Thursday, February 27, 2014

Economics as Medicine

It is interesting the way people react to various economic proposals on what should be done about the current economic malaise. The two most divergent proposals are those of the Keynesians and the Austrians, with most other proposals being somewhere on a spectrum between the two.

It is interesting because of the disaster that Keynesian economists predict were Austrian proposals to be implemented. If an analogy were to be made between economics and medicine, with the economy being a sick patient, it highlights the absurdity of some of the Keynesian predictions of doom.

Imagine a patient is brought to a hospital with a broken leg. The patient is in pain and unable to walk. Doctor Keynes wishes to give large doses of pain killers, while Doctor Hayek wishes to set the bone before applying a cast. Hearing what Dr. Hayek plans, Dr. Keynes interjects with "There will be a lot of pain while you set the bone. I am interested in treating the patient's pain, your proposals only cause more pain."

Or if a patient is brought in with operable cancer, Dr. Hayek would suggest surgery and a few weeks of recovery. Dr. Keynes would point out that there will be harm caused by the scalpel going in, harm caused to the skin and muscle covering the tumor, and great difficulty for the patient in recovering from the tumor.

These comparisons are absurd, because if the subject were medicine there would be no argument about setting a bone or operating to remove a tumor. But the comparison is also valid.

The Austrian method of ending a recession or a depression is to allow malinvestments to liquidate and to remove barriers to growth. The Keynesian method of ending a recession is to stimulate aggregate demand through fiscal policy, as well as by any other interventionist method since no Keynesian in practice is confined to fiscal policy. Therefore failing industries would be subsidized until theoretically they are no longer failing, and prices that need to fall would be propped up through loose fiscal and monetary policy to prevent the specter of deflation.

Every Keynesian proposal treats a symptom. But what of the actual cause of the ailment? It is the well known "animal spirits", which are not a rational explanation of the cause. Austrian economics, on the other hand, tries to do a diagnosis.

Yes, transition to sound currency and balanced budgets would cause economic turmoil during the transition, and yes some people - especially those who depend on unbalanced budgets and fiat currency - would be hurt. In the long term the short term pain would lead to long term health, like setting a bone.

Thursday, February 20, 2014

Sorry, Republicans, the illusion is gone

Usually the accusation comes from liberals or progressives, that somehow in some undefinable way libertarians are at least allied to conservatives, and at worst are merely a minor variant of the same basic ideology. Even then, it is only the less experienced and less informed liberals and progressives who make that accusation, the rest having found out otherwise and relying on the very lame joke that a libertarian is a conservative that wants to smoke pot.

As a side note, why is it never "a democrat that likes money"?

There are still those who try to compare the two, but after the 2012 Republican National Convention there should be no doubt left of the distance between the two. The way the mainstream Republican Party treated Ron Paul and his delegates showed clearly and effectively that Republicans want nothing to do with those of the libertarian ideology.

Some will protest at this point saying that an unjustified equivocation is being made here between conservatives and Republicans. The problem is, if a large majority of people who self-identify as conservative also self-identify as Republican, and if a large majority of people who self-identify as Republican also self-identify as conservative, then the equivocation is not at this end.

So conservatives, as represented by the Republican Party, do not want the company of libertarians. This has been true for many years, but the 2012 convention established it beyond any doubt. Moreover, it was at that convention where it was announced formally that Representative Paul Ryan would be the Vice Presidential candidate, in a move that was supposed to mollify supporter of Ron Paul. Here are the positions of supposedly libertarian-leaning Paul Ryan:

He voted Yes on TARP.
He voted YES on Economic Stimulus HR 5140
He voted YES on $15billion bailout for GM and Chrysler
He voted YES on $192billion additional anti-recession stimulus spending
He voted YES on federalizing rules for drivers licenses to hinder terrorists
He voted YES on making the USAPATRIOT Act permanent
He voted YES on allowing electronic surveillance without a warrant
He voted YES on authorizing military force in Iraq
He voted YES on emergency $78Billion for war in Iraq and Afghanistan
He voted YES on declaring Iraq part of the War on Terror with no exit date
He voted NO on reducing US troops out of Iraq starting in 90 days
He voted YES on limited prescription drug benefit for Medicare recipients
He voted YES on providing $70million on Section 8 Housing vouchers
He voted YES on extending unemployment benefits to 59 weeks
He voted YES on No Child Left Behind
He voted YES on Head Start Act

So then why is this unexpected attack coming from the other direction? Justin Amash, who should know better, is saying the two ideologies are the same. Not just similar, not just allied, but actually the same. Although Justin Amash is better than the average Republican, he should know better than to make this basic mistake.

It is because, after so thoroughly alienating libertarians, the argument that libertarians should line up behind whatever statist candidate the Republicans are offering has become little more than a bad joke. People aren’t buying that argument. Even progressives are having a tough time explaining what mysterious appeal the current Republican Party should have to libertarians. On top of that, Senator Rand Paul is making things harder for the Republican Party to attract libertarians by endorsing Senator Mitch McConnell over a primary candidate endorsed by the Kentucky Republican Liberty Caucus. Every so often Rand Paul realizes he’s alienated too many libertarians and makes a token gesture to say “don’t worry, I’m still with you.” Then he alienates them again.

The gulf between conservatives and libertarians has become starkly visible. It is visible because the Republican Party has made it visible. So if there is going to be any way to pull the wool over the public’s eyes, it has to come from the Republican Party as well. That is where the recent remarks by Justin Amash come in. Perhaps he actually believes what he said, making him a distinct minority within the Republican Party if so. Otherwise he is trying to recreate a shattered illusion.

