When the “junk heap” is steadily deteriorating

Wastewater analysis suggests increasing recreational drug use among New Zealanders. (Although there are some problems with the data.) But this isn't an issue confined to our small islands.

This is of course when recreational drugs are illegal. So drug consumers are willing to pay more to gangs for a riskier product to get their chosen high.

Two questions always come up when one advocates for drug legalisation. 

The first is that legal drugs will make drug consumption more prevalent and more sordid. This goes against both evidence and theory: Milton Friedman for one arguing that the Iron Law of Prohibition actively encourages the escalation of more virulent pharmaceuticals, to make any drug problem worse.

But the other question is this: 

Why do many people want to abuse drugs and alcohol? Why is this such a persistent problem in our culture — and would it still be a problem in a more rational culture?

Good question. And Stewart Margolis takes a good stab at answering it, beginning by drawing a distinction between drug use and drug abuse. Because clearly there are many well-functioning adults happily consuming recreational drugs including opium, alcohol and caffeine -- and if we trace the history, have been doing so since the first fermented berries were found several thousand years ago.  Indeed,

Archaeologists have found evidence of opium use in Europe by 5,700 BC, and cannabis seeds have been found at archaeological digs in Asia from 8,100 BC.

So it seems at least some adults have discovered a rational way to use mind-altering substances. A decent martini before dinner for example being one of the best ways to shake off the cares of the day.

There may be some that are simply too dangerous to ever be used, but that would be a scientific question rather than a moral one. 

But some adults won't, can't or don't want to be rational about it. If we discount the obvious (that some people are prone to addiction; that there might be genetic factors increasing susceptibility to substance abuse) we're left with the nagging idea that there might be more to it than that. 

Margolis makes the case that the problem is fundamentally philosophical:

Of course, a worldwide problem like this undoubtedly has multi-factorial causes, but I think at root drug abuse is an attempt to escape reality. 

Materially, the world has never been richer, so what are so many people eager to escape from? Despite our affluence, I think we are experiencing a philosophical crisis. 

Ayn Rand pointed out that humans need a philosophy in order to live. In “Philosophy: Who Needs It,” she wrote, 

“Your only choice is whether you define your philosophy by a conscious, rational, disciplined process of thought and scrupulously logical deliberation — or let your subconscious accumulate a junk heap of unwarranted conclusions, false generalisations, undefined contradictions, undigested slogans, unidentified wishes, doubts and fears, thrown together by chance, but integrated by your subconscious into a kind of mongrel philosophy and fused into a single, solid weight: self-doubt.”

 I think Rand was spot on, and the increase we are seeing in drug abuse is the result of the self-doubt brought on by people who have assembled a “junk heap” of often contradictory ideas. This has always been a huge problem, and has always resulted in a tremendous amount of suffering. So why does it seem to be worse now?

I think it’s because the quality of the ideas in the “junk heap” has been steadily deteriorating. 

When ... [common sense and] enlightenment ideas were widespread in the culture, average, unthinking people could randomly pick up a pretty workable set of ideas, which would allow them to prosper and attain a measure of happiness. They were not as happy and prosperous as they could have been, had they done the work of choosing and integrating the right ideas, but they could do all right.

But today, many of the ideas floating around in the cultural are anti-enlightenment. If you unthinkingly accept a collection of these ideas, you are unlikely to prosper or find happiness.

It's perhaps also the case that governments' increasing  economic mismanagement has been making it increasingly difficult for younger folk to get ahead economically -- they can sense that even if they can't see that explicitly -- so that there's part of of them ready to give up on the "old" idea that hard work will pay off.

You [might] notice that you’re not doing as well as your parents did, either economically, romantically, or socially. As a result, you will be filled with doubt, with dread, with a sense that something is wrong with the world — but you don’t know what or how to fix it. I believe this is the feeling that people desperately want to escape — and so they turn to drugs that numb or relieve these feelings, at least temporarily.

While I’m sure there are benefits to be found in a variety of drug and alcohol treatment programmes, I don’t think we’re likely to make much progress on substance abuse until people deal with the underlying philosophical crisis driving the abuse. 

In the meantime, though, making drugs legal would provide a huge benefit, both to those struggling with abuse issues, and more importantly, to those of us who don’t use drugs or who are able to use them responsibly.

"It’s training to be an entrepreneur, and an employer—not an employee."

Q: Governments and central banks have inflated asset prices for decades—making housing, education, and healthcare unaffordable for many.

Is the 'system' designed to turn Millennials and Gen Z into lifelong renters and debt-serfs? Is there a way out?

Doug Casey: It’s a natural consequence of Statism.

First of all, taxes are high and have been increasing for decades. After taxes, you have less money left over to save. And if you do try to save, inflation eats away at the dollars that you put in banks or investments. Worse than that, welfare and government benefits make saving feel unnecessary for many people. They feel they don’t need as much because the cradle-to-grave welfare state will cover them. There’s a reason why Klaus Schwab famously said, 'You’ll own nothing and be happy.'

A lot of people believe it. This feeling is abetted by schooling, where everyone is inculcated with this collectivist meme. On top of that, the rich are viewed as parasites. And who wants to be a parasite?

This is all caused by State intervention in the economy. Schools almost always teach students that the State is their friend. It’s not; it’s their enemy. ....

Q: We’re seeing a collision between AI/automation and a credential-heavy job market. Which parts of today’s white-collar economy do you think are most fragile?

Doug Casey: .... The bright side is that while AI and robotics will destroy huge numbers of jobs—starting now—they’ll also level the playing field. A person of less than average intelligence can have AI do things for him that he might otherwise be unable to do. A further benefit is that the world doesn’t need paper pushers and cubicle dwellers who are sitting around doing marginally productive labor. Very much like the world no longer needed people working like drones in textile mills 200 years ago, at the start of the Industrial Revolution.

While AI is going to create some major problems in the short run, it’s going to be a very good thing after those bumps in the road. Just like the Industrial Revolution itself created problems while vastly improving the world. ....

Q: What should a 25-year-old do to build real, durable earning power in the next 5–10 years?

Doug Casey: Ayn Rand answered that question in a speech I heard 40 years ago. When asked, she said: 'The best way to help the poor is not to be one of them.'

I confronted this problem with my friend Matt Smith when we wrote 'The Preparation.' The book explains why young people should avoid college. In fact, it urges them to treat college like the poison that it now is, showing how college has become a serious detriment in almost every way. More importantly, we describe what young men should do instead during the four years between 18 and 22, a time which is critically important, but generally wasted.

We demonstrate—exactly—how a young man can qualify himself with the equivalent of a BA, a BS, and elements of an MBA. That’s in addition to learning practical things in a hands-on way. We divide the four years into 16 quarters. The student will learn everything from flying a plane to sailing a boat around Cape Horn to operating heavy equipment. He’ll qualify in welding and metalwork in Canada. Cooking at a professional level in Italy. He’ll be farming in one quarter and building a house in the next. He’ll learn martial arts skills in Thailand, as well as shooting and scuba. You get the idea. It’s a productive and busy four years.

The critical thing, since we don’t know how the world is going to evolve because of AI, is to become a Renaissance man, enabling students to do anything and go anywhere. To avoid trying to climb a greasy corporate ladder, but build a web where you can reach out in any direction. That’s necessary in the world of AI. It’s training to be an entrepreneur, and an employer—not an employee."

~ from an interview with investor 'Doug Casey on Why Millennials and Gen Z are Trapped by Debt, Inflation, and Broken Promises

THOUGHT FOR THE DAY: "99% of boomer 'success' was just interest rates falling for 50 years"

 

"Ninety-nine percent of boomer 'success' was just interest rates falling for [forty] years because they destroyed the real economy."

