The only sane Iran proposal

Iran has a lot of folks nervous, and I can understand why. A response seems appropriate – but what kind of response?

Off the top of my head there are four categories of response that we could do: Aggressive, Passive Aggressive, Binding, Endearing. We already do the Passive Aggressive thing – sanctions – and they don’t work. They injure the Iranian people, but not the Iranian government. Their gov’t has the Chinese and Russians to provide for them. Worst of all – the sanctions give legitimacy to the Iranian gov’t in the eyes of the Iranian people. I mean, it’s pretty intuitive for them to say, “Hey, the US is doing these sanctions to keep you poor, but don’t worry, we’ll get back at them for you.”

Aggressive response? That would be another Iraq. That’s worked out so well for us and the Iraqis. In the end, we’d just be hurting the Iranian people even more. Sure, we could eliminate that one regime, but several others would take its place. Worst of all – it is only temporary. Sooner or later they would rebuild. This should be the last option and we can’t initiate it. We can always do this option later if needed.

Endearing? Impossible for the US at the moment because of the Passive Aggressive technique.

The only sane proposal:

Binding Response – this would be where we remove the sanctions and allow our businesses to do business with the Iranian people. Specifically: remove tariffs on all goods shipped in from Iranian merchants. Become Iran’s biggest trade partner. They may not like us any more than they do now, but the entire populace would have a vested interest in not being enemies with us. Do you think their gov’t officials don’t have relatives that want to trade with us? You bet they do.

What about Israel?

Israelis are tough, smart and motivated. We should treat them like adults and let them do what they think they need to do. If they want us to park an aircraft carrier in a harbor and have a nuke missile sub nearby in case something happens to that carrier – sure. Nukes tend to hurt large areas and Israel is awfully small. The X-Rays from a nuke blast alone would almost certainly harm that ship – an act of war against us. If a country were to attack Israel, they’d have to use conventional weapons.

Why I like this proposal:

It does two things that I think are important:

1. It treats the Iranians and Israelis like adults. This is a level of dignity we’ve denied both countries since WWII.
2. It harms nobody and actually helps a developing country, while creating bonds that the developing country will be loath to break. This translates into security for us.

The Weekend at Bernie’s Global Economy

Prop that dead body up! Booya!

The markets have sure been on a wild ride – particularly since the end of September and early October. I like watching all those neat little charts. I work very long shifts overnights and so I get to watch Asia open up and close, then Europe open up and about the time I get home to go to bed the US opens. What I’ve noticed is that the markets – regardless of which markets – have all had a behavioral change.

How it was:

Asia follows the US. If the US goes up, they go up. They’re heavily manipulated, so sometimes they buck the trend, but generally they imitate the US. Europe imitates Asia for about 3 hours after opening, then they go up right before the US opens, and after that they follow the US until they close.

Always, there would be some industries doing well and some that weren’t – and this was influenced by economic reports and the health of large corporations in any given industry. It was very rare to have days where all the stocks in the major indexes were ALL up or ALL down. There could often be a majority, but not unanimity.

How it is now:

The pattern of who follows who still holds true, but a new thing has started – goosenecks. This is a description of a chart where the index is low or flat all day and then at the end it suddenly skyrockets, followed by a little dip before it closes. The result looks like a swan swimming from left to right. It used to be that these only happened when something splendiforously fantabulous happened economy-wise. They were very rare. Nowadays, they are common.

So what’s up?:

Central Bank interventions – that’s what’s up. So here’s how this works: Asia opens up (Australia first, then Japan, then Shanghai and Hong Kong. India is inbetween these and the EU) and their stocks imitate what the US did the previous day. If the previous day for the US was down, then their stocks will trend down by similar amounts until one of their central banks intervenes. Suddenly, and for no reason – ZOOM! Up go their stocks – led by banks. Then the EU opens up (3:30AM EST) and their indexes follow whatever Asia was doing right at the moment – so usually up, with banks leading. Then, they drop for a bit until about 11am GMT -1 and suddenly the ECB or IMF jumps in and ZOOM! Up go the EU indexes.

Unlike Asia, EU intervention ALWAYS comes with some sort of rosy sounding headline. Today’s is this:

Europe stocks rally on crisis-resolution hopes

Wrong. Last week there was an occurrence of this kind of BS and German 1yr bonds actually had a NEGATIVE yield. That means that the expected payoff for purchasing one was that you would LOSE money. Who invests in something that  guarantees a loss? The ECB does.

