Various Comments on Economics/Posts

I've received quite a few thoughtful comments. Here they are in one handy post!



Shawn,

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Enjoyed the post and the advice from the blog you referenced [Blog post = Back to Basics]... The advice he/she is giving though is the same advice that has been given out since... forever. The end of modern civilization has always been right around the corner. Perhaps I'm more of an optimist. I think it is smart to invest in real things right now as well, but as with any sort of investing the best way to do it is to diversify your investments. The man who put all his money into his bomb shelter preparing for the war with the USSR feels pretty stupid right about now. I don't see the harm in preparing for the worst, that is what the Church's canned food program is all about... What the Relief Society [Mormon women's organization] was all about too, for that matter helping other's in need while providing DIY skills to members.

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There are still good businesses out there. Businesses that make things that people use to do and make thing. Investing in those types of businesses is not a bad idea. I think the key word here is to invest, and not speculate which is what it seems the majority of people have been doing. I laud the end of the consumer age... Now, hopefully the USA can get back to making things of real value and exporting them to the rest of the world! I don't know if this is going to happen now, but it seems more and more people have decided they want a more fulfilling life than the one offered by a cubicle trading 0s and 1s across telephone wires. That they see the world of their grandparents or parents was a better one than the one we have now, the difference? America made things.

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I like a lot of what Ron Paul says, though I fear that the world he wants would soon be controlled by an oligarchy... I don't believe that the market is a panacea to our problems. For more on the libertarian front I recommend Free Talk Live (http://freetalklive.com/), funny enough it was listening to them an reading more about the libertarian movement that convinced me that an absolutely free market would not solve our problems, which I'm sure is contrary to the hosts' intent. Also in the vein of reading baout the absolute worst possible outcome I can recommend http://www.kunstler.com/blog/, Mr. Kunstler is convinced that our grandchildren will be living in a world more closely resembling the one our grandparents grew up in, as opposed to the one we did.

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Sincerely,
JH



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Hi Shawn,

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I played WHFB about a decade ago and stumbled on to your youtube channel by way of some idle curiosity about what had become of the game. I have watched a bunch of your videos mostly because you and your staff are pretty entertaining. From there I also have come to check in on your blog fairly regularly and couldn't resist your invitation to talk some political economy.
I really like when people try to discuss politics openly and rationaly because I think one of the biggest problems in America is an uninformed and disinterested public. That said, just to be upfront, I think we have world views that have some overlap, but for the most part are very different as I am generally fairly far left leaning.

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I wanted to offer a counterpoint to your assessment of the banking industry as parasitic and worthless.

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The finance industry has plenty of big problems which are worth discussing, and I think it is valuable to consider very fundamental changes to the industry. However, reading your perspective, you seem to doubt that banks do anything valuable. I would argue that a basic loan is a very useful service that contributes a great deal to our society. Loans allow people to afford tools (houses, store fronts, cars, factory machines) that are otherwise out of their immediate financial means, but once obtained, these tools increase the people's finanicial means to a level where the tools are more than affordable. These tools can allow them to succeed in ways that are otherwise impossible.

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Allow me a personal example. My only large loans have been in the form of student loans (provided by a bank). My education was something that I could not afford when I finished high school, but once obtained, my education has allowed to be substantially more productive. I now have a good job, and I have not missed a payment on my loans, nor do I plan to. My mother worked as a teacher and a school adminitrator all her life and wouldn't not have been able to afford to send me to college on her own without the loans. While I could have worked crummy jobs trying to save up for school, it is much more efficient for me to have gone to school first, be paying a bit more because of interest, and now be doing much more valuable work. In some way this is thanks to the loans I took.

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In parting, I don't think I am economically ignorant, but I am definitely a lay person. For me, I found the following NPR broadcast (now podcast) to explain the financial crisis in a way that was easy to understand and really concrete and comes from many points of view. Maybe you can give it a listen while you paint some minis and let me know what you think. It's about an hour long.

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http://www.thislife.org/radio_episode.aspx?episode=355
You can get free audio or a transcript from the link.

