Intellectual activism in defense of the American way of life.
David Veksler
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Posts by David Veksler
Warning regarding the economy
Dec 16th
I just sent my family the following email:
Hi folks,
If you’ve been following the news, you may have heard that:
- The Federal Reserve just cut the overnight loan rate to .25 percent. Gold prices immediately jumped to $847/oz. (Last week, I bought gold at $775). We haven’t seen rates this low for over 50 years.
- The government has given away over 8,000,000,000,000 dollars of “free” money in the last three months.
- In the last 5 years, the dollar has lost more than half its value relative to gold.
All evidence points towards the fact that the U.S. government is rapidly devaluing your savings, and a currency collapse followed by hyperinflation like we recently saw in Iceland is all but inevitable. If you don’t want to lose your savings and investments in the coming economic collapse, you need to take action NOW.
Here is what you should be doing:
- Buy some gold and keep it in a safe place. I suggest http://www.kitco.com/ or eBay – you can get a good deal on 1oz gold bars. (Buy plain gold bullion, not the “collectible” stuff.)
- Don’t pay anything above the minimum payment on any loans or mortgages you have.
- It’s a good time to get a new loan. I would not suggest taking on new mortgages, as I expect housing prices to collapse further.
- The stock market may lose up to 50% of its value in the next year. Still, investing in the S&P 500 is a good hedge against inflation. You can also invest in metal & mining index funds.
- Stock up on supplies, especially durable goods.
- Minimize your holdings of inflation-prone assets, like cash, bonds, and government securities.
When you’re done, you should have a minimum of cash and cash-like investments, and plenty of material assets you can sell or barter in an emergency. Also, consider getting a firearm for self-defense – expect crime to rise dramatically when the economy collapses.
You’ve been warned.
Consumerism will not save us
Dec 7th
The conventional view of economic growth now being discussed in the news prescribes higher consumer spending as the solution to the current economic recession. The idea is that if people buy more big screen TV’s for Christmas, manufacturers will increase production, hire more workers, raise wages, and we’ll all live happily ever after. As practiced in government policies, this mistaken belief is highly dangerous, and will lead to the exact opposite of its intended effects. To explain why, I will apply my earlier principle that “same principles that apply to your personal finances… apply equally to the world at large, at all levels of economy activity” and that “political success requires advocating policies which violate these basic economic principles – and then evading the consequences of their own policies.”
First, we have to question the premise that maximizing economic growth is inherently good. Consider the nature of a young person saving money for his future. If all he cares only about is his income and net worth, he must spend every waking hour of his life working, advancing his career and investing everything but the bare essentials of survival. Such a strategy will maximize present and future income at the cost of sacrificing the actual purpose of that income – to enjoy the values that his labor makes possible, including both consumer goods and time to relax and enjoy life with friends and loved ones. If everyone employed such a strategy, our society would experience rapid economic growth – until we all dropped dead from exhaustion or depression. In fact, social and economic progress requires that we devote some resources to long-term investments such as hobbies, art, and philosophy to develop our careers, values, and other opportunities to improve our lives.
Second, the lack of a consumer culture is not an impediment to economic growth, as resources that are not consumed are invested into new markets and improving the capital resources needed to expand future production. If our workaholic forfeits a new car now to buy a better car at some point in the future, his savings are not lost. Instead of being directed into present consumption, his savings become the investment capital for new factories and R&D into cheaper and better cars. Thus is why such high economic growth is possible in “Asian tigers” such as Japan and China – high rates of savings support rapid technological progress and investment into industry at the cost of a much more frugal lifestyle than in the West. In fact, there is a tradeoff between current consumption and the savings available to invest in future production and increased economic growth. There is no single right answer to this tradeoff – every individual must choose for himself how to balance present spending with investing in his future. In a free market, the sum of individual savings rates becomes the real interest rate.
Third, the consequences of artificially manipulating interest rates are disastrous. By expanding the money supply through manipulation of interest rates or (as is happening now) sending money directly from the printing presses to banks and other corporations, the government is devaluing savings and redirecting them into increased consumer spending. This improves the economic statistics in the short run at the cost of wiping out the resources set aside for long-term capital improvements. For the last few decades, America’s spending binge has been funded by foreign investment and rapid technological innovation, but ultimately, unless we drastically cut our consumption, and direct our income into savings and repaying our debts, we will find our money increasingly worthless both here and internationally. If you are wondering how bad hyperinflation could get, just look at Zimbawbe, were life expectancy has declined from 60 to 37/34, unemployment is at 80%, and as much as half the surviving population has left the country.
