No one disputes that many US companies are doing well and will continue to do well for years to come. However, when speaking of a US collapse the word collapse is in reference to the staggering debt load, pending inflation, and continued government distortion of markets.
Staggering Debt Load – It is common knowledge the US national debt is simply beyond explanation and government deficits increase this burden every year. The government (any government for that matter) operates on the erroneous assumption that by propping up the market with government spending and cash injections via the FED can indeed lead to economic growth. This strategy does indeed result in growth but it is fleeting. While the political class keeps the boom cycle going they only make the bust that much worse and then we realise what a waste it all was i.e. housing bubble, dot-com bubble, savings and loan crisis, Y2K, etc.
Pending inflation – The FED has injected massive amounts of cash into the economy and will continue to do so through various means (see St. Louis FED posts of FED balance sheets). The amount of increase in the FED balance sheet as well as the enormous amount of reserves currently held by banks who refuse to lend out the paper from the FED is tsunami of inflation waiting to happen. Of course it is all an effort to rid of the bug bear of deflation but then again when was lower prices ever a bad thing? If a market is calling for deflation it probably needs it.
Government distortion – The government is throwing trillions of dollars to any state wishing to use it for various shovel ready projects are other developmental goals. By increasing demand in a sector of an economy you create malinvestment most recently exemplified by the housing bubble. The government has limited what banks can do in their daily operations in regards to credit cards and checking accounts resulting in higher costs to consumers and another disincentive to save dollars in a bank. By continually pumping money into the economy you merely hamper the natural liquidation process which should take place during a bust cycle. However, a government loses credibility during hard times so in order to preserve itself merely wishes to continue the unsustainable boom period. Housing went bust but it is certain that another bubble will be created elsewhere in which an industry or sector is favored by government. Holding down of interest rates is part and parcel of credit expansion causing once unprofitable projects to seem profitable. However, under a market interest rate not an artificially lowered one the project or investment is a waste of resources. Now, if you replicate that situation hundreds of thousands of times over you have a big problem on your hands when it goes BOOM!
For more information on the ideas expressed in this post please visit mises.org or grab a copy of Murray Rothbard’s Man, Economy, and State.
This is the post I made in response to this article http://finance.yahoo.com/news/Trade-Deficit-zacks-308719302.html?x=0:
This article is so laden with fallacies that I can’t pass it up. Trade deficits have nothing to do with economic growth, US indebtedness, wealth leaving the country, outsourcing of jobs, or whatever bugbear this author and the neo-classical school can conjure up. The US trade “deficit” simply means that individual market actors (you and me) are better satisfied by consuming cheaper imported goods from elsewhere. This frees up wealth to be allocated into other sectors of the economy or placed into savings where it can be absorbed into the capital structure, lengthen this structure, and provide us with cheaper goods and higher quality of life later. This author seems to say that because we have a trade deficit ergo we have higher debt loads. Completely illogical. Others are willing to buy debt because the international house of cards monetary system guarantees the US dollar will remain a storehouse of value for a long time. Many of these producers can’t spend US dollars in their own economies and instead hold cash in debt securities that can be converted into their currencies at a later date. Of course debt to foreign countries was low around WWII. There was a nationwide hysteria to buy war bonds and those who didn’t were ostracized if they didn’t purchase a bond and support their country. Such hysteria caused massive amounts of capital to flow into the coffers of the federal government only to be used for killing in an unjust war. Not to mention those who participated were shafted. The massive inflation in and around the war drastically depreciated the value of those bonds and what was received upon maturity would be nothing compared to what was actually paid for the bond. Trade deficit does not cause debt government profligate spending does. This author sounds like he took a page from Hitler’s economic program asking for national autarky or complete self sufficiency. We must end our dependence on foreign oil, on imports, on everything…this is the natural progression of things. I don’t understand the oil thing? Currently fuel is still relatively affordable for most people and as we saw within the past few years when gas goes through the roof alternatives begin to emerge. As long as government is not in the way of this mechanism, subsidies to ethanol producers, this adjustment would happen quickly and easily as capital is allocated into a growing sector. There is no issue of oil; it is propaganda. Articles like this make me realize just how close America is to becoming a fascist nation similar to Mussolini’s Italy. Business clamors for regulation to end the dog eat dog competition of the market, the people ask for security and the militarized state, the State asks you to trade your rights for security, the people become managed by a web of government managers or bureaucrats, sound familiar? The most glaring fallacy is that those similar to this author honestly believe that human action is reducible to mathematical formulas and algorithms. Even the high powered algorithms on wall street have to have the human to correct them numerous times to reflect changing conditions. Humans are not sheep and to think economic institutions and theory conform to this mechanistic framework is absurd.