~ Darth Powell

PS: In case you're confused ...

PPS: In case you're still confused:

"How can stock market valuations be at or near historical highs while the average [person] is about as pessimistic as they’ve ever been?

"This contradiction is a perfect illustration of the financial fun house — and the extreme distortions that relentless money printing has pumped into the system.

"If fiat currency is a dishonest measuring stick — and it is — then how do we accurately measure the stock market?

"The best option is to measure value in gold, honest money that no politician can arbitrarily debase.

"If measuring in fiat is like looking into a fun-house mirror, then gold is a mirror of truth. And when we measure the stock market in gold, that truth becomes clear. Below is a chart of the S&P 500 measured in gold going back to 1950.

"Viewed through the lens of gold, the stock market tells a very different story than it does in fiat terms — and this chart makes that unmistakably clear.

"The most striking feature of the chart is what isn’t there: a sustained upward trend. The S&P 500 today is worth the same amount of gold it was in 1995.

"Despite decades of nominal gains, the stock market has repeatedly given back those gains when measured against gold. In other words, the rising stock market was more a reflection of currency debasement than of real wealth creation.

"This helps explain the disconnection at the heart of today’s market. In fiat terms, stock prices appear to be at record highs. But in gold terms — a unit that cannot be printed — the market looks far less extraordinary."

~ Nick Giambruno from his post 'The Melt-Up Trap: Why Stocks Must Rise Until the Dollar Breaks' 

Pay no attention to the (mad) men behind the curtain [updated]

Readers here might remember I got some stick for calling John Key a fucking moron a while back. A fucking moron, specifically, for repeated calls for the Reserve Bank to juice up house prices again, just so home-owning voters will feel better again. Feel better again, and then vote National.

"The guts of what’s wrong," explained the moron, "is that the housing market is going down, not up" — and "then you have a negative wealth effect," and voters feel bad. And when they feel bad, they vote for the other team.

Classic short-termism.  Stuff rocket fuel into the economy, and then all things will be jake for the governing political parties. This, by the way, was Key's "one simple trick" while Prime Minister: ensure massive house-price inflation, no matter the economic and social dislocation, and then sit back and watch home-owners fooled into feeling better off, and borrowing and consuming more, regardless of the economic consequences. (Consequences for which we're all still paying, by the way.)

In the US, the discredited "wealth effect" — "a gussied-up version of Keynesian stimulus, only targeted at the prosperous classes rather than the government’s client classes" — is generally felt in the stock market. Pundits there are starting to get nervous about a soaring stock market with anaemic growth in the economic system itself, with "important implications for the path of America’s stockmarket boom and its economy."

The good times could continue, at least for a bit longer [says 'The Economist']. ... [But] might a wealthier society also take a harder fall? Bears would point to the bursting of the dotcom bubble in 2000, when a brutal stockmarket slump pushed America into recession. ... The stockmarket might be more of the economy. It still is not all of it.

It's not. And nor is the housing market. We can't get rich just by selling each other houses. (And kudos to one National minister at least who understands that.)

Yet David Stockman is concerned that nothing has been learned from the last major crash. 

Roughly 15 years ago it was reasonably well understood that the Great Financial Crisis of 2008-2009 had been case of speculation run amuck on both Wall Street and main street alike. These credit and housing bubbles, in turn, had been fuelled by the massive money-printing sprees of the Greenspan and Bernanke Fed.

It might have been presumed, therefore, that the mad money-printers [at the US central bank] would have had second thoughts about the underlying cause of these great economic disasters—that is, the dubious Greenspan policy known as the “wealth effects” doctrine. In simple terms the latter held that if people felt richer owing to soaring home prices and their stock market winnings, they would spend more freely and fulsomely, thereby goosing the Keynesian cycle of ever more spending-sales-production-income-and spending, which was to be rinsed and repeated in an endless round of rising prosperity.

At the end of the day, of course, Greenspan and his heirs and assigns at the Fed turned out to be unreconstructed Keynesians and the wealth effects doctrine a monumental economic con job. The latter did not make society richer; it just made the rich richer. Or stated more directly, main street got inflation at the grocery store, gas pump and doctor’s office—even as the asset-holding class experienced unspeakable windfalls in their brokerage accounts.

Let's not repeat the same mistake again here — especially when local interest rates are already below our trading partners, with no noticeable effect on genuine economic progress. Please: pay no attention to the mad men behind the curtain.

UPDATE:

"The advocates of annual increases in the quantity of money never mention the fact that for all those who do not get a share of the newly created additional quantity of money, the government's action means a drop in their purchasing power which forces them to restrict their consumption. It is ignorance of this fundamental fact that induces various authors of economic books and articles to suggest a yearly increase of money without realising that such a measure necessarily brings about an undesirable impoverishment of a great part, even the majority, of the population."

~ Ludwig von Mises from an interview 'On Current Monetary Problems'

Let’s call ‘taxing the rich’ what it really is: Theft

Picture of New Zealand's richest man. Guaranteed a reaction
 against his success by a certain sort of commentator ...

EVERY SO OFTEN A PIECE of dross comes over my monitor that just cries out to be fisked. Like this rant against the latest NBR Rich List by someone called Dr Neal Curtis. His piece argues that "as society groans under the weight of wealth inequality" (can you hear the groans, readers?) there should be a "different slogan to ‘tax the rich'." The one he favours: "reclaim the wealth'."

Yes, he's an ultra-redistributionist. Aka, a thief. Walter Williams knows the type:

Dr Curtis's piece is of course a reaction to publication of the NBR Rich List, which without fail gets a certain sort of person to hyperventilate.

Dr Curtis is that sort of person.

And this screed vomiting forth at Newsroom is the result.

Dr Curtis, by the way, is said by his bio to be "a comics scholar and critical theorist with wide-ranging interests." Lead item on his Areas of Expertise is: Comics. So let's just call him Mr Curtis.

MR CURTIS BGINS: THIS Government, he says, is "gutting government departments and cutting public services."

I wish this were true instead of comical. (Spending is now higher under Nicola Willis than under Grant Robertson. Full-time employees under the Luxon Government was 64,222 when elected, and is now 63,238. There have been cuts, it's true, but none anywhere near as big as I would hope.)

But his beginning is only a drive-by to pass off his credentials. Three paragraphs in we get to the meat. So it's here that I'll begin my fisking.

MR CURTIS: [There are] three central assumptions of current economic dogma that those who question are branded as ‘radical leftists.’ These assumptions are underpinned by the beliefs that wealth trickles down; deregulation is good for business; and the state should stay out of the market and everything should be privatised.

Should I cry "strawman" this early in the piece? Each of these pieces of alleged dogma is both fly-blown and overblown. No-one outside a piss-poor public-choice lecture would anyone say everything should be privatised. (Courts? Police? Army?) And no-one anywhere advocates so-called "trickle-down." His point here is not to make sense, however, it's simply to damn the rich so he can later advocate their being eaten.

So he ploughs on regardless, challenging each of the assertions he's just straw-manned. Like his logic, let's looks at each of them in reverse.

MR CURTIS: ...the state has always been an economic entrepreneur funding all kinds of technological innovation, such as the internet, but this often goes unreported in the dominant economic journalism.

"Always" is doing a lot of work here. There's a reason so much government entrepreneurialism goes unreported in any economic journalism: it's because it's so rare. Sure, the government defence project ARPANET linking dozens of people was transformed into something that now links five billion. But that wasn't a Ministry of Doing Shit that did that. It was private entrepreneurs who turned the great idea into a GREAT IDEA. 