Some reflections on leadership
Nov 25th
Yesterday I read Clay Shirky’s essay “A Group Is Its Own Worst Enemy” from Joel Spolsky’s book “The Best Software Writing I.” Clay makes some great observations on group dynamics, but that’s not my point.
What struck me is how utterly useless the leadership training seminars I’ve attended were. I learned more from a single essay than a lifetime of worthless and sometimes counter-productive seminars. From the Boy Scouts to assorted honor societies, to leadership training events in college, nowhere did I learn the basics of conflict resolution, group psychology, rule-making heuristics, and project management. Typical leadership training usually consists of variations of “trust” exercises – as if trusting people actually makes them trustworthy. (Teaching people to trust others blindly actually results in leaders too jaded by failure to trust others or to train them to rise to the occasion.)
I think the problem may be that that leadership is treated as an intuitive/emotional process that must be learned by repetition and inspiration rather than a scientific analysis of the principles of group dynamics. The worst school is the one that views talent as genetic, as it conspires to actively prevent improvement through study and hard work.
I’ve never thought of myself as a great leader, but I’ve learned some basic principles of leadership and group dynamics through trial and error:
- Don’t expect order to arise naturally or try to organize roles anew for each effort: effective groups have commonly understood and accepted roles (officers) and procedures (Robert’s Rules of Order, etc)
- Delegate responsibility whenever possible, but monitor progress and reassign as necessary (“trust, but verify”)
- Besides carrying out the group’s goals, training a replacement should be a leader’s #1 job.
- Never make enemies by accident. Attempt to resolve disputes privately first, and failing that, diplomatically. Beware of interpersonal conflicts and sexual (“macho”) dynamics masquerading as ideological differences.
- Avoid making enemies, or dwelling on the competition. Burning effigies will build group identity, but will destroy objectivity and shift resources and the agenda away from the group’s original purpose. (An especially common mistake is to make enemies of ex-members, as they are often the most capable of inflicting harm.)
- Standards for membership should be strict and explicit enough to exclude anyone who does not share the group’s goals or values. Any stricter or vaguer, and they will be hijacked to exclude people due to interpersonal conflicts.
- Make yourself available for private feedback (initiating it yourself if necessary) and take suggestions seriously.
- Lead by example. This one they do teach, but rarely do they explain the implication: A leader must work harder and with more dedication than than anyone else, because members judge their contribution by the most visible member. If you ask someone to scrub the toilets, you better show how to clean one spotless first.
Come work for Match.com and I’ll give ARI $6,000
Nov 22nd
My employer, Match.com, offers a $3,000 referral bonus for salaried employees. It also offers a 100% matching program for gifts to charitable organizations.
If anyone gets a job at match.com through me, I will use the referral bonus with the matching gifts program to give the Ayn Rand Institute $6,000.
So, if you are interested in a job in a great environment in north-central Dallas, here is the list open positions.
If you’re interested, please send me your resume with your contact info, and I’ll do the rest.
If you get an interview, be sure to mention me, so I can put in a word for you. They offer a $1000 bonus for hourly positions – I will donate $2,000 in that case.
Feel free to let anyone else who may be interested know about my offer too.
(Certain conditions and limits apply, but I promise to contribute 100% of the “free” money I do get.)
401(k)s and IRAs to be nationalized?
Nov 10th
When Argentina moved to nationalize pension funds, the media correctly identified it as a “grab” and people took to the streets in protest. I think Americans might just roll over, however.
read more | digg story
No such thing as a free lunch
Oct 15th
When arguing against the Genetic Information Nondiscrimination Act last year, I wrote
If discrimination based on comprehensive genetic screening is legal, we can expect health providers to tailor plans according to our individual risk factors. That might be to the disadvantage of a minority of high-risk individuals, but greater information about risk factors will lower uncertainty, and thus lower rates overall. Furthermore, insurers will offer incentives to people who take proactive steps to discover health risks and take steps to alleviate them. Expensive procedures such as frequent biopsies or preemptive removal of organs might be fully covered for individuals whose genetic profiles uncover a high cancer risk.
