Posts Tagged ‘collapse’

Top Five Songs of Freedom

September 20, 2010 22 comments

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I have often heard complaints from true patriots and freedom advocates about the difficulty of finding pleasant, powerful, and lyrically compelling music that examines the world from a libertarian or even just individualist perspective. Indeed, statism is rampant in contemporary songs on the radio, despite shallow claims by many artists that they are anti-authority. Celebrities are notoriously leftist, and their idea of being anti-authority typically has more to do with spewing hatred for nameless cultural enemies than addressing the real, coercive institution of politics. The only genre of music that has remained largely immune to leftist childishness is country, but that has all its own problems. Very few country singers dare to confront the authority of the state for what it truly is. Moreover, a sizable portion of them happily and fiercely wave the flag of imperialism for Uncle Sam whenever he calls upon them to denounce war skeptics as anti-patriotic and anti-freedom. Indeed, for those of us who can envision a truly voluntary society and understand that freedom does not come from preemptive violence and collectivist class warfare, appropriate entertainment options are limited.

What’s particularly bothersome, though, is that there doesn’t appear to be any good reason why this is so. The power of individual choice and the beautiful achievements of free people are among the most awe-inspiring of potential song topics. The oppressive instruments used by the state and its sympathizers to obstruct individual creativity and prosperity are angering in the extreme – and they affect everyone! Libertarian music ought to invoke at least as much emotional response as any class warfare or false patriotism. Why, then, is there frustratingly little of it?

I don’t know, but I’m not willing to give this one to the Man. So in the interest of promoting the great, if few, artists of our time who have taken a stand for freedom in their music, I’ve compiled a list of five of my favorite contemporary songs that portray a mature and explicit pro-freedom message, along with links to lyrics and recordings.

1. Twisted Sister – We’re Not Gonna Take It

lyrics || video

This song is a classic among anti-state and anti-authority types across the board due to its motivating, revolutionary tone. Poetically, it was released in 1984 (haha) and goes a step beyond the played-out and dull expression of teen angst about controlling parents and controlling schools and controlling what-have-you. From the start, the use of the phrase “right to choose” reveals that Twisted Sister is concerned specifically with political freedom. The enemy whose abuses “we’re not gonna take” appears to be governmental, not cultural. Then, in a second verse that sounds suspiciously like a rejection of cradle-to-grave nanny-statism, the song accuses authority figures: “You’re so condescending; your gall is never-ending; we don’t want nothing, not a thing from you.” That might still be open to a little interpretation, but the deal is sealed immediately afterward when the enemy’s “life” is called “confiscated.” It’s hard to imagine that refers to anything except the state, whose existence is based on confiscating from others only to give (less) back again.

Twisted Sister’s not-so-subtle rebuking of abusive state control worked, too. At least, it made the statists angry and scared enough that one year later the United States Senate called the lead vocalist, Dee Snider, in to testify on behalf of heavy metal and explain why it shouldn’t be banned from America. That was a mistake, as this video shows. Snider harshly criticized the Senate for its attempts at censorship and even said a few beautifully derisive words about Al Gore’s wife when the Senator himself accused metal music of harming her poor, sensitive mind.

2. Linkin Park – No More Sorrow

lyrics || video

Released in the anti-war fury of the late Bush administration, “No More Sorrow” is among the most vicious attacks on statism I’ve heard. After a musical opening with a clear marching beat reminiscent of revolutionary soldiers preparing for battle, the song’s incendiary lyrics denounce all aspects of the rise of fascism in America. Every single word is intensely political, from identifying the Terror Wars with, “your crusade’s a disguise,” to summarily rejecting the whole administration as “liars and thieves,” and the sentiment to which we can perhaps most directly relate, “I’ve paid for your mistakes.” Linkin Park promises that “you will pay for what you’ve done” and chants “thieves and hypocrites” in a shouting tone that is angry to the point of being disturbing. In spite of its obvious connections to George Bush, the message of the song is essentially timeless. As long as there is a state, it will consist of liars and thieves who will wage false crusades at the people’s expense. The solution is clearly stated at the end: “Your time has come to be erased.”

