God is a Capitalist

Sunday, June 10, 2018

Anti-Freedom Book Praised By Evangelicals, Why?

Patrick Deneen’s book Why Liberalism Failed should have remained an obscure academic publication discussed on web sites such as Public Discourse. But Christianity Today and The Gospel Coalition published favorable reviews. Now second hand dealers in ideas, especially preachers, will read it and its fallacies will show up on in the sermons and Facebook pages of popular socialist evangelists such as Russell Moore, Rod Dreher, Ron Sider and Jim Wallace.

Deneen is an associate professor of political science at the University of Notre Dame. Most of the opposition challenges Deneen’s depiction of the founding fathers of the US even though Deneen spent little ink on that subject. Deneen devoted his book to listing the tragedies of modern life and laying the blame on the rise of liberalism in the West.

Typical readers will cheer the book’s title because liberalism today means progressivism, which is a flavor of socialism. All libertarians and conservatives know the damage that kind of liberalism has caused and Deneen does a good job of repeating them. But Deneen refers to classical liberalism as well, the father of conservatism and libertarianism. The professor acknowledges that classical liberalism preceded modern liberalism and that modern liberalism is different from the original. But where conservatives and libertarians would rightly claim that atheist socialists hijacked the term “liberal” in order to better peddle their ideology, Deneen asserts that classical liberalism chased its own tale, caught it, devoured itself, and morphed into modern socialist liberalism.

Tuesday, May 29, 2018

When the market kills

After the market collapsed in 2008, stress killed people according to research by the Economic Policy Institute.  
We’ve long known that a financial shock causes immediate distress. Suit-clad men leaping from buildings were dismal hallmarks of the Great Depression, and soon after a major recession began in 2007, there were notable spikes in clinical depression, substance abuse and suicides...
Loss of control was front and center for the 26% of those in the survey who had endured a wealth shock. They were 50% more likely to have died during the period of the study, compared with participants whose savings remained intact. The researchers statistically controlled for other causes of mortality, such as ill health, job loss, insurance loss and marital breakdown.
Interestingly, women were more likely to have experienced a wealth shock than men, but they were not more likely to die as a result. They were, in short, more financially vulnerable but more resilient physiologically.

Monday, May 14, 2018

Death of retail is premature

Does anyone remember Montgomery Wards? What about TG&Y? Wikipedia has a longer list of dead brands here. That Sears, K-Mart and many other brands wither in retail hospice is frightening to many:
The amount of retail space going dark in 2018 is on pace to break a record, as companies with massive floorplans are either trimming back their store counts or liquidating entirely... Since 2008, commercial real estate services firm CoStar Group has been tracking the amount of retail square footage slated to close annually. Already in April, more than 90 million square feet of space is expected to be vacated, including Bon-Ton's stores, in 2018. That's easily on track to surpass a record 105 million square feet of space shuttered last year, said Suzanne Mulvee, a senior real estate strategist at CoStar. All it will take is another handful of closures.” 

Tuesday, May 1, 2018

The real Gilded Age - The US economy's best performance ever

Libertarians looking for the cause of the younger generation’s infatuation with socialism need look no further than the PBS series American Experience and the episode aired in February, “The Gilded Age.” A press release described the age this way:
By the end of the 19th century, the richest 4,000 families in the country — less than one percent of all Americans — possessed nearly as much wealth as the other 11.6 million families combined. The simultaneous growth of a lavish new elite and a struggling working class sparked passionate and violent debate over questions still being asked today: How is wealth best distributed, and by what process? Should the government concern itself with economic growth or economic justice? Are we two nations — one for the rich and one for the poor — or one nation where everyone has a chance to succeed? A compelling portrait of an era of glittering wealth contrasted with extreme poverty...”
Jobs were abundant, but employers often expected everyone —including children — to work 12-hour days, six days a week.
Throughout the Gilded Age the economy grew at a furious pace, but financial markets were wracked by instability. On May 4, 1893, Wall Street investors saw much of the nation’s wealth disappear. As many as a million workers lost their jobs. People starved to death.

