:24:00 UTC

  • **CONSERVATISM IS NOT A LONGING FOR THE PAST – IT’S A CAPITALIZATION STRATEGY.**

    **CONSERVATISM IS NOT A LONGING FOR THE PAST – IT’S A CAPITALIZATION STRATEGY.**

    April 19th, 2010

    Being a conservative simply means taking a gradual approach to social change and particularly with respect to the financial, family and military traditions that affect status and political power, which they are skeptical of. Conservatism means being skeptical that our visions of the future will come true, and looking at the world as what people ACTUALLY DO not what we WISH they would do. In that sense, conservatism is historically scientific even if linguistically archaic. Conversely, while liberalism is linguistically modern, it is utopian, idealistic, contra-observation, contra-history, and therefore anything but scientific. The differences between these two philosophies are vast and numerous, but the one that is most important, is the difference between the reliance abstractions from experience in conservatism, and the reliance on abstracting experiences in liberalism. This may seem a complex idea, but liberals try to extrapolate the daily experience into the extended order of human cooperation. THis is called ‘induction’. Conservatives synthesize the actual experience of aggregate human activity from history. This is called ‘deduction’. Induction is a process that we are not sure, despite the vast effort of philosophers, exists. In other words liberalism if faulty on scientific grounds. It is a religion.

    This language problem has always been an issue for conservatives. Liberal dictums may sound scientifically sound if one induces from experience. Conservative (dictums) are sensible when one deduces from abstractions of history. And everyone must use these shortcuts, because too few of us possess the knowledge to make rational judgements and therefore must rely upon basic principles when making decisions. In fact, rational thought is applied to the vast minority of choices. Most decisions are made by habit. The rest according to shortcuts.

    For the vast majority of people from either conservative or liberal, neither induction or deduction is a rational process of choice, but instead, a process of identifying analogistic sentiments: it’s the act of pattern recognition rather than reason. Pareto called this process of pattern recognition “residues and derivations”, others called them “Metaphysical Judgements” or “Sentiments”. Contemporary thinkers and public intellectuals call them “beliefs” or “biases”, or “science or religion”. And our language incorporates these different sentiments. Our arguments do as well. Our narratives, myths, popular fiction, entertainment, status aspirations do. But so do your political rhetoric, which, because reason would be a technique unavailable to the masses, rely entirely on a complex web of constantly warring sentiments wherein the citizenry seeks confirmation bias, rather than a simple argument consisting of reason, where the citizenry seeks both consensus and falsification of their biases. In other words, where people are skeptical – conservative and rational.

    Utopianism is a technology that people use during periods of prosperity. Because we have been artificially prosperous due to the discovery and exploitation of a continent, we as a nation are notorious for predicting an optimistic future that cannot or has not occurred. The public dialog over the causes of our prosperity is often inaccurate and self-congratualtory rather than factual. We have transformed our culture of evangelical christianity into one of evangelical democratic secular humanism.

    Conservatives are skeptics. They may speak in antiquated language, because antiquity is their source of their language. They may fail to articulate their position effectively in contemporary terms because of that language, but regardless of the source of their language, the content of their language is strategic, intelligible and rational. And it is not just a language, but a methodology that represents their strategy for social order. They ACT conservatively, think conservatively, and treat the world conservatively.

    This conservative strategy and conservative activities are why conservatives are, in general, more prosperous – and frankly, happy. And the sacrifices that they make in order to be prosperous are material to them. They remember them. And therefore they resent those sacrifices being ’spent’ by others who do not make the same sacrifices.

    Monetarists and capitalists are not conservatives. They may hide under conservatism. But they are not conservatives. The conservative class is a military, middle and craftsman class and it always has been and always will be. It is the ‘residue’ of the european fraternal order of soldiers at the bottom, and at the top, it’s a ‘residue’ of the middle class movement that revised and adopted civic republicanism during the enlightenment as a way of transferring power from the kings and church to the middle class. it is an alliance of the military and middle class.

    Liberalism (socialism, communism) is a ‘residue’ of a union of the priestly cast and the peasantry. Academia is simply an outgrowth of the church. The peasantry has always allied with the church, and the church has always had power because of it’s support by the peasantry.

    And that said, we do not have a separation of church and state. Our state religion is now democratic secular humanism. We are now a state-run-religion using the myth of division of church and state to oppress (or reform) religions so that we can have a state sponsored church.