3. Hank Williams, Jr. – A Country Boy Can Survive

lyrics || video

Well, what to say? This country classic is just basically one of my favorite songs of all time. Written and performed by Hank Williams, Jr., it shows a truly independent country spirit – not blind, flag-waving nationalism, but simple, individualistic Americanism. Hank opens by describing a national crisis – a decline in the economy which has resulted in rising crime rates and civil unrest. But Hank is not too worried, because he has “a shotgun, rifle, and a four-wheel drive, and a country boy can survive.” He goes on to describe the pragmatic independence which allows him to live apart from industrialism and the larger national economy – eating, of course, good old “organic” food as the environmentalists tell us is proper.

Then, Hank tells a story about his friend from New York, whom he clearly respects, being killed on the city streets by a common thief looking for some cash. In a stroke of pure, unadulterated Americanism, Hank says outright, “I’d love to spit some beach nut in that dude’s eye and shoot him with my old .45!” (Wow!) There’s no political correctness to be found here. In fact, there’s no politics at all. There’s only justice, delivered by a concerned and well-armed citizen with no reference whatsoever to any permission from an authority figure. Hank’s simple lack of regard for unnecessary institutions of all forms is rare and refreshing.

4. Econ Stories – Fear the Boom and Bust

lyrics || video

If you want explicit libertarianism in a song, this is as good as it gets. Russel Roberts, an economist from the Institute for Humane Studies, worked with media director John Papola to try to bring a knowledge of economics to the general public, and the Ke$ha-endorsed rap “Fear the Boom and Bust” was the result. It tells a fictional story of world-renowned economists John Maynard Keynes, who advocated heavy government interventionism, and Friedrich Hayek, who favored freer markets, meeting in New York city during the financial crisis of 2007-2010. Using real quotations from their most famous books, Roberts constructs an argument between the two over what caused the crisis and how it can be fixed. Topics include the on-going collapse of the American housing market, the worldwide credit crunch which has proven to be immune to quantitative easing, and the chronically depressed aggregate demand by consumers which persists in spite of Keynes’s prescribed stimulus spending. That Hayek wins the argument is as clear as it is inevitable. His ground-up constructed philosophy triumphs over the flawed Keynesian model of aggregate variables and interventionist dogma.

5. System of a Down – Cigaro

lyrics || video

I must give fair warning here: By the standards of my blog’s usual content, “Cigaro” is quite obscene, so click the links at your own peril. I’ll avoid commenting too much on the gruesome details in text, but let it suffice to say that this song ridicules the immaturity of state rulers in a most overt way, accusing them of engaging in useless power struggles that harm innocents around them. The video, especially, depicts a group of arrogant buffoons – the governors of the world, of course – trying to force activity in their countries and comparing their relative strengths in a scene reminiscent of the build-up to the World Wars. System of Down condemns this crowd as “cruel regulators” and “the propagators of all genocide,” continuing with the World War theme. An explicit identification of the close historical ties between heavy economic regulation and mass murder is quite rare these days, as public schools have taught us that national socialism is good, but National Socialism is terrible. Perhaps there is hope for the future after all.

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Mandated spending is pushing on thread.

August 31, 2010 8 comments

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The folks over at Econ Stories made history in January of this year when they released Fear the Boom and Bust, the first popular, Ke$ha-endorsed rap video about economics. The video depicts world-renowned economists John Maynard Keynes and Friedrich August Hayek arguing about how the federal government’s fiscal and monetary policies affect the “Boom and Bust” business cycle, focusing on the parallels between the Great Depression and the housing and lending collapse which began near the end of the Bush administration and has continued throughout the Obama administration.

As with any rap, the main feature of the video is its lyrics, which contain the topic of today’s discussion: “Your focus on spending is pushing on thread.” This line is a rather esoteric reference, by way of clever metaphor, to monetary asymmetry. These are daunting words, but they actually refer to a very intuitive concept which has eluded policy-makers and even many economists for over a century. The aim of this post is to help the average observer understand just what is meant by the phrase “pushing on thread,” as well as to provide a conceptual base for further investigation of how ignorance of economics has had grave consequences for nations around the world.

The best way to discover economic principles is through thought experiments that investigate cause-and-effect relationships. Suppose, for example, that the average individual eats out at restaurants or bars about twice a week. If the government were to impose a law mandating that no person may eat out more than once a week, it would obviously have a negative impact on economic activity. In fact just about everyone can guess this if asked. Unfortunately, not so many of us can really explain precisely what is meant by “economic activity” or how the government’s new rule reduces it. Nevertheless, we understand instinctively that economic activity must be depressed by forbidding people from eating at restaurants.

