05 Apr 2016

Murphy Triple Play

Shameless Self-Promotion 23 Comments

==> My latest article on IER discusses leakage. It’s a sensitive topic but ignoring our problems is no solution.

==> Tom Woods and I discuss globalization on Contra Krugman.

==> Carlos and I talk about BOLI (bank-owned life insurance) on the Lara-Murphy Show.

23 Responses to “Murphy Triple Play”

  1. Tel says:

    I dunno if I could deal with the idea of working for a boss who has a large financial interest in seeing me dead.

  2. Tel says:

    Good episode on CK… lot’s of important points. Protectionism gives advantage to group [A] at the expense of the usually larger group [B]. Open borders has the reverse effect penalizing group [A] and benefiting group [B]. Good to see that point getting emphasised, and yeah Krugnam shows his typical lack of self awareness blaming everything on Republicans and just conveniently forgetting his own work from the 90’s.

    I do accept (intuitively) the “goes around comes around” argument that says, well you might lose out in the short term, but some other guy will lose out next time and in the long run we will end up better off as lots of small steps lead us towards a better economic structure. There’s been a lot of people benefiting in Vietnam, China, India, etc. with the recent free trade situation, and consumers in first world countries get cheap manufactured goods so clearly there have been quite a lot of beneficiaries.

    There’s a few other points… Russ Roberts has pointed out that in order for the “goes around comes around” result to happen there needs to be flexibility so the first world industry needs to be able to quickly and efficiently reconfigure to handle the shifting trade situation (also true with tech shock BTW). Robert’s has found at least some evidence that the US is now less flexible than it used to be.

    Stefan Molyneux interviews Jason Richwine on the topic of immigration and how this effects culture and national institutions such as rule of law. I for one don’t want to live under Sharia, because I disagree with that system. I feel like I have a right to isolate my lifestyle from people who want to impose a different system on me. It’s not as simple as most libertarians pretend. No doubt Molyneux is more culturally conservative than many libertarians but you see his point.

    http://feedproxy.google.com/~r/FreedomainRadioVolume6/~3/MNnRKuF60gs/FDR_3212_Jason_Richwine.mp3

  3. Tel says:

    With the Harry Potter stuff, that’s a good point that one author’s work can be multiplied many times over thus creating massive economy of scale. This applies to many things, and (again intuitively) seems like a great benefit… sadly not provable in concrete terms by any tools available to an Austrian economist, because every step is benefiting some at the expense of others.

    Suppise you have a country that for whatever reason cannot import Harry Potter books… would that country have no available fantasy story books? Of course not, for every highly successful author there are thousands of almost but not quite successful authors. The isolated country would be reading fantasy stories that are almost as good as Harry Potter… but maybe not quite as good. The arts industry has moved to a “winner take all” model precisely because of this multiplier effect. This makes analysis kind of difficult.

  4. guest says:

    “It’s true that globalization puts downward pressure on the wages of many workers — but progressives can offer a variety of responses to that pressure, whereas on the right, protectionism is all they’ve got.”

    Hey, LK!

    Why is Krugman worried about the worker, here, huh?

    Isn’t he just claiming that workers are entitled to consumers’ wealth?

    Why is he offering a response, as if downward pressure on wages for labor on the production of goods which consumers want less of, is necessarily a bad thing? That workers are “losing” something?

    Workers aren’t losing jack, LK. Consumers don’t want the goods their employers’ capital is being used to produce as much as other things.

    Certain workers were only able to afford a higher standard of living because their employers’ goods were in demand – which is something neither those workers, nor their employers, were entitled to, to begin with.

    Either pick a different job, or get your government’s regulations out of your way so you can reduce your costs of living.

    And no, no one is entitled to lower risks as someone else’s expense. If, for example, *you* think it’s too dangerous to drive while others are driving without car insurance, then *you* stop driving, and stop robbing the rest of us to pay for your safety.

    Privatize the roads, and owners can make their own speed laws, the violations of which would be private property violations, rather than arbitrary non-crimes that the “Only Ones” (police) are somehow free to violate without penalty.

    LK, downward pressure on workers’ wages is not a problem to solve, but a signal that you’re in the wrong line of work.

    To say otherwise is to make a claim on consumers’ wealth, which is literally backwards economic thinking, since you’re not supposed to produce what consumers don’t want.