Positive Law is both illegitimate in a free society and unjust to those whose rights are violated. Positive law is legislation crafted with the purpose of creating new rights. Examples would be welfare policy, “affordable” housing, “affordable” education, subsidies, tax funded obligations, etc. The purpose of a legal system and of legislation is create a framework by which general rules of just conduct can be codified and protected (see Hayek’s Law, Legislation, and Liberty). Rules of just conduct simply mean general rules by which society can order itself. Examples would include contracts, property rights, laws against bodily harm, or essentially any law which can be applied to a variety of circumstances and provide justice to the parties involved. This notion of law is rooted in natural rights theory and is not well received in today’s legal climate. What Congress passes in modern times is not law but imposed theft by the band of criminals that occupies the legislature.
Positive law has created powers of eminent domain and a system of taxation that robs every American to pay for the services that he or she would not have consented to freely. Government was instituted among men as an association by which property rights and other laws of nature could be protected and yet government has morphed into the largest violator of natural rights we could have imagined. Essentially by legislative action and for the good of society programs and offices are created to provide various services to the disadvantaged or to procure certain privileges for vested interests. A common retort to this kind of criticism is “if you don’t like it just leave.” Not only does the completely evade my argument that this is theft, seeing as I have no method of protecting my property or face prison, but it makes no sense seeing as I was made to share the cost of some gift and yet was never asked if I indeed wanted to take part in that gift. No one has the right to force my participation in something when I do not share in the assumption of that responsibility (Machan, Tibor. “Justice and the Welfare State). The same line of reasoning was employed in a recent movie I watched, Sophie Scholl, in which the Nazi inquisitor asked why would she criticise the regime when they have provided her with free x, y, and z. Thanks for the service overlords but I do not share your world view and wish to keep the fruits of my labor would be my reply.
Whether or not a given policy or legislation is for the common good or society is not a sufficient condition to approve the measure. The funds and resources to provide for this must come from somewhere. This redistribution comes from the producers of society and allocates their labor to the pockets of the tax consumers. These things are never equal as John C. Calhoun recognised in his Disquisition on Government but creates two antagonistic classes of tax consumers and tax payers. Such policies are said to eliminate the injustice of the capitalist system yet what injustice do you refer? In order for there to be injustice you must point to the violator of that individual’s rights. Who is barring a person from obtaining any given marketable commodity, wage, or service? The truth is that no one is committing an act of injustice in these situations. Such legislation is simply political auctioning in order to receive votes from the classes which they benefit. In the process we undermine the first principles of a sound legal system. By this time we have come so far down the road of the abrogation of private property and the making of law based on the whims of an unprincipled legislature that I fear we may never reinforce many of the ideals so strong during this country’s founding. Mass democracy has killed the concept of natural rights and justice as general rules of just conduct.
In light of recent legislation further limiting what banks can do in their operations fees on checking are going to be reinstated en masse. This means in exchange for holding you money you are no required to pay a fee for the bank to do so. This is where the claim of fraud comes in. Under a fractional reserve banking system your money is lent out and only a part is kept by the bank at any given time. The current reserve ratio, or the amount that is kept on reserve at the bank is only 10%. At any given time, on average, only 10% of what you deposited is actually there at the bank the rest is simply inflationary notes issued by the banks via generous monetary policy of the FED or Federal Reserve. Before it was only an understood fact that Americans just roll with, or at least most do (I for one do not). Now the situation is different. The bank is saying that in exchange for holding your money we will no longer pay interest on that amount, which presupposes it will be lent out to earn us a return, but you will be charged a fee for us to hold it and (you would assume not lend it out or invest). As far as I can tell there has been no effort by the banks to actually hold your money for you. Even with the fee it will still be lent out with only 10% held in reserve clearly violating the agreement that the fee you will be paying is for the bank to indeed hold your money. With a fee service for checking the fee functions as a warehouse receipt guaranteeing your money on demand as it was received. Most egregious is the banks creating incentives to hold more money in checking accounts to avoid the fees further urging you to give them more money of which they pay you token interest yet reap returns on that money. This is fraud in the worst sense and the banks should be ashamed of what they are doing and Congress should be thrown out for throwing the privileged banks another bone. If I am to pay a fee to have money held at the bank and ready at my disposable I expect this to mean that the fee pays only for the costs of the bank to hold that money and keep it safe not to pay for the bank to take my money with a smile and use it to earn them a higher rate of return that the fee. I am appalled.
The environmental disaster caused in part by lack of oversight by the staff of BP in charge of the rig have caused both environmental damage as well as damage to the livelihood of many American citizens dependent upon the Gulf for their particular industry. Here I will discuss only the latter’s claims against BP and the coming lawsuits.
These individuals who wish to sue BP unfortunately lack legal recourse for their losses. No matter how fancy of a lawyer you may find or how willing a judge is to punish BP there is simply no standing here. What has happened is terrible indeed but there is no need to resort to a perversion of the legal system to seek redress. This is why BP was quoted as saying they will honor all legitimate claims. The spill is destroying fertile fishing waters and tourism spots.