What actually happens in a situation like this is as follows: Consumers, who at any given time have only a certain amount of liquid assets (money) they can spend, are willing to spend some of their assets at restaurants. However it may be that they decided to eat out twice a week, that’s what they’re willing to do. When the government declares that they may not do this, it prevents economic transactions from occurring. This is “bad” for one simple reason – people wanted those transactions to occur. Specifically, restaurant owners and restaurant customers wanted to make an exchange of money for food. They wanted to do this because each of them valued what the other had more than what they were giving. The customer would rather have a meal, and the owner would rather have cash. If the transaction occurs (the customers eat at the restaurant), everyone feels better off than before. If the government prevents this, economic activity – specifically, the exchange of assets in a beneficial way – is diminished.

Such a law won’t cause all of the consumers’ wealth to go to waste, of course. By preventing people from patronizing restaurants, the government induces them to do something else with their money. However, whatever it is that they decide to do, it is important to remember that it will always be their second choice. They would rather have spent their money on eating at a restaurant than whatever they spend it on instead. Therefore, the value of what they buy with the money they would have used at restaurants will be less to them. They will be worse off. Similarly, the restaurant owners will be worse off, even if they leave the restaurant industry and take up another profession. This is their second choice profession – it was not the most appealing and profitable venture for them. The transactions that people wanted to make to increase their lot in life have been prevented by the government, and whatever is substituted is by definition less beneficial.

Thus it is now clear precisely how a government mandate against eating out more than once per week reduces economic activity, in the sense of forcing a real reduction in beneficial transactions. The concept of pushing on thread enters if the government attempts to employ the reverse idea. Suppose, now, that a law is passed which requires each person to eat out at least three times per week. Remember the assumption that the average individual eats out twice per week. If limiting the amount that people can eat out has the effect of reducing economic activity, perhaps mandating that people eat out more often will increase economic activity. Certainly, restaurant owners might tend to think so. As there will be more transactions in the restaurant industry, revenue will go up for restaurant owners, some of which will be passed on to their employees. Indeed, more restaurants will be built, and that will create jobs in construction, cooking, and waiting. Consumers will have more meals, and probably better ones, too.

It would be great – right? Not at all. Mandating more consumption of products and services does not have the opposite effect as mandating less. If anything, it actually has the same effect, as total per-capita product still declines. This is the essence of the “pushing on thread” metaphor. If the government’s policies impacted the economy in a manner that were so easily manipulable and reversible as, say, a door – pull to open, push to close – then it is doubtful such highly educated experts would be hired to determine the government’s policies. Instead, though, the effects of policy are complicated, and the more they are analyzed, the more depressing the conclusions become. Mandates and regulations pull down, but can not push up, on the health of the economy.

To see how this is so, recall that consumers have only a certain amount of money to spend at a time. They must budget this money somehow; spending infinitely is not an option. Therefore, as people are forced to spend more and more at restaurants, they must by definition make sacrifices elsewhere. Perhaps before a person went out to eat twice a week and went to the theater once. Now he goes out to eat three times, but stops going to the theater to compensate. This, again, is not an even trade-off. He is actually worse than before, because he has stopped doing something he wanted to do – going to the theater – in favor of a second choice option. He didn’t want to spend all that money at a restaurant, so he is by definition worse off if he is required to do so.

Similarly, the business owners also take a hit in productivity. Obviously the owners of pre-existing restaurants will see a rise in profits if a law were passed requiring more visits to restaurants. Yet what is also true is that the owners of theaters must see a decline in profits, as well. As restaurants are built in the weeks and months after the law is passed, so also theaters are closed. Small business owners and their employees will shift industry. People will quit their jobs as theater directors and go to work in food service. Again, this is a second choice. Again, it is by definition worse than what was in place before. The converts from other industries to the food industry are taking jobs they weren’t trained to do in order to satisfy a fabricated demand that doesn’t really exist except that the government requires that it does.

