Potpourri
==> The latest Contra Krugmans: Episode 140 on fascism in Europe, and Episode 141 on the Swiss “sovereign money” referendum (i.e. 100% reserve banking).
==> OK in this David Roberts column for Vox, he is reviewing Infinity War. (Caution: Major spoilers in the review.) I can’t quote him here since I don’t want to spoil anything, but if you’ve seen the movie, go ahead and look at his discussion of World War II. Is Roberts just playing along with Thanos’ worldview, or is that really what Roberts thinks happened?
==> FEE has a heartwarming post showing excerpts from Rothbard’s discussion of his discovery of FEE. What I found amazing is that Rothbard was overjoyed to have an economics professor (Stigler) at Columbia with the courage to challenge rent control and the minimum wage! Stigler apparently told him that the study against these controls that he’d co-authored with Milton Friedman was only carried by FEE, because they couldn’t get anybody else to publish it. (!)
==> Paul Krugman’s old paper on interstellar trade is very clever.
==> The media are reporting that Social Security and Medicare are going to be “insolvent” earlier than expected, but actually they’ve been insolvent for years (decades?). And I’m not being a cranky old man. The term “insolvent” means liabilities exceed assets. That’s been true for a long time; that’s what the phrase “unfunded liabilities” or why wonks always talk about “reforming entitlements.”
==> Incidentally, for EconLib I wrote what I thought was a very practical proposal to reform Social Security. It let people opt out while also saving the government money.
Regarding Infinity War. I find it disturbing that Roberts declares victory for utilitarianism… Obviously staying true to your principles means accepting all the consequences and doesn’t mean you automatically win all fights, else doing the right thing (= not trading lives!) would be a no brainer… I have to say though, that in my view there is nothing speaking against self-sacrifices, as was suggested by Vision as it is voluntary. Cap is a (noble) hypocrite there actually, because obviously he would sacrifice himself without much thought if he could end it this way, but he cannot accept it if others do it. Though I have to say, I have a dark feeling that Roberts is right with his prediction at the end about Tony and Cap.
Maybe the writers will discover that, in the real world, “overpopulation” is nothing to fear, what with a free market price system being quite capable of incentivizing self-rationing and increased production of goods for which people are willing to pay a higher price. #OverpopulationMyth
(Could be a moot point for the films, though, since Thanos says overpopulation is what destroyed his home planet.)
Right of course, but for the actual discussion about utilitarianism you can take that as a given.
Aside from that it is obviously false, and very crude (really it is half the population for every planet now? … etc). Even for his own planet, why should we take his word for it, why should we accept he is right about it and not something else was the actual problem like stupid central planning..
The term “insolvent” means liabilities exceed assets.
No, “insolvent” means you can’t pay your debts. A kid who graduates from college with, say, $30k in student loan debt and $2k in the bank is not insolvent, even though his liabilities exceed his assets.
It would be nice Josiah if you weren’t so adamant when I’m literally using the standard finance definition. And with the college kid, presumably he will have future income.
Bob in physics class: I performed work by lifting this 1kg weight up 2 meters.
Josiah: No, ‘work’ means you went to a job and got a paycheck.
Hey Bob, great Contra Krugmans, both of them but for the second about FRB I’d like to ask you for an answer on my example below where in your view I am wrong. Obviously you don’t agree with me. So at the moment that is my thinking and yes FRB necessarily drives down the interest rate of where it would be without FRB. But with real savings that actually are available as long as it is not subsidized via a Central Bank. That is what Selgin also thinks right?
1. Scenario: No CB, no FRB. People save 20% of their income in demand deposits. This results in a market interest rate of 7%.
2. Scenario: No CB, no FRB. People save only 10% of their income in demand deposits. This results in a market interest rate of 5%.
3. Scenario: No CB, no FRB. People save only 1% of their income in demand deposits. This results in a market interest rate of 3.5%.
4. Scenario: No CB, but with FRB. People save 20% of their income in FR demand deposits. Reserve ratio 50%. This results in a market interest rate of 5%.
5. Scenario: No CB, but with FRB. People save 10% of their income in FR demand deposits. Reserve ratio 10%. This results in a market interest rate of 3.5%.
6. Scenario: With CB and with FRB. People save 10% of their income in FR demand deposits. Reserve ratio 10%. This results in a market interest rate of 2%. (Because the CB arbitrarily decided to push it there)
So in my current understanding there is no problem in all cases but scenario 6. And cases 2 and 4 result in the same interest rate just as 3 and 5 do. And as long as there is no real shock 4 and 5 are fine and they do not start an artificial boom, the interest rate is that low because those funds really are there for loaning as they are in cases 2 and 3.
Real savings in scenario 3 drive the interest rate down to 3.5%. And the same is true for scenario 5. There is no “new” money (I’d like it better to call it fake savings!) that enters the system. Only in scenario 6 fake savings enters the system by a CB who through open market operations increases the amount of money so that the interest rate is driven below 3.5% to an arbitrarily defined 2%. And by doing that the CB started an artificial boom that will turn into a bust at some point.
It is like farmers who save 10% their grains for uncertain needs, but together on average only ever use 1% of those for real uncertain needs, so the other 9% are uselessly stocked. If those 9% were used to grow more corn, and farmers would like to do that, the economy would be that much bigger next year. Every single farmer alone is not able to do this on his own because every single farmer might need his 10% individually, but by pooling funds together farmers (like taking out a fire insurance) are able to do that.
“It is like farmers who save 10% their grains for uncertain needs, but together on average only ever use 1% of those for real uncertain needs, so the other 9% are uselessly stocked.”
The scenario you’re describing requires the knowledge that 90% of all farmers’ savings could be making them better off, but they don’t know it, and someone else does.
If some of their savings could not possibly make them better off (that is, it is being wasted from the point of view of the individual farmer), he is still organizing his consumption and assessing his risks with his savings in mind.
Which means that his demand for future goods will change if you take liberties with his savings, regardless if they would have been useful to him or not. *His perception* of his own economic situation is what supports or breaks sustainable production.
And since the heart of what an “artificual boom” means is that producers and investors are planning for a future demand that won’t materialize, and since the existing consumption and savings ratios give you some kind of information about future demand, then investing other people’s savings without their permission necessarily causes a mismatch between investment and future demand (all other things equal).
If I lend someone money by free and mutual agreement at a positive rate of interest I of course understand that they will be using my money, not merely holding it for me. Accepting interest payment is tacit permission for the borrower to use the money in some way, which may be spelled out more explicitly in a contract between the two parties.
These things are obviously true in the cases of individuals borrowing and lending money to one another. If a wealthy friend loans me money with the expectation that I will pay it back with interest later out of my income accumulated since, he cannot insist on deciding the manner in which I go about spending my loan, unless the terms of our contract already specify that which I am permitted to use the loan for.
So why does the word “bank” magically change the relationship between borrower and lender?