Unfortunately, Congress did not heed my arguments, and banned genetic discrimination anyway. It is now illegal for health insurers to take genetic factors into consideration when setting premiums. What effect do you think the law had on the incentive of insurance companies to pay for their customer’s genetic screening?
If the goal of the law was to encourage genetic screening, it clearly had the opposite effect. In response, celebrities are now “fighting for women to have access to MRIs and genetic testing.” Having forced insurance companies to ignore the results of genetic testing, people now want to force them to pay for it.
Do you think that people who find out that they have a higher probability of having an illness with genetic factors would be more likely to purchase more health insurance than individuals with a low probability of genetic illness? As I wrote last year,
It does not take an economist to predict that rates would immediately rise, as healthy people, refusing to pay for their neighbor’s health risks, stopped using insurance altogether. As the young and healthy jump ship, insurance companies would have to increase rates, accelerating the trend. Without further government interference, the health insurance business would disappear completely, shortly after millionaires on their deathbeds became the only people able to afford policies.
Are you still wondering why healthcare is so expensive in the U.S.?
Ban on short selling hurt investors
Oct 10th
What is the difference between the U.S. and the Russian economy? Answer: In Russia, they do not pretend to be capitalists. Seriously though, it appears that we are getting closer to nationalizing many of the broken industries that still remain in the U.S. such as automobiles, airlines, financials and who knows what else.
read more | digg story
Swiss government supports granting plants rights
Oct 7th
If you thought the animal rights movement could not get any more insane after the Spanish government granted apes rights, here is a new low:
The Federal Ethics Committee of the Swiss government has unanimously concluded that the right of plants should be recognized. Their conclusions (PDF) of their statement on the “moral consideration of plants for their own sake” includes the following:
- “Harm caused to plants”, including the “decapitation of wild flowers” is “morally impermissible”
- Plants should be “excluded for moral reasons from absolute ownership”
- Genetic engineering is acceptable only as long as their “reproductive ability and adaptive ability are ensured” and “always involve[s] consideration of conserving and safeguarding the natural, i.e. not man-made, network of relationships”
- The “patenting of plants as such is morally impermissible and contradicts the dignity of living beings” [minority opinion]
- “the complete instrumentalisation [i.e. domestrication] of plants – as a collective, as a species, or as individuals – requires moral justification”
You can laugh now, but not so long ago, the vast majority of people of people would have laughed at the idea of “animal rights.” To the extent that governments recognize the rights of any animals, plants, or rocks to exist for their own sake, they equally restrict the rights of human beings, since human civilization is only possible by the manipulation, exploitation, and appropriation of nature to suit the selfish interests of human beings. The call to recognize animal or plant rights is ultimately nothing less than a call for the xenocide of the entire human race. For more see the ARI mini-site Environmentalism and Animal Rights
What you need to know about the economic “crisis”
Sep 28th
Economics is not a complicated science. This may not seem obvious to you if you’ve following the news from Washington, where a cabal of politicians, financiers and lobbyists have been spent the last several weeks desperately making a series of increasingly complicated, expensive, and ultimately unsuccessful plans to “save the economy.” As the costs of their schemes have spiraled from billions and into the trillions of dollars, it has become increasingly urgent for you, the source of Congress’ deep pockets, to examine the potential impact of their actions on your taxes, savings, and investments. Even if you have no intention whatsoever of voting this November (which, given the choices, is hardly unreasonable), it would behoove you to take the consequences of the pending federal bailout into consideration for your own benefit.
The key to understanding economic theory is to grasp that the same principles that apply to your personal finances, and perhaps to your interaction with your local grocer apply equally to the world at large, at all levels of economy activity. The key to understanding politics is to grasp that political success requires advocating policies which violate these basic economic principles – and then evading the consequences of their own policies – with the voters’ eager participation in the delusion.