Economists and politicians may preach about the stimulus effects of increased spending in the restaurant business. The newspapers scream headlines about the new jobs created by constructing more restaurants to meet the growing demand. Yet all of this is in the spirit of the broken window fallacy, commenting on the visible benefits of a transaction while ignoring the unseen opportunity costs. The idea put forth is that any economic transaction is by definition a good one, when in fact only a voluntary exchange benefits both parties involved. When praising the activity generated from a mandate to consume, it is necessary to ignore or dismiss the activity which would have occurred in the absence of the mandate – and that activity would have been preferable to both consumers and producers.

One might imagine that policymakers and politicians had by now come to understand the lesson in this simple parable of restaurants. At the very least, they certainly have hired economists and analysts who are too educated to fall for the basic fallacy of pushing on thread – of assuming that the opposite of an action which produces a result will produce the opposite result. Since elected officials tend to be of above average intelligence and education level, and since the federal government has many panels of experts with decades of experience in economics, it is to be expected that, although government policies may not always be perfect, they aren’t as utterly naive as requiring people to eat at restaurants and then declaring an improvement in the economy.

Aren’t they? It seems not, as the past three years have revealed an ever-increasing role of government spending and government-supported consumer spending in the name of “stimulating” the economy, without much consideration for the fact that it is impossible for such policies to increase total productivity at all. Remember the Bush package, when you and your significant other got mailed a check for six hundred dollars in order to stimulate the economy? The stated goal of this policy decision was to prevent an economic collapse and help boost GDP in the face of an expected moderate decline.

Well, it didn’t work at all. GDP ended up dropping far more than predicted, not in spite of the stimulus, but because of it. In fact, Bush’s idea failed so completely that Obama expanded upon it and extended it to affect more people. At every turn, with every new stimulus program, of which there have been about a half dozen since the housing crisis began three years ago, the federal government has sworn that there would be a demonstrable increase in GDP as a result, and every time real GDP (adjusted for inflation) has actually fallen.

This is by no means the extent of the damage – examples of government destruction rationalized as construction abound. It turns out that Barack Obama actually pulled the “mandate that people eat out” trick, only he did so with cars. The infamous Cash for Clunkers program, which one might argue is better termed “the General Motors bailout,” required Americans to buy new cars – with their own money, funneled through the federal government by taxes. Essentially, Obama offered a subsidy, funded out of tax-payer money, for people to scrap old cars and buy new ones. The program was sold on the claim that the act of buying new cars would spur economic growth.

It did not accomplish this, and it could not have under even the most generous interpretation. The philosophy of the program was flawed at its core, because it presumed that the activity generated by purchasing new cars must be good activity – ignoring the fact that, if it were beneficial to buy a new car, people would simply do that on their own. By taking tax dollars, which are of course collected by force, and demanding that they be applied to the purchase of automobiles, the government incentivized allocating resources to one particular sector of the economy, but by definition took resources away from other sectors where consumers would rather have used them. Requiring that people spend their money on a new car is no different from requiring that they spend it at a restaurant, and the damage done is exactly the same. Whatever else people would have spent their money on instead if given the choice, that was better for them than the purchase they were forced into. Ultimately, though, this was lost on policymakers, because they rationalized their decisions by observing the economic activity of buying cars and ignored everything else that money could have been used for.

When the government gets worried by how much of people’s money it is taking to fund purchases they didn’t choose to make, it has another card to play, which is monetary inflation and deficit spending. For a hundred years, Keynesian economists and federal-level politicians have struggled to convince the world – both the people in it and physics itself – that monetary policy allows the government to spend money it doesn’t actually have, if it’s careful enough. All manner of nuanced methods have arisen towards this aim. From the esoteric quantitative easing to tried-and-true manipulation of bonds and printing presses, an academic field and a sector of industry has grown up around selling the notion of the free lunch. The government, it is claimed, can fund programs with other methods besides simply taking money from individuals.

This, unfortunately, is not true. The government cannot create wealth out of thin air, no matter what elaborate practices its banks may employ. Whatever government money is not taken from individuals expressly through taxation is ultimately taken through inflation, the devaluation of savings accounts. When the government bails out banks with trillions of dollars of unofficial spending, this money is taken from the savings accounts of all Americans, especially the middle class, whose combined liquid assets represent the bulk of non-industrial capital. Literally, dollar bills and other written representations of money are created by the government, which the elites call “injecting money into the economy,” and the result is that the value of the dollar declines.

