There is a lot of talk about hyperinflation versus deflation, but a recent article by Bill Bonner got me thinking. Inflation occurs as people begin to draw down their cash balances and exchange their cash for actual goods, thereby shifting the demand curves for those items. This increases the price of the purchased items until the purchasing power of money reaches its market level and people begin demanding more money. Inflation is essentially a public response to the worthlessness of the value of paper money.

When people begin to do the opposite and begin saving money, the opposite effect happens. The demand curves for certain goods falls while their demand for savings increases. By saving money, one also, in effect, builds up their cash balance. This is because the first thing that a person does is either open or more heavily use their savings account. This de facto increases ones demand for money and therefore raises the purchasing power of money.

As an aside, the “paradox of thrift” is the belief that a person may lose a job because of you not spending money. The mere fact that you save the money means that it is being spent by someone else, who in exchange pays you interest. Rather than thinking about the money itself, which is in fact useless if not used in exchange, think about the goods that money can command on the market. One dollar worth of coffee is equal to one dollar worth of steel. What is actually happening is that one chooses to have a higher standard of living in the future that at the moment. The market adjusts itself to your choice and supplies you with goods in the future, or steel to make the building which houses a Starbucks in 5 years.

When the public at large is demanding to save more money and the government intervenes by lowering interest rates it is in effect tax. The people should be rewarded for deciding to save resources by debtors, but the government, by printing new money they are stealing the purchasing power before it is spent by the public. Also, by not allowing the interest rate to rise, the Fed has also slowed the process of capital accumulation and thus prolonged the market.

Also the deflationary scenario is important to consider because it also shows how the government is messed up even more than fiscal and monetary policy. By not allowing businesses to fail, they will simply cause them to waste more and more resources while forcing those who the public seems willing to voluntarily associate themselves to pay. TO TURN AWAY FROM THE MARKET IS DEATH. There is no dumber, or no more infuriating path towards destruction. To kill ourselves because of intellectual error. However, unlike death by nuclear war, intervention into the market is slower and less noticeable. However, death is still the result.

In summation:

1) Unless money is used for exchanges, it is a useless item. However you spend it, either to buy food or spend it on a CD, it will be spend and the resources used towards the end you desire.

2) It is important to allow those to succeed to be rewarded and those who fail to be punished. This is the only way to ensure that there is economic growth and human advancement.

3) The market is the result of all humans interacting in this given sphere and social arrangement. Their wishes are of the highest concern because the better I serve the public at large, the better I will do. The extent to which we embrace the market and reject violent intervention, we will be a successful and peaceful society.

HT to David Pontoppidan:

From Reason’s blog:

From the Wash Post, a warning not to count on cashing out that government-owned GM stock any time soon:

For the United States to fully recover its investment, the value of General Motors stock will have to reach levels it has never before attained….

“I don’t know how much we’re going to recover,” a senior Obama administration official said as the company headed into bankruptcy last month.

This uncertainty stems from the difficulty in valuing the 60 percent GM stake that the United States will receive in exchange for the public investment. The government also gets preferred shares and other compensation.

The stake will be worth enough to fully cover the government’s direct investment only if GM’s stock rises above $68 billion. Even at its recent 2000 peak, GM’s stock was worth only $56 billion.

And just so we’re clear: “These calculations do not include the billions of dollars that the United States has put into GMAC, GM’s financing arm, and into aiding auto suppliers.” And just so we’re even clearer about the visionary thinking that continues apace related to the producer of the mighty Aztek:

In announcing the government’s intention to put another $30 billion into the company earlier this month, President Obama said, “We’re making these investments not because I want to spend the American people’s tax dollars, but because I want to protect them.”

At least the Aztek isn’t around to haunt us anymore. /shudder

From Cato@Liberty by Sallie James:

Pat Michaels and I have written an op-ed on the climate change bill due for a vote tomorrow in Congress, and our opinions on its provisions are summarized pretty well there. In short, the bill appears to offer very little in the way of reduced global warming in return for harm to the domestic economy and to international relations.

Yesterday’s New York Times energy and environment section (online) contains an article picking up on the increasingly harmful trade-related parts of the bill. Apparently the House Ways and Means Committee is trying to assert language that would make imposing carbon tariffs more likely than did the original Energy and Commerce Committee bill, bad enough that it was.

So what say you, Rep. Charles Rangel (D-NY), chairman of the House Ways and Means Committee and a powerful voice on trade?

[Rangel] downplayed the significance of his proposals. “I don’t think there will be many changes there,” he said. “There are just provisions in there that deal with trade and the poor. It’s not changes, it’s just vacuum.”

Assuming the quote was not taken out of context, for the leading House voice on trade to be so dismissive of important (if somewhat under-the-radar) provisions is irresponsible to say the least.

At a recent press conference about his health care plan, Obama posited the following point: Either his public option plan will be better or worse that other private plans. That being said, he later went on to point out that if the public plan is less efficient and was not what consumers want, then the private plans would win out. If it is better, then it serves customers better. He also said that because it was not for profit that it could cut costs for consumers. So what exactly is the problem with his statements and how does this relate to the profit/loss test of the market and do the private insurers have to fear Obama’s plan.