MR CURTIS: ... seen from a purely corporate perspective deregulation is no doubt a path to profit. However, it is also socially disastrous as costs of deregulation are outsourced via public bailouts following financial crises, for example, that are directly caused by the rolling back of legislation designed to safeguard the wider economy.

Without going too much further than this one paragraph (though we can if you wish), let us agree that there is more than one kind of deregulation. There is the kind that mandates safety and (may) safeguard the wider economy. There is regulation that protects intellectual and real property, and that allows for the enforcement of contracts. And then there is regulation about how curved a banana should be, or how far apart hairdressing salon seats should be. You'll notice how carefully Mr Curtis conflates these. And why.

MR CURTIS: ... wealth, especially when given away in tax cuts, does not trickle down. It stays at the top. Ever-increasing wealth inequality as measured by the Gini coefficient or any study of income trends show this.

Now, it's Mr Curtis who insists this to be economic dogma, i.e., that wealth "trickles down." Yet the author of Basic Economics,  Thomas Sowell, insists that there is no-one anywhere outside a lunatic asylum or a comics convention who holds it to be true, let alone as dogma.

Years ago [writes Sowell, I] challenged anybody to quote any economist outside of an insane asylum who had ever advocated this “trickle-down” theory. Some readers said that somebody said that somebody else had advocated a “trickle-down” policy. They could never name that somebody else and quote them, though.

[Mr Curtis] is by no means the first [person] to denounce this nonexistent theory. Back in 2008, presidential candidate Barack Obama attacked what he called “an economic philosophy” that “says we should give more and more to those with the most and hope that prosperity trickles down to everyone else.”

Let’s do something completely unexpected: Let’s stop and think. Why would anyone advocate that we “give” something to A in hopes that it would trickle down to B? Why in the world would any sane person not give it to B and cut out the middleman? All this is moot, however, because there was no trickle-down theory about giving something to anybody in the first place. 

Sowell wrote a whole book exposing the nonsense of those who believe this trickle-down fantasy. [It's free, you can DOWNLOAD IT HERE.] And as I've pointed out myself on occasion, if there is a trickle-down system in operation it's the one whereby large gobs of your own money are taken from you by government, and trickled back down to you in the form of favours, and subsidies and social welfare for working families and the like.

There is an argument however for having capitalists keep their own capital, however— an economic argument, as well as the strictly-speaking moral argument that it's their goddamn money. Mr Curtis et al would like to think that if the "one percent's" capital were not stripped from them it would perhaps be baked into pies or used to light cigars—or would be emptied into money bins so that, like Scrooge McDuck, the owner of capital can spend his time rolling around in it.

This is truly a comic-book version of reality that only one ignorant of the division of labour could hold. 

Because, as George Reisman explains,  the vast majority of the wealth owned by the so-called “one-percent” is not held in the form of chocolate bars or champagne bottles or pies, but in the form of the capital goods and equipment that produce the consumer goods on which we (and Mr Curtis) all depend—capital goods that only come to represent wealth to the extent they are used to produce the goods and services people, in their capacity as consumers, really want. Per-Olof Samuelsson observes: 

"The productive rich (think Rockefeller, Carnegie, Ford, Bill Gates, Steve Jobs, etcetera, etcetera) actually flood the rest of us with wealth (and themselves become wealthy in the process). Taxing or expropriating them simply means to dam this flood. And this may make it appear 'trickle-down'— because governments and politicians will only allow a small portion of this wealth to trickle down to us; the rest of it lands in their own pockets."

Many of the wealthiest people on earth hold their wealth in the form of a financial asset, like stock in a successful company. And the very wealthiest have no time to swim in cartoon-style money bins because they're also successfully running these companies.

[Mr Curtis and his readers] have no awareness of this, because they see the world through an intellectual lens that is inappropriate to life under capitalism and its market economy. They see a world, still present in some places, and present everywhere a few centuries ago, of self-sufficient farm families, each producing for its own consumption and having no essential connection to markets.
    In such a world, if one sees a farmer’s field, or his barn, or plough, or draft animals, and asks who do these means of production serve, the answer is the farmer and his family, and no one else. In such a world, apart from the receipt of occasional charity from the owners, those who are not owners of means of production cannot benefit from means of production unless and until they themselves somehow become owners of means of production. They cannot benefit from other people’s means of production except by inheriting them or by seizing them.

But in the modern world (at least, to the extent that the so-called “one-percent” are not simply milking government subsidies and bailouts, which is how so many seem to think business should work), all of us benefit from the private ownership of their means of production whoever owns them—just as long as the owners are left free to produce and innovate. We all get the benefit of their production, both as buyers of the products of those means of production, but also as sellers of labour employed to work with those means of production.

The wealth of the capitalists, in other words, is the source both of the supply of products that non-owners of the means of production buy and of the demand for the labour that non-owners of the means of production sell. It follows that the larger the number and greater the wealth of the capitalists, the greater is both the supply of products and the demand for labor, and thus the lower are prices and the higher are wages, i.e., the higher is the standard of living of everyone. Nothing is more to the self-interest of the average person than to live in a society that is filled with multi-billionaire capitalists and their corporations, all busy using their vast wealth to produce the products he buys and to compete for the labour he sells.
    Nevertheless, the world [Mr Curtis and his readers] yearn for is a world from which the billionaire capitalists and their corporations have been banished, replaced by small, poor producers, who would not be significantly richer than they themselves are, which is to say, impoverished. They expect that in a world of such producers, producers who lack the capital required to produce very much of anything, let alone carry on the mass production of the technologically advanced products of modern capitalism, they will somehow be economically better off than they are now. Obviously, [they] could not be more deluded.

AND IT'S NOW, WITH HIS three dogmas exposed, that we can see Mr Curtis's error more plainly. Like many who are branded as "radical leftists," not only is there an inherent wish to damn the rich, all of them, there is also a paucity of understanding of how the deserving rich got that way. 

Yes, there is more than one way to get rich. One may pull favours and subsidies from government, as cronies all try to, or one may be the government and sell Shitcoins (as one particularly egregious entity is currently doing). Or one may sit tight and rely on central banks inflating monetary assets (what is often called the Cantillon Effect, after the eighteenth-century ex-banker who called attention to this phenomenon of long-term capital consumption). But neither of those examples is any more than short-term, and no amount of short-term skimming is going to get you to the top of even a New Zealand rich list.

Even in this small pond, it does take an entrepreneur risking his or her own capital to really roll in the big returns.

Mr Curtis would like you to conflate all three, as he proceeds to draw his conclusion.

But first, his corollary: that it is government spending that makes us all rich. Mr Curtis phrases it this way.

MR CURTIS: All this [leaving capital in the hands of its owners] results in top-heavy, financially starved economies as governments continually try to make the wealth giveaways fit into a budget by stripping support for public services or selling off public assets at knockdown prices. ...
    The fact that the global economic outlook as well as specific national economies remain so fragile and unstable ... is surely enough evidence that the principle of continually moving wealth upwards doesn’t work...

He really does think that money in the hands of government grows economies, whereas money in the hands of those who made it simply squanders it. 

It's deluded.

And sure enough, having made his three points of alleged dogma, and delivered his corollary, he gets to start eating his meat. 

MR CURTIS: Just as there is no economic justification for structuring an economy in which only the very wealthy are the true beneficiaries, there is also no moral justification.... As our society is placed under increased stresses and strains beneath the extreme weight of amassed, socially useless wealth that sits with a very small class of people, there have been increased calls to tax the rich.

Mr Curtis is, of course, in favour. And now, bringing together what passes for his argument, is his payoff:

MR CURTIS: Instead of a call to ‘tax the rich’, the call should be to ‘reclaim the wealth’. I believe this phrase more adequately represents the request to return a greater share of what was commonly created. It is also a call to give back even just a small amount of what was taken through the design of an economy knowingly and carefully organised to purposefully benefit the few.