As the dollar is weakened, the ability of savings to buy real products and services decreases proportionally. That means that a person who used to be within a month of having enough money saved up to buy a boat, or who had savings to support his family for a year in case he lost his job, or who was preparing to send his children off to college, is now able to buy less than he otherwise would have with the same amount of dollars. This, then, is the cost of the bailout, and fits the exact same model as the fabled restaurant mandate. The government forces individuals to forgo purchases they otherwise would have made voluntarily in order to pay for a mandated bailout of corporations whose unwanted products and services failed to produce profits – all in the name of stimulating the economy.

The economic crisis has lead to the government fully doubling the monetary base in just a few short years. The long-term consequences of this will be the establishment of recession conditions as the “new normal.” The economy will not improve – it cannot improve – so long as the government continues its policy of mandating spending at levels above what would naturally occur. The American middle class individuals do not want to dig into their savings to bail out enormous banking corporations that have mismanaged their money. They do not want to buy new cars at a time when their income level is uncertain and the bare necessities are of immediate concern. When the government disrespects their decisions in managing their finances, it is only destroying any hope of recovery. Policies that focus on spending are pushing on thread, trying to create a stimulus but ultimately just allocating precious resources where they don’t belong. If Americans want a better future for themselves, the only option is less spending, less mandating, and less government.

If you liked this post, please share it on your Twitter or Facebook page. You may also like The Collapse of the Brain Bubble – How the federal government will end college education. Check out the index page for more from the Worst-Case Scenario!

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The Collapse of the Brain Bubble – How the federal government will end college education.

May 24, 2010 11 comments

To listen to the audio version, play the video below. To read the transcript, simply scroll down.

Hello, internet. Today I’m here to talk to you about a serious threat to the stability of our economic system and our lifestyle in general. It is the “brain bubble”, a systemic miscalculation of how society’s resources should be allocated to education. To understand the severity of the threat posed by the brain bubble, we must first explore the basic misunderstandings of economics from which the whole problem stems.

The economy is simply the word economists use to describe the aggregate of all the things that people do with their capital. Capital is anything that exists through time and has value. Land and machines are good examples of capital. With capital, people can perform activities that produce valuable output. For example, with land and machines a company can maintain a manufacturing plant that produces stuffed animals or food products to sell.

The decision to allocate some capital, also called “resources”, to a particular economic activity is called “investment”. At any given time, there is only a certain amount of capital in the world, so society must be wise in how it invests. The world should not, for example, use half of all its factories to make stuffed elephants if only five percent of people actually want a stuffed elephant. The economy needs a system by which people can decide whether to invest their capital in a particular venture or not.

Fortunately, such a system exists in the form of interest rates. Money represents capital, in the sense that it can be traded for capital and vice-versa. Loans of money, therefore, are an investment by the lender in whatever the venture for which the loan is made. In a free market, interest rates on loans will tend to equal the average expected return value for investments in general. If a company borrows money to perform an activity, and that activity has a return that is greater than the interest rate, the company will pay off the loan and then expand. If instead the venture returns less than the over-all interest rate, the company will have to close its operations in order to repay the loan.

Suppose, for example, that I have imagined a better kind of soda than what is currently on the market. I think I can provide people with a beverage that tastes better than Coke or Pespi and costs less. An investor can make me a loan, with which I can build a factory and start marketing my product. If I’m right, and people want what I’m selling, then my sales will spread rapidly through the soda market, and I will turn a large profit. With that profit, I will pay back my lender plus interest, thus justifying his initial investment in me. If I am wrong, and my invention was not a good idea, then I will turn a small profit or none at all, I will be unable to make the interest payments on my loan, and my lender will not earn money on his investment. This discourages lenders from investing in products and services that people don’t want. This is the policy by which capital is invested in useful ventures.

Your actions are also business ventures. People can invest in you. They can do this, for example, by granting you a student loan so that you can go to college. If your activities after college prove highly productive, you will earn a large salary, and will pay off your student loan with interest. If instead you are lazy or dumb, or if you simply want to pursue a lifestyle that does not involve a lot of economic activity, your lender will lose money on you. This, of course, creates an incentive for lenders to try to determine the expected productive output of students while they are in college. Students who are likely to pursue high-end careers that require a lot of education will tend to get larger loans, while students who will not apply a degree in a productive fashion will be offered smaller loans or no loans at all.