So, then the US futures get excited because the EU markets are all excited and the US markets open with gains, but immediately start dropping off. Around 10:30 to 11:00 AM EST the Fed hops in and pumps some cash into banks and presto! Instant rally. Of course there are the appropriately rosy articles that come out about how everything is going to be fine in the EU and then some fluff story about our own debt and spending troubles getting in hand, etc, etc, blech.

The economy is a dead body and the central banks are propping it up.

What this means for regular Joe:

Don’t be in the stock market. Keep enough money in the bank to cover your expenses and keep the rest in cash or whatever you like, but don’t leave it in an institution that dabbles in that mess. All banks invest in the markets, and when the central banks finally get to the point they can’t prop them up any more these banks are going to implode. When that happens, you can forget about 401K plans, pensions, IRAs and any other savings you might have tucked away.

People like to talk about hyperinflation and whatnot – and that is a clear possibility given what the central banks are doing – but the first thing that will happen is that you won’t be able to get to your money. For this reason, have most of it on hand in cash. Don’t mess around with risking it in some bank’s hands.

When will trouble start?

I can’t say for sure, but consider this – if things really do turn around and economic indicators (particularly producer’s indicators) get better, unemployment gets back down to 5%, and wages start increasing while prices decrease – then put your money back in. Until that stuff happens (and I don’t think it will for the foreseeable future), don’t risk your money with somebody else.

Jobs numbers

Courtesy of Shadowstats

 

Unemployment is still at just under 10%, or as some people reckon – 23%.  New numbers are coming out weekly and I thought it might be fun to think of a new way of looking at employment figures.

Most of the figures, like the one above, are based on the notion of “how many people are looking for work, or are not working as much as they would like, or would work if they could but have given up?”. I think this is a good notion to have, but there is another I think we should consider once we have answered that one.

This notion should be “what is the ratio of people adding to the economy versus subtracting from the economy?” I would define jobs that add to the economy as any job that is for a private company that receives less than 30% of it’s receipts from any form of public money – i.e. money that comes from any sort of governmental entity. The reason for this is because government, in any form, is not a wealth maker. Everything that the government does, requires money to be taken from someone in order to do it, since government does not generate its own wealth.

So, look for super rosy jobs reports around 2012 and when they come out, ask yourself if those jobs are additive or subtractive. If 100,000 jobs are added, but 80% of them are subtractive and require tax dollars (or borrowed money in lieu of tax dollars) to fund them – that isn’t helping.

That’s actually worse.

Government, Contracts, and Slavery

Recently I’ve been thinking about the progression of social order. Hans Herman Hoppe has an interesting lecture called “Parasitism and the Origin of the State” that touches on why a social order rises and I’d like to blab about a piece of it.

The basic progression of society he puts forward is this:

None > Cannibalism > Slavery > Rudimentary Government > State

I think he’s inaccurate. I think the last two are just obfuscated versions of Slavery. The big difference is that with slavery you know exactly who owns you and you have no delusions about becoming free except by some massive turn of good fortune or something unusual happening. With Rudimentary Government (Feudalism) or a State, you are presented with the notion that you chose to have these rules and obligatory fealty put over you and that you have some control over who arbitrates them.

In short, you are subservient to the Feudal lord or the State and the only way of ending that condition is to run away – but anywhere you run you will just be in the same position under someone else. Because of this centralization of power, it is very attractive to be the number one arbitrator of rules (it’s good to be the king). It’s best to be the slave master and not the slave.

What is a contract?

A contract is an agreement between at least two people that both agree can be arbitrated by a third person of their choosing (they have to agree). The contract has an inception date, a conceivable ending date, and a means of being broken by either party through the arbitrator (such that both parties will have some sort of satisfaction after the break).

There are different contracts, but the most difficult to grasp are spatial contracts – contracts that have to do with space (house, land, mines, wells, etc).

Slavery:

One way to solve the difficulty of Spatial Contracts is to use slavery. When one person or entity (such as a state) owns everything (including the people), then it is really easy to just divide, confiscate and distribute these spatial concerns without objection. This is the basis of Social Justice, Marxism, Socialism, Eminent Domain, etc. This method is always beneficial to the state, and the slaves have no place to complain – though with a State it is possible to give the illusion of having an avenue of complaint by allowing the slaves to pick their master periodically and the ability of the State to give gifts to the slaves to make them happy.

The Social Contract Myth:

Proponents of the State contend that we are required to adhere to the tenants of the State because by living in the State we agree to follow the rules of the State. This is stupid. A slave who has no choice but to follow the orders of the master (or else be punished or killed) does not therefore agree to be a slave because he has followed the master’s orders. There must be a reasonable expectation that the arrangement can be ended at any time – but in the case of a State or Slavery there is no such expectation.