Even progressives are having a problem pretending that libertarianism is a strain of conservatism. This is creating a real problem for both the major parties. As long as the Republican Party keeps shunning, insulting, and suppressing libertarian views, supporters of the Democratic Party cannot say that libertarian views belong in the Republican Party. The illusion, shared by both, is shattered.

So Justin Amash is saying the two are the same in spite of them not being the same.

Not only are libertarians consistently against war, not just against it when the wrong person is in office...
Not only are libertarians against the drug war...
Not only were libertarians in favor of gay marriage before the progressives were...
Not only were libertarians in favor of interracial marriage before the progressives were...
Not only do libertarians want to legalize prostitution...
Not only are libertarians even stronger in defense of the 1st Amendment...
Not only do libertarians oppose every single instance of police abuse that libertarians become aware of (which in this day and age can lead to outrage fatigue because these instances are far too common)...
Not only do libertarians want to slash the military budget...
Not only are a super-majority of libertarians pro-choice...
Not only are libertarians opposed to business subsidies...
Not only are libertarians opposed to business bailouts...
Not only are libertarians opposed to corporate welfare...

The real gripe that conservatives and progressives have with libertarians is that libertarians won't admit that libertarians are conservatives.

Tuesday, February 11, 2014

Recession or Depression

Even though economic difficulties continue, supporters of President Obama insist that the Great Recession is over. The problem is, technically they are correct. A recession has a technical definition of consecutive quarters of negative GDP growth. A single quarter of miniscule GDP growth and the recession is considered to be over, so that even if there is negative GDP growth in the quarter after that it is not the same recession anymore.

Of course one could access Shadowstats to argue that there have been continued quarters of negative GDP growth but that only leads to an argument over which set of numbers is more accurate with most conservatives and all liberals trusting government numbers. The real problem is that even though the definition of "depression" isn't as firmly settled as is the definition of "recession", it is clear that the two are not the same.

This is important when discussing the dismal economic situation with supporters of whoever is in office, of whatever party. Supporters of whoever is in office will argue that the recession is over, and that the recession ended during the term of their own person in office. Even though technically the recession ended a long time ago.

The best way to illustrate to supporters of the current administration is with a concept from trigonometry, a simple Sine wave.

Sine Wave photo SineWave.jpg

There are four distinct parts to the wave that can be used when discussing economics. The first is when the value and the slope are both positive, the second is when the value is positive and the slope is negative, the third is when the value and the slope are both negative, and the fourth is when the value is negative and the slope is positive.

Recession would then be when the slope is negative, and growth would be when the slope is positive. Prosperity would be when the value is positive and depression would be when the value is negative.

Understanding it from this point of view can explain why the Great Recession (as it is commonly known) can actually be over, while the negative effects of the Great Recession aren't over, that the United States is still in Great Depression II. It still won't convince any supporter of a current administration, but it might be enough to educate the neutral observer and make the supporter seem foolish in denying reality.

Tuesday, February 04, 2014

Corporatism really isn’t Capitalism

Every so often, on websites like In These Times, arguments are made that appear to be against Capitalism. The problem is, ever time, the detail of the argument isn’t against Capitalism but is instead against Corporatism. The difference between the two should be immediately evident. Yet no matter how often it is explained, those making the argument insist on conflating the two.

It should be easy to differentiate between the two. Although what follows are not the textbook definitions of various economic systems, they serve as a good way to differentiate the various economic systems.

Capitalism – no government interference in the economy
Monetarism – government interference in the economy through manipulation of the money supply
Keynesianism – government interference in the economy through manipulation of fiscal budgetary policy
Corporatism – government interference in the economy through benefits to the wealthy
Welfarism – government interference in the economy through benefits to the poor
Supply Side – government interference in the economy through stimulating aggregate supply
Demand Side – government interference in the economy through stimulating aggregate demand

Of the seven economic systems listed, one of the stands out as starkly different from the rest. Yet it is often inexplicably lumped with various others, most often Corporatism. There is an actual relationship between Corporatism and Capitalism. It is akin to the relationship between a parasite and a host. A host does not need a parasite, and Capitalism does not need Corporatism. But those making the argument are trying to insist that the host and the parasite are the same thing.

There is an attempt to justify such a conflation by saying that one is the natural outcome of the other, that Capitalism eventually evolves into Corporatism. But that does not justify the attack.
Interestingly, those making that argument seldom argue against freedom in other areas. If their argument on Capitalism is to be believed and extended, then tyranny is late stage liberty. Those making the argument are keen to support other areas of liberty, but to reject it in the case of economics. They could be consistent and say that since they believe liberty to be hopeless they do not support it in any area. Instead they support it in all other areas except economics, and say that since liberty is hopeless in economics they choose a tyranny different from Corporatism to replace the liberty of Capitalism.

Rejecting Capitalism on the grounds that it eventually becomes Corporatism should lead the person making that argument to reject free speech on the grounds that it eventually becomes censorship, reject freedom of religion on the grounds that it eventually becomes a state church, reject the fourth amendment on the grounds that it eventually becomes warrantless searches, reject the sixth amendment on the grounds that it eventually becomes secret courts, etc.

The argument is horribly inconsistent. And, after all these years of people pointing out the difference between Corporatism and Capitalism, there is no excuse for making the argument in the first place.