Firstly, any person or organization who contributes capital to start a business must gain some profit. That is because the nature of providiing capital ensures that all wages, land rents, and capital goods must pay a discount to the capitalist. This is because of time preference and in the future I will link to myself and my discussion on the topic.

Now if Obama’s goal is to have a not for profit organization or plan come out of this, it means that they will simply incur short term losses in order to offset the interest return. This is a waste of resources and does not serve the public, because presumably this capital can be used for other more profitable uses. This, to me, is the natural draw for people to love socialism because not only are you providing more jobs and better service by eliminating profits, the costs would also theoretically be lower.

However, if this were applied to the entire market, what it would mean is a constant waste of resources. For one, there would be no incentive to save money because the interest rate would be zero. Two, this waste of capital and resources means that there will be no overall increase in the future standard of living. Three, the profit or interest rate is necessary for maintaining our current standard of living.

As for the insurance companies worries about the public plan, there is one key distinction that Obama fails to recognize. That being that state plans have no desire to make themselves efficient and that they have the rule of law behind them. They could give themselves tax breaks or other favorable conditions by force. Unlike market forces, which are voluntary, the state has an ace in the hole in that they can force anyone to accept their plan if so desires.

Our colleagues on the national stage, Students for Liberty, are hosting a week dedicated solely to disseminating information about students rights on college campuses.  They are providing materials to help arm students against the sometimes hostile administrative environment.  The hope is to put these events all across the nation the week after normal orientation takes place. As such, I hope we can get a variety of campuses in Michigan involved. If interested, please contact cruper[at]studentsforliberty[dot]org.  Then contact me and we can put together an all-star event.

HT to Clark.

Teachers beware!  You too, for gross misconduct, may find yourself in a situation finger painting, doing yoga, and planning Alaskan wildness vacations! Defend your rights! Could you spend your days doing THIS?!

Wait….what?

In yet another truly amazing episode of waste and bureaucratic process, hundreds of NY teachers are being held in very ominously named “rubber rooms”. Dubbed for the padded rooms of the old insane asylums, these are actually rented office rooms.  Teachers can elect to do what they will with their time.  And not only that time.  They still receive all holidays off and summer vacations.  Off from what?

The teachers are held in these rooms because their negotiated contracts make it a very long process to fire or discipline them.

For example: ”Their cases are heard by 23 arbitrators who work only five days a month”. For the number of teachers in the school district, you might imagine then how lengthy of a process this might become. And during this time, teachers are paid their full salaries.  In New York, they estimate these hindrances cost the state and taxpayers $65 million.

Thankfully, this isn’t a widespread practice. /endsarcasm

This has also happened in LA, Philadelphia, and a number of other major cities.

Forget ironclad contracts.  I think they’re probably made of titanium.

Recently, two Japanese men were captured trying to sneak $134 billion into Switzerland from Italy. This represents roughly a quarter of the Japanese holdings, making this unlikely that the Japanese government was unloading these bonds onto the secondary market. What is more likely is that this is an act of financial warfare by the North Koreans or another country.

Imagine this scenario, with the Treasury needing to finance massive budget deficits, excess supply pushing yields even higher. This is a tremendous weakness for the United States, because while we have the best military on earth, as Napoleon said “an Army marches on it’s stomach.” If there is wild inflation or a currency crisis the United States will be priced out of most foreign markets and will be unable to support our overseas operations empire.

Perhaps we will resort to the late Roman Empire and our army will simply “live off the land” with careful rationing for most citizens, but most resources going towards the army. In this situation, the government strictly rations what we use, much like it does in wartime anyways, with most of production going towards overseas “defense”. When the people can only get rations from the government it makes us wholly dependent on the state. This dependency manifests itself as loyalty to whatever the states goals are. This is a dangerous situation.

First, scope out this animated graph at TipStrategies.com.  No, that’s not the spread of gangrene and bubonic plague you see.  That is a timeline showing the job growth and loss of major metropolitan areas in the United States. Of course those last few slides are scary as heck, with red blotches literally overtaking our fine nation.  But what one usually fails to recognize is the inordinate job growth we saw just before the fall.

2+2=?

One of my favorite lines from any South Park episode is this gem by Stan’s Dad at 8:37 in the Civil War one.

Vermont, one of the more left-leaning states, has a vibrant secessionist movement. I have no problem with secession in general. In fact, the right to revolution is not only important to a free people, it is necessary. It is impossible to think of the history of the American Experience without acknowledging our roots with regards to casting off the rule of the British so that we might rule ourselves.

As far as Vermont or Texas or any other state that wishes to leave the Union, I would like to see it. If Vermonters want to have a Liberal Paradise, they should create one themselves. If I lived in Vermont and they seceded I would leave. However, there would also be plenty of Liberals who would want to move there, to create a “new Jerusalem.”

I know that a better world can be made through lowering taxes and regulation, and limiting the overall size and scope of government. However, there are lots of people who think the other way around. Rather than imposing our will on others through the Federal government, we should be allowed to exercise federalized freedom and limit the growth of government in our state, and if that does not work then secession not only becomes viable but necessary to defend our economic freedom.

The real drawback to secession is that if a state like Vermont seceded, they will likely enact trade barriers and end the free interstate trade that has existed in the United States for our entire history.