    That’s it. That’s the articulated conservative position.

    The republican party collects conservative coalitions. The republican party is not a conservative party. conservatives join the republicans because they have no choice. They see the party as corrupt.

    People are complex and only join parties because of limited choice mandated by our ‘winner takes all’ form of government, which fosters class warfare.

    In fact, all political decisions exist on a spectrum or bell curve. There are a myriad of political decisions to be made. There are a myriad of people with different abilities to understand each political opinion. Each person is interested in a myriad of decisions. Parties are collections of people with opinions. Very skilled people tend to be highly unsatisfied with party choices. Very unskilled people tend to simply support their party of nearest interest. Parties therefore pick platforms that make enough people happy that they can get into power.

    Arguing that conservatives want to keep things asa they are, is a silly argument. The objection is simply illogical. The question instead, is whether liberals propose a solution that conservatives can live with, and wether conservatives can propose a solution that liberals can live with.

    The difference between social classes are differences in Time Preferences (between “consume” or “capitalize”, or gratification now versus gratification later). Longer (lower) time preferences are only possible if you have the ability to comprehend long term time preferences. This is another reason why social classes are organized by intelligence, and why a market economy tends to organize us into economic classes according to our application of intelligence to the satisfaction of OTHER PEOPLES WANTS, instead of our own. Time preference affects not only a dimension covering an individual’s perception of gratification. It’s a second dimension that describes whether his gratification now or later is served by providing solutions to himself or to others. This is the moral lesson of Adam Smith – that capitalism creates a virtuous cycle.

    If we had listened to the liberals in the last century we would have ended up like either Russia or China. If we had listened to conservatives we would not have had our progressive social changes, but we would not have corrupted our financial system using Kenesnian inflation. It’s the competition of ideas that gives us the choice as a body politic.

    It is the combination of LIBERAL OBJECTIVES and CONSERVATIVE METHODS that provides the means of achieving shared goals.

    Lets say that again. Liberal objectives are moral desires. Conservatives methods are moral means. It requires both these tools to achieve moral ends. The problem is, conservative methods take time because they require the learning and adaptation of people to calculative processes. These processes have nothing to do with religion. Christianity is largely a religion of the poor. Protestantism is perhaps the most important religion for generating wealth in the west as it is a class religion. Secular humanism is a feminine religion just as Aryanism (expansionist civic republican tradition of the initiatic fraternal order of city-defending soldiers) is a masculine religion. We do not need all to believe one thing, share one goal, work according to the same rules. If we did, we’d break the principle of the division of knowledge, labor, time, and intelligence.

    WHat people really want when they seek universal agreement is to concentrate labor, knowledge, time and intelligence on their goals at the expense of other people’s goals. Since people are unequal in their ability, in their class goals, in their cultural goals, in their age and experience, in their knowledge and in their intelligence, then we must divide up our actions into bits and pieces which we cooperate with each other to achieve.

    Democracy as we have implemented it is a winner-take-all political order. It foments class warfare. It does not foment class cooperation.

    We need a government that is a return to the division of labor and division of classes and time preferences.

    Democracy is a failure as we have implemented it. Because we confuse the value of the transformation of power inherent in democracy with the universal aspiration of classes, cultures, ages, generations, and abilities.

    Source date (UTC): 2019-08-16 09:23:00 UTC

  • **A FALSE DICHOTOMY OF WEALTH FLIGHT: THERE IS A THIRD CHOICE** From April 28th,

    **A FALSE DICHOTOMY OF WEALTH FLIGHT: THERE IS A THIRD CHOICE**

    From April 28th, 2009

    The rhetoric on the flight of the wealthy is pretty thick right now. But I thought that I would correct the false dichotomy of submission to taxes or flight from taxes.

    When the minority of people pay all the taxes, they form a bloc of similar interests. If those interests are similar enough, those interests become their primary interest. And it becomes more attractive for the wealthy to pay a minority of the people to side with them in producing social change, even revolutionary social change.