    Keynesianism is the Dark Sucker Theory of economics, in that, yes, it has a plausibility to it, but it gets everything backwards:

    Instead of understanding value as coming from the consumer, with the value of the producer and worker deriving from their ability to satisfy the consumer (Subjective Value / Marginal Utility), it incorrectly sees it as coming from the worker, as if the worker adds value to the product (Labor Theory of Value).

    • LK says:

      “LK, downward pressure on workers’ wages is not a problem to solve, “

      Yes, it is, if it is a *general phenomenon*, as explained by Keynes in Chapter 19 of the GT.

      One reason is called “debt deflation”, for example, though I doubt you have the intelligence to even understand that concept..

      Anyway, no doubt you’d be happy to work for 10% of your current wage, even though your debt obligations (e.g., mortgages) remain fixed, so that you are driven into bankruptcy. And no doubt you’d be happy to see vast numbers of people in an economy driven to bankruptcy as well.

      • guest says:

        In your scenario of vast numbers of people driven to bankruptcy, do I still have to satisfy the consumer if my goods are to sell?

        See, in all possible configurations of the economy, the consumer still has to want what you’re selling.

        So, even under debt deflation, which you’ve brought up before, and which you’ve defined, here, all your reduced wage means is that consumers don’t want your employers’ products / services in sufficient demand as to justify a higher one.

        Austrians and Keynesians have different explanations about the “generalness” of the phenomenon, but I don’t see how you can conclude that there’s a lack of aggregate demand, as if consumers are somehow buying the wrong stuff.

        There’s no such thing as a lack of aggregate demand. Stop working for employers that aren’t producing what consumers want.

        Yes, workers will have to reduce their costs of living to pay off their debt, under debt deflation, but that’s not the consumers’ fault.

        • LK says:

          “See, in all possible configurations of the economy, the consumer still has to want what you’re selling.”

          Correct. Doesn’t refute what I said.

          Just as in England in the early 1800s when the British cotton textile industry was being built up behind high tariff barriers the fact that consumers had to pay higher prices for cotton textiles did not stop large demand for cotton textiles.

          The protection allowed British goods to become internationally competitive by the 1840s and helped create a huge manufacturing sector with related industries, which in the long run was better for the UK than having its cotton textiles industries wiped out in the 1810s or 1820s by cheap imports.

          • guest says:

            “… the fact that consumers had to pay higher prices for cotton textiles did not stop large demand for cotton textiles.”

            That’s only because, given consumers’ scarcity conditions, they actually valued those things at, or above, those higher prices.

            The protectionism just lowered the consumers’ standard of living in order to raise that of the worker.

            That’s just redistribution, LK. Theft. A claim on consumers’ wealth by workers.

            Socialism.

            It’s irrelevant that manufacturing sectors were made huge, because the whole point of production is the satisfaction of consumer demand.

            Consumers would have been better off with a smaller British manufacturing sector and lower-priced goods from foreigners.

            Consumers, producers, and workers are not classes, LK. Workers are speculators of consumer demand just like producers.

            You think producers and workers are owed something. That’s the flaw in your thinking.

            • LK says:

              (1) “The protectionism just lowered the consumers’ standard of living in order to raise that of the worker.”

              Not just the worker: in the long run, the nation’s per capita GDP and everyone’s wealth.

              (2) “Consumers would have been better off with a smaller British manufacturing sector “

              No, they wouldn’t. If you think so, go and look at the third world cr*pholes devoid of manufacturing, you delusional and ridiculous fool.

              You are in favour of poverty and lack of development. Full stop.

              • Craw says:

                Trade increases efficiency. This is demonstrable and demonstrated.

              • LK says:

                Trade *might* increase efficiency, yes. in some cases where industries can quickly adapt.

                In other cases, as in infant industries that need to adopt new technologies or increase economies of scale over many years, free trade will devastate emerging industry.

                This is also demonstrable and demonstrated. It was known to Alexander Hamilton.

                This is why Canada, the US, and Australia also came to pursue protectionism.

              • Tel says:

                Not just the worker: in the long run, the nation’s per capita GDP and everyone’s wealth.

                The top three countries for per capita GDP are: Monaco, Lichtenstein and Luxembourg. I would presume they got that way by generating those massive economies of scale internally.

                http://www.nationmaster.com/country-info/stats/Economy/GDP-per-capita

              • guest says:

                “Not just the worker: in the long run, the nation’s per capita GDP and everyone’s wealth.”

