Tuesday, November 30, 2010

European Imbalances

This was a little difficult because I didn't want to make a big messy graph (or a few messy graphs) or a whole bunch. So, to generate the graph below I first normalized each country's revenue and expenditure figures to the 2000 values of revenue. So, in 2000, each country had revenue = 100% and expenditure equal to the percentage of revenue generated. Some above, some below 100%. Then, I averaged the figures according to the former groupings: using Euro or own currency, and then within Euro PIIGS and non-PIIGS. If using own currency, then above (bad) average credit spreads or below (good) average credit spreads. Dig it.

Sign Wars

If you live in the Alamo Heights-Terrell Hills area, you have certainly seen these two yard signs.  I am told the “no socialism” sign began appearing in 2009, just as the healthcare debate was heating up.  Not long after the “no selfishness” sign began appearing.  I think that while the signs contain only two words, they convey much more.
 I’m quite sure “no socialism” signs were erected to protest what many feel is a leftward lurch in the country’s direction.  Washington has commenced on a power grab over the past two years and many were deeply concerned.  To counter, the “no selfishness” signs began to appear a short time later.  While their message was in a direct response to the former, the message it bears is much less unclear.

Selfishness is bad, right?  No one likes to be called selfish or to be known as a selfish person.  We teach our children to share, and admonish them when they act otherwise.  However, I would argue that the best way to employ our capital and labor is for each of us to act in our own self-interest, or be selfish.  Here’s but one illustration.  Suppose a farmer decides to be more selfless and give away his crops to the needy.  He starts small, but over time, he eventually gives all he has to the hungry, season after season.  Many would applaud the farmer’s efforts and label his enterprise the perfect business model.  However, a couple of things are working against him. 

How long can the farmer afford to give away the fruits of his labor and remain in business?  At some point, he will exhaust his capital and be forced into bankruptcy.  At a minimum, he will no longer have the necessary capital and labor to grow crops.  His land will now sit idle, producing nothing.  While his initial efforts seemed selfless and noteworthy, acting selflessly lead to his downfall.  Another effect wrought by the farmer’s generosity is dependency.  Folks have come to depend on and expect the yearly handouts.  Now the free food has disappeared, and those who have come to depend on the seasonal giveaway will be forced to look elsewhere for food, and will most likely have to pay for it.  These problems could have largely been avoided had the farmer acted in his own self-interest. 

 A profit-seeking farmer would have produced a much different outcome.  By selling his crops, he would have generated the profit necessary to continue the business, thus feeding the hungry indefinitely.  A non-free price would have incentivized the consumers to seek gainful employment, thus eliminating the dependency problem.   
While we often preach that selfishness is bad, acting in our own self-interest is often the best way to avoid the bigger problems of selflessness.
But perhaps I’m over-reacting and the sign wars is benign.  You be the judge.

Thursday, November 25, 2010

Euro Area T-R-O-U-B-L-E

I started looking into government revenue v. expenditure (taxes and spending) for the Euro area as a way of investigating why Ireland is in such big trouble. I see many are calling for Ireland to raise the corporate tax rate as a way of picking up their revenue to cover the expenditure. I wanted to see if the reason certain countries were in trouble were because of imbalances in revenue and expenditure. In other words, were governments spending themselves into trouble? So, I grouped EU countries into four categories: bilaterally by use of the Euro, and bilaterally by being above or below the average 10-year government bond yield for their currency grouping (Euro or non-Euro). So, there are four categories: on the Euro and below average debt yield (non-distressed); on the Euro and above average debt yield (distressed); on own currency and below average debt yield; on own currency and above average debt yield.

I collected data on total government revenue and expenditure for each country from the European Central Bank for 2000 - 2009. The graphs of the data appear below, following the order of the above list.

I think what we're seeing here is that there are move than a few countries that could be in trouble here. Some of these countries' imbalances started going up from 2008, which is clearly a drop in tax revenue due to economic slow-downs. However, some of the countries in trouble saw their imbalances either continuously high (above 1) are pick up prior to 2008. Ireland is one of these.

In a coming post, I'll look at the underlying driver of the imbalance. Mostly, I want to see if governments started spending more, or if tax revenue went down.

One thing is clear - there will be more trouble in the future.

Positive v. Negative Rights

I know... I'm supposed to do a post re: the first chapter of MES. I'll get to it. Many things going on in my head these days.

The purpose of this post is to begin exploring an idea that popped into my head. My proposition is this: a positive right to resources, by its nature, cannot logically exist. In a world of scarce resources, any statement of a positive right must necessarily violate another's negative right. Because negative rights are granted by the Creator (or creator - see earlier discussion esp. Troy Camplin's contribution) and therefore cannot be legitimately violated, a positive right cannot exist.

The above is a syllogism, but I believe I must set about proving the proposition that a positive right to resources violates a negative right. The primary negative right, from which all other negative rights follow, is the property right. This may sound odd, but it must be understood that any person's primary property is the person (body). You own your body and no entity can violate your body legitimately. That is, any violation of a person's body, that is an act against the body without consent, is necessarily a criminal act. From this basic premise flow all negative rights.

