EconomicsJunkie

I just wanted to post the moving and instructive 11 part series about Gordon Kahl, a tax protester and victim of pure evil and corruption. I wanted to write a brief indroduction about how people don’t want to see the violence of the state they live under and how maybe something like this story will at least give them a little bit of a different perspective on things. But that brief introduction took on a life of its own and is now a solitary post about childhood scar tissues. Who’da thunk? :)

Anyway, here’s the documentary:

People’s perception of government and religion is quite an interesting phenomenon.

Not so much with the younger generation (and by young I mean the young at heart, meaning those who are curious, open-minded, self-searching, truth-seeking, and still capable of rational thinking), but definitely with those whose minds have stopped accepting new or alien ideas and whose only aim it is to jam every concept and observation into their immutable and eternal mental box.

The scar tissue of an abusive childhood remains so long as one does not confront it openly and honestly. All of us have been subject to moral corruption at one point or another in our childhood. Bullying parents, teachers, and priests are those who lay the groundwork and fertilize the soil for obedient and irrational adults in the future.

To most of us, the fact that those who preached to us when we were young were morally corrupt individuals of the first order, is probably one of the scariest and most challenging things to admit. The more emotionally offended and upset one gets when confronted with such ideas, the more likely it is that he is suffering from this scar tissue. But from this unfortunately follows that those who have been most brutally corrupted, are actually least likely to confront their past!

This is why, when people exalt the imaginary concepts of the state and of God, all they really seek is justification for the irrationality and mental or even physical abuses experienced in their childhoods.

For if the state’s brutal depredations of mass murder and mass-theft are justified, then surely the moments when your mommy snapped and hit her completely powerless little one, or when daddy took your favorite toys away from you, were all comparatively minor and necessary means to getting you back in line … right?

If the faith in an all-knowing yet all-powerful, non-material yet conscious, living yet never born or ceasing, murderous yet virtuous, and thus completely contradictory and unproven entity is rational, moral and beyond questioning, then surely the moments when your parents told you to “Shut up!”, “You do what I say, not what you think is right!”, “Don’t ask!”, “Don’t think!”, and the like, were just consistent applications of the superiority of faith over logic and empirical evidence … right?

There is no better way to break a the development of a curious and reasoning spirit!

Thus, when you outline to such scarred people the rather simple truths as to what it is that people who call themselves “The State” actually do day in day out, that they obtain their resources from people by shooting them if they resist the collection thereof, you will always confront immediate denial and aggressive rejection and complete ridicule of the idea. This is as sure as night follows day.

When you press people who suffer from religiousness on very simple logical and empirical inconsistencies and shortcomings about their belief in God and other superstitions, you can expect very similar reactions.

(To be sure: I am not saying this to offend people. Quite the opposite! I fully appreciate and understand that it is asking a lot of somebody to give up concepts that have served as the foundation of one’s entire world view. In fact, I am not sure there is a harder thing one could ask of somebody!!)

But it is impossible to evade simple truths. People will bombard you with everything conceivable to try and bend reality and justify the unjustifiable, reason out the unreasonable. They will come up with ten different tangents, all with the objective to get off the topic at hand as quickly as possible.

Why is that? Because they are in their subconscious not talking about “The State”, or “God”. They are talking about their childhood, their family and other authority figures who have molded and whipped their minds into obedience and conformity.

To them, it is not about discovering the truth. Their entire quest for supposed understanding, philosophical thoughts, and political positions are centered around the justification of the injustice and the reasoning for the un-reason that they suffered in their upbringing and their education.

Keep this in mind when talking to pretty much the majority of people around you. They will never be open to dealing with serious questions in a logical and consistent manner until they have dealt with and found closure about the injustice and irrationality that have dominated their own upbringings.

This is the Communist Maifesto’s 10 point program (from Wikipedia), I marked in green all those points that the US federal and state governments can proudly check off on:

1. Abolition of property in land and of all rents of land to public purposes.

2. A heavy progressive or graduated income tax. [x] DONE!

3. Abolition of all right of inheritance.

4. Confiscation of the property of all emigrants and rebels. [x] DONE!

5. Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly. [x] DONE!

6. Centralisation of the means of communication and transport in the hands of the State. [x] DONE!

7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of wastelands, and the improvement of the soil generally in accordance with a common plan.

8. Equal liability of all to labour. Establishment of industrial armies, especially for agriculture.

9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country, by a more equitable distribution of the population over the country.

10. Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production. [x] DONE!

Good job comrades, 5 points done, only 5 more to go!

I want to follow up on something Marc Faber said the other day in the second clip.

He said that it is true that private credit is contracting, but it is being offset by a government credit expansion.

Let’s examine this suggestion a little more closely.

I regularly publish the total contraction of total private loans and credit:

This is, however, only a subset of the total credit picture. What is missing are things like corporate and government bonds, and probably some other non financial obligations.