    Revolutions are not created by the high crimes of a few. They are created by the accumulation of rudeness, administrative burden, legal propagation, and petty abuses of power by the bureaucrats who annoy the citizenry to the point of intolerance. I am not afraid of a proletariat revolution, despite my belief that we will see riots at some time in the near future. I am not afraid of a revolution by the wealthy. I am afraid of a minority proletariat revolution funded by the wealthy. And I am rapidly approaching the point at which I am both an advocate and willing to fund it. The state is attempting to pit us against each other when, in fact, it is the people who should simply be done with the abuses of the state. Fixing the centralization of wealth is not a problem. Providing social services is not a problem. Stopping the state from pitting us against each other is the issue we must face. I don’t know any wealthy person who objects to the payment of taxes. We object to the use of the tax revenue to pit different social classes against each other, rather than to help us work together toward shared goals and objectives. In this conflict, the state is actually the problem.

    We must understand that there is a difference between personal wealth and political wealth. Personal wealth means that one has made enough money that he can lend it to the following generation, who will then allow him leisure in exchange for the use of his money now, so that they can live a better life more immediately, and higher cost over time. Political wealth is the possession of money at such volume that it is possible to put it to political use, and therefore subvert the market process that requires that we serve our fellow man’s needs in order to gain reward. Typically, and this is just an oversimplified way of looking at it, personal wealth requires between 10 and 50, but no more than 100 times the median annual income. Political wealth requires at least 100, but more effectively around 1000 times the median annual income.

    If we simply used a tax that was HIGHLY progressive and on the balance sheet, rather than on annual income, so that the middle class of merchants and small business people could accumulate wealth and gain financial independence in exchange for their extreme personal financial risk, and where the tax rate started where the net worth was 10 times the median income, then increased rapidly at 100 times median income, there would be no use for the Republican Party. The party exists entirely on that one pillar. Without that divide we could form a middle ground, work toward common goals, and marginalize both the left and right extremes.

    If we required bankers to hold 20% of all originated loans, and required that they be permanently tied to the lending “individual,” we would fix the corrupting behavior of lending that built up since deregulation. If we further stopped providing general liquidity and instead offered only targeted liquidity from the Fed, then we would put more of a halt on bubbles.

    If we kept the interest on state credit money with the state, then we would both have a replacement source of revenue and would force the state to think in terms of advancing national competition rather than giving away our competitiveness. We would also be able to see who performed what good for the country and who did what harm.

    The choice for the wealthy is not just between submission to taxes and flight. It’s between submission to taxes, flight, and revolution.

    I’m one of the people who is rapidly beginning to call for “the Third Choice.” Because if we took the money wasted on government in this country and used it for medical and infrastructure improvements, as well as basic research, we would rapidly regain our competitive position in this world and, in doing so, drastically change the position of our working class.

    I am an unrelenting advocate of noblesse oblige: If we are lucky enough to become wealthy, then we must use our wealth to the betterment of our fellow men. But only we can know what that betterment is, because only we have demonstrated by our accumulation of wealth that we know how best to serve our fellow man. Servitude to a state that pits its citizens against each other, exports jobs, makes our state uncompetitive by policy and taxation, and under-educates our people is not service to our fellow man. It is, instead, a crime against them.

    I’m not there yet. But I’m getting close to thinking we need to pull out some rope and learn how to tie knots.

    Source date (UTC): 2019-08-16 09:17:00 UTC

  • **GALBRAITH AND REGULATION: HE’S GOT IT WRONG AGAIN** May 6th, 2009 On Angry Bea

    **GALBRAITH AND REGULATION: HE’S GOT IT WRONG AGAIN**

    May 6th, 2009

    On Angry Bear, there is a posting referring to a statement by Galbraith by the Texas Observer. It’s entitled “James Galbraith remarks“.

    Texas Observer carries commentary that is revealing.

    Editor’s note: These remarks were delivered to a meeting of the Texas Lyceum in Austin on April 3, at a debate between University of Texas professor James Galbraith, an Observer contributing writer, and former Majority Leader Richard Armey, chief instigator of the recent Astroturf “tea party” protests. Armey had begun his remarks by noting that his rule in life was “never trust anyone from Austin or Boston,” and proceeded to declare his allegiance to the “Austrian School” of economics, a libertarian view that regards public intervention in private markets as socialism.

    It is of course a pleasure to be with you today. I was born in Boston, and I am proud of it. And I have lived 24 years in Austin—and I’m proud of that.

    Leader Armey spoke to you of his admiration for Austrian economics. I can’t resist telling you that when the Vienna Economics Institute celebrated its centennial, many years ago, they invited, as their keynote speaker, my father [John Kenneth Galbraith]. The leading economists of the Austrian school—including von Hayek and von Haberler—returned for the occasion. And so my father took a moment to reflect on the economic triumphs of the Austrian Republic since the war, which, he said, “would not have been possible without the contribution of these men.” They nodded—briefly—until it dawned on them what he meant. They’d all left the country in the 1930s.