That a person can own land flows then from the fact that you own your body and therefore your labor (work). We own land by being the first to work the land - note that this is different from staking a claim. Note this also goes against the idea of state land, or national borders. And, yes, the state has no right to expropriate land from the Indians.

Now, let's take a simple example to begin with, since I don't want to write a journal article here. An example of a commonly asserted positive right these days is the right to a job. In other words, person X has the right to get paid to do some work. Let's break it down further, and assume everyone is the world is self-employed. That same statement under these circumstances would read: I have a right to sell the fruits of my labor to you. That might sound okay, but only because one typically tosses an extra word in there: I have a right to try to sell the fruits of my labor to you. Say I grow pumpkins - I have no right to force you to buy my pumpkins, but I have every right to offer them to you in exchange for something you have (like other goods, or money, or whatever).

Now, let's say you come up to me and offer to help work my land in exchange for some pumpkins. A positive right to a job would state that you can force me to employ you. But this violates my negative right to refuse to exchange with you. My right to exchange only with those I want, and who also want to exchange with me, is a natural outflow from my property right. If your labor isn't worth a pumpkin to me, you have no right to compel me to give you pumpkins in exchange for your labor.

That's only one example, but let's put the challenge out there: what positive right to resources can you come up with that isn't a violation of someone's negative rights?

The Real Story of the Pilgrims

A dandy little video for Thanksgiving day: http://www.reason.tv/video/show/the-pilgrims-and-property

Also, thanks to the thousands of people who don't know who I am yet conspired to create all the products I will use and consume today. Yay capitalism!

Tuesday, November 23, 2010

A dim-witted idea

Like your incandescent light bulbs? Better stock up. Soon, the incandescent light bulb will become a thing of the past, thanks to Congress. In 2007, the Congress passed and President Bush signed the Energy Independence and Security Act of 2007. This 822-page monster accomplished many things, but no energy independence. The law addresses average mileage standards for automobile makers, sets unachievable and costly energy reduction requirements for federal facilities, and bans the incandescent light bulb.

This piece of legislation contains enough fodder for pages of blogging, but for the sake of brevity, we’ll confine our ranting to light bulbs. In case you’re wondering, here’s the phase-out schedule:

· the 100 watt bulb on 1/1/2012;

· the 75 watt bulb on 1/1/2013; and

· the 60 watt and 40 watt bulbs on 1/1/2014.

What about your oven, you say? That light is exempt. What about your refrigerator, you say? That light is also exempt. So are your 3-way lamp light, dryer light, colored light, and trouble light. Sounds ridiculous doesn’t it?

I’m not going to delve into the financial costs of outfitting your home with CFLs, or the safety procedures you are urged to follow should you break a CFL (they contain mercury). This is about preference. I prefer the soft, natural light only an incandescent can provide. I prefer being able to dim my dining room lights, creating ambience for a meal. I prefer the freedom to peruse the lighting aisle at Lowes and marvel at all the wonderful, different types of lights provided by our free enterprise system. That liberty will soon be gone, and like a good citizen, I will eventually outfit my home with the lights my government says I should use. I have no other choice.

In a free society, the preference of the individual is supreme. No government standard can (nor should try!) hope to meet the many different desires, tastes, and wants of the individual. Hayek said it best, in the Road to Serfdom, “From this the individualist concludes that the individuals should be allowed, within defined limits, to follow their own values and preferences rather than somebody else’s…the individual’s system of ends should be supreme and not subject to any dictation by others.”

So, head out to your favorite lighting store and stock up on incandescent before Congress turns the lights out for good.


Saturday, November 20, 2010

Is the military making us less free?

Seems odd at first doesn’t it? I’d venture to say most folks attribute freedom with our military, not the opposite. After all, America is the lone superpower in the world, able to project military might around the globe at the president’s command. Our navy is larger than the next twelve navies combined, eleven of which are our allies. We have thousands of fighter jets, tanks, and my favorite – Bradleys and other weapons of war. No doubt, when any rogue dictator contemplates war with the USA or its allies, the size and lethality of our military must give him pause. But is all this military might actually eroding our freedoms?

Economic freedom stems from individuals retaining the fruits of their labor. Government extracts this freedom from individuals in the form of taxes to pay for things like, well, military operations. According the Congressional Research Service (CRS RL33110), as of July 2010, Congress has appropriated $1.12 trillion for the wars in Iraq & Afghanistan. Nearly all of this has been supplemental funding, meaning it wasn’t subject to the regular budget or appropriation process. It is all deficit spending. Deficit spending, as well know, is simply deferred taxes.

$1.12 trillion is a lot of money. And this is on top of the regular annual Department of Defense appropriations, which have swelled from $294 billion in FY2000 to nearly $550 billion for FY2011. In all fairness, the FY2011 request does include the supplemental for the wars in Iraq and Afghanistan. Now, I’m not advocating we abolish the defense department or the military. I like living under the umbrella of protection our military affords us. What I am questioning is – can we afford it, and is it making us less free?