Saturday, April 21, 2018

Macroenomics fails again

The economist Axel Leijonhufvud quipped in his essay “Life among the Econ” that,
The Math-Econ [tribe] make exquisite models finely carved from bones of Walras. Specimens made by their best masters are judged unequalled in both workmanship and raw material by a unanimous Econographic opinion. If some of these are “useful” – and even Econ testimony is divided on this point – it is clear that this is purely coincidental in the motivation for their manufacture.
Read the whole essay because it's very funny. It’s an inside joke; the father of math models in economics was Leon Walras. I thought of the essay when reading Martin Wolf’s recent article in the Financial Times, “Economics failed us before the global crisis.”Wolf’s is only the latest in a long line of laments over the “usefulness” of macroeconomics after the Great Recession. He wrote,
The tests of this discipline are whether its adepts understand what might go wrong in the economy and how to put it right. When the financial crisis that hit in 2007 caught the profession almost completely unawares, it failed the first of these tests. It did better on the second. Nevertheless, it needs rebuilding.”
How does Wolf know that macroeconomists did better at the second, putting the economy right? Because we didn’t have another Great Depression:
A comparison between what happened in the 1930s and this post-crash period shows we have indeed learnt some important things. Compared with the Great Depression, the immediate declines in output and rises in unemployment were far smaller. Moreover, prices have also been far more stable this time. These are true successes.”
In other words, because we didn’t have a depression like the Great D that proves the money printing and deficit spending worked to save us. Wolf reminds me of another joke: a police officer approached a man furiously blowing a trumpet in the park and asked him why he was doing that. The man said he was keeping elephants away. The policeman said there never have been elephants in the park, to which the trumpeter responded, “It’s working!”

Wolf’s problem is he doesn’t know economic history, but then few economists do. The US has suffered through about 70 recessions/depressions since 1790. Before 1929, the US economy recovered from depressions with no help whatsoever from a central bank or the federal government. All of them were milder than the Great one. The Great D became the worst ever because the government decided to rescue us. The Smoot-Hawley tariff destroyed international trade so much that it took another 70 years to recover. Other efforts by FDR to “save” us caused equally bad outcomes and made the depression in the US last longer than in any other country.

Some think the Great Recession was almost as bad in terms of GDP decline, but combining the recessions of 1981 and 1982 (six months apart) produces one equally as bad. In response, the Fed kept interest rates high and Reagan did nothing to bail us out, yet the economy recovered very fast.

During the Great Recession, Congress passed no Smoot-Hawley tariff so there was no reason to think the latest recession would turn into a Great Depression. Wolf and most mainstream economists predicted that the Great Recession would turn into an “elephant in the park” so when no elephants appeared they declared victory. It’s an old political ploy to predict the worst and when it doesn’t happen take the credit. Politics is all about taking credit for the work of others and most macroeconomists act like politicians.

Wolf blames macroeconomist’s assumptions of the efficient markets hypothesis and rational expectations for their failures, but those were never problems. The roadblock has always been the desire for precise math model, like those “carved from the bones of Walras.” Making their models work required the assumption of equilibrium, which assumes away the very things we want explained, such as recessions. Wolf is correct that “It is better to be roughly right than precisely wrong.” But he doesn’t seem to know that the quote comes from FA Hayek’s Nobel speech, not from Minsky. Hayek was trying to convince economists to get some therapy for their obsession with their equilibrium models.

Wolf stepped dangerously close to the truth about the causes of crises with this: “Moreover, crises are endogenous: that is to say, they come from within the economy. They are a result of the interaction between tendencies towards excessive optimism and the fragility of any system of highly leveraged financial intermediaries.” But then he flinches and runs away. Had he been made of sterner stuff, he would have asked, where does the excessive optimism and high leverage come from if not from central bank monetary policies flooding the world with cheap money? And if high leverage is the problem, how is it also part of the cure? Is bourbon the solution to alcoholism?