    My own economics is American: genus Institutionalist; species: Galbraithian.

    This is a panel on the crisis. Mr. Moderator, you ask what is the root cause? My reply is in three parts. (below the fold)

    First, an idea. The idea that capitalism, for all its considerable virtues, is inherently self-stabilizing, that government and private business are adversaries rather than partners; the idea that freedom without responsibility is a viable business principle; the idea that regulation, in financial matters especially, can be dispensed with. We tried it, and we see the result.

    Second, a person. It would not be right to blame any single person for these events, but if I had to choose one to name it would be a Texan, our own distinguished former Senator Phil Gramm. I’d cite specifically the repeal of the Glass-Steagall Act—the Gramm-Leach-Bliley Act—in 1999, after which it took less than a decade to reproduce all the pathologies that Glass-Steagall had been enacted to deal with in 1933. I’d also cite the Commodity Futures Modernization Act, slipped into an 11,000-page appropriations bill in December 2000 as Congress was adjourning following Bush v. Gore. This measure deregulated energy futures trading, enabling Enron and legitimating credit-default swaps, and creating a massive vector for the transmission of financial risk throughout the global system. When the Washington Post caught up with me at an airport in Parkersburg, West Virginia, a year ago to ask for a comment on Gramm’s role, I said very quickly that he was “the sorcerer’s apprentice of financial instability and disaster.” They put that on the front page. I do have to give Gramm some credit: When the Post called him up and read that to him, he said, “I deny it.”

    Third, a policy. This was the abandonment of state responsibility for financial regulation: the regulation of mortgage originations, of underwriting, and of securitization. This abandonment was not subtle: The first head of the Office of Thrift Supervision in the George W. Bush administration came to a press conference on one occasion with a stack of copies of the Federal Register and a chainsaw. A chainsaw. The message was clear. And it led to the explosion of liars’ loans, neutron loans (which destroy people but leave buildings intact), and toxic waste. That these were terms of art in finance tells you what you need to know.

    This is another case in which I wish economists were better philosophers and philosophers were better economists.

    It was the Austrians who said this quantitative nonsense wouldn’t work. So I don’t understand his arguments against Austrians. Secondly, none of us are against regulation so much as against the idea that regulators possess wisdom. If we simply forced originators to hold 20% of each of their loans (and to separate on the balance sheet public and private investment, and to take losses accordingly), then most of this regulatory problem would go away. Libertarianism is not a vehicle for promoting wild west theft by deception. It’s just that we acknowledge that regulators are an expensive, ignorant, and often political problem because they cannot possess the knowledge required to do the assigned job. Property in itself is regulation. So Austrians are not against regulation. They’re against a system of policing that requires a man to possess knowledge that he cannot have, and against empowering the state.

    We just learned a lot about banking and the fact that collateral isn’t collateral any longer. That reliance on collateral is not a very useful means of risk measurement in a credit-money society. We just learned that a lot of actuarial information isn’t really what we thought it was. We just learned a lot about the mathematics of subsets and how they do not scale. We just learned a lot about the “dynamic stochastic equilibrium model,” in that the world is not equilibrial or efficient, but disequilibrial and innovatively equilibrating, as it consumes new opportunities, not as it efficiently produces desired effects. We learned that none of these devices is a substitute for individual human knowledge.

    There is little difference between “complex financial instruments” and “herbal remedies.” The consumer, and most of the time the manufacturer, think that these things actually work. There were volumes of literature saying that financial instruments would, and much less volume produced by Austrians saying that they not only wouldn’t, but couldn’t. So, this isn’t an issue of fraudulent behavior. Restitution is not possible for complex financial transactions. There is nothing left to repossess. This isn’t an Austrian problem, it’s a Knightian-Keynesian problem. Deregulation isn’t an Austrian problem. Knowledge is an Austrian problem. Property implies knowledge, and value expressed as numbers cannot represent that knowledge equally to different people, only experience tagged by reference numbers can.

