02 Nov 2008

"If God Exists, Why Doesn’t He Reveal Himself?"

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This is a typical challenge from smug atheists. (BTW I am not using that term as a pleonasm; I am referring to atheists who happen to be smug.) However, in the comments to my previous post about donning the armor of God, Aristos said:

I’ve always enjoyed the “whole armor of God” metaphor, but whenever challenged to don it, I feel nonetheless naked.

My greatest concern regarding my faith is the fact that there hasn’t been a burning bush in thousands of years.

Don’t you think that God would remind us from time to time that he’s around and omnipotent? Seriously, blind faith wasn’t good enough for Moses, so why is it for us?

When Thomas asked to see the wounds, Jesus showed him. What is there for us to be shown?

This is a really tough question; I remember a guy in my Bible study asked almost the exact same thing–he said something about how it would be easy for modern Christians to stay in line if they were literally following a column of fire/smoke around (as the Israelites did in the desert).

I think the answer (or at least part of it) is one of maturity; God already did the “obvious” stuff like sending plagues and incinerating whole cities. And just as earthly parents scale back their punishments and oversight as the child grows, so too does God become more aloof as humanity matures with each passing generation.

I am not trying to downplay Aristos’ concerns; I feel them too. When I read the Gospels sometimes I get jealous of the apostles. It would have been crystal clear what you were supposed to do with your life if you actually could physically follow Jesus around and do whatever He literally said to you. Plus, I would have been so much better than the other apostles! What absolute morons they were, asking Jesus if they should call down brimstone on a city, or asking Him which of them would be the greatest in the kingdom of heaven, or shooing little kids away, or telling a blind man to shut up.

But that’s not fair to the apostles, because they didn’t grow up learning Gospel stories like I did! It was necessary for them to be such dolts, so that Jesus could teach them (and us) a lesson.

The same is true of Thomas. Aristos notes that Jesus allowed the doubting follower to touch His wounds and verify that it really was His lord returned from the dead. So we are denied that evidence, it’s true.

But on the other hand, we have something much better. Jesus said, “Thomas, because you have seen Me, you have believed. Blessed are those who have not seen and yet have believed.”

So one way to try to make lemonade out of the lemons is to realize that God is giving us a harder challenge. We can read about Peter denying Christ and think, “I wouldn’t have done that.” But it’s much more challenging to be faithful if you haven’t actually seen the guy!

So my main answer to Aristos’ question is that God wants us to develop. I mean, another way to put it is, why did Jesus leave? Can you possibly imagine how much better the world would be, if Jesus stuck around, healing and teaching? And yet, apparently it wouldn’t have been better, because Jesus left, and (without getting bogged down here in a huge philosophical thicket) I really do think this is the best of all possible worlds.

A couple of more points on this general topic: First, I think part of why “miracles” don’t happen as much nowadays is that people are far more scientistic (not a typo). To put it bluntly, I think most of us would be absolutely terrified if we saw a burning bush (that wasn’t consumed), because we’ve been trained in our culture not to believe in such hocus pocus.

Second, I have–on a few occasions–communicated with God. It was in a very roundabout fashion; I didn’t have George Burns appear in my shower. But there is no doubt in my mind that these episodes happened.

So I would encourage people who believe intellectually, and yet sometimes get discouraged that it doesn’t feel as real as, say, a two-by-four to the head, to pray for help in this regard. As I said, I think if you reflect a little on it, you don’t really want an actual conversation (just yet), because it would terrify you. But at least for me, I know that God has revealed Himself–in ever so tiny, gentle bits–when I really needed Him to.

02 Nov 2008

Preparing For Spiritual Warfare

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One of the “coolest” things about being a Christian knight (a term I prefer to “soldier in God’s army”) is that you get all the excitement of being a warrior, without having to engage in a morally dubious use of violence. C.S. Lewis wrote that because Satan rules this world, Christians are behind enemy lines. That is an adventure; being a Christian doesn’t mean you only walk around meekly, looking for old ladies to help across the street, and talking like Ned Flanders.

In this vein, one of the coolest passages from the Bible contains these instructions from Paul in Ephesians 6:10-17:

10 Finally, my brethren, be strong in the Lord and in the power of His might. 11 Put on the whole armor of God, that you may be able to stand against the wiles of the devil. 12 For we do not wrestle against flesh and blood, but against principalities, against powers, against the rulers of the darkness of this age,[c] against spiritual hosts of wickedness in the heavenly places. 13 Therefore take up the whole armor of God, that you may be able to withstand in the evil day, and having done all, to stand.
14 Stand therefore, having girded your waist with truth, having put on the breastplate of righteousness, 15 and having shod your feet with the preparation of the gospel of peace; 16 above all, taking the shield of faith with which you will be able to quench all the fiery darts of the wicked one. 17 And take the helmet of salvation, and the sword of the Spirit, which is the word of God…

02 Nov 2008

This Tuesday…Vote Elvis for King!

