Sunday, November 29, 2009

Lack Friday

It is time for the Keynesian economists to predict disaster in spite of their pronouncements that the economy was finally recovering. They announced a fragile recovery and a jobless recovery. Then "Black Friday" failed to occur. The single biggest shopping day of the year happened without the massive crowds normally associated with that day.

Retailers were reporting that conditions were basically the same as any normal business day, and that by early evening the stores were fairly deserted. Although there were shoppers seeking good deals on high end items, it appeared that they were shopping for replacements for worn appliances, and not purchasing items like plasma televisions and other luxury consumer goods.

As is preached by Austrian economists, people are saving their money because they are in a recession. Many businesses look forward to "Black Friday" and the rest of the holiday season, as Christmas shopping helps sustain the businesses through the rest of the year. If the 2009 Christmas season fails to provide the profits usually associated with Christmas shopping many of the businesses that depend on it may not make it through the rest of the year.

The Keynesian solution is more stimulus. The message among those in political circles will be that people aren't spending enough.

People are saving money because it is the sensible thing to do, especially in economic hard time. The official unemployment rate is around 10%, the unofficial (and more accurate) rate is aroudn 20%, and the rate among 18 - 30 year olds is 50%. The money isn't there to be spent. Going further into debt is the very last thing peole need to do right now, even if the banks were lending.

If "Black Friday" i an indication of things to come, the situation is more accurately described as "Lack Friday". First the stores will lack customers, and then thanks to government efforts to remedy the situation the people will lack money and freedom.

Sunday, November 22, 2009

Economics for Scientists

The relationship between the social sciences and the natural sciences has always been a little strained, with social sciences constantly seeking the approval of the natural sciences. The social sciences cannot use the same methodology as the natural sciences, which causes too many natural scientists to look on the social sciences as having little to value.

That is not to say that all social sciences suffer from this problem. The sciences of anthropology and archaeology are quite well accepted, and psychology mostly so, but too far beyond that and the value, as seen by a natural scientist, diminishes rapidly.

Some of the fault for this does lie in the social sciences themselves. If one is to study psychology, the basic courses are more of a history of psychology, where each theory is studied, and then the refutation by the competing school is offered. An equivalent in the natural sciences would be for a physicist to have to study phlogiston and for a biologist to have to study the four humours. They are valuable in a history of science class, but have no actual value to someone seeking to learn science now.

Some in the social sciences feel the problem is that the issues studied aren't expressed mathematically. This is the solution adopted by Keynesians, and since that ideology is currently dominant other economists who wish official approval adopt the practice of trying to express everything in number. This includes some factors that cannot accurately be measured, such as "consumer confidence" or "satisfaction."

There is an aspect to Keynesian economics that would appeal to engineers, in that the Keynesian economic model present society as a machine, and if a certain input is inserted at one end a certain end result comes out of the other. But that alone doesn’t make Keynesian economics scientific.

The underlying basis of science is "does it work." That may sound like a strange stipulation to a person who read "Pragmatic Politics" but unlike the pseudo-pragmatists, when a scientist says "does it work" the scientist is operating from a specific premise. "Pragmatic Politics" also argued that any time someone asks that question they person asking it is acting from a particular premise of what goal the person asking it is trying to achieve. In the case of the scientist, the goal is a theory that accurately describes the real world and can be used to make accurate predictions.

It is said that when Einstein had finished developing his theories, he was quite distressed that as a consequence of his formulas black holes were predicted. He checked his work many times, but eventually came to the conclusion that the data said what the data said. As much as he personally disliked the idea of black holes, the theory was meant to reflect the world and he had to accept it as it was. Later on corroborating evidence was found that showed the mathematics were correct.

That is what made his theories scientific. They were designed to reflect the world, not the way he wished the world to be. They made predictions that could be tested. And unlike the theories that were replaced by Einstein’s theories, the tests showed that the theories accurately modeled the world.

All the currently competing schools of economics make predictions. Keynesian economics predicts that manipulation of aggregate demand can lead to a prosperous economy. Monetarist economics predicts that manipulation of the money supply can lead to a prosperous economy. And both of those have been discredited by events. If a theory is supposed to model the real world, then neither Keynesianism nor Monetarism are theories.

Once a theory has been discredited by the data, continuing to hold to that theory is no longer scientific but an act of faith.

Austrian economics, however, has been validated by events. Although it lacks the mathematics that many consider to be necessary for a scientific theory, an honest analysis shows that the predictions have been accurate. Since it is not the mathematics but the predictive power of a theory that makes it scientific, that means that Austrian economics is indeed a scientific theory of economics.

Although there are those scientists who might initially find it unappealing, if they emulate Einstein they will reluctantly embrace it because of its verified predictive power in spite of whatever political ideology they hold.

Saturday, November 14, 2009

One Healthcare Reform

Proponents of the current healthcare reform proposal in congress like to accuse critics of not offering any alternatives, of only opposing without offering anything. While that accusation is completely not true, it serve proponents of the fascist system well as a big lie, just as calling it socialist instead of fascist serves as another convenient lie.

Rather than dissect any particular part of the fascist bill, a refutation of the false charge that critics offer nothing is also useful. The reason the proponents say that critics offer nothing is because only big government solutions are allowed to be considered. Anything else is not a "constructive proposal" and thus they can get away with that big lie.