    So if you want to say that in the constant political warfare between the socialist-statists and the capitalist-libertarians, each who uses the policy of, and conflict between, the quantitative school (mainstream) and the psychological school (Austrian), and that by virtue of that conflict we created a perfect storm, which allowed deregulation while implementing formulae and financial instruments, then that is true. But it’s true because we did not replace regulation with responsibility by requiring retention of risk when using public-financed credit money. In other words, we violated the principle of property, because property requires knowledge. If you don’t know what it is, then it can’t be property. If it isn’t property, then it’s snake oil. If it’s snake oil, it’s not libertarian, it’s just THEFT AND DECEPTION.

    Each of these systems of thought is an interdependent system. You cannot have it both ways. I suppose it is better that we argue over economic productivity and redistribution than that we argue over religion, or of what’s “just,” so perhaps that’s an advancement in human development. But in terms of regulation, it’s simply ridiculous to create a complex web of financial regulation and law to attempt to compensate for the fact that we want to absolve bankers from holding loans that they originate. In other words, the Austrian view is that the state created the problem and makes it worse with regulation.

    Property is a form of REGULATION. So Austrians CAN’T say that are against regulation. Regulation isn’t the problem. It is the kind of regulation that we do. We have created a catastrophe by not regulating violations of property. That violation is that property requires individual knowledge, or it’s NOT property, because it CAN’T be property. We only NEED property because we need to break the world up into little, perceptible bits that can be used to exchange with each other. If we could perceive everything, we wouldn’t NEED property. We can’t perceive everything, so we DO need property. And to have property you have to perceive it. If you exchange something with someone else, something that you don’t understand, you’re selling magic. Magic isn’t property, it’s deception. It’s deception even if it’s self-deception. It’s self deception because you cannot pass the test of personal knowledge.

    Fundamentally, when all is said and done, and when we solve what we loosely call the problem of induction and produce the next version of capitalism, the Austrians will have been the “most right.” Almost nothing we have done in Macro is of merit, except to prove Austrian insights and to fix Austrian errors (”stickiness”). Even the anarchic research program, which is not something we could ever practically implement, has taught us valuable lessons, and it has taught us how easily replaced are state functions. Just as the Marxian program has taught us valuable lessons. Mostly bad ones. But while we continue to evolve our knowledge of cooperating in larger and larger numbers, we need to keep in mind that there is no end of history. Only the practical policy of the moment. Management of an economy may “thrill the intellectual’s mind,” as Hayek said. Because it gives his fantasy a chance at reality. However it’s a fantasy. It always will be.

    Source date (UTC): 2019-08-16 09:03:00 UTC

  • **IEA BLOG: UK LIB DEM’S AND ‘TEN YEARS OF SUBSTANTIAL UNEMPLOYMENT’** April 20t

    **IEA BLOG: UK LIB DEM’S AND ‘TEN YEARS OF SUBSTANTIAL UNEMPLOYMENT’**

    April 20th, 2010

    I love reading the UK press, because by and large, the quality of discourse is far beyond that of what occurs in the US. I posted on the IEA Blog, this response to the statement that, coarsely written and paraphrased here as ” Yes the Lib Dem’s may achieve power, but anything is better than ten years of substantial unemployment.” I’m a little cautious about sounding like a critic when I actually think that the IEA produces great thought. But it is far less work to criticize a good idea, than it is to refute an ocean of fantasy and ignorance. Hence I apologize if I come off a critic rather than an advocate.

    Unemployment results from the government’s confusion between consumption and production in that they assume that consumption is equal to production. Their policy of general liquidity that diverted capital from production to consumption and created both recursive asset inflation, and a reduction in competitiveness. This is the broken joint in Keynesian logic. It assumes that increasing liquidity can be put to increases in production. Production means that an activity increases output while decreasing man hours, and costs. The problem for any state is to put captial, not behind consumption, but behind increases in production that cannot be achieved by the private sector.

    … This concentration of capital will create new jobs, and ongoing competitiveness, from which redistributive capital can be siphoned. Private sector production increases will lead to some unemployment. Uncontrolled breeding and immigration will lead to unemployment, and particularly disadvantage second quintile workers. (A step above the bottom). So the state can divert this process by participating in funding international (export) competitiveness. The state must adopt a policy of investment, not liquidity or redistribution. Because only investment allows redistribution.

    (And the government, which consumes such a vast amount of GDP is simply a redistributive system.)