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My friend “Aristos” was a monarchist during our undergraduate years. (What’s funny is that I think I am more sympathetic to this system than he now is.) On a recent blog post, he paid tribute to Elvis who made more money this year than Madonna did, despite her advantage of a beating heart. Wiseguy that I am, I said in the comments, “I thought you no longer endorsed monarchy?” Aristos then dazzled me with this retort:

But just look at Elvis’s positions on the issues.

On liberty:
“You can do anything that you want to do,
But uh-uh honey stay off of my shoes.”

On the domestic surveillance:
“So if an old friend I know
Drops by to say hello.
Will I still see suspicion in your eyes?
Here we go again.
Asking where I’ve been.
You can see the tears are real
I’m crying.
We can’t go on together with suspicious minds.
And we can’t build our dreams on suspicious minds.”

On crime and punishment:
“He buys a gun, steals a car, tries to run, but he don’t get far–and his momma cries.”

On women:
“A hard headed woman, a soft hearted man, been the cause of trouble ever since the world began, oh yeah!”

On STD’s:
“I’m just a hunk-a-hunk of burnin’ love.”

On the Bush Doctrine:
“Well please don’t ask me what’s on my mind.
I’m a little mixed up, but I feel fine.”

On torture:
“Don’t be cruel.”

For the Bush Doctrine, we also would have accepted:
“Regrets, I’ve had a few.
But then again, too few to mention.”

01 Nov 2008

Russ Roberts in WSJ: Don’t Just Do Something, Stand There.

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This is an awesome op ed from Friday’s WSJ. (See, I am physically capable of praising a George Mason economist.) Some excerpts:

Today, President George W. Bush plays the role of Hoover, the so-called free market ideologue who is trying anything to avert disaster. He signs a $700 billion bill putting Treasury in charge of buying troubled assets. A week later, the money is used to partially nationalize the banks. Some companies, like Bear Stearns, are bailed out. Others, like Lehman Brothers, are not. Some companies are sold. Some are allowed to fail. There is no plan, no rules, nothing to count on. It’s just like the New Deal: a massive accumulation of power in Washington justified by the need to do something.

By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s.

01 Nov 2008

Murphy Interview on the Mike Beitler Show

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Mike Beitler interviewed me on Thursday [mp3]. We actually talked mostly about my book. (There might be a discreet ad to the left if you’re not sure which book I mean.) The main topics were rent control, minimum wage laws, and the Fed. It’s pretty basic stuff for you overachievers, but it might soothe you if you are having a bad day.

Speaking of interviews, I cannot stress how excited I am about the Lew Rockwell / Naomi Wolf interview. I just listened to most of it again. For a long time I have thought Austro-libertarians need to cut lefties some slack. After all, in practice real-world corporations do suck on the welfare teat and some of them do work in league with Third World governments to exploit their hapless people. And then this whole system is called “the free market” by leading Republicans and “conservative” thinkers.

So let’s cut these people some slack. It doesn’t mean you need to water down your own views, it just means that somebody like Naomi Wolf–who is either very intellectually honest or an incredible actress–could understandably be skeptical at first of an ideology that trumpets the virtue of the profit and loss system as a way to help poor people.

01 Nov 2008

Accounting Basics & the Financial Crisis

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I’ve had a few conversations with “Pepe,” my man on Wall Street. It had been many years since my undergraduate class in accounting, and I just wanted to clarify a few things to make sure I really understood the typical press stories about the financial crisis.

It occurred to me that some Free Advice readers are similarly rusty. So over the next few weeks I will be posting a series of these refreshers. Ultimately, I want to address such issues as:

* The difference between solvency and liquidity.
* How mark-to-market exacerbates the “panic selling.”
* What all this talk of “de-leveraging” means.
* Why it can hurt a hedge fund if clients withdraw their money (as opposed to just scaling down the operations).
* How recapitalization works. Specifically, what is going on when they say Firm XYZ lost $8 billion last quarter and so it needs to “raise capital.”
* Why a “sick” firm can raise outside capital to cover losses, but that same firm wouldn’t have taken extra investment in itself if it had been profitable.

One last thing before we dive in: I am of course coming to these issues as an economist with a specialty in capital & interest theory. At times, I may analyze something the way an economist would, rather than treating it as an accountant would. So if anyone spots an inaccuracy, please correct me.

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For something like this, I think it’s best to use a concrete example so it clicks:

Let’s say that a guy saves up $80,000 of his own money, and then wants to start a laundromat. He goes to his bank and opens a new checking account for his business, and puts the $80k in there. He also goes to his father-in-law and borrows $20,000. The father-in-law agrees, but insists on a monthly interest rate of 2.5%. This $20k too is deposited into the business checking account.