Furthermore, when a new child is born, that child has no choice but to become a ward of the State, and none of us have ever been given the option to cease being a ward of the State. There was never an agreed upon third party arbitrator of the contract. If we try to cease being a ward by not paying taxes or adhering to the laws we don’t like, then we get fined and go to jail – i.e. we are punished like the slaves that we are.

This indicates that there is no contract. We should be able to cease paying taxes in return for the expectation that we also will cease to receive anything provided by the State – while still living within the State. Furthermore, this “contract” extends beyond death (death tax). That means that there is no expiration date and so never could reasonably be expected to be a contract.

I’ll write something on solving Spatial Contracts without the use of a State soon, so stay tuned!

PIIGS: Redux

 

Here we go again. This time, however, Germany has cold feet. They know they are the only true economic force in the EU. France and the UK are sort of treading water (after a fashion), but certainly are not drivers. So Germany doesn’t want to be the only country bailing out Greece – especially without some sort of restructuring to make sure this is “the last time”.

Other talking heads will be quick to point out that other countries have pledged to support a bailout, but let’s take a look at this:

The other PIIGS are on the verge of total collapse:

Portugal – Just received a bailout and the Chinese have just recently bought billions of € of their debt. They have made absolutely no changes to improve their economy.

Ireland – Just received another bailout in return for the loss of their sovereignty. Their finance minister that penned the deal died of “pancreatic cancer”. Maybe he did, but then again, it sure was convenient timing.

Italy – The biggest conversation for Italy right now is “who is the most corrupt politician in Italy?” They dug their hole a long time ago and are quite happy staying right there. At least they’ve mostly stopped digging.

Greece – Can’t help itself. Their politicians are behaving just like African warlords without the murder. They just take billions straight from the public coffers to their own pockets. Very little of the money from the last bailout is accounted for.

Spain – Unemployment is still in the 20s. Their banks are running to South America to get the heck out of Madrid. The only way they stay afloat is to pay current liabilities with promises to collect on other liabilities. To do so, they need to collect from… Greece – and Ireland. Portugal too. Oops.

 

So who’s going to help the Germans bail out Greece? The USA, surely. But the USA will just be printing useless money and that will actually hurt things after the initial payment. Norway isn’t likely to lend to a lost cause. Switzerland just got its arm twisted by the USA to release the names of American tax dodgers… so they probably aren’t too keen on helping the USA to bail out the Greeks. The English and French couldn’t help bail them out last time and are in even worse shape now. No, it’s all Germany, all the way.

So, I can understand why Germany is upset. The smart thing for the Germans to do would be to get out of the EU, but that won’t happen. Their political parties are also political parties in other countries. Don’t think for a moment the SPD members in France and Italy are going to let their elected officials in Germany withdraw from the EU, thus collapsing their homes! Not unless the populace rises up and kicks the party system entirely.

Greece needs to just be kicked to the curb and Germany needs to leave this gang of losers (EU).

Election Stuff to Consider

The new presidential elections will be getting going soon, and I think now is a good time to talk about types of political philosophies and how to identify them. Basically, everybody can be loosely lumped into two main categories – Maturist and Leftist/Statist. I am completely coining the term “Maturist” right here and now. You will not see it elsewhere.

Broad definitions:

Maturist – someone who understands bad things happen to good people, and take care to prepare for such things well in advance. They prefer to handle all problems themselves and are able to handle stress. They can turn calamity into fortune. They approach other people’s problems with logic and will help in meaningful ways that enable the other person. You know, acting maturely.

Leftist/Statist – a perpetual myopic child that cannot think more than a few weeks ahead and who will run to anyone in authority whenever something not exactly to their liking happens. They supplant their parents with government when they get older. Furthermore, they are arrogant and each considers him or her self to be the only person in the world with a conscious and by virtue of this, each feels that he/she must force the rest of the world through government to behave as he/she thinks they should. These are the people ruining our society.

Now, looking at these two it seems like it would be easy to categorize people into one or the other based on their political views, but it is not. There are various political views that are popular right now and different people can have more than one, as most people tend to pick the view they like the best for any given issue.

Let’s check out some distinctions:

Leftist/Statist views:

Socialism – This is the view that private property does not exist. Everything is inherently owned by the state and so it is up to the state to make sure that the proper people get what they need to support society. An example of this is welfare, where the property of a productive person (i.e. his/her money) is taken away by the state and given to an unproductive person.

• People who have this view: Barrack Obama, Nancy Pelosi, Harry Reid, most University professors, bureaucrats, most Democrats, George H Bush.