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Regards,

Michael



Shawn's Response: When you drive a new car off the lot, the value goes down significantly, sometimes to half. The common logic is that somehow the real value of the car is not represented properly in the world outside the dealership. You owe $20,000 for something that now only has a sale-able value of $15,000. The reading I've done suggests that the opposite: when you drive the car off the lot it finds its true value in the real marketplace. The $20,000 price tag was false: created by huge amounts of credit flooding the market. How does this happen? Fractional reserve banking (changing $1 of reserves into $10-40 worth of debt).



I suggest to the reader that things that are expensive (eg a college education) are that expensive precisely because of the credit available to buy them. If a bank comes to town with ten million dollars to loan out, things are going to go up in price.



I can go to Costco, open a line of credit and buy a bike for $200. Or I can buy a refurbished bike for $20 from the local bike repairman working out of his garage. Why the big difference? The $20 is the real value of a used bike. I theorize that the new bike would cost about $50 in the world of no banks.



This is what interests me about the Healthcare thing: the Feds want everyone to have healthcare insurance. You wouldn't need insurance if the prices were reasonable (only for catastrophic stuff). No one talks about increasing SUPPLY to make costs go down. Why is that? We can't train more doctors? Medicine can't be produced more efficiently?



Case in point: when I returned from South America I had a really bad ingrown toenail. The mega-hospital wanted $1200 (no doubt thinking to milk a sweet insurance policy), the local doctor wanted to take $80 x-rays first (all of this out of pocket), and finally we found a local podiatrist (Korean war surgeon) working out of a modest office (catering to the elderly) who did it on the spot, out-patient for $35 paid in cash. To me, that sums up the healthcare issue.



Back to the loans. I have no issue with the loaning of money, only the system which produces the loans. And I could still be wrong on that one. I am trying to get in touch with an expert in the area.

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Shawn,

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Thank you for the thoughtful reply to my ramblings... I wasn't using the word paranoia in its precise dictionary definition but rather the its meaning in popular culture, which is better defined as over-anxious. I certainly wouldn't call putting your house in financial order as paranoid, thinking that the government is just a step away from taking your property though... Inflation is a red herring right now, look at commodity prices, across the board they're all down from last year... We don't have to worry about inflation for awhile yet. Deflation is a greater worry right now and one that can do a lot more damage. If inflation becomes a worry you'll see FED interest rates go up in order to take money out of circulation... Furthermore as Banks pay off their TARP loans (it's already started) that money won't be going back into circulation, but will instead go back to where it came from (nowhere, which is where the value for every currency comes from today.)

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I'm by no means an expert either, and am doing as much reading as possible. Sadly, economics isn't as clear-cut as some of its proponents would like it to be, it is not a science, all the various theories (Austrian, Keynesian, etc., etc.) all have their strengths and weaknesses. Which is why most national economies are a mix.

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When you talk about banking "products" what do you mean? Are you talking checking and savings accounts? Loans? CDs? Or are you talking about the more exotic offerings like derivatives, CDS, and the like? Banks serve a necessary function which is why they continue to exist and evolved out of the needs of mercantile Europe. Like anything though the system can be abuse, which is why banking regulations exist. Over the last 20 years those regulations have been dismantled or ignored allowing for blossoming profits and abuse and our current situation. You mentioned having your foot bit off before, and I'm wondering what happened? What do you mean when you say you don't want to trade your life essence for glass beads?

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I wholehearedly agree with you that you cannot makes deals with Reality or find shortcuts around it, I don't believe though that economics or politics are "natural laws" or a facet of reality... They're artificial constructs shaped by history and the and needs/desires of a culture. The best maps and guides for these sort of things is educating yourself on how these systems work, in real life, not models and how they are used/abused by people. Then get involved and make sure your own voice is heard.

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As always it's been a pleasure,
JH

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Shawn's Response: Life Essense for glass beads means using my time to earn money to pay back principal and interest on money which never existed. Fractional reserve banking. That's my beef.



Now, I have no problem with a company like Paypal. That is more like a service, and I like that. I'm not saying banks don't have a role. With Paypal, I pay a percentage for the convenience and safety of using their service. I like it. I agree to it. I could be rid of them by simply taking only cash, MO or checks.
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Hi again Shawn,

I had some criticisms of your recent blog post. They are intended to be in the spirit of friendly debate, so I hope you take them that way. Thanks for sharing your thoughts, your work, and your good cheer with everyone.