A Potato Farmer Learns About Business Cycles
Suppose, for example, that you grow heirloom potatoes. Each season, you harvest most of the potatoes for consumption or sale, and save a fraction to plant the next season. The saved potatoes are your supply of loanable funds – the consumption you forgo now to invest in future production. The percentage of saved potatoes is your savings rate, and also your interest rate, since the consumption you forgo now is your investment in next season’s production capacity. Suppose that you have reached an equilibrium, so that each year’s saved potatoes are just enough to produce the same sized crop next year. Common sense indicates that you cannot increase your future consumption of potatoes without an increase in savings, and therefore a decrease in present consumption. This is a key point – increasing the rate of economic growth is only possible through increased investment. Increased investment is only possible through increased saving. An increase in saving requires a decrease in current consumption. The same principle applies when you decide to dine out less often this month to afford a new iPod next month.
Imagine that you keep track of your remaining potato stock in a ledger. If your ledger is accurate, each hash mark in the ledger corresponds to a real potato – the potatoes are your “gold standard.” For a while, potatoes are plentiful and life is good. Then, one day, you see a commercial for the latest product from Apple – the iTater, a laptop made from potato starch. You must have it – but your ledger shows that the expense would cut into next year’s seed stock. No problem – you just add another zero to the count of remaining stock and proceed to the nearest Apple store. You experience utopia with your iTater – welcome to the boom phase of the business cycle! Your constituents (the wife and kids) are happy, consumer spending is up, and interest rates are down (saving potatoes requires less of a sacrifice in current consumption – according to your ledger.) You have taken your ledger off the “potato standard” and created a fiat currency – but who cares, life is good, right?
What happens next season? Since the act of writing down numbers does not actually conjure up potatoes, you will be unpleasantly surprised when your stock of real investment capital suddenly runs out, and is not sufficient to meet planned expenses. You may be forced to liquidate your assets at a large loss (the iTater market is not so hot now that the iTater 2.0 is out), and without a true accounting of available investment capital (the seed stock in your cellar) long term planning becomes impossible. Welcome to the bust phase of the inflationary business cycle!
If you wise up to your economic fallacies, you will cut current consumption (no iTater Lite for the kids) to restore savings rates and pay debts. But suppose that you take a hint from Washington, and decide to implement a “bailout plan” by adding some more zeroes to your ledger, and resuming unsustainable consumption level by getting the tots the iTater Lites. You might even get a loan from your neighbor Mr. Wen.
What happens now? You’ve “rescued” your personal economy this season at the cost of further depleting your investment capital. You’ve won the “vote” of your kids this season, but you have even less capital for next season. Rather than allowing your personal economy to recover, you have further distorted your grasp of reality, and now have no idea how many spuds you have to consume, and how many you need to save. You can attempt borrow seed stock from your neighbor Mr. Wen, but unless you can drastically cut consumption to pay interest, he will eventually grow impatient and refuse to lend any more. The more you attempt to extend the illusion, the farther out of touch you become with reality, as the numbers on your ledger show exponential growth upwards while your actual consumption plummets toward zero. You’ve discovered hyperinflation, the ultimate destiny of all fiat currencies.
The Roots of the Housing Crisis
Let’s now apply the analogy of the potato farmer to the mortgage crisis our economy is now experiencing. The seeds of the crisis were laid during the New Deal, with the federal government’s creation of Fannie May and Freddie Mac for the purpose of allowing mortgages to be issued at below market rates. In other words, they are a form of price control (a price ceiling) on interest rates for home mortgages. As with all price ceilings, the consequence of making goods artificially cheap is a shortage. In this case, the physical supply of building materials, land, architects, and construction workers is not sufficient to meet demand. The existence of coercive government price controls is obscured by a number of elements intended to maintain the myth that every American family has a “right” to a home. The elements include the superficially “private” charters of Freddie and Fannie (and now, the other institutions being bailed out), the extra-legal guarantees provided to those entities (massive lobbying and high-level relationships with both political parties), and the indirect way the costs of shortages are paid (price inflation, rather than an increase in taxation).