Armed with a checkbook showing a balance of $100,000, our protagonist buys $60,000 worth of washing machines, dryers, coin dispensers, etc. by writing checks on this business account. He writes a check for $5,000 to pay for his monthly rent (including utilities) of the building he uses for his business. He doesn’t have any employees. During that first month of operations, assume that his customers spend a total of $18,000 doing their laundry. In the process, they use up $700 worth of the laundry detergent and dryer sheet single-servings in the vending machines.

At the end of the month, the guy pulls up his QuickBooks file to see the state of his business. He first looks at the Profit & Loss statement. It shows him that during the month, he incurred $6,200 in expenses. Note that we’re not counting the entire $60k as an operating expense, only the $700 of it that went towards the purchase of single-serving detergent and dryer sheets that were used up during the month. (Strictly speaking, we could include a depreciation expense reflecting the fact that he couldn’t resell the washing machines for the price he paid, but let’s ignore that complication.) We also count the $500 interest expense on the loan from his father-in-law.

On the other hand, the P&L statement shows that his revenues were $18,000. So his net income for the month was $18,000 – $6,200 = $11,800.

Next the guy pulls up his balance sheet. (Here, remember the tautology that Total Assets = Total Liabilities + Owner’s Equity.) On the assets side, the guy lists all of his machines and the packets of detergents etc. that are still in his possession. When multiplying each of these by their prices (again, let’s assume he values them on his books at the price he paid), he sees that his assets in this category are worth $59,300. (Remember, $700 was “consumed” by his customers during the period.)

But there is another asset, namely the money in the checking account. Right now his balance at the bank is $53,000. He started with $100k initially, which got knocked down to $40k after he bought all of his machines and other items. Then it got knocked down to $35k after he wrote his monthly rent check to his landlord. But then during the month, the owner deposited the $18,000 in revenues from his customers, so the checking account balance stands at $53,000 at the end of the period.

This makes the Total Assets for the company equal to $112,300, i.e. the sum of $59,300 and $53,000.

————

On the Liabilities section, the man sees the IOU to his father-in-law, which is priced at $20,500. That leaves the Equity section. Here, the initial Owner’s Equity was $80,000 (i.e. the money the guy originally saved up to launch his new business). To this we add the Net Income from the period, i.e. $11,800. This brings Total Equity to $91,800.

————

To make sure we did everything correctly, let’s check the accounting identity. Total Assets are $112,300. Total Liabilities + Total Equity are $20,500 + $91,800 = $112,300. So we are now reassured that we probably didn’t screw anything up in our above calculations.

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I think that’s plenty for today. Once we get these basics down, it will be easy to discuss the more exotic things happening in the financial sector. But as I said in the beginning, I myself had to go through these dumbed down scenarios before getting into scenarios of firms suffering billions in losses on mortgage-backed securities and then having to raise capital.

31 Oct 2008

"How Did This Happen?"

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I saw an ad for this website about the causes of the financial crisis at–ironically–my own blog. (True to my contract with Google, I didn’t click on my own ads, but rather just typed in the URL.) I hate to judge on something like this before all the facts are in, but I’m thinking I don’t like their site.

However, I did like this table, which describes the legacy of the Bush years:

31 Oct 2008

Marketplace Video Explainers

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Here are some pretty useful and quick explainers, provided by the Senior Editor of NPR’s Marketplace. (HT2MR) I only watched two of them, namely the one on short selling and the one on credit default swaps.

The CDS one seemed pretty good to me. However, I should warn you that I think the guy didn’t do a good job sealing the deal in his presentation on naked short selling. He makes it seem as if the problem is that the naked short seller won’t be able to buy 100 promised shares and deliver them, even if prices have gone down (!). But that’s no different from the original case he discussed; in both scenarios, he owes 100 shares to somebody, and he has to go into the market and buy them.

I think the thing about naked shorting that bothers people is that you can sell an unlimited number of shares. E.g. let’s say there are 100,000 shares total of a company. With naked shorting, an aggressive speculator could unload, say, 200,000 “shares” and drive the price way down. So then people think they own (collectively) 300,000 shares, even though only 100,000 actually exist. So it’s a weird situation.

In fact, even as I type this out, I’m realizing that in principle there’s nothing that weird going on here. Even with conventional shorting, you could get this outcome; you just keep borrowing and selling the same shares over and over from and to the same owner. (You might not realize you are doing this, of course, but that’s how it could play out when all is said and done.) But I guess the idea is that at least with conventional shorting, there is some friction in the process to prevent absurdities.

Anyway, I don’t think any of this would be a problem so long as contracts were enforced. If you were a naked shorter and got caught with your pants down, you’d go out of business. But people tell me that that’s not how it plays out in the real world. I have heard horror stories of, say, “owners” trying to vote on corporation matters when there are more votes being cast than outstanding shares. I have heard that CEOs of companies being targeted by short sellers will buy their own stock, only to have the brokerages tell them (even weeks after the “purchase”) they can’t locate the actual shares and the CEOs have the option of breaking the trade if they want.