                The nation’s per capita GDP doesn’t matter, because only individuals get wealthy.

                Your GDP doesn’t tell me anything useful about the real economy.

                If GDP was *zero*, and everyone had what they wanted, the economy would be doing just fine without Keynesian stimulus, thank you very muich.

                “… you delusional and ridiculous fool.”

                Welcome back, Wheatley.

                *Applause* (… um … from just me, apparently, because no one else appreciates biting candor.)

                “No, they wouldn’t. If you think so, go and look at the third world cr*pholes devoid of manufacturing …”

                Well, that’s just Bean-foonery; If you don’t think so go and look …

                *… AT THE REST OF MY COMMENT.*

                Jeez.

                “You are in favour of poverty and lack of development.”

                “Development” … *for what purpose*?!

                Again, *you’re not supposed to DEVELOP things that consumers don’t want.

                You, full plop. *Mic drop*

              • guest says:

                “Trade increases efficiency. This is demonstrable and demonstrated.”

                Efficiency means less work for more stuff.

                So, it’s actually LESS trade for more stuff – i.e., automation (i.e., fewer laborers – oops) – that you’re trying to to attain, when the attempt is to be efficient.

                If you have RESTRICTIONS on trade, you need more trade.

                If there are no restrictions, your goal is to do increasingly less of everything that is now necessary in order to achieve your ends, as a consumer.

                Producers and laborers are only useful when they satisfy consumer preferences.

                And since laborers merely lower costs for producers, they are rightly, and ought to be considered to be, the most expendable kind of labor in the economy.

                Business is NOT about charity, but about making profit.

                The goal of making money is NOT to make you like me.

                When I need friends, I will spend what I earn on developing relationships.

                But when it’s business time, if I can make more money automating, and by firing you, it’s time to cut the dead weight.

                Business is NOT about us – it’s about ME. It’s the REASON a particular business is created in the first place.

                And finally, let’s say, for sake of argument, that I *am* in favor of poverty and lack of development.

                As long as I’m not violating anyone’s rights, so what?

                When you go to the grocery store, do you complain that the manager doesn’t come up and talk to you, personally?

                No, you don’t. Because you don’t care about *his* well-being, either. All you care about is whether or not he’s selling what you want.

                You go in. You come out with stuff. And you can go on to your next task of your day.

                *THAT’S* efficiency.

                My selfishness brings far more people out of poverty than your egalitarianism.

              • guest says:

                “I would presume they got that way by generating those massive economies of scale internally.”

                Exactly. It’s called “Comparative Advantage”.

              • Tel says:

                guest

                The nation’s per capita GDP doesn’t matter, because only individuals get wealthy. Your GDP doesn’t tell me anything useful about the real economy.

                It doesn’t matter from an Austrian perspective… but it’s the most important thing in the world from a Keynesian perspective.

                You must admit though, living in a country with high GDP per capita does come out OK for most individuals as well (from a sort of handwaving argument). There will no doubt be exceptions to that, but I mean the typical case.

              • guest says:

                “You must admit though, living in a country with high GDP per capita does come out OK for most individuals as well (from a sort of handwaving argument).”

                In the boom phase of the business cycle:

                What is up with the GDP?
                https://mises.org/library/what-gdp

                “The employment of various sophisticated methods to calculate the average price level cannot bypass the essential issue that it is not possible to establish an average price of various goods and services. Accordingly, various price indices that government statisticians compute are simply arbitrary numbers. If price deflators are meaningless, however, so is the real GDP statistic.

                “So what are we to make out of the periodical pronouncements that the economy, as depicted by real GDP, grew by a particular percentage? All we can say is that this percentage has nothing to do with real economic growth and that it most likely mirrors the pace of monetary pumping.

                “As a rule, the more money created by the central bank and the banking sector, the larger the monetary spending will be. This in turn means that the rate of growth of what is labeled as the real economy will closely mirror rises in money supply.

                “So it is no wonder that in the GDP framework, the central bank can cause real economic growth, and most economists who slavishly follow this framework believe that this is so. Much so-called economic research produces “scientific support” for popular views that, by means of monetary pumping, the central bank can grow the economy. It is overlooked by all these studies that no other conclusion can be reached once it is realized that GDP is a close relative of the money stock.

                HT2 Tom Woods:

                What GDP Leaves Out: An Austrian Look
                [www]https://www.libertyclassroom.com/gdp/

              • Tel says:

                guest: you don’t have to lecture me on the theory… but take a look at the practice: pick a high GDP per capita nation like Monaco, do you want to live there?

