Potpourri
* My recent interview on the Victory Report. It’s familiar ground for most of you, but maybe you’re bored on your commute. We talk about monetary theory and what the average Joe should do.
* Silas Barta has a saucy post relating to my new book [.pdf] on whole life insurance and fractional reserve banking. His idea sounds promising. When I get more time, I may come back to explain what (I think) Silas is overlooking. In the book, co-author Carlos Lara and I don’t merely say whole life is good because “saving is good.” We give very specific reasons for why this approach is better than many others, including 401(k) contributions.
* Benoit Mandelbrot has died. He coined the term “fractal” and his work is used in “chaos theory” (the field, not my pamphlet). With Thomas Bundt I wrote a paper in the RAE using non-Gaussian probability distributions to show the limitations of standard neoclassical modeling.
* Yikes! This shows why some of the worries over getting rid of IP law are overblown. People would still be heavily penalized for plagiarism, at least in certain contexts. At the very least, the moral of the story is: Don’t mess with someone named Gonzalo.
Thanks for the link, Bob. Maybe I should clarify my reservations so you can be as responsive as possible.
First of all, in your book, when you describe (well, are gushing about) the benefits of infinite banking *before* the chapter on “common objections”, every benefit you listed could be achieved just as well by simply saving. In that respect, all of your advice looked like accounting tricks to make you feel richer when drawing down your own money. “Hey, you can lend money for office equipment to yourself from your whole life policy … and then make lease payments to yourself! (Uh, make sure to pay income taxes on that though.)”
Then, in the common objections chapter, you start to list benefits of IB above merely saving the money (and I’m going to use a savings account rather than a 401k for a baseline comparison). But here’s how I see the benefits/cost of IB stack up:
Benefits:
– Better protection from arbitrary/accidental government seizure
– Tax deferred accrual of savings
Costs:
– Large portion of savings evaporates as commissions.
– Can only really access the cash value by borrowing, which must be paid back.
– Must make specific monthly payments, irrespective of fluctuating income.
– You’re essentially using all your savings to buy very long-term, high grade, fixed income bonds, which are essentially all issued by governments or corporations with a cozy relationship (way to fight the power!), which will especially screw you over in the very likely event of high inflation.
You count the third cost as a benefit because … it forces you to save, which is just double-counting the benefit of savings.
This isn’t an exhaustive response, Silas, but at least 3 things come to mind:
* I actually do like insurance. So I think it’s good if people err on the side of buying more insurance than they otherwise would have. And the death benefit is tax free.
* What if I don’t trust “the banks”?
* It’s not just arbitrary seizure. It’s also if you go bankrupt or get sued. They could take your bank account but not your life insurance cash values (at least in some states).
If you don’t trust “the banks”, then you shouldn’t trust the insurance companies either. Again, what do you think they’re investing your money in? State-replacement start-ups? No, the only ones who issue long-term, high-grade bonds in the quantities that life insurers need are governments and government-dependent companies.
As for inflation, you’re locking the money up in something with at best fixed-dollar returns. With a savings account, you keep the money liquid enough to be able to purchase inflation hedges as the need arises. It’s true you could put the money in WL and then immediately draw down the cash value (which is 90% of what you put in) so you can buy inflation hedges, but why if you expect the inflation to hit in the next five years, it would make more sense to keep it liquid in that time.
Oh and the inflation isn’t a cost of IB if the alternative is a savings account, right?