    A free market is a bounded market, because there are LIMITS to private investment. Since all borrowing is, under fiat money, borrowing from the middle and lower classes, and they (as we have just demonstrated) carry the risk of borrowing, then the reward for that investment should be returned to them. As such the state should borrow to create productivity increases (power, transportation, technical innovation, resource exploitation, and education) and return a portion of the profits to the citizenry as redistribution. Laissez faire both puts the citizenry at risk without reward, concntrates capital in the hands of a state sponsored class, and deprives the citizenry of opportunities.

    That is how to prevent ‘ten years of very substantial unemployment’. The party that accomplishes it is meaningless. THe party that ignores it is meaningless.

    Source date (UTC): 2019-08-16 09:00:00 UTC

  • **IEA THINKS TAXIS ARE NOT A PUBLIC GOOD** April 17th, 2010 Over on the IEA Blog

    **IEA THINKS TAXIS ARE NOT A PUBLIC GOOD**

    April 17th, 2010

    Over on the IEA Blog, Eric Masaba asks the question: Why do black cabs cost more than Concorde?

    I couldn’t point out ALL the holes in this article, because the IEA blog limits the number of characters per comment. I find the argument for the virtue of brevity a ‘cute’ one because affirmations are the most brief of comments, while refutations are the longest.

    The state subsidizes the ‘Black Cabs’ of London.

    Hackney cab drivers inexplicably enjoy a rule stating that no one else can describe a taxi service as a “taxi” in their marketing, and the important restriction that no one else can pick up passengers on the street. These regulations have deep historical foundations, dating back to the days of Dick Turpin. In today’s world, they are anachronistic, anti-competitive and pointless.

    London cab drivers are a pleasure to deal with. They are an intrinsic part of the tourist trade. The Danes pay an entire social class to stay home so that the average clerk in a train station is educated, literate, well mannered, and a pleasure to deal with.

    When there are price comparison sites for insurance, airlines, hotels, holidays and office supplies, where we can buy the same product from a myriad of suppliers at different prices, how is it that there are very strict rules requiring that Hackney drivers receive a minimum wage for every mile driven yet private hire drivers do not?

    Because the market is an unlimited physical space and the streets of London are a limited physical space (and the tube is a monopolized space. And therefore Cabs require a very simple set of regulations in order to maintain quality.

    Why is it good for certain stripes of taxi driver to be able to oblige people in London to pay higher rates than the market would support if such a law was not in place?

    Why is it a good for the state to regulate any kind of competition?

    Why do the same drivers, who expect to be able to choose what clothes they wear (and how much they pay for them) and which airlines and car insurance firms they use, want to deny travellers in London the basic freedom to choose another vehicle service they can hail at the airport or on the street?

    They don’t. You can hire a car from the airport. You just can’t pick someone up on the street.

    If people want to pay for the superior knowledge that the Hackney drivers clearly possess, they will do so. If they do not care, they will find cheaper alternatives until the market has informed the black-cab community what customers really think and what price they are willing to pay.

    They are not paying for the knowledge. The state is using a knowledge criteria to create a hurdle for market entry. Just like they do for just about every kind of specialist.

    Many people are disgusted with the special treatment bankers received, but through the price controls and regulations on taxis in London, transport markets are being distorted to favour one type of vehicle provider.

    Bankers recieved special treatment because the state printed money without regulating it and forced banks either to compete for profits or to go out of business. This process of moral hazard created large banks that are pseudo governmental agencies, that were so responsible for subsidizing the national payroll and cash disribution and management system that if they were not rescued then the crash would have been worse. On the other hand, the state CREATED the moral hazard. But it did not have to. The problem has been that creating the ‘rules’ of the fair game in banking (defining the properties of property and it’s rules of transfer) has become extraordinarily complex because the object of definition has become exceedingly plastic. Derivatives and new financial instruments were a new form of property that many of us decried at the time, but that was unregulated because both the state and the purveyors of these new devices foolishly bought the argument that it was possible to insure that kind of risk, and secondly, because

    So, I have to disagree with the IEA’s position. Travel to NYC, Chicago, LA and ask yourself if the London policy is better or worse for everyone involved. And if we subsidize transportation like subways why cant we subsidize Cabs. If price is a concern, then If you want another choice, call a less expensive cab company on your cell phone. Prices aren’t everything. In fact, low prices and full competition in a market often accomplishes the lowest cost service at the lowest quality that is tolerable by consumers, and bars quality from availability within a geography. (Home Depot and Walmart in the US, and superstores versus butchers, bakers and the like in Europe). I am happy that superstores exist to provide additional choice, but only if there is a replacement ‘tax’ for using them by distancing them.