The most comprehensive data on the total of pretty much ALL credit issued in the US is really the Federal Reserve’s Flow of Funds Report, in particular the subsection “Level tables”.

The current flow of funds report can always be accessed here and for March 11, the latest release shows us the following:

Based on these numbers we can see that total credit, when measured across all sectors, has indeed been declining throughout 2009, by roughly $466 billion, in spite of a massive ramp up in public debt.

This simply shows us the magnitude of the deflationary forces in action.

I would also add to this that we could easily double the total credit outstanding above if we included the federal government’s Medicare and Social Security obligations which nominally amount up to $43 trillion and will never be fully paid back. There is no official number to track for this since these obligations are not reported on any balance sheet and are not traded on any markets. Thus we can only assume that their present value is declining by at least the current rate of decline in the remaining credit volume (about 0.8% through 2009).

This would bring the total contraction in credit up to around $810 billion through 2009.

I’m also not sure to what extent other municipal and state pensions are covered in the flow of funds number, but I rather doubt they are included at all. A lot of those lavish union pension plans are going to have to cut back on their commitments soon, probably the next big events to shake the markets, along with commercial real estate defaults and property values declining.

And last but not least, it is rather unlikely that the current numbers are all marked to market. Government regulations across the board have ensured that banks and corporations can be rather creative in their reporting.

Either way, all this is a rather strong indication that Marc Faber’s assertion may not me correct.

Once in a while you can observe a few minutes where people on mainstream news speak the truth. I treasure these moments …

Part 1: Mish & Faber discuss market outlook and see value in Japan

Part 2: Mish & Faber on Inflation or Deflation

In case you care about my humble views in next to these two brilliant titans, read my Inflation & Deflation Revisited.

Part 3: Mish and Faber agree “It’s too late to fix things”

True GDP Q4 2009

True GDP in Q4 2009 has fallen to $10,655 million gold ounces, a 15.2% drop from the previous quarter.

True Consumption as Percentage of GDP

The true consumption ratio will need to come down significantly before a true alignment of resources in the production structure toward a recovery will be possible.

A close up to the years 2000 through now:

Government stimulus and bailout programs since the beginning of 2008 have fundamentally accomplished one thing: The ratio of the production of consumer goods versus factors of production has been bumped up for a little while.

Road to Recovery?

Contrary what the government says, they have not lead us onto a “path to recovery”. In fact, they have done the exact opposite! They have used all means at their disposal and all the force and dedication in the world to pull us away from this path.

This is the outcome of all the corporate bailouts, the cash for clunkers program, the 10,000 tax credit for homebuyers and what have you. Instead of abstaining from producing overproduced consumer goods and re-aligning toward capital goods, businesses have thus continued to produce excess trash and continued to engage in overly risky activities.

The payback for supporting this nonsense will be a double dip recession, Uncle Sam sends his regards.

The true money supply has dropped by $72 billion from $2,253 billion in January to $2,181 billion in February 2010.

The annual growth rate has again leveled off to now 5.5%.

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Time to examine some stuff written by a guy whom some people apparently call an economist:

I hear through the grapevine that the usual suspects at the WSJ have put out something along the lines of “Krugman says that unemployment benefits won’t raise unemployment, but in his textbook he says they will, neener neener.” Are they really that stupid? Probably not — but they you think that you, the reader, are that stupid.

My comment:
I think last part was supposed to be a sentence. I must assume that the guy who wrote this was in quite a rage over some unspeakably mean and cunning accusations pointing out inconsistencies in his “philosophy”. Thus he should be exculpated for such minor typos. This, however, does not in the slightest exculpate him for the actual crapload of “content” he fired off thereafter. I will for the most part not attempt to refute any statements made. For this would necessitate the existence of statements. The author obviously tries to avoid making any. For the most part he neither utters truths, nor falsehoods, but instead indulges is “un-truths”. (An un-truth is a claim that in itself defies the existence of truth. One can accomplish making such statements by using undefined terms. Example. If I say dooory and glooory makes fooory, then I have uttered an un-truth. I was asked by a reader to clarify which terms I consider undefined in this piece.)

But anyway, maybe this is a good time to explain the difference between determinants of the NAIRU — the minimum rate of unemployment consistent with a stable inflation rate — and the determinants of the unemployment rate at a point in time.

MY comment:
OK, since the author uses the term inflation without any further elaboration, I must assume that he has dealt quite a big deal with the phenomenon of inflation and is well aware of the only useful definition of inflation, meaning an increase in the supply of money and credit. I must thus assume that he does not fall prey to the completely arbitrary definition of inflation, namely the average price increase composition of some goods that some bureaucrat decided to consider.

That being said I am not sure what he means by “the minimum rate of unemployment consistent with a stable inflation rate”. He seems to be asserting there is some logical inverse linkage between inflation and unemployment, at least that’s my guess. I hope he doesn’t consider such constructs as the Philips curve in any way supportive of this claim, given that its validity has been long refuted. However, he doesn’t elaborate on it further so this statement of his remains, for now, unexplained and arbitrary.