As far as the fishing industry goes in order to stake a claim you must first prove that your property has been damaged and that BP has committed a wrong against you and thus requires the legal system to right this wrong. What property has been damaged? The fishing waters and the organisms within it yet these resources are not owned by anyone. As a result of not being private property of anyone the ocean and the organisms within it are outside the realm of human action and thus the legal system. Essentially these fisherman are staking a claim to all the fish, shrimp, lobster, etc as a collective unit and that the oil spill has taken away their catch. The same principal applies if, lets say, a prime deer hunting area is used by hunters to supply deer of which they consume, sell, or trade for various purposes. Logging company X moves in and through their operations drives out the deer and destroys the hunters’ way of life and economic status. Could these men and women really take such a claim to court and expect redress? Expect to be compensated for something they never owned in the first place? The deer in this example is the same as the fish in the sea these fisherman wish to seek redress for the loss of. In the deer example I presuppose private property rights by the logging company but in the current BP case there is no private property. This well is out in the middle of ocean in which no one holds a claim to.
The only way in which fisherman were to have standing and thus seek redress in a court of law would be if each individual fisherman owned a claim to given patch of ocean of Q and as the oil affects Q the fisherman could then take BP to court for the destruction of property. I will not go into detail of such a privatisation scheme but we have done it with the moving organisms on land and there is no reason why we cannot do the same with the moving marketable organisms of the ocean.
In conclusion, I would like to be clear that while these fisherman lack no standing in a court of law to sue over resources they never owned of which they happened to build a business around BP should still do the moral thing and compensate these hard working people for their loss. I do not mean satisfy claims of hardship or emotional struggle but to provide market value for their capital goods sunk in their business, vocational training for the displaced business owners, and possibly a payment that could be used to cover moving costs and a jump start on a new home to aid in relocation. Let us be real here. If this spill continues to spread these men and women will have nothing left and it is the responsibility of BP, who has final responsibility over that well, to compensate for damages. I only seek to show that there is no legal remedy due to the fact no private property was damaged and no one was aggressed against. The solution for this sort of thing in the future is to allow private property rights to spread to the oceans and protect against environmental disasters such as this, negligence by the company involved, and the tendency to drag out litigation.
American foreign policy is characterized by the strong desire to change the way in which other civilizations behave and the want to impose sanctions upon countries that do not conform to U.S. positions. This sort of behavior is nothing new to American foreign policy and has its roots in the strong Christian tradition of American politics beginning during the massive migrations of immigrants to the country. This pietist tradition has continued and now exercises its influence on American foreign policy. For example, Wilson entered WWI to make the world safe democracy and to espouse American westernized ideas, FDR entered WWII on moralist interventionist grounds of which were unjustified, Bush began the War on Terror in order to remove a dictator from power, Obama continues the fight against numerous amorphous groups of extremists who trample rights, and numerous others in between (these are just the big ones that most will recognize). There are two camps in American foreign policy. In one corner is the moralist crowd, or interventionist. And in the other corner we have the realists who are non-interventionist at least most of the time. Both however, are very dangerous and reflect the problems in the way Americans and their political leaders view foreign policy and the citizens of those nations they seek to attack and/or change to reflect a more western vision.
The moralist is the Wilson and the Bush of foreign policy. These are the ones that pursue a foreign policy to push values and principles rather than an actual national interest. The national interest to such an individual is secondary to the main goal which is to engage in empire although crusade is a better term. The moralist believes that the hegemonic power America possesses must be used to police the world and provide safety, security, and western political and economic institutions to ensure stability. Of course this stability comes with the implicit agreement that country X who accepts such hospitality will be a proxy for U.S. action and policy in the future. The policies carried out by the moralist are also paid for by the taxpayers of America whose taxes already do not come close to covering current expenditures much less foreign crusades for glory. This is where the flaw in the modern approach to foreign policy comes in. There is no morality in the international arena. Each entity that engages one another are autonomous political units each a function of their populations and the prevailing opinions and attitudes they hold. Thus for a country to assume it has the right to proclaim some other nation immoral is absurd. Only individuals can claim the actions of others immoral and seek to change them through non-violent action. The numerous people murdered by Saddam Hussein and the political oppression of millions around the world are terrible yet nations have no right to invade the sovereignty of another nation of which has not engaged in an act of force against it, to do so makes the nation invading on moral grounds the aggressor and thus immoral in its action.