However, as all of the great philosophers throughout history have understood, there is no right to life or liberty without property. In fact, property is part and parcel of life itself.

I think a great many philosophers of a leftist bent would argue that property allows a great amount of denial of liberty, that the labor that you are equating with life is devalued for those that work for pennies an hour. In fact, it seems like quite an overstatement to say that all great philosophers thought that. One great philosopher said, "Sell all that you have and distribute to the poor, and you will have treasure in heaven; and come, follow me." Although perhaps he did not assume a right to life or liberty.

If you are going to mark the Declaration of Independence as a keystone of American principle, how can you ignore equality, as in "all men are created equal," when you pare the document down to its most basic themes? And if you include equality, is the right to property compatible with equality? I think that the founding fathers had a lot of wonderful ideas, but I have a hard time seeing their vision of the country as either perfect or one that shouldn't change with time.

If a shoemaker were able to make shoes for the rest of eternity, then certainly there would not be a bare foot on the face of the earth. If the land developer were immortal, we would all live in a mansion.
I know your example is a hypothetical, but I don't really see it. If there were an endless supply of mansions, I imagine that the mansion maker would keep many for himself and maybe trade or sell the excess. Even if he lived forever and could make infinite mansions, I don't know why he would just give them away. Very few people will be satisfied with what they need. To me that greed is a bigger problem than are taxes, but I don't see a simple remedy for it.

Why did the founders not provide for the right to health care? Why did they not establish Medicare or Medicaid? Given a whole system of government whose purpose was to secure individual rights, why was this right so glaringly overlooked?
They also didn't mention a right to a basic education, and yet not only am I happy that I received one personally, I am also greatly pleased that I live in a community of people that also have some education. Improving my community improves my life. The logic of healthcare might not be exactly the same, but my point is that I believe that we can do a lot more together than secure individual rights. We can take of each other. We can help each other. We can create a community that is better for us all.

Government can only be organized to fulfill one of two purposes: to protect your property or to take it from you - for whatever purpose government or its constituents deem fit. There is no third choice. To organize society around competing groups stealing from one another is to create a society whose citizens exist in a perpetual state of war with one another -- for the use of force to obtain another's property without his consent is the definition of the state of war.
This gets to my main qualm with libertarianism--that the world is one of every man for himself. I don't think you need to be Christian to understand the idea, but the Bible certainly does address the issue in some famous passages.

Matthew 7:12
So in everything, do to others what you would have them do to you, for this sums up the Law and the Prophets.
Luke 6:31
Do to others as you would have them do to you.

If I am sick, I hope that people will take care of me and not think me a burden. If I am sick, I hope that people will look to help me rather than avoid helping me (as is the basic business of health insurance in the US without government regulation). In following the do unto others principle, I should want to take care of others who are sick. I want to be part of a society that embraces that idea. I have no medical training, but my tax dollars could pay someone who does.

I think people are at their best when they are working together and cooperating. A ten person group can get a lot more done than ten individuals. In a country of 300,000,000 people, we have an amazing opportunity to work together on the scale of millions. However, that opportunity is also a problem, because getting millions of people to work together is a logistical nightmare. I think that government can play a role of facilitating that large scale cooperation (it can also fail at that, but I don't think that is a reason to get rid of it).

Regards,
Michael

Shawn's Comments: People are indeed best when they are working together and cooperating. It's a matter of doing that voluntarily or involuntarily. Taxation is done under threat. Charity is done by free will. Of course, if you let a man have his free will he might blow his charity money on beer.

The "government must intervene or people won't do the right thing" argument is a potent one.

An interesting spin on your thoughts is States Rights. I think that the United States was never meant to be "one size fits all". I'd absolutely love to see a highly socialized state vs. a highly libertarian one. I'd love to be able to pick where to live. Once the Federal Government makes a law, there is no escape (other than to go into exile). Everyone must live it. I don't like that.

On the other hand, if the Federal Government doesn't create uniform programs/laws, there's a loss of efficiency and some grand projects would never happen. It's a toughie.