You can see his own dogma peering out from under his comical version of how an economic system works:

"Commonly created."

"Give back."

"Reclaim."

One question should be enough to puncture the deceit, and with it we return to Walter Williams at the top of this post. The question is: Who created this wealth?

Nick Mowbray is an almost perfect example here. 

The wealth represented by Mr Mowbray's Zuru Toys quite literally did not exist before Mr Mowbray created Zuru's toys. Pre-Mowbray, there was a pile of stuff. Post-Mowbray and his identification of the value to human beings to be delivered by his toys, there's enough value in them to make him this county's richest man.

I know that can be hard to get your head around, but there it is. Value, in the economic sense, is in the eye of the consumer. Consumers' "vote" every day, with their own hard-earned money on their devices, for Zuru's toys creates a socially-objective price for Mr Mowbray's offerings, and allows him to grow his capital. Which he can then use to create more toys, which creates more capital, which .....

All going well, especially if you like children's toys, that's a life-enhancing spiral that costs no-one else anything.

LET'S NOT BOTHER TOO MUCH to investigate further into the mind of someone who would despise that.

Let's ask instead only what they're trying to achieve. For. Mr Curtis, here's his payoff here, he hopes (now with an added noteto identify his errors:

MR CURTIS: As our society is placed under increased stresses and strains beneath the extreme weight of amassed, socially useless wealth [sic] that sits with a very small class of people, there have been increased calls to tax the rich.

I love the use of the passive verb: "there have been calls..." instead of "I and my colleagues have been demanding..." 

MR CURTIS: In keeping with the dogma [sic], conservative supporters have made tax a dirty word [I wish! -Ed.]. Rather than tax being an individual or corporate contribution to the maintenance of a functioning society, the corporatist right has over the past four decades tried to make it a synonym for theft [I wish - Ed.]. The idea that taxing the rich is really a form of theft also makes it easy for the dogmatists [sic] to present the call as a form of envy; a petty resentment of the successful.

And isn't it envy? Envy, for example, that one person making toys that delight people will earn more in his lifetime than someone with pretensions to intelligence making his living from analysing comic books and posting snide articles on a web page. The envy fair oozes out this piece, and other similar rants by the usual suspects.

MR CURTIS: Instead of a call to ‘tax the rich’, the call should be to ‘reclaim the wealth.

Ah. Here we go: an all-but explicit claim from the mire that "you didn't build that." Which in the next sentence is made explicit:

MR CURTIS: I believe this phrase more adequately represents the request to return a greater share of what was commonly created.

So, in what will no doubt be a surprise to Messrs Mowbray, Hart et al, everybody created the toys for which the world is clamouring, the companies made more efficient, the plastics that store food better, the films that folk queue up for ... We all did it, he claims.

In the end, after all the verbage, that's his major claim. That we made it—an absurdity—so therefore we should keep it. A nonsense.

It is also a call to give back [sic] even just a small amount of what was taken [sic] through the design of an economy knowingly and carefully organised to purposefully benefit the few.

The irony is that, if Mr Curtis lifted his head from his comic books and looked properly at the world around him and at the division-of-labour system that allows even sad sacks like himself to survive and even flourish, he'd understand that (even imperfectly) it already is benefitting all of us.

If there's one benefit of watching a US president tearing down everything that made his own country prosperous, it's that his many political enemies are slowly discovering this truth.  

Many are discovering anew that it is actually poverty that is mankind’s natural state, that it is past wealth production (not redistribution) that has been rescuing people from poverty worldwide in ever-expanding numbers—the great (but almost unheard) story of our era that allows today's worker more easily-available health, wealth, and luxuries than even a king enjoyed in all previous centuries—and that efforts to simply legislate higher wages by law amounts to little more than a “loot and plunder” approach to economics.

The fundamental policy tools of statist politicians [explains George Reisman] are clubs, guns, and prisons... What allows statist politicians to conceal the fact that they’re thugs is the belief that they have a special account with Santa Claus. As though Santa Claus, rather than extortion, were the source of the funds extorted by the politicians.
The statist politicians and the leftist “intellectuals” dismiss the teachings of sound economics by calling it “trickle down.” They do not allow themselves to see that their theory of economics is the loot and plunder theory.

Some have realised and reconsidered. I invite Mr Curtis to consider it too.

PS: Mr and Mrs Marx were at least fully aware of how envy towards the rich is a psychological problem, not an philosophical—or economic—one. Writing to their "embittered" son after yet another tantrum at the world, Heinrich Marx said:

Frankly speaking, my dear Karl, I do not like this modern word, which all weaklings use to cloak their feelings when they quarrel with the world because they do not possess, without labour or trouble, well-furnished palaces with vast sums of money and elegant carriages. This embitterment disgusts me and you are the last person from whom I would expect it. What grounds can you have for it? Has not everything smiled on you ever since your cradle? Has not nature endowed you with magnificent talents? Have not your parents lavished affection on you? Have you ever up to now been unable to satisfy your reasonable wishes? And have you not carried away in the most incomprehensible fashion the heart of a girl whom thousands envy you? Yet the first untoward event, the first disappointed wish, evokes embitterment! Is that strength? Is that a manly character?

Is it? 

Pic: Mises Wire

A reminder for everyone, as you all wait patiently for economic miracles from a new government, that while Keynesians claim that the source of economic growth is consumer (and government) spending, so-called Austrian economists such as our guest poster Frank Shostak know that the key to a growing economy is net savings . . .

Real Economic Growth Depends on Savings

by Frank Shostak

New Zealand's consumer confidence index is slowly climbing off the floor from its March low, but only weakly. Meanwhile in the US, their consumer sentiment index fell to 69.5 in August from 71.6 in July. 

What does this portend? A weakening consumer sentiment index is seen as indicating a potential downturn in consumer spending and -- to many economists -- of the economy in general.

Why is this? It's because most mainstream economic commentators agree with each other (and with their mentor, John Maynard Keynes) that the key to economic prosperity is individual consumption rather than saving. Saving, they believe, hinders economic growth because it coincides with weakening demand for consumer goods. In this theory, economic activity is depicted as a circular flow of money in which one individual’s spending is part of the earnings of another.

If, however, individuals become less confident about the future, they are likely to cut back on their outlays and "hoard" more money, thereby diminishing the earnings of some other individual, who in turn also spends less. A vicious circle emerges: the decline in confidence leads to less spending and more hoarding, further weakening the economy and eroding confidence in it.

To arrest the downward spiral, according to this theory, the central bank must increase the supply of money. By putting more money in people’s hands, confidence and spending will increase, and the circular flow of money will pick up again.

All this sounds very convincing, and, indeed, business surveys show that a lack of individual demand is the major factor behind poor performance during recessions. But can demand by itself generate economic growth? What about the supply of goods? Are goods always around, just waiting for demand? Is it even possible for demand itself to be scarce?

Scarcity of Means Thwarts Demand

In the real world, demand is not just desire -- it is desire backed up by wherewithal. It is necessary to produce useful goods that can be exchanged for other useful goods. Bakers who produce bread don’t produce everything for their own consumption, but exchange most of it for the goods of other producers. Through the production of bread, bakers exercise demand for other goods. According to David Ricardo:

No man produces but with a view to consume or sell, and he never sells but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person.

Tools and machinery (i.e., capital goods) raise worker productivity: they must be made, and they increase growth in the production of consumer goods.