And his remedy shows some promise: “Obvious solutions include eliminating the incentives towards leverage in our tax systems, encouraging greater use by the economy of equity finance and debt that can be readily converted into equity, raising the reserve and capital requirements of banks and moving swiftly towards the issuance of digital central bank cash.” But what about the chief dealer of the drug he calls leverage, the Federal Reserve? Even without the policies he mentions, excessive leverage could never happen if the Fed allowed the market to determine interest rates and didn’t keep them near zero for over a decade. And those same policies can never prevent the Fed from flooding the country with cheap money and increasing leverage.

Wolf and mainstream economists see the impact of money printing as asymmetric: it produces only good outcomes in the short run and nothing worse than inflation in the long. He thinks that because he has an emaciated theory of money. If he learned a robust theory of money as the Austrian school teaches he would see the devastating effects of money printing in the near term. Keynes was addressing economists like Wolf when he said, “In the long run we’re all dead.” Most fail to quote the next sentence: “Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.” In other words, mainstream economists fixate on the long run effect of inflation to the exclusion of the near term storms.

Wolf sets before economists two tasks: “The first is how to make the body economic more resistant to the consequences of manias and panics. The second is how to restore it to health as quickly as possible. On both counts, we need to think more and do more.”

By identifying the problem with leverage, Wolf is very close to the Austrian business-cycle theory (ABCT), which blames central bank policies for creating high leverage through 1) below market interest rates and 2) expanding the money supply by buying US treasuries from banks. Loose monetary policy encourages people to go into debt and causes unsustainable expansions that end in manias. The inevitable crash causes panics. Why can’t he connect the dots?

He can’t because of his socialist tendencies. Wolf, like all mainstream economists, wants to blame capitalism for crises. He can’t indict the real culprit, the quasi-governmental central bank, because that would let capitalism off the hook and put the burden on his idol, the state.

We are probably now in another recession, which typically last 18 months. What will mainstream econ say about it in two years?

Wednesday, April 4, 2018

Socialist Eat Their Young

It’s well known that “millennials” prefer socialism to capitalism. That doesn’t worry me, though. Someone said that if you aren’t a socialist when you’re young you don’t have a heart; if you’re not a capitalist when you age you have no head.

Most young people think they can transfer the morality of the family to the nation and it takes a while for them to understand the fallacy, if they ever do. A lot of PhD economists haven’t caught on.

The public school system has taught them “milk cow” economics for twelve years that says socialism is about sharing and caring while capitalism is nothing but greed. Who would want to identify with capitalism after a dozen years of such brainwashing?

But the main reason millennials oppose capitalism is that they can see how the student debt problem, lack of jobs, slow wage growth, etc. assault them, while the media, economists and conservative politicians chant daily that this is a capitalist system. Why wouldn’t they hate capitalism?

Tuesday, March 20, 2018

Climate change is socialist groupthink

Public relations research tells us there are two types of people in the world: one relies on an authority figure to tell him what to do and the other decides for himself by gathering evidence and using reason. If you’re someone who can think for himself, you have probably wondered why climate science is such a mess. Why do they torture the temperature data to get it to look like a hockey stick in graphs? Why do they ignore or slander critics instead of answering their concerns when they offer good evidence?

A short period existed when climate science was real science and not socialist ideology. Back in the 1980s when the science was in its infancy, scientists openly debated the evidence. A startling experiment in that decade proved CO2 to be an excellent fertilizer for trees and plants.