In spite of the psychological block against small government proposals being considered, it is always useful to suggest as many small government solutions as possible. That way the next time someone says that critics of fascist health care never offer solutions the critics can respond with "look at all the solutions I've offered that you refuse to consider."

Given the large number of problems, any single solution fails to address the full problem and appears short sighted. But one aspect is all that can be addressed at once.

One of the problems with the current system is that the patient is not the customer. When a doctor treats a patient, the patient isn't the customer. The insurance pays for the visit, and so the insurance is the customer. And who is the insurance company's customer? Since most people get their insurance through their employer, the employer is the customer and not the employee. It is true that sufficient employee complaints can cause an employer to switch companies, but the customer of the insurance company is the employer.

For a truly responsive insurance company, the patient needs to be the customer of the insurance company. For truly responsive health care, the patient needs to be the customer of the doctor. The only remaining question of this particular solution is how to make it possible. As proponents of fascist health care are quick to point out, the average person cannot afford a catastrophic illness.

The first part of the solution is to transfer the tax incentive for the purchase of health insurance from the employer to the employee. That way, unlike the Obama plan, people have a positive encouragement to purchase insurance instead of a punishment for failure to purchase insurance. Persuasion always being preferable to force, encouraging people to purchase insurance instead of punishing them for failure to purchase insurance is a better solution.

To make insurance affordable enough for a person to purchase it, the price needs to be brought down. That can be done through coercion or through encouragement. To do it through encouragement the best way to do it is through removing the rules that prohibit insurance companies from competing across state lines. Putting individual insurance policies in the hand of the customers while simultaneously increasing the number of companies and policies available, while giving people a tax break for purchasing insurance, will drive down the cost to the point where most people can afford it.

Another way to make insurance affordable is to remember that insurance is supposed to be for the unusual event. The way health insurance currently operates is absurd - it is comparable to using automobile insurance to pay for basic tune-ups, or even to pay for putting gas in the car.

Analyzing a standard insurance statement or doctor's visit statement, one finds that in general a large portion of a standard bill is an insurance negotiated adjustment. Another large portion is the patient co-pay. The smallest part is the payment the insurance company makes to the doctor. Ask most doctors what their cash price is and it turns out it is actually lower than the stated price for a visit.

People need to pay directly for office visits, and a good way to do that is through tax deductible healthcare savings accounts. But not the HSAs currently in use, that have an end of year use-or-lose for the funds. What is needed is a roll-over HSA, that allows people to put in more funds than needed while healthy so that the funds will be there many years later when people need more healthcare funds. This is similar to using a retirement savings account. In order to encourage use of a roll-over HSA account funds put into it should be tax free, just as in the current annual HSA.

That will give our current healthcare system another thirty years of operation before it gets as bad as it currently is.

Saturday, November 07, 2009

The empire cripples itself

Recently there was a story in the Army Times about how youths in the United States are generally unfit for military service. Too many potential recruits are either insufficiently educated, physically unfit, or have criminal records.

It is quite interesting because these youths are the products of government run taxpayer funded schools. Theoretically the government would want a population that is fit enough for military service, and as such would ensure the government run schools would provide a population that is smart enough, fit enough, and motivated enough to serve in the military.

This is one of the fundamental flaws of empire. On the one hand empire needs a population that is fit, intelligent, and motivated, so that these people can serve in ways necessary to administer the empire over other people. On the other hand, due to the repressive nature of empires back home, the empire needs a population that is under-informed, docile, and apathetic. It is very difficult to achieve both of those goals at the same time.

It is true that there is a way out of the dilemma, and that is to have a very militaristic educational system that emphasizes obedience above all else while educating in the basics of reading, writing, and arithmetic. But that is not what happened in the United States. With the emphasis being on not educating the public, the result is a public that is functionally illiterate. Michael Jackson’s funeral has more public interest than Ron Paul’s Audit the Fed bill.

It’s clear that the emphasis isn’t on education, even though nobody in the education system (other than John Taylor Gatto) will ever admit to such. It is clear because you hear complaints about “teaching to the test” and complaints about people entering the work force unqualified. Many college have a basic skills department to remedy the lack in even reading and arithmetic among entering students. If there really was a desire among the leadership in this country to produce an educated public, it could be accomplished, so therefore one must logically conclude that desire is not there.

Small wonder that among those who do seek employ in the government, too many of them are more than willing to abuse their position instead of think about the responsibilities of their position. More and more it is becoming apparent that while prosecutors have the necessary specialized knowledge of law to perform their job they have no knowledge about the philosophy of the laws they enforce and never stop to consider the ethics of their actions. More and more it is becoming apparent that too many police are no longer different from the criminals they are supposed to stop and are instead merely criminals with official permission to act. Just as the education system fails to provide soldiers, it fails to provide police.

Among the fields that require extensive thought, many of the engineering and medical students in this country are students who grew up in foreign countries and are now studying in the United States. Engineers and doctors study the humanities, but very few in politics have studied even the rudiments of science.

An empire will fail either because the public will not tolerate the domestic abuses needed to maintain an empire abroad, or because the public is too apathetic or unfit to maintain the empire abroad. It is clear which of these two paths has been chosen by the United States government.