Economics

Two Consequences In History

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I managed to follow a link to Frederic Bastiat's That Which is Seen, and That Which is Not Seen and skimmed through a lot of it. It ended on a nice quote which I'd like to share since it applies extremely well to today:

Thus we learn, by the numerous subjects which I have treated, that, to be ignorant of political economy is to allow ourselves to be dazzled by the immediate effect of a phenomenon; to be acquainted with it is to embrace in thought and in forethought the whole compass of effects.

I might subject a host of other questions to the same test; but I shrink from the monotony of a constantly uniform demonstration, and I conclude by applying to political economy what Chateaubriand says of history:-

"There are," he says, "two consequences in history; an immediate one, which is instantly recognized, and one in the distance, which is not at first perceived. These consequences often contradict each other; the former are the results of our own limited wisdom, the latter, those of that wisdom which endures. The providential event appears after the human event. God rises up behind men. Deny, if you will, the supreme counsel; disown its action; dispute about words; designate, by the term, force of circumstances, or reason, what the vulgar call Providence; but look to the end of an accomplished fact, and you will see that it has always produced the contrary of what was expected from it, if it was not established at first upon morality and justice."

- Chateaubriand's Posthumous Memoirs

Questions on Money

Just some questions for my economic readers:

  • How does population growth cause inflation?
  • How come the Federal Reserve is worried about inflation now when it was worrying about DEflation a year or two ago?
  • Is there a correalation between soaring health-care costs and the government paying 50% of all health-care?
  • And will the new $50, one ounce gold coin sell for $50? Or is that what the IRS will tax it as?

Capitalism is dead. Long live capitalism!

If I read The Magic Money Machine and the Great Prescription Drug Funding Fallacy correctly then prescription drug benefits or socialized medicine would eventually stop production of any new drugs. In an attempt to be funny the author said that only medicines for pets would still be developed. Following up on that I commented that it's good that medicines that work on pets would probably work on me, or that a black market would develop for medicines.

I think the latter would happen in such a case. We can look at the power of the mob in communist Russia as one example, or even the illicit drug market here. Both examples show that people want and will trade even under a 100% controlled economy.

Thus capitalism can not be avoided, and that produces the phrase I coined: Capitalism is dead. Long live capitalism!

Update: A quick check on google shows that I wasn't the first to coin this. :-(

Washington, We Have a Problem

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I just read a speech Benjamin Powell gave titled Immigration, Economic Growth, and the Welfare State. The entire transcript is a good and easy read, but I have to copy a quote from it that only shows that government fixes problems with even more problems:

Milton Friedman has said, “It’s just obvious, that you can’t have free immigration and a welfare state.” Conservatives and classical liberals should agree with a resounding “here, here,” and it’s time to abolish the welfare state.

I doubt there are many supporters of the welfare state in this room. But it is a mistake to take the welfare state’s existence for granted and use it as an excuse to condone government interventions in immigration. This is the problem Ludwig Von Mises famously pointed out in his book The Dynamics of Interventionism. One government intervention in the economy produces undesirable and unintended results and planners are confronted with the choice of making further interventions or repealing prior ones. All too often, government chooses the former. [emphasis mine]

Digital Fiat

I'm on my way to bed, but I'm still getting distracted with the tabs I have open, some that I haven't looked at yet. One of them is a PDF file that is talking about money and if it's ethical for a bank to not have enough gold to back all of the cash they've issued. This caused a neuron or two to fire causing me to link the digital bits saying that I have X dollars at my bank to being backed by actual dollars. The follow up questions are: when will we see digital fiat in which those bits aren't backed by anything, and if digital fiat would be a good thing?

Energy As Our Monetary Standard: One More Reason

A UC scientist, Tad Patzek, has raised the issue that ethanol uses more fuel to produce than it outputs when consumed. I find this as one more reason to convert our monetary standard from nothing to energy. That should stop people from considering such figments of their imagination such as:

"So what if we have to spend 2 BTUs for each BTU of alcohol fuel produced?" reads an editorial in the Offgrid Online energy newsletter. "Since we are after a portable fuel, we might be willing to spend more energy to get it."

Because such use of energy will hit them straight in the pocket book, and the whole supply chain will have its energy consumption completely measured so studies like Tad's can be done without error.

The Future Economy

I was just thinking about how one would make a living in the age of nanoscale assemblers as depicted in Neil Stephenson's The Diamond Age. I came up with four essentials to an economy in such an age:

  • Land
  • Energy
  • Raw materials/elements
  • Information

The first three are definite requirements for any kind of life in such a future. They all kind of go hand in hand. Land and raw material would be needed for energy production. Energy and land and/or raw material would be needed to reconfigure the raw materials.

Information is a little trickier, especially in these GPLed days. With the current legal frameworks of copyrights and patents, a person could get a monopoly over any novel configurations of raw material that they come up with. But in a society without such protections then only the service of creation/invention of new configurations could generate income. Since information wants to be free, then the latter is the most likely scenario. Novel information would eventually become free no matter how hard someone tries to monopolize it.

Making Money

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I thought I would post the description portion of my submition to the WTN X Prize:

Money is currently based on a fiat standard. It's possible to use energy as a
monetary standard. Using an energy standard would work the same way that all
past monetary standards would. People would be giving energy to producers in
return for a product that they invested energy in to produce. Producers can
still make a profit by charging more which isn't much different than now.

An energy standard also has some benefits that current money lacks. Three
benefits would be that people could setup solar panels, wind generators, etc.
and create energy. Literally making money with the new standard. Another
benefit would be inherint deflation, which would be a good thing. It would be a
sign of how efficient a producer produces a good. The deflation index would be
a measurement of how efficient everything is produced. A third benefit would be
that money is directly tied to reality. Money would actually mean something.

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