    From this simple analogy of taxis and tubes versus superstores and specialty stores, we can illustrate that reduced prices and a free market within geographic boundaries produce commodities, and thereby prevent societies from capitalizing long term values of aesthetics, choice, and the ’special’ environments we adore across all of europe in favor of a bland, disposable environment.

    We restrain competition in order to raise prices and therefore concentrate capital and we do it in many ways: political subsidy (money transfers like taxation, redistribution, and outright subsidy) constraining the market by qualification (lawyers, doctors and london cabbies), and constraining the market with monopolies (public transportation like Tubes and Buses).

    We unrestrain the market to reverse the concentration of capital and to reduce prices, and we do it in many ways: political subsidy of

    The natural order of man is to attempt to circumvent the market. The free market is a byproduct of the civic republican tradition’s advocacy of meritocratic equality. It is a rebellious movement against the control of markets and the expropriation of wealth by the state. Markets are a solution to corruption that asks us to create fair competition among equals and to maintain that set of ‘rules’ we call “competition in the market”.

    However, the natural behavior of man is to circumvent that market. The means by which he circumvents it are those tools we consider fair market competition: reducing prices, increasing choices, advertising and marketing. Not all cultures have taken this route. In fact, in history, the free market is an exception that concentrates wealth in hte hands of the monied, productive and creative minority. THis concentration benefits all by decreasing prices for nearly everyone. It limits the power of capitalists as long as there is enough money in circulation to create inexpensive competition.

    But since the culture or state determines the definitions of property (the means of calculating the use of opportunities to act) the rules for any ‘game’ are particular to that game. Rules are not universal to all games. They are plastic. And this comparison of Taxis to Tubes is perhaps one of the best ways to illustrate that these rules are inconsistent.

    But what may not be obvious is the DISTORTION that is created by the myth that rules must be equal for some things and unequal for others. Or, that lowest prices are the ultimate virtue to be sought by economsts and political economists.

    As a libertarian, I care that the choices available to me are not constrained by

    Concentrating capital attracts talent to the private sector where it is skimmed by private individuals, and those who lack talent to the public sector where it is skimmed by bureaucracy. Yet this is what most cultures seek to impose: expropriation by the bureaucracy.

    WE also constrain capitalists, and unconstrain capitalists. Capitalists can temporarily distort a market by applying capital that profits one company or anotther, requiring competitors to rely upon capital or depart. They can do this by simply extending debt, so that prices may be decreased in the anticipation of driving competition out of the market, and later increasing their share of the market as these competitors disappear. the problem with this technique is that talent accumulated in the industry is sometimes forced out. Niches are abandoned (the wall mart and home depot effect).

    The state acts like a disruptive capitalist creating temporary price decreases in return for decreased niche services, and in doing so makes it impossible to concentrate capital in niche excellences. It makes it impossible to subsidize a public good: choice of the more expensive, better, prettier.

    The purpose of the London cabbie is largely to create a public ‘good’. It enforces quality so that quality personnel can afford to work in the industry (rather than the horrid service, delivered by the filthy, ignorant and incompetent in US cities).

    Prices would drive down quality, and all that will happen is that you will need additional regulation to managed an impoverished and corrupt network of marginal businesses that deliver cheap but intolerable service that prevents quality competition from competing in the market.

    If you are willing to spend money on the tube. You have no argument against spending money to maintain a quality system of taxis. Just because market mechanics are POSSIBLE for taxis and IMPOSSIBLE for tubes, that doesn’t mean that taxis are not serving the same function as tubes.

    Lowest costs does not generally create a good. It creates a marginal enterprise.

    Aesthetics are forms of capital that are perhaps, the best investment that any civilization can make.

    For a country like the UK, whose history is an industry, you’d think that such a principle would be better understood. For a country that is creating demand through immigration, cash by selling off it’s assets, and the illusion of prosperity by dilution, inflation and redistribution, rather than by increases in productivity, it is understandable why a myth of exceptionalism would be a useful distraction from the fact that the UK is selling off its exceptionalism and it’s heritage, and would do even more so along with it’s taxi subsidies.

    Prices alone do not a world make. The purpose of the market is exploration. The purpose of unbridled market is prevent government exploitation. THe purpose of the regulated market is to capitalize SOMETHING for a social good. And not all social goods are consumables. Some social goods capitalize distortions to create beauty, which is a high return for a society, as all monuments, arts and architecture demonstrate.