Consumer goods must be available to those who produce capital goods, in order to sustain their life and well-being during production. This allocation of consumer goods is made possible by saving—that is, a decision by some individuals to transfer a portion of their consumer goods now, in return for a greater quantity in the future, to those who are producing capital goods now. Despite what the Keynesians assert, it is saving that enables the production of capital goods. and thereby raises individual living standards. It is  saving, therefore, that is the beating heart of economic growth.

Money and Saving—What Is the Relationship?

Money does not alter the essence of saving but does make it easier for producers to exchange their products with one another. It does not produce goods but only facilitates their exchange. According to Rothbard,

Money, per se, cannot be consumed and cannot be used directly as a producers’ good in the productive process. Money per se is therefore unproductive; it is dead stock and produces nothing.

In a money economy, payments for goods are still made with other goods—money only facilitates the payment. Thus, a baker exchanges saved bread for money and then exchanges the money for other goods, effectively paying with the saved bread. When a baker exchanges with a shoemaker saved bread for money, the shoemaker receives sustenance to continue making shoes.

Saving makes economic activity possible by means of money. We do not save money itself but employ it to channel the unconsumed consumer goods we have saved toward individuals engaged in production. An individual who hoards money is not saving money per se but rather exercising a demand for it, which is never the bad news that popular thinking believes it to be. Saving does not weaken but rather strengthens economic growth.

Money out of Thin Air and Economic Growth

When money is generated out of thin air however it sets in motion an exchange of nothing for money, followed by money for something—that is, an exchange of nothing for something. This leads to consumption not supported by production, i.e., a diversion of saved consumer goods—which are the products of wealth-generating activities—toward those who hold money made from nothing. Diminishing the flow of saved consumer goods toward producers of wealth weakens the production of goods and in turn the demand for goods, setting in motion an economic recession.

What weakens the demand for goods is not the capricious behavior of consumers but an increase in the money supply out of thin air. As long as the pool of consumer goods is expanding, the central bank and government officials can give the impression that loose monetary and fiscal policies are driving the economy. This illusion, however, is shattered once the pool becomes stagnant or declines. Without expanding the production of consumer goods, all other things being equal, economic growth is not possible.

Conclusion

Most people aspire to a good and comfortable life. Standing in the way of this goal are the means that must be produced to achieve it. Saving permits the expansion of these means. The increase in saving, which supports the increase in the production of goods, also generates an increase in demand for goods. Any illusion that demand can somehow be strengthened through the monetary presses is sooner or later shattered by the impossibility of getting something for nothing.

* * * * 

Frank Shostak's consulting firm, Applied Austrian School Economics, provides in-depth assessments of financial markets and global economies. Contact: email.

His post first appeared at the Mises Wire.

News of new jobs is supposed to be great, right? So, what kind of weird world do we live in when it is considered horrible? Welcome to Fedworld, where market decisions are nothing but bets on what central bank will be doing next.

"News of new jobs is supposed to be great, right? So, what kind of weird world do we live in when it is considered horrible? Welcome to Fedworld where most market decisions are nothing but bets on what [the US Federal Reserve Bank, i.e., ] The Fed will be doing next with its free money for millionaires.
    "Today we saw that in action as good job news kicked some reality into the FedMed-addled heads of investors about Fed tightening, which they have been denying all year. Suddenly, they realised they had a lot of catching down to do to align with a tightening target that readers here know the Fed has been heading to all along ... even before the Fed knew it. (Obviously, the Fed didn’t know it, given that the Fed has revised its tightening targets all along the way as these articles [here] said would happen.)
    "While workers report in today’s survey that they don’t feel the [U.S.] job market is strong, the number of new jobs was high enough that it caused Treasuries to take a rocket ride up past 4.8% yields on the 10-YR bond. The 30-YR joined the move, also rising to its highest point in 16 years. All because those jobs means the Fed will going 'higher for longer.' ...
    "'MarketWatch' reports that banks are now bracing for a recession. Two weeks ago, it seemed like everyone in the mainstream media, as I reported, believed there would be no recession and that a soft landing was practically certain. I stuck to my guns. Just like my endless refrain of “no pivot” to all the pivot heads last year, I’ve stayed with inflation is likely going to rise again, forcing the Fed to tighten harder into a deep recession, which means a lot more serious trouble ..."

~ David Haggith, from his post 'It's All Coming Down!'

Yay! NZ is leading the world in ...

 

... can you guess? *

Discussion here.

(And note that: the price-to-rent percentage represents 0% change in 2000 from 2000 prices, and (for NZ) a whopping 280% change in ratio from 2000 prices. Note that over the long run (centuries) the real cost (inflation adjusted) of housing should remain relatively unchanged, as should this ratio. So these price increases are unsustainable.)

But ... but (I hear some of you say), this doesn't measure housing affordability per se. Just the rent-to-price ratio. True. But we also "lead" in the all-important price-to-income ratio (which historically has been around three, and here in NZ is now over 10!) and in our Housing Bubble ranking (see below). 

And it does demonstrate the disastrous trend in unaffordability over the last two decades -- two decades of excessive monetary pumping and ever increasing restrictions on building and developing. A trend that is so much worse in this place. A trend that has (in David Stockman's words) "capriciously conferred financialised prosperity on selective pockets of ... society." An ever-accelerating trend that every government here has only made even worse -- and no government has bothered to arrest. 

And with all this in mind, and since it's election time, let me remind you that the goddamned Blue Team (Luxon, Seymour, and Bishop) have disgracefully squelched, on a whim, the only thing in living memory, however imperfect, that would do anything at all to improve it.

Arseholes.

* Have you guessed yet? Next question: whom (and what) do you blame?

“Deposit insurance is a cancer at the heart of the capitalist system..." [updated]

“Deposit insurance is a cancer at the heart of the capitalist system, destroying its ethical foundations. Rich depositors should not be able to secure returns, in the good times, for investing in fundamentally riskbearing activities (which fractional reserve deposits are, by their nature) but then be bailed out by the government when times are tougher. And banks are the largest allocators of capital in the economy – so this fundamental injustice gets spread across the entire economic system.”
– Andrew Lilico, from his post 'The post-2008 banking reforms are now being tested – and they are failing'

Hat tip Johnathan Pearce and readers at Samizdata, who point out both the moral hard here -- and that a further large problem here is that  investors and depositors being bailed out, such as those who were via Silicon Valley Bank, or Credit Suisse, etc, is that they tend to be politically connected. Essentially creating three tiers of banks: 

• those "too big to fail"; 
• those too politically connected to fail; and 
• those about whom no-one in power cares if they fail.

UPDATE 1:

"[US Treasury Secretary Janet] Yellen, in the meantime, continues today to reassure everyone that the US banking system is sound — because she has to. Her reassurance claims the present situation is nothing like the banking bust in ’08 on the basis that 2008 was all about solvency in banks due to their taking on low-quality mortgage-backed securities, whereas the present crisis is merely due to “contagious bank runs” ... the [same] kind of thing that plunged the world into the Great Depression...
    "We ALL already know that the runs at these banks were created by a completely systemic bond-value-reduction that was caused by the Fed for all banks. We all know this bond devaluation by Fed policy effectively rendered those 'safe-haven' instruments  [i..e. long-term Treasury bonds] just as un-tradable for banks as junk mortgage-backed securities were in ’08. While they are a different kind of supposedly safer instrument, they have been substantially devalued all the same. Because that imperils the reserves of all banks, the Fed had to create a new loan programme available to all banks. Now, we appear to have, additionally, another systemic bank-run issue percolating beneath the surface being caused by the rescue programme because it gave sweeping depositor insurance to ONLY the top-tier banks."

~ David Maggith, from his post 'Janet Yellen: Creature of Chaos'

UPDATE 2:

Describing Yellen's haphazard defence of the bailout political preference programme to Congress, blogger El Gato Malo describes it as "Too Big to Flail," aka "Yellen Into the Void."

