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401(k)s and IRAs to be nationalized?

Posted by David on November 10th, 2008

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

General | 1 Comment »

No such thing as a free lunch

Posted by David on October 15th, 2008

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.?

General | 1 Comment »

Ban on short selling hurt investors

Posted by David on October 10th, 2008

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

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What you need to know about the economic “crisis”

Posted by David on September 28th, 2008

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.

General | 9 Comments »

SEC bans Stock Shorting

Posted by David on September 18th, 2008

In light of the SEC’s decision to ban all short selling, last year’s One Minute Case for Stock Shorting is especially relevant.

General | No Comments »

Christianity and socialism glorify human suffering

Posted by David on September 14th, 2008

 

This is Angelique. She wanted to die with dignity

This is Angelique. She wanted to die with dignity

Here is a tragic tale about a woman affected with a terrible terminal illness who only wished to die in peace. Instead, her months were spent in terrible pain, and her last hour was spent “vomiting faecal matter” as her brother “held a bowls under his sister’s chin.” Before her death, Ms. Flowers begged her society for the right to die as she wanted:

“The law wouldn’t let a dog suffer the agony I’m going through before an inevitable death. It would be put down. Yet under the law, my life is worth less than a dog’s.”

Her brother ads:

“How can that be right? How can society believe terminal patients should be put through awful agonising deaths? 

What is to blame for this perverse reversal of morality which defines “compassion” as the glorification of human misery? At first, I was tempted to blame the socialist mentality of Australia’s ruling Labor Party. Under the collectivist ideology, human beings are slaves of the State, and may not live or die except by the State’s judgment that they are of use to Society. On the other hand, the religious ideology is that human beings are animated corpses, souls given a temporary lease on mortal life for the sole purpose of blind obedience to their deity, who may not live or die except by the ruling of his earthly representatives.
In this case, it may be both as Austrialia’s current prime mister is a vocal leftist commited to integrating Christianity into the political sphere.

General | 2 Comments »

American Fascism versus the pornographer

Posted by David on September 13th, 2008

In 2003 I explained why totalitarian regimes like China are so fiercely opposed to human sexuality:

The threat posed by the selfish pursuit of one’s happiness is the driving motivation for authoritarian regimes of all kinds to have joined organized religion in fiercely opposing public acceptance of sexuality as a natural and moral activity.

In 2008, advocating and practicing the right of all human beings to pursue their life, liberty, and happiness as they best see fit is grounds for a lifetime sentence in a federal prison of the United States of America:

Money quote by John Stagliano:

America became great because the founders knew that the power of the majority had to be strictly limited to protect this wonderful concept of “rights.” They knew that the rights of a minority, and especially the most important “minority”, the individual, needed to be protected against the will of the majority. And the most important right that they sought to protect, the FIRST Amendment to the Constitution, is the right to free speech. That is the right to express oneself in whatever way one wished, as long as that person was not “forcing” himself or his ideas on anyone else.

Who knew pornographers were so eloquent?

(More pro-porn activism: DefendOurPorn.com)

General | No Comments »

A visual guide to the 2008 presidential election

Posted by David on September 7th, 2008

My thanks to Burgess Laughlin and C August for providing this handy visual guide to help me understand the key difference between the candidates:  A Visual Guide to the Election

General | No Comments »

Christian fundamentalists put freaks on parade

Posted by David on August 30th, 2008

Christians and other mystics sometimes argue that religion makes people moral. I disagree: morality is a practical science which can only be understood by rational consideration, not emotionalism (the epistemological method of faith). To the extent that religious dogmas and religious people preach and act morally, they derive their principles using the same rational methods and the same evidence that is available to everyone. Since rational moral claims need no mystical basis, it is only the irrational and immoral actions which require religious justification. To the extent that religious beliefs as such influence people’s actions, they can only influence them to do wrong – sometimes unspeakable and sometimes trivial, but still evil.

For the most part, modern Western religions, such as those in the United States, merely consist of mindless time-wasting rituals. They are evil in the sense of distracting people from more productive activities, especially from more productive means of finding moral guidance. Nevertheless, for the most part, and despite their religion, most Americans are good and productive people, who pay lip-service to a dogma highly diluted by Western philosophy and modern science.

The prime candidate for the moral monopoly of religion in America is the domain of life and death. This is where the real evil of religious influence becomes evident. One particularly despicable influence of religion was out on display when John McCain picked Sarah Palin as his vice-presidential candidate. One of Governor’s Palin’s qualifications for the presidential ticket is that she gave birth to a baby with Down syndrome in April.

The fact that Palin’s baby has Down syndrome is certainly tragic. Down not only severely impacts the health and life-expectancy of the child, is also a tremendous burden on their caretakers. (Aside from my personal observation, my girlfriend has worked closely with Down parents and their children.) As an unpredictable genetic disorder however, the symptom cannot be blamed on anyone. Except for this: since January 2007, the American College of Obstetricians and Gynecologists has recommended Down screening for all pregnant women, and so Governor Palin knew that her fetus had Down’s, and decided to continue her pregnancy anyway. Furthermore, she has turned her decision into political leverage in the upcoming election as proof of her moral virtuousness:

“How refreshing that now we have a woman who reflects the values of mainstream American women,” said Janice Shaw Crouse of the conservative group Concerned Women for America.