At least, all of that would be true if interest rates were unregulated, student loans came from private investors with individual responsibility for the success or failure of the loans, and college education had a definable cost to each individual who received it. Instead, investors have been required to issue student loans through federal programs, at federally-approved interest rates, for the past several decades. The cost of college education has been increasingly subsidized and controlled by both federal and state governments. More recently, President Obama nationalized the entire student loan program, with the reasoning that attempts by lenders to profit from their investments were interfering with students’ opportunities for education.

The result of all this is that the discriminating factor in investing – the need for investors to profit on their investments – has been totally removed from the equation of who gets a student loan and how much they get. Student loans are no more or less likely to go to students that will actually make use of them and be able to pay them back than to students who have no future in higher education and have no ability to repay their loans at all. That would be fine if society had an infinite amount of educational resources to allocate to whomever the government pleased. However, resources are finite, and every dollar that is spent educating someone who will not work to pay back his loans is a dollar that could have been spent educating a more productive citizen or building a factory to produce food to end world hunger.

The progressives will tell you that investment in education almost always has a positive economic return. That is emphatically not true. Hundreds of thousands of students with federal loans cannot pay them back, and the problem is so widespread that Obama already has plans to “bail out” the student loans and nullify the debt. Even if it were true that education always produces positive returns on investments, that is still a construct of a government-regulated, artificially low interest rate which ignores the opportunity costs associated with investment. By forcing interest rates to be lower than the free market would naturally make them, the federal government has made it profitable to invest in students whose activities after graduation do not economically justify the initial investment.

By removing the need to allocate resources to education in precisely so far as it is efficient to do so and no farther, the federal government has created a brain bubble. Loads of people are going to college, no matter how much it costs, and no matter whether they actually care about their degree or have any plans to enter a specialized career after graduation. Students who don’t need a college degree can get federal loans, and, if they don’t ever make enough money to justify those loans, they will be absolved of all debt under Obama’s new plan.

The cost of college has soared exponentially above the rate of inflation over the past several decades. Every time book prices, tuition, and boarding costs go up, the federal government has responded by subsidizing higher education even more heavily, enforcing stricter regulation on lenders, and lowering interest rates. These policies are promoted as being necessary to allow people to continue to get a good education in spite of rising costs. The entire strategy has never worked, not even a little bit. At every turn the government has tried to curb rising costs by subsidizing even further, removing even more of the ever-dwindling incentive to allocate resources efficiently. Even as technology gets cheaper, books get easier to produce, dormitories become better-designed, and educational techniques get ever-more refined, the cost of higher education continues to balloon. In all of the government’s attempted analysis of this situation, the one question that is never asked is, “Why are costs going up?”

They are going up, plain and simple, because the interest-rate information, the driving need to supply education to those who will make use of it and not to others, has been destroyed. It has been destroyed by the very same policies that were meant to make education accessible to everyone. Costs will not go down because the government yells or the people protest. The only strategy that can mitigate the cost of college education is the cessation of all subsidies and the release of the government’s grip on interest rates. When lenders are allowed to seek profit in the loans they grant to students, colleges will again have an incentive to minimize tuition, and students will have an incentive to work hard in school to prove their academic worth.

However, it is clear that strategy will not be adopted in America barring massive political upheaval. Instead, through Obama’s recent decision to totally nationalize the student loan program and eliminate any remaining profits, college tuition costs have again spiked. Obama has set a precedent now that loans can be given to anyone for any reason. If the loan cannot ever be paid back, the government will bail out the lender. All incentive for fiscal responsibility and economic efficiency is gone.

The cost of college will continue to grow over the next ten to fifteen years. No later than 2030, the government will go completely bankrupt, and colleges will no longer be able to accept payment promises through Federal Reserve notes. When that happens, the brain bubble will burst. College will be so outlandishly expensive that no one will be able to afford it without federal assistance, and no federal assistance will be forthcoming. The well will run dry. When the government is no longer able to bail out society today with money it hopes will be created tomorrow, the college market itself will collapse. Dormitories will sit empty for years in much the same way that houses have been abandoned since the 2008 housing crisis. Just like all bubbles before it, the brain bubble is a result of systemic over-investment without regard for actual returns. It is guaranteed to burst, and the result will be an entire generation of Americans who will not have any of the skills of higher education.