Fascism/Mercantilism – The idea that free enterprise is ok, as long as the government is the entity to pick the firms that engage in it. The reason these are paired is because the Mercantilists are the ones who put the Fascists in power and the Fascists ensure the Mercantilists are protected from competition. For example: The new debit card processing fee legislation. This will ensure that only the very large processors stay in business as it will obliterate their smaller competitors.

• People who have this view: Mitt Romney, Donald Trump, Government Regulators, George W Bush, Condoleeza Rice, Gingrich, Karl Rove, Dick Morris, most Republicans, Mike Huckabee, Hannity

Maturist Views:

Libertarian/Individualist – This is a view of “leave me alone and I’ll take care of it”. Most people of this persuasion view government intervention as unnecessary, and at times, outright hostile. They believe in private property. These are people that feel it is ok for people to make bad decisions as long as the decisions do not negatively impact other people. For example – “End the Fed” by Ron Paul.

• People who have this view: Ron Paul, Gary Johnson, Rand Paul

Where the problems are:

If people were principled and firmly set in their views regardless of situation, then we could decide how to categorize them more efficiently. Unfortunately, that is not the case. Take Mike Huckabee for example – he’s all about reducing taxes and he wants to cut “government waste”, because those sound good, but at the same time he is all about turning to government for regulations and controls to ensure what he feels are “the right people” are the only ones that can engage in business. In other words, he’s a fascist dressed in maturist clothing.

The easy way of identifying a Leftist/Statist: If someone thinks that having government force people to be “better” is a good idea, then that is a Leftist/Statist. If someone is against out of control spending, against wars in far off places, against ballooning health costs, but is ok with having the government tell you what you can put in your body, where you can live, or if/how you do business, then that is a Leftist/Statist. Do you see the problem? Half sounds like maturist ideas and the other half are not.

If even ONE Leftist/Statist idea is ok with that person, then that person is a Leftist/Statist.

Consider this when you are reviewing the potential candidates this coming election.

Profits, Equilibrium and Market Failures

It’s been a while. I have been studying some advanced neo-classical economics! It’s terribly complicated, but there is one thing that has been nagging the corner of my mind about some of the assumptions that I just want to air:

One really big premise is that completely free markets that have perfect information and limitless consumers/producers that compete perfectly will achieve this magical equilibrium where exactly the right amount of the good is produced and purchased and there is no profit or loss anywhere.

This never happens in the real world, for various reasons, but a thought occurred to me that it actually CAN’T happen. This is because both consumers and producers wriggle extra gain out of a trade by purposefully fixing their respective prices too high or too low. For example:

Demand: Qd = 100 – 2P

Supply: Qs = 20 + 2P

The perfect equilibrium price would be 20. I’ve come to realize that the price will at best be around 20, but never 20.

Something will happen like a producer will put the item on sale, offer a coupon, a rebate, SOMETHING that snags just a little bit more of the market. Neo-Classicals will say that this is impossible because producers are price takers. This is an acceptable response, but only in the long run. In the short run they can disrupt all they like. Not to mention the super-subjective value judgments like “this place is convenient” or “I feel they treat their inventory better and I like that” and so on, which could create very real long-term preference in consumers for that producer in the market.

Conversely, consumers can do the same thing. They can demand and possibly receive a discount. This is short-term as well, and according to Neo-Classicals the short-term doesn’t exist in any meaningful sense.

However, I’d like to remind everybody about the concept of “nickle-and-diming”. Because this short-term finagling is going on constantly for virtually every transaction, no perfect equilibrium – no matter how perfect the setup and competition is – will ever be achieved.

I mention this because the Neo-Classicals see a market that SEEMS like it should reach equilibrium, yet it never does. They can’t see why it doesn’t, so they have created this concept of “market failure”, and then they propose that the government should step in and do something about it; and of course this never works as intended or at all really. In reality, it seems to me that the more room the producer and consumer have to haggle, the less likely it is they will approach equilibrium, but the more they will value the sale at the end of the experience. They will each REALLY feel like they came away with something they wanted. This is something economists tend to shy away from because it’s impossible to measure a feeling, and even if you could, no two people would be the same. You can measure past preference though! And we do that through watching profits, which Neo-Classicals view as a market failure.

Here’s something more – reducing profit to zero by reaching that magical equilibrium would distort the “value to me” that each consumer or producer has. The product becomes uninteresting and I suspect that this would actually provide incentive for consumers and producers to look at other, more interesting, products. This exit would throw this product into flux and that flux would make it interesting again, but not at equilibrium.

In conclusion – this notion of market failure is flawed since it is easy to see that equilibrium is quite impossible even under perfect conditions.