 

The central bankers on the Nobel Prize committee gave their award this year to the central bankers who, as Mark Thornton outlines in this guest post, "rescued" the world from a disaster of their own making.

Ben Bernanke's Nobel Prize: The Committee Rewards an Arsonist for Claiming to Fight the Fire He Started

Guest post by Mark Thornton

Former Federal Reserve Chairman and 'saviour of the world' Ben Bernanke was awarded the Nobel Prize in Economics this week, along with Douglas Diamond and Philip Dybvig. The three have written extensively on the need to bail out banks in times when the economy is in corrective mode, generally after a long period of monetary injections. Bernanke was Chairman of the Federal Reserve when he pushed for the latest round of bank bailouts in 2007-2009.

Bernanke’s research concentrated on the Great Depression, and argued that the banks needed to be bailed out in the 1930s in response to the collapse of the stock market and the severe correction in the US economy. Diamond and Dybvig have also written on the implications of bank failures on the US economy. All three have latched onto the idea that banks take in deposits which are redeemable short term, but they make loans that are longer term and are thus susceptible to bank runs.

Their work is highly suspect from the view of economic theory and is derived from the point of view of history and the social sciences. They neglect the overall situation they are trying to explain, the role of institutions, and the basics of government intervention. For example, Bernanke’s work does not explain why the “situation” occurred in the first place, what the government did from the outset, or how it could be prevented in the future, except for ever-increasing government and Fed intervention.

Their research amounts to little more than an excuse to bail out the banks. Therefore, if you are a member of the privileged financial elites, the Housing Bubble and the ensuing Financial Crisis was an unmixed blessing. You made big money all throughout the housing and stock market bubbles and then your banks received several bailouts and special privileges during the bust, including borrowing at zero interest rates on loans, capital infusions, Quantitative Easing 1 & 2, and interest payments on “excess reserves.”

Of course, most importantly, you had your man in charge of the Federal Reserve, the man who literally “wrote the book” and dissertation on how the Fed must bailout the banks in times of economic trouble. No matter how badly everyone else fared, you could depend on Bernanke to bailout the banks, whatever the costs to others.

The Great Depression is a pivotal event in American history, and it is also crucial in terms of economic theory and policy. Bernanke’s writings are pivotal in terms of redirecting government bailout policy from monetary policy to bank bailouts.

Milton Friedman’s monumental work (on which Bernanke's bailouts were based) argued that the depression became "great" because the Fed allowed the money supply to collapse in the early 1930s. Instead, Joseph Salerno has /shown/ that the Fed was aggressive in trying to keep the money supply growing, but they failed. Bernanke’s own work shows that banks failed in large numbers in the early 1930s -- due to the negative expectations of banks (and the demise of many of them) they were simply not an effective conduit of the Fed’s desire to pump up the money supply. Banks thereby became “systemically important.”

Each major school of economic thought has its own story of the Great Depression, with Friedman and Bernanke representing the Monetarists, and Bernanke providing the “shock” that provided the “pluck” to Friedman’s Fed-piloted model, as explained by Professor Garrison.

The Keynesians of course have Keynes’s (1936) General Theory. He felt that the depression was caused by a failure of aggregate demand: people were unwilling to spend and invest causing the economy to contract via a psychological pathway, without any fundamental cause, thus necessitating government intervention to prop up the economy. This is the same naive “explanation” you would hear from your grocer, barber, or gas station clerk. Peter Temin filled out this historical narrative in his 1976 book Did Monetary Forces Cause the Great Depression? where he suggests that the cause was a decrease in the demand for money.

The debate between Monetarists and Keynesians devolved into bickering over aggregate supply and demand, model specifications, empirical results, and, at base, cause and effect.

The Austrian school has its own macroeconomic approach, and this can be seen vividly in the case of Great Depression. Ludwig von Mises wrote about the coming of the depression before it happened, and he pointed out what was causing it. In his day, Irving Fisher was the leading economist in the US; Mises showed that it was Fisher’s notion of a stable dollar, managed by the Fed, that was the cause of the coming depression. I explain this episode as evidence of the superiority of the Austrian Business Cycle Theory. Lionel Robbins wrote a contemporaneous account of the Great Depression based on the Austrian Business Cycle Theory.

Murray Rothbard’s America’s Great Depression provides a comprehensive view of the economics, politics, and policy implications of the event from the Austrian view. 

First, Rothbard shows that the Fed’s policies in the 1920s, based on Fisher’s views, were the fundamental economic cause of the crash. It was the Fed that was inflating the money supply during the 1920s, and it was the Fed that had recently taken on the newly created function of "lender of last resort" -- thereby encouraging bankers to take on more risk, and making our fractional reserve banking system more unstable in the first place.

Second, it was the political action by Hoover, Roosevelt and others -- regulations; tariffs; attempting to keep prices and wages high; propping up malinvested resources through the Reconstruction Finance Corporation; moral suasion to raise prices -- that caused the resulting depression to be "great." 

Third, the policy action in the 1930s to keep spending high and to restructure the American economy with New Deal policies lengthened the time of recovery, largely due to the regime uncertainty created by all the political activism. (And just by the way: Robert Higgs demonstrated conclusively that WWII did not get us out of the Great Depression.)

While Bernanke et al are dependable in terms of recommending and endorsing bailout policies and promoting the activities of the central bank -- the Nobel Prize being awarded by and for central bankers -- were happy to  the Austrian school seeks a better, fuller understanding and questions the fundamental effectiveness of such bailouts. The cause of the Great Depression was the Federal Reserve Banks’s inflationary monetary policy of the 1920s. Rather than preventing or even reducing the impact of the depression, it was the New Deal policies of Hoover and Roosevelt expanding the role of government in the 1930s that made it great!

To address the fundamental problem that Bernanke, Diamond and Dybvig have fixated on, and which any non-central banker can explain, requires not an extensive quilt of government regulation, controls, and bailouts, but merely a sound-money regime of money, and banking without a central bank.

AUTHOR

Mark Thornton is the Peterson-Luddy Chair in Austrian Economics and a Senior Fellow at the Mises Institute. He is the book review editor of the Quarterly Journal of Austrian Economics, and has authored seven books and is a frequent guest on national radio shows.

His post first appeared at the Mises Wire.

"Inflation has not merely economic or social consequences, but moral and psychological ones too...."

"Inflation has not merely economic or social consequences, but moral and psychological ones too....
    "For one thing, inflation destroys the very idea of enough, because no one can have any confidence that a monetary income that at present is adequate will not be whittled down to very little in a matter of a few years.... Unfortunately, when there is inflation, the only way to insure against poverty in old age is either to be in possession of a government-guaranteed index-linked pension ... or to become much richer than one would otherwise aim or desire to be. And the latter turns financial speculation from a minority into a mass pursuit...
    "Inflation plays havoc with the virtue of prudence, for what is prudence among the shifting sands of inflation? When inflation rises to a certain level, it is prudent to turn one’s money into something tangible as soon as it comes to hand, for tomorrow, as the song goes, will be too late. Everything becomes now or never. Traditional prudence becomes imprudence, or naivety, and vice versa.
    "Inflation comes in more than one form. For quite a number of years it took the form of asset inflation, while the prices of consumables remained relatively constant or actually fell....
    "Asset inflation ... has certain social and psychological consequences. First, it puts the meaningful accumulation of assets for those who do not already possess them out of reach.... This in turn has the effect of transforming a society divided by permeable classes into a fixed caste society....
    "Asset inflation fosters delusions in those who benefit from it.... I am richer on paper, and for some dizzy people this feeling of wealth encourages sumptuary expenditure, often on credit.... Gone in my lifetime is the idea that debt is to be avoided, that it is discreditable to live entirely on credit, and shameful not to repay....
    "Inflation has not merely economic or social consequences, but moral and psychological ones too....
          ~ Theodore Dalrymple, from his post 'Inflationary Vice'

Inflation Isn't What the "Experts" Say It Is. The Confusion in Terms Is Deliberate

“Inflation” isn’t what you think it is, explains Manuel Tacanho in this guest post, and the confusion about it is deliberate: it’s deliberate because those who profit from the real inflation want to keep stealing from you, and don’t want you to notice.