Christopher Booker thinks the reason climate scientists act like ideologues is because of “groupthink,” referring to the book with that title by Yale psychologist Irving Janis:
Janis’s first rule is that a group of people come to share a particular way of looking at the world which may seem hugely important to them but which turns out not to have been based on looking properly at all the evidence. It is therefore just a shared, untested belief.”
Rule two is that, because they have shut their minds to any evidence which might contradict their belief, they like to insist that it is supported by a “consensus.” The one thing those caught up in groupthink cannot tolerate is that anyone should question it. 
This leads on to the third rule, which is that they cannot properly debate the matter with those who disagree with their belief. Anyone holding a contrary view must simply be ignored, ridiculed, and dismissed as not worth listening to.
Booker describes the behavior of most climate scientists well, but doesn't answer how they fell into the groupthink trap? The answer lies with the collapse of socialism in the late 1980s. Socialism’s main selling point from its fabrication by Saint-Simon in the early decades of the 19th century had always been economic. Socialism would make everyone equally rich as it ended the waste inherent in the anarchy of markets.

The world suffered through 120 years of experimentation with socialism launched by the welfare state of Germany in 1870 through the Russian Revolution and creation of the Soviet Union, the annexation of Eastern Europe, and the victory of Mao in China. China abandoned pure socialism after Mao’s death. Then the Berlin Wall fell; Poland rebelled and the USSR disintegrated, all because socialism had impoverished those nations to the point that they couldn’t feed their own people. Socialism lost the economic debate that had burned through the 20th century.

Reasonable people divorced socialism, but most socialists had never been reasonable. They are aflame with envy. Robert Heilbroner wept ink for twelve pages over the death of his utopia in “The Triumph of Capitalism,” which appeared in the January 23, 1989 issue of The New Yorker magazine. He began with, “Less than seventy-five years after it officially began, the contest between capitalism and socialism is over; capitalism has won.” He concluded with this:
And finally, what of socialism?...I do not think that the triumph of capitalism means its assured long and happy life or that the defeat of socialism means its ignominious exit from history. The collapse of central planning shows that at this moment socialism has no plausible economic framework, but the word has always meant more than a system of economic organization. At its core, it has stood for a commitment to social goals that have seemed incompatible with, or at least unattainable under, capitalism – above all, the moral, not just the material elevation of humankind...the vision has retained its inspirational potential, just as that of Christianity has survived countless autos-de-fe and vicious persecutions.”
Helbroner soon regained his composure, dried his tears and nailed his 95 theses to the door of capitalism in his September 10, 1990 The New Yorker article, “After Communism.” Near the end he wrote,
For all these reasons, I am not very sanguine about the prospect that socialism will continue as an important form of economic organization now that Communism is finished...But the collapse of the planned economies has forced us to rethink the meaning of socialism. As a semireligious vision of a transformed humanity, it has been dealt devastating blows in the twentieth century...
There is, however, another way of looking at, or for, socialism. It is to conceive of it not in terms of the specific improvements we would like to embody but as the society that must emerge if humanity is to cope with the one transcendent challenge that faces it within a thinkable timespan. This is the ecological burden that economic growth is placing on the environment. The challenge has drawn its first blood in the epidemic rise in skin cancer that is a consequence of the depletion of the ozone layer. It threatens to open far deeper and more serious wounds as the atmosphere gradually forms its invisible panes of carbon dioxide and other gases...The ecological crisis toward which we are moving at a quickening pace has occasioned much scientific comment but surprisingly little economic attention. Yet if there is any single problem that will have to be faced by any socioeconomic order over the coming decades it is the problem of making our economic peace with the demands of the environment.
Whatever its other consequences, the closing window of environmental tolerance will impose an utterly new condition of caution and constraint on a civilization...It is perhaps, possible that some of the institutions of capitalism – markets, dual realms of power, even private ownership of some kinds of production – may be adapted to that new state of ecological vigilance, but, they must be monitored, regulated, and contained to such a degree that it would be difficult to call the final social order capitalism.

Heilbroner gave socialists their new marching orders: take over the environmental movement and use it to forge their socialist utopia. And they did. Climate change scientists embraced their new role as the vanguard of socialism and acted just as FA Hayek had predicted they would in Road to Serfdom fifty years earlier.