So: there are limits to how hot you can run the economy without inflationary problems. This is usually expressed in terms of a non-accelerating-inflation unemployment rate; yes, there are some questions about whether the concept is quite right, especially at very low inflation, but that’s another issue.

My comment:
What is he taking about here? Again, I have to resort to guesswork.
What does he mean by “there are limits to how hot you can run the economy without inflationary problems” ?
What are those limits? What, in fact, is the unit in which I measure those limits?
What is “hot”?
Who is “you”?
What does “to run” the economy mean? In fact, what is the economy? Is it the market? But then who is that “you” who “runs” the market? The market is, by definition, not run by anybody, but is a system of multiple elements interacting as an organism, not an organization! So it is not “run” by anybody.
And then he says “there are some questions whether the concept is quite right”. If that is so, wouldn’t it make sense to resolve those questions first and establish the truth of a hypothesis you are applying to fundamentally support your reasoning?
And still I see him use the term inflation quite a lot without ever having told me what precisely it is, what it’s caused by, and what its valid relevance is when talking about unemployment.

Everyone agrees that really generous unemployment benefits, by reducing the incentive to seek jobs, can raise the NAIRU; that is, set limits to how far down you can push unemployment without running into inflation problems.

My comment:
What? Again, who is “you”? Is it the President? The central bank chairman? God? Who “pushes” unemployment. In fact, what does it mean in the first place?

But in case you haven’t noticed, that’s not the problem constraining job growth in America right now. Wage growth is declining, not rising, and so is overall inflation. A wage-price spiral looks like a distant dream.

My comment:
The author is right on one thing: Inflation is declining and has been for a while. In fact there is no inflation, there is deflation. And it is the only thing that can bring about a true and sustainable recovery. The only problem is, those who produce money and to some extent credit are trying to slow down or even stop deflation.
Now, I am unsure as to what this has to do in any way with his assertion that unemployment benefits reduce unemployment.

What’s limiting employment now is lack of demand for the things workers produce.

My comment: This is quite a strong statement to make. I wish this ivy league professor could deign to explain to us what he means by “lack of demand for the things workers produce”. Could he give me some real life examples? Does he actually understand what the purpose of prices is?

If a “lack of demand”, meaning the deliberate desire of some individuals to consume less and thus a perfectly valid choice, were the cause of unemployment, then the solution to this problem would be for those who produce those “things” to drop the prices of the goods offered so as to entice marginal consumers to purchase the goods in question.

If the author refers to the lack of profitability of such measures then it would indeed be better for those workers to stop what they are doing and find occupations that are more useful from the consumers’ points of view. This is the whole purpose of the mechanism of entrepreneurial profit and loss. Unfortunately the author nowhere delves into such annoying questions and thus leaves us nothing but a giant hole of nothingness.

Their incentives to seek work are, for now, irrelevant. That’s why comments by the likes of Sen. Kyl are so boneheaded — anyone who thinks that high unemployment in the first quarter of 2010 has anything to do with workers getting excessively generous benefits must not get out much.

My comment:
And so as a conclusion the author declares that the whole disincentive rooted in the provision of money taken from one person at gunpoint and supplied to another person for not working is simply irrelevant. I’m sorry, but this does not convince me in any way. Are you convinced??

And the truth is that unemployment benefits are a good, quick, administratively easy way to increase demand, which is what we really need. So right now they have the effect of reducing unemployment.

My comment:
How exactly do unemployment benefits “increase demand”. Wouldn’t it be helpful to try and explain the supposed mechanism at work when trying to advance such an argument? How precisely does it increase demand if I tell someone to give me $50 or else I will shoot him and then I hand it over to someone else who needs to prove to me that he is not working? And please don’t you tell me you think that the unemployed person spending the money will increase demand. That money has been taken from another person whose demands will be reduced by just that same amount! What it does indeed do is reduce the output of goods, which is the worst thing you can do for the well being of the people!!

I’m sorry to appear so nitpicky. I was asked to comment on this piece of crap and point out what I consider undefined terms so that’s what I did.

If we want to debate concepts clearly, I could simply sum up Krugman’s main point in one or two sentences and refute it with ease. But that is not how he rolls. He tries to obfuscate his concepts and claims with as many scary and unclear terms as possible and sometimes even just resorts to references to entire papers written by others, so as to make a reasonable debate over real issues virtually impossible.

That’s why I would, in my humble opinion, ask anybody who is genuinely interested in economics and human action to not take his stuff serious. Again, just tune out. There are so many more useful things you can do in your life than wasting your time with articles written by Paul Krugman.

Talk to a friend about truth and epistemology, talk to your mom and dad about your childhood, question people in your life about ethics, concepts, the state, and God, heck … sit in a room and stare at a wall. All these things would be a thousand times more useful than reading one paragraph from this deranged crackpot.