Inflation Isn't What the "Experts" Say It Is. The Confusion in Terms Is Deliberate

Guest post by Manuel Tacanho

Monetary inflation is highly desired by the state. This has been the case thought history and is still the case today. That is because inflation facilitates government spending beyond the revenue it takes through taxation. Government spending gives rulers, politicians, and bureaucrats greater centralised control and commanding power over people's lives (i.e., the economy and society).

Without inflation, the state finds itself shackled within the confines of what it can take via taxes. Therefore, governments will not miss a chance to gain control of the monetary system. Once the state does have control of money, inflation becomes inevitable and institutionalised. This is why, in recorded history, nearly all cases of great inflation and hyperinflationary socioeconomic collapse (e.g., Weimar Germany, Zimbabwe, and more recently Venezuela) have been a result of government (and/or its central bank) deliberate policy.

It is because of the insatiable appetite to spend more than they take through taxes that governments, through political deception and coercion, tend to undermine a sound money system and repress monetary freedom in favour of one that facilitates currency debasement (i.e., money printing). That is to say, a fiat currency regime monopolised by the state and forced on the people by legal tender laws.

As such, from the statist economics standpoint, the definition of inflation had to be distorted and the public miseducated about it —so that the process of currency debasement (i.e., monetary inflation) may go unnoticed and accepted by those whom it hurts the most, the general pupation.

Definition of inflation

The popular and textbook definition of inflation is ‘a generalised rise in the prices of goods and services.’ Commonly measured by the Consumer Price Index (CPI). This definition is not wrong per se but it is inaccurate and grossly misleading. Deliberately so.

The original ‘classical’ (and more accurate) definition of inflation is ‘the artificial increase in the supply of money (and credit).’ By artificial, it is meant that the expansion of the supply of money is not determined by the market (i.e., the people) but rather by the government, usually through a central bank. In the classical (pre-Keynesian) world, this generally meant and artificial increase in the money supply beyond the rate of growth of the gold that backed it.

So, you can see that this one word now describes two different things - indeed, one being the cause of the other! This confusion in terms is not coincidental, it is deliberate. Given the rise of Keynesian economics and the inherently inflationary times in which we, humanity, have lived under for many decades now.

Deliberate distortion

The original definition of inflation has been distorted for two principal reasons. 

First, the government and its monetary agency—the central bank—shield themselves from any future blame for the continuing rise in prices, and the currency’s loss of purchasing power, that inevitably happens as a result of inflationist monetary policy. This enables the government and mass media outlets to divert the blame to something or to someone else. Anyone but the real culprits. Their usual scapegoats (which we’re hearing again being blamed) are “greedy businessmen” or “corporations.”

Second, the official and distorted definition of inflation—a generalised increase in prices of goods and services—conceals the truth, the true source of inflation, thus preventing the public from knowing that inflation and the currency’s loss of purchasing power is a deliberate policy of government/central bank. Not knowing this, the public will not protest against it.

For example, this report claims that most Americans believe “corporate greed, profiteering and price gouging” is the cause of the current inflation crisis in the United States, where price inflation just hit a 40-year record high.

What’s more unsettling is that the same report found that the majority of those polled also believe that the government should step in and resolve the problem. In other words, the public wants the cause of the problem to solve the problem!

Such is the depth of economic misinformation and miseducation we face. Perhaps, if the public knew that since the establishment of the current US central bank in 1913, the U.S. dollar has lost more than 95 percent of its purchasing power relative to gold (the commodity that gave the dollar its initial value, stability, and global acceptability), they wouldn't blame the inflation crisis on “corporate greed”.

Economist and social philosopher Murray Rothbard wrote:

Government is inherently inflationary because it has, over the centuries, acquired control over the monetary system. Having the power to print money (including the "printing" of bank deposits) gives it the power to tap a ready source of revenue. Inflation is a form of taxation, since the government can create new money out of thin air and use it to bid away resources from private individuals, who are barred by heavy penalty from similar "counterfeiting." Inflation therefore makes a pleasant substitute for taxation for the government officials and their favoured groups, and it is a subtle substitute which the general public can easily—and can be encouraged to—overlook.

Put simply, the cause of today’s increasingly inflationary and chaotic monetary situation is not corporate greed, speculators, free-market capitalism, Vladimir Putin, or the weather. It is governments’ monetary agencies and their current fiat-money system.

You see, under the fiat currency regime that they administer, the central bank can easily, artificially, and systematically increase the money supply, almost like a magic trick. And they do, frequently! Which makes inflation (mild or severe) the norm. And this inflationary process gradually destroys the purchasing power of the currency resulting in higher prices. This policy, while benefiting the government and associates, defrauds the people and impoverishes society, economically and morally.

Economist Hans F. Sennholz noted:

It is not money, as is sometimes said, but the depreciation of money—the cruel and crafty destruction of money—that is the root of many evils. For it destroys individual thrift and self-reliance as it gradually erodes personal savings. It benefits debtors at the expense of creditors as it silently transfers wealth and income from the latter to the former. It generates the business cycles, the stop-and-go boom-and-bust movements of business that inflict incalculable harm on millions of people.

Professor Sennholz further noted:

Monetary destruction breeds not only poverty and chaos, but also government tyranny. Few policies are more calculated to destroy the existing basis of a free society than the debauching of its currency. And few tools, if any, are more important to the champion of freedom than a sound monetary system.

Conclusion

A generalised rise in the prices of goods and services is a consequence of inflation, not inflation itself. Inflation was classically (pre-Keynesian economics) defined as an artificial increase in the supply of money and credit.

Nowadays it makes sense to use the term monetary inflation to specify the artificial increase of the money supply, on one hand. And to use price inflation to refer to a generalised rise in prices of goods and services on the other.

Irrespective of the confusion in definition, inflation stealthily distorts and debilitates the economy, steals the people's purchasing power, and impoverishes society - all while benefiting the ruling political and business elites.(Want to know one main cause of contemporary, and ill-gotten, inequality? Here you are!)

History (and common sense too) makes it clear that fiat currency regimes are unsustainable arrangements that always and inevitably fail. As such, there is no reason to believe today’s cruel and oppressive fiat currency regime will defy Natural law to stand the test of time.

Evidence suggests it is more sensible to believe the fiat dollar standard too will crumble. And when it does, we hope economic miseducation and misinformation will crumble along with it.

* * * * *

Manuel Tacanho is founder of Afridom, a sound money based digital banking startup for Europe and Africa. He's also an advocate of free markets and sound money for Africa’s economic development. His post first appeared at the Mises Wire.

World-class surfer of central banks' tidal wave of counterfeit capital,

Klaus Schwab, speaking to fellow surfers at his absurdly influential World 

Economic Forum. [Image credit: World Economic Forum, CC BY 2.0, via Wikimedia Commons]

Vladimir Lenin once boasted that capitalists would sell the rope to hang themselves -- and then set about organising things to make that happen. He failed, but so-called capitalists still line up to keep trying: one latest attempt being something they call 'stakeholder capitalism,' characterised by so-called 'responsible investing.' As Dan Sanchez explains in this Guest Post, it's anything but...