                Pick a low GDP per capita nation like Somalia, Burundi, Malawi, Congo, Niger, Liberia, Madagascar, Ethiopia, etc. Would you prefer to zoom off and live in those nations? If you try hard you could probably get a visa and maybe a job in those places… so why not?

                I must admit that when I see a theory that gives a significantly different answer to the real world observations I start to ask a few questions about that theory. I do understand that all of the GDP family of metrics have their share of problems… I also recognize that the Austrian school has yet to put forward their own metrics which are better.

              • guest says:

                I’m not lecturing, Tell. I just saw that a correlation might be throwing people off.

                No hard feelings.

                “I also recognize that the Austrian school has yet to put forward their own metrics which are better.”

                That’s because:

                “The whole idea of GDP gives the impression that there is such a thing as the national output. In the real world, however, wealth is produced by someone and belongs to somebody. In other words, goods and services are not produced in totality and supervised by one supreme leader. This in turn means that the entire concept of GDP is devoid of any basis in reality. It is an empty concept.”

                (From the same article.)

              • LK says:

                “In the real world, however, wealth is produced by someone and belongs to somebody. In other words, goods and services are not produced in totality and supervised by one supreme leader. This in turn means that the entire concept of GDP is devoid of any basis in reality. It is an empty concept.””

                An absurd statement, which denies the type of aggregation that private businesses engage in all the time and, even worse, the aggregates of private real national output proposed in place of GDP by Austrians such as:

                (1) Rothbard’s Gross Private Product (GPP) = C + I + (X-M), and

                (2) Skousen’s Gross Domestic Output (GDO) =
                official GDP + value of intermediate input (or what Skousen calls the “goods-in-process sector of the economy”).
                ——–
                If there is no GDP, then there can be no Austrian aggregates of private output. lol.

              • guest says:

                “An absurd statement, which denies the type of aggregation that private businesses engage in all the time …”

                We’ve already dealt with this.

                Private businesses don’t engage in aggregates but “relevant marginal units”.

                It’s the utility of the unit size / amount that matters, so if one more unit doesn’t increase utility, then it’s economically irrelevant, and decisions regarding Units vs Units +1 will therefore be made without regard for the +1.

                Next.

                “If there is no GDP, then there can be no Austrian aggregates of private output. lol.”

                LOL. /sarc

                Very true, making Rothbard, et al, inconsistent on this particular point.

                Which still leaves Keynesianism lacking.

                “You are in favour of poverty and lack of development.”

                News Flash: Redistribution is only “development” for favored cronies.

                You are in favor of cronyism.

                I guess I must be against development since I disfavor fenced goods shops, too.

  5. Adrian Gabriel says:

    I really enjoyed both of your podcasts Dr Murphy. The one on globalization was well explained and anyone unaware of the net benefits of free trade should really hear it.

    I also enjoyed the one with Mr Lara. I was never aware of the BOLIs that banks purchase. Indeed bankers do make some good decisions, but when it comes to the overall business cycle they seem to be way off and incur huge losses in those respects.

    I read recently that Goldman Sachs got lucky with it’s predicament and found a way to be net short the market during the 08 crisis. Albeit one wonders why the Fed was making loans to Goldman in 08 at record amounts, in the form of one might deem a bailout. Nevertheless, they were benefiting from a scheme started by the Fed, perpetuated by banks like Goldman, and thus finally found some profiting at the expense of many naive others or simply those oblivious to what was going on.

    I’d have to say that finding ways to confuse clients with complex instruments and thus render ephemeral gains can make one seem smart, but missing the ramifications of policies that create false price spreads and in essence hurt everyone at the expense of a few is quite dense.

    Smart is someone like Dr Murphy who shares a financial perspective that can help protect one’s wealth while also removing one’s self from the shackles of the monopolistic laws which pin us down financially.

  6. Tel says:

    Revisiting the “magic box” question… here’s a fascinating perspective on that based on examples of international “charity” in the form of dumping free stuff into third world nations. In effect, the charity looks locally as a “magic box” that injects free goods into the local economy. In many cases, it doesn’t come out looking as helpful as the superficial idea suggests.

    http://www.cato.org/multimedia/daily-podcast/poverty-inc?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CatoDailyPodcast+%28Cato+Daily+Podcast%29

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