Whereas previously, a Down’s child could be born without the prior knowledge of the mother, going forward, a parent with a Down’s child will likely (at least in the developed world) have made a conscious choice to have that child. The child represents a sacrifice made by their parents for their faith. As the recommendations of ACOG are implemented nationwide, Down children (and eventually those with other genetic disorders) will increasingly become symbols of faith – a freak show meant to communicate the “family values” of their parents. They will be a symbol of religious reverence in the same way as the scarred backs of Catholics who flagellate themselves, or Buddhist monks who set themselves on fire, or Sunni Muslims who mutilate their girl’s genitals or Shiites who bloody their and their children’s heads with swords.

Genuine moral virtues – such as integrity, honesty, and productivity are not useful as evidence of religious virtue. To the extent that their practical benefit is visible to everyone, they do not represent the special domain of religion. To demonstrate religious virtue, it is necessary to sacrifice authentic moral values in favor of “religious” values. The particular object of the sacrifice is not important – there is nothing particularly “biblical” about being prolife (the Christian bible just as easily supports the opposite position.) If Christian fundamentalists decided that cutting of one’s hand sufficed as proof of moral virtue, they would still be guilty of evil, but not much more so than the numerous other ways that people of all kinds find to be self-destructive. What is really vicious about fundamentalists in America is that the prey on the most vulnerable –poor pregnant young girls and women, those dying from painful terminal illnesses, the loved ones of brain-dead patients, — and children afflicted with terrible genetic illnesses.

One can at least grasp the moral indifference with which a fundamentalist can force a single young mother to abandon her goals and dreams and condemn her and her child to poverty. But what can we say about a parent that chooses a life of suffering upon their child? If we are morally outraged by child rapists, how should we judge a parent who chooses a lifetime of suffering on their own child?

General, Mysticism | 79 Comments »

The vicious lie behind the global warming scare

Posted by David on June 25th, 2008

The environmentalist movement believes that unless immediate and drastic measures are taken to combat global warming, “disease, desolation and famine” are “inevitable” on a scale that might spell the end of life on earth, making earth “as hot as Venus.“  Surely, such an apocalyptic threat demands immediate action.  Given the resistance to curtailing industrial production (not to mention the economic destruction and mass death that such a curtailment would entail), environmentalists should eagerly supports experiments that attempt to compensate rather than eliminate the impact of industry on the environment.

In fact, a number of relatively simple, low-cost measures have been proposed by scientists and entrepreneurs, one of which is documented in the June 2008 issue of Popular Science (PDF). As early as 1988, oceanographers proposed seeding the oceans with iron, which would cause an algae bloom that could rapidly compensate for the entire effect of industrial civilization for far less money that it would cost to eliminate CO2 emissions.  Seeding experiments by the Woods Hole Oceanographic Institution have demonstrated that the technique works, although further experimentation is required. A number of entrepreneurs, such as Russ George of Planktos Corp (TED video) stepped forward to carry out the required work.

How would you expect environmental groups to react to such an opportunity?  If you guessed outright or even cautious optimism, you would be dead wrong.  “I don’t think any quick geo-engineering fixes are going to work,” said one Greenpeace scientist.  “There are only two ways that we’re going to solve climate change: reduce the amount of energy that we use and dramatically change the methods we use to generate it.”  According to Scientific American, environmental groups were essentially united in the belief that “if society relies on quick techno-fixes to ameliorate global warming … people will stop putting in the hard work necessary to cut carbon emissions.”

Think about what that statement means.  “Hard work” means government coercion to destroy the industrial production that feeds (sometimes barely) a rapidly growing human population.  “Quick engineering fix” means a fast, cheap, technological solution that allows us to have our cake (the wealthy, healthy life that industry makes possible) and eat it too (literally, algae eating CO2).  Notice that their objection is not that iron seeding won’t work, but that it eliminates the incentive to destroy industrial civilization.

As the article make clear, environmentalists are violently opposed to even exploring any measure that attempts to neutralize the “threat” of global warming rather than deal with the cause.  Lies and intimidation are integral to the movement: the terrorist group Sea Shepherd, which has sunk nine ships since 1979, threatened any future seeding experiments, their PR machine used fear of nanotechnology to claim that iron ore (plain rust) is “engineered nanoparticles,” while their political branch got the Spanish government to ban seeding on the grounds that it constitutes “toxic waste” dumping.

As should be clear by now, environmentalism is not actually opposed to global warming – ending the “threat” posed by global warming is the last thing on their agenda.  Their real goal is to use the global warming scare to bully the developed world into reverting into the pre-industrial, pre-civilized age. They oppose viable alternative energy sources for the same reason that they oppose viable fixes to the crises they invent – they oppose nuclear energy, hydro power, and they are organizing to oppose wind power just as it has become viable. If solar panels ever become viable, they will certainly invent reasons to oppose them too.

(Note that I am not actually advocating iron ore seeding.  I am not convinced that the climate is warming as rapidly as claimed, or that CO2 is the cause, and even it is, it is likely that higher CO2 levels and a warmer climate offer tremendous benefits to both plant and animal life.  If anything, we should be encouraging measures that make our world greener and more comfortable.)

Environmentalism, General | 2 Comments »

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