    So, instead of universally pursuing consumption as an ultimate good. Instead of the keynesian virtue of spending. Perhaps we should balance our capitalist strategy with the art of saving. It took english civilization a very long time to create a culture of saving, and the institution of interest, so that the middle aged could save until they were old, and the old could lend to the young, in a virtuous cycle of investment that distributed the risk of long term calculation across a vast number of people, and wherein retirement security was an insurance scheme for the underclass rather than a mandate of the majority. This virtuous cycle was undermined. Perhaps we should return to it, and to other forms of capitalizing our civilization, so that we leave something behind for our heirs rather than the record of a visitation by locusts.

    Subsidizing quality is the entire point of aesthetics and the arts. And capitalizing everything from street signs, to cabbies to historic buildings to libraries and museums is an antidote to anti-historicism.

    Source date (UTC): 2019-08-16 08:57:00 UTC

  • **YES WE COULD HAVE PREVENTED THE SUFFERING OF CITIZENS** April 14th, 2010 Rebek

    **YES WE COULD HAVE PREVENTED THE SUFFERING OF CITIZENS**

    April 14th, 2010

    Rebekka Grun, on The Growth And Crisis Blog writes that we could have protected the consumers rather than the banks, in her posting

    Conditional Individual Bailouts – a Potential Anti-crisis Instrument

    Why not save the individuals that went bust rather than their banks? Unconditional bailouts, of course, would generate the wrong incentives (for the banks as well, by the way). It is therefore important to attach smart conditions to discourage free riding. For example a course in financial literacy and commitment to a program of (maybe painful) debt restructuring, and possibly further measures to improve the education or health of the affected individual or family.

    Your sentiment is correct even if you haven’t done the math on it.

    In general terms, there is a simply technique for doing exactly what you’ve suggested, but we lack the infrastructure for it.

    The arguments against the solution at the time were that we didn’t know how far prices would fall (I’m not sure, I think we were about right), and that it would make very visible that the government was the source of the problem (true), that it would have geopolitical impact on the value of the dollar (of course, but so would the alternative), and that it could be unfair to people who had behaved well (that would be fixable), and that it would encourage a bubble (this is false).

    The primary problem with distortions is that the distortions are in PRICING. Libertarians would call corrections ‘repricing’. The problem is that human beings must suffer a great deal and absorb a lot of stress to conduct that ‘repricing’. When the state, as the creator of the distortion by the manufacture of cheap credit, could easily reprice major (home) assets by repricing the DEBT of those assets.

    In other words, we could have easily corrected the economy by bypassing the banking system, and giving money directly to the citizenry as buy-downs on their mortgages, which would have provided them with cash to spend or to put into banks. Doing this is fine if you do it FAST.

    In other words, the state created both the BOOM problem and the CRASH problem because it relies on the irresponsible tool of providing general liquidity – easy money.

    In hindsight this is more obvious than it was at the time. Those of us who made this recommendation were the smaller voices, because the banks and the financial industry were so terrified and the impact on the economy if they failed, so severe.

    The problem for our country is to put this system in place, so that we are insuring citizens AGAINST their bankers, so that we can use the market to PUNISH bad bankers and their investors, rather than the citizenry.

    I’ve worked the mechanics of this process out in some detail, and it’s quite simple. It’s just novel. And it’s anti-bank. And that makes it dangerous to a lot of people in one of our biggest industries: finance.

    Source date (UTC): 2019-08-16 08:42:00 UTC

  • Mmm…. This isn’t quite true. Employee contribution follows, like all things, a

    Mmm…. This isn’t quite true. Employee contribution follows, like all things, a power law, with very few making a meaningful difference. It’s not their value you’re recommending they capture, it’s maximizing rents by blackmailing employers into cost of acquisition and training.

    Source date (UTC): 2019-08-14 14:49:34 UTC

    Original post: https://twitter.com/i/web/status/1161651081069420546

    Reply addressees: @david_perell

    Replying to: https://twitter.com/i/web/status/1160647359283564544

    IN REPLY TO:

    @david_perell

    Employees don’t know how valuable they are.

    Recruiting is hard.

    It’s expensive and time consuming.

    When a company finds a good employee, they’ll fight to keep them.

    Ask for the raise.

    Original post: https://twitter.com/i/web/status/1160647359283564544