"ESG" -- Capitalism's 'Great Reset'?

Guest Post by Dan Sanchez

Capitalism needs few descriptive adjectives beyond the words "laissez-faire" or "unhampered." In recent years however, so-called "stakeholder capitalism" has taken the global economy by storm. Its champions proclaim that it will save—and remake—the world. Will it live up to its hype or will it destroy capitalism in the name of reforming it?

Proponents pitch their "stakeholder capitalism" as an antidote to the excesses of so-called “shareholder capitalism,” which they condemn as too narrowly focused on maximising profits (especially short-term profits) for corporate shareholders. This, they argue, is socially irresponsible and destructive, because it disregards the interests of other stakeholders, including customers, suppliers, employees, local communities, and society in general.

"Stakeholder capitalism" [which earns every inverted comma we can muster - Ed.] is ostensibly about offering business leaders incentives to take these wider considerations into account and thus make more “sustainable” decisions. This, it is argued, is also better in the long run for businesses’ bottom lines.

The Rise and Reign of ESG

Today’s dominant strain of "stakeholder capitalism" is the doctrine known as ESG, which stands for “environmental, social, and corporate governance.” Got that? The acronym was coined in the 2004 report of Who Cares Wins, a joint initiative of elite financial institutions invited by no less than the United Nations “to develop guidelines and recommendations on how to better integrate environmental, social and corporate governance issues in asset management, securities brokerage services, and associated research functions.”

In other words, how best to make businesses throw themselves under the bus before governments do it for them.

Who Cares Wins operated under the auspices of the UN’s Global Compact, which, according to the report, “is a corporate responsibility initiative launched by Secretary-General Kofi Annan in 2000 with the primary goal of implementing universal principles in business.” For "universal" read "the UN's."

Much "progress" has been made toward that goal. Since 2004, ESG has evolved from talk of “guidelines and recommendations” to hard, explicit standards that hold sway over huge swathes of the global economy and billions of dollars worth of investment decisions. ESG has begun to move the world.

These standards to which businesses are all-but required to dance are set by ESG rating agencies like the Sustainability Accounting Standards Board (SASB) and enforced by investment firms that manage ESG funds. One such firm is Blackrock, whose CEO Larry Fink is a leading champion of both ESG and SASB.

In December, Reuters published a report titled “How 2021 became the year of ESG investing” which stated that, “ESG funds now account for 10% of worldwide fund assets.”

And in April, Bloomberg reported that ESG, “by some estimates represents more than $40 trillion in assets. According to Morningstar, genuine ESG funds held about $2.7 trillion in managed assets at the end of the fourth quarter.”

To access any of that capital, it is no longer enough for a business to offer a good return on investment (or, sometimes, any at all). It must also report “environmental” and “social” metrics that meet ESG standards.

Is that a welcome development? Will the general public as non-owning “stakeholders” of these businesses be better off thanks to the implementation of ESG standards? Is stakeholder capitalism beginning to reform shareholder capitalism by widening its perspective and curing it of its narrow-minded fixation on profit uber alles?

Capitalism Is for Consumers

To answer that, some clarification is in order. First of all, “shareholder capitalism” is a misleading term for laissez-faire capitalism. It is true that, as Milton Friedman wrote in his 1970 critique of the “social responsibility of business” rhetoric of the time:

In a free‐enterprise, private‐property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.

Since the owners of a publicly traded corporation are its shareholders, it is true that they are and ought to be the “bosses” of a corporation’s employees—including its management. It is also true that corporate executives properly have a fiduciary responsibility to maximise profits for their shareholders.

But that does not mean that shareholders reign supreme under capitalism. As the great economist Ludwig von Mises explained in his book Human Action:

The direction of all economic affairs is in the market society a task of the entrepreneurs [which, according to Mises’s technical definition includes shareholding investors]. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain's orders. The captain is the consumer.

The “sovereign consumers,” as Mises calls them, issue their orders through “their buying and their abstention from buying.” Those orders are transmitted throughout the entire economy via the price system. Entrepreneurs and investors who correctly anticipate those orders and direct production accordingly are rewarded with profits. But if one, as Mises says, “does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.”

Under laissez-faire capitalism therefore, the principal "stakeholders" whose preferences reign supreme are not not shareholders, but consumers. And (as Mises wrote in his paper “Profit and Loss”) shareholder profit is a measure of—and motivating reward for—success “in adjusting the course of production activities to the most urgent demand of the consumers.” 

What this means for the “stakeholder capitalism” discussion is that, to the extent that the profit-and-loss metric is discounted for the sake of competing objectives (like serving other “stakeholders”), the sovereign consumers are dethroned, disregarded, and relatively impoverished.

Now it’s at least conceivable that ESG standards are not competing, but rather complementary to the profit-and-loss metric and thus serving consumers. In fact, that’s a big part of the ESG sales pitch: that corporations who adopt and adhere to ESG standards will enjoy higher long-term profits, because breaking free of their fixation on short-term shareholder returns will enable them to embrace more “sustainable” business practices.

In a free unhampered market, whether that promise would be fulfilled or not would be for the sovereign consumers to decide, and ESG would rise or fall on its own merits.

Who Complies Wins

Unfortunately, our market economy is far from free or unhampered. The State has instead rigged capital markets for the benefit of its elite lackeys in the financial industry: like those “Who Cares Wins” fat cats who started the ESG ball rolling in 2004 under the auspices of the United Nations.

One of the prime ways the State rigs markets is through central bank policy.

The prodigious amount of newly created money that the Federal Reserve and other central banks have pumped into financial institutions in recent years has transferred vast amounts of real wealth to those institutions from the general public. As a result, those institutions—big banks and investment companies—are now much more beholden to the State and much less beholden to consumers for their wealth.

As they say, “he who pays the piper calls the tune.” So it’s no surprise that these institutions are stumbling over themselves to get on board the State’s ESG bandwagon. 

And that means that if non-financial corporations want access to the Fed’s money tap, and thus to the stream of counterfeit capital gushing out, they too have to get with the ESG program. Especially as the average consumer becomes increasingly impoverished by disastrous economic policies, the incentive for corporations to earn market profit by pleasing consumers is being progressively superseded by the incentive to gain access to the Fed’s flow of loot by meeting the State’s “social” standards.

By increasingly controlling capital flows, the State is gaining ever more control over the entire economy.

This may explain the recent willingness of so many corporations to alienate customers and sacrifice profits on the altar of “green” and “woke” politics. It's not necessarily that they embrace the nonsense themselves (though many do); it's that the governments and their well-rewarded agents have rigged businesses' financial incentives that way.

It is no coincidence that Klaus Schaub, the preeminent champion of the “Great Reset” also co-authored a book titled Stakeholder Capitalism. The upshot of "stakeholder capitalism" is that consumer is supplanted as the economy's supreme stakeholder by The State. The sick joke of stakeholder capitalism therefore is that it “reforms” capitalism by transforming it into a form of socialism. Lenin would be laughing up his sleeve.

Dan Sanchez is the Director of Content at the Foundation for Economic Education (FEE), editor-in-chief of FEE.org, and writer for (among others) The Mission, the Ron Paul Institute for Peace and Prosperity, David Stockman’s Contra Corner, and many other popular web sites. He wrote a weekly column for Antiwar.com.
At the Mises Institute, Dan was editor of Mises.org and launched the Mises Academy, the first ever free-market economics online learning platform.
Dan has delivered speeches for FEE, Praxis, the Mises Institute, Liberty on the Rocks, America’s Future Foundation, and more.

A version of his post first appeared at FEE.Org.