Much of the blame for the mortgage lending meltdown has been placed on the “failure of the free market.” But is there really any truth to this? The financial industry is the single most regulated industry in the economy. The failing institutions are precisely the ones that New Deal policies were meant to protect us from: the FDIC was supposed to prevent bank runs, the SEC was supposed to be stop shady investments, Fannie May and Freddie Mac were supposed to make sure that loans went to people who deserved them. Opportunistic politicians like John McCain are quick to blame the capture of regulatory institutions on lobbyists and “special interests.” He promises to fix the problem by giving yet more money and power to corrupt government agencies, much like a mob boss who blames his enforcers for his protection schemes, and then promises his victims to lay off them if they just give him more guns and money. The only reason that special interests are so involved in government is that the government has ingrained itself so deeply in our lives. Giving more power to the state to regulate markets and redistribute wealth and privileges from one group to another only increases the incentive to strengthen one’s political connections.
There are two particular stimuli for the present housing “crisis.” First, is the expansion in the money supply by the Federal Reserve, motivated in part by the desire to pay for American overseas commitments without a proportionate increase in taxes, in part as a response to the destructive consequences of the anti-business sentiment that created regulations like Sarbanes-Oxley, and as a response to its own inflationary policy of the late 1990’s, which (much like the case of the unfortunate farmer) resulted in the boom and bust of the Dot Coms. Second, is the 1995 Community Reinvestment Act, which basically forced banks to make unprofitable subprime loans to poor neighborhoods and minorities. In 1999, the repeal of the Glass-Steagall act was tied to the CRA rating of banking institutions, again forcing them to make unprofitable mortgages. As the consequences of the loose money policies and the CRA began to come crashing down in 2008, the government responded with HOPE NOW and Project Lifeline, which use a combination of threats and taxpayer-sponsored bribes to prevent the markets from self-correcting. Unfortunately, as our farmer learned, attempting to fix over-consumption by increasing consumption only makes the situation worse.
The vicious pattern of inflationary business cycles is a downward spiral that is not a creation of the unrestrained greed of businessmen. Yes, businesses are complicit to the extent that they have taken part in the state’s redistribution of funds from taxpayers and dollar users. But this is only a minority of politically-connected enterprises. The Community Reinvestment Act is in fact an attempt to force financial institutions to become altruists – that is, act against their own self-interests. The mortgage crisis is primarily the inevitable result of a political-economic ideology that essentially attempts to turn wishes into reality through collective delusion. This ideology is in turn the product of a philosophy that rejects objective reality in favor of a reality created by the collective consensus, rather than the inescapable consequences of cause and effect.
The Philosophy of Make-Believe Economics
The German philosopher Emmanuel Kant famously argued that there are two realities: the noumenal, which is the way the world really is, and the phenomenal, which is the way conscious beings perceive it with their senses. Since the conceptual faculty is an object of distortion, the real world is forever beyond human understanding. Our perception of reality is therefore only an illusion, but it is a collective delusion, shared by all of society. American philosopher John Dewey took Kant’s premises to their natural conclusion: since “ultimate” reality is unknowable, social consensus is the sole determinant of truth and morality. Dewey rejected the notion of truth and of right and wrong as such, and held that pragmatic experimentation should be our sole guide to action, with democratic consensus as the ultimate manifestation of truth, morality, and political change.
Few people act like our potato farmer and deny the objects and events that happen before his very eyes. Yet in economic matters, most people, including most politicians, mainstream economists, and investors unconsciously follow Dewey’s philosophical principles: reality is ultimately driven by social consensus, and the success or failure of markets depends only on the optimism or pessimism of consumers and investors. This is more than the belief that wishes and prayers affect reality – this is a belief that one’s wishes are reality – if only enough people share the delusion.
The Federal Reserve and the Treasury Department are faithful followers of Dewey and Kant. By artificially lowering or raising interest rates, the government attempts to turn our perception of reality (the interest rate) into reality – our actual propensity to save. But pretending that there is a sufficient stockpile of spuds in the cellar is not the same thing as having a sufficient stockpile. The artificial manipulation of interest rates leaves investors flush with cash, but short on worthwhile investments (or vice versa) and thus diverts increasingly scarce resources into increasingly inefficient investments. Prudent investors (like the banks not in this week’s news stories) stay away, while politically-connected spendthrifts splurge. Markets become increasingly unstable, and sooner or later, things come crashing down. The more you attempt to evade reality, the worse the disaster that you are asking for will become.
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