Friday, November 19, 2010

A Topic Not Related To Economics and History

Just finished my first trip to the "south." North Carolina, precisely. I'm filled with (real) barbecue, and a strong desire to purchase a rocking chair. If you're from the north, and never been to the south, you really must go. There's nothing quite like it. The food is good, the people are nice, and the weather is mild. Oh, and the beer is excellent. Nothing like a pork sandwich, a rock, and a beer.

Wednesday, November 17, 2010

First Post From New Partner

It looks like I have a new partner here. He's going to help expand the frequency and spoke of posts. Welcome aboard Brad!

P.S. I think Brad has been influenced by Don Boudreaux of Cafe Hayek. In a good way. Here's Brad's first post, a letter to a local city councilman.

"Dear City Councilman: November 17, 2010

Having moved to San Antonio from Syracuse, New York in August, we were thrilled at the prospect of living in a warmer climate and enjoying more personal liberty. New York, as you are probably aware, isn’t known for broad individual freedoms. So far, San Antonio has lived up to our expectations. We are able to home school our children with little or no interference from the state; the friendly business climate has afforded us with numerous job opportunities; and there is no state income tax. We are enjoying these and many other liberties that make Texas a destination for like-minded folks.

As with most every other city, there is always room for improvement, especially when it comes to protecting and advancing individual liberty. One such area I feel needs addressing is the requirement for residents to obtain a permit for a garage sale. I must surmise that the limitation on the number of garage sales allowed is (or was) an attempt to prevent homeowners from establishing and operating an unlicensed business from their property. I don’t know the statistics, but I can imagine that the net effect of the “garage sale permit” is essentially a de facto ban on the practice.

The arguments against such a “ban” are plentiful and robust. I will point out just a few. First, garage sales should be a right protected by the state, not banned by it. Ownership in property ought to include the right to trade my personal effects with my neighbor, passerby, or across town stranger on my property at the time of my choosing. Property owners should not be required to “purchase” this right. Second, garage sales encourage recycling. If sellers want to trade used records of Rolling Stones and old Indiana Jones DVDs instead of junking them, a garage sale is the perfect market for “recycling” their goods. Third, a limit on garage sales disproportionately hurts the poor. Many families depend on a plentiful supply of cheap goods to dress and equip their families, provide toys for their youngsters, and outfit their homes with furniture. Now, they must choose alternative methods to find their necessities, often at a higher cost. Finally, the financial (and social) cost of this requirement must outweigh any benefits sought. I highly doubt that the fees generated by the permit requirement offset the administrative and enforcement costs required to effectively promulgate the program. I can think of many better tasks for enforcement officers to perform than issuing citations for weary homeowners simply wanting to clean out their garage.

I look forward to your response and welcome any action on your part to reconsider the limitations on residential garage sales in San Antonio.


Brad X"

Sunday, November 14, 2010

Neoclassical Economist reads Rothbard's Man, Economy, and State - Introduction

I've been reading (some might say retraining) in Austrian economics for some time now. I'm trained in neoclassical economics. There are all kinds of ways that these two types of economics are similar and many other ways that they are different. There are boatloads of discussions regarding these differences. I would say Austrian economists, since it is considered heterodox, are aware of neoclassical, but the reverse is not the case. For me, I only became aware of the general existence of Austrian economics after working backwards through Hayek and finding out who his professors were.

Enough preamble. I am going to now begin abusing my blog (since I think only about 3 people read it this shouldn't be a big deal) by recording my progress through Man, Economy, and State. My plan is to post a discussion regarding every major section. I might say I'm aspiring to my own version of Bob Murphy's study guide for MES, but I haven't read it so I can't say it. My hope is that people will happen upon these postings and discover the genius that is Rothbard.

I will close by saying that the largest hurdle for Austrian economists (or aspiring ones) in advancing the profession is the immense chasm between Austrian methodology (that is praxeology) and the neoclassical methodology (mathematics). Both use types of logic: praxeology is essentially deductive logic, and math is symbolic logic. Nevertheless, the orthodox method is a menu of mathematical models. Austrian economists have to fight that battle. This has also been my most difficult hurdle in accepting as legitimate economics the Austrian method. I've crossed that hurdle as I've read the work of the various Austrians (most notably Hayek) but I believe this issue is what prevents Austrian methods from being taken seriously by the mathematically-driven orthodoxy.

Enough for now. In the next post, I will begin discussing Chapter 1 of MES.

Saturday, November 6, 2010

Zweig's Column Today

More notes from the past that we would all do well to remember.

First, J. Zweig at the Wall Street Journal discusses credit ratings and a professor named Palyi: http://online.wsj.com/article/SB10001424052748704405704575596382345085258.html

Second, go here: http://mises.org/books/inflation_primer_palyi.pdf to find Palyi's book about inflation.

Inflation isn't benign, even when it is small.