The realist can be just as dangerous as the moralist. The realist engages in interventionist action if and only if it is to further the national interest. The goal is not to force upon another society certain values, institutions, or morals but to engage in action when the national interest is at stake. This notion is obviously utilitarian and lends itself to a slippery slope. Under such an ideology anything can be considered as furthering the national interest. How does one judge what is and what is not? There is no objective criterion but merely the subjective judgments of the adviser or President. Does policy of nation X or action of nation Y in some way affect this particular interest Z? No one can be for sure. Such ideas seem to be at the forefront tin relation to China. Does the rising role of China in the international arena impede the national interest in Z? No one can be sure but according to an individual or group of individuals in government it does. FDR did so during WWII and became involved a war he had no business in and drug a nation unwittingly into a long drawn out war.
The flaw both fall prey to is that they place emphasis on nations rather than the individuals that make up those nations. Governments believe that to place sanctions upon other nations or use institutions such as the UN, or even to invade forcefully to bring about change or further the national interest affects just that nation. In fact sanctions fall disproportionately upon the citizens of that nation while their leaders remain well fed, trade sanctions limit their opportunities to better themselves thus impoverishing millions beyond their current level, by bring about change in another nation to reflect western values civilizations are torn apart and shaky, unstable governments are built around corruption and political entrepreneurship rather than real representation of the people. Such is the nature of government which is my central complaint but here I will stick merely to the interventionist outcomes of state action. Libertarians believe in natural rights which mean rights such as property, free speech, association, etc may not be infringed. Yet it is not a power of government to go on a moral crusade to bring about democracy on multiple fronts no matter how much a section of the population may want such an action. To do so makes the intervener the aggressor and the immoral actor. The only way in which meaningful change can be realized in situations in which rights are violated is through individual action or the withdrawal of isolationist policies of other nations. Open borders, free trade, ending of subsidies, discontinuation of foreign aid would all contribute to the stability of the “international community.” Increases in prosperity and the ability to move to another, freer nation would each undercut the power dictators have over their people and promote peace. The interventionist framework currently in practice only breeds conflict and results in acts of murder and aggression that has come to be called terrorism. The conflict we see in our world will continue as governments and their citizens push for more intervention and more intervening in areas of the world they have no say or right to be involved in. No matter how much you may want something it is not justified to use the mechanism of the state and its coercive power to force change. It must be organic to ensure long term stability and prosperity.
Inequality is viewed by most as a social evil that, since the progressive era, government has been called upon to remedy. However, inequality is the force that enables cooperation amongst members of a given society. Without it there would be no incentive to engage in mutually beneficial exchanges or the impetus to set goals and thus seek to overcome. What the Liberalism of today advocates is egalitarianism or essentially the system that Marx advocated. It must be clarified that Marx himself was not a communist but merely advocated a system in which the labor and capitalist class would be equal. Liberalism has taken up this charge of promoting egalitarian values and a sense of distributive justice and is bordering the line between socialism and individualism. The image of an equal society in which there is no class distinctions or gaps between the rich and the poor seem appealing but what would such an existence entail?
Economics is crucial to the espousing of good philosophy and one of the first rules of economics is that humans respond to incentives. In an unequal society man has something to strive against or strive toward. In our daily lives we can think of many examples of this sense of wanting to overcome. Some jump to the conclusion that we strive merely for material things and seek to discredit capitalism but that is not true. Many of seek to overcome obstacles or attain things that are not material such as knowledge, health, cultivation of talents, relaxation, family time etc. We engage in the market economy due to the nature of the transaction. That transaction being mutually beneficial in that the capitalist or entrepreneur is satisfied in the making of profits and the consumer is satisfied in that he has obtained a particular product or service which meets a given need on his value scale. If we did indeed live in an egalitarian society where all distinctions are removed and our earnings were near the same the ways in which we order our needs and the forces that compel us to cooperate would be removed. If the low wage laborer has nothing to strive for why work in a low wage job? If we were all equal who would put up with such conditions? Why does the capitalist continually seek out business ventures that yield returns on investment through the satisfaction of consumer desires? These men and women do so through the setting of goals and the sense that individualism instills in all of us. Of course this is only cultivated in a world of inequality.
Without inequality no one will want to work in low wage positions which by and large mean not so spectacular working conditions. Workers participate in these positions in order to save and invest while cultivating skills so as to advance to a better paying job. Thus, inequality gives them a goal to set and gives such individuals a barrier to overcome further creating the impetus to cooperate with others in order to achieve that goal within a market system. Without inequality there is no wealth creation by the capitalists. The capitalists only exists when there are needs to be met in the market economy if we were all equal and did not have barriers to overcome or goals to set the will to invest and take risks would be dramatically reduced. It is also this inequality that allows for market signals to take place that help to create some sort of order in the market system so that our needs are satisfied. Inequality is too often portrayed as a system of oppression in the market system but this is not the case. Inequality creates a diversity of needs and wants and as such gives rise to market system to satisfy those needs through a series of mutually beneficial exchanges. By being in a state of inequality we also obtain a diverse body of knowledge depending upon one’s station or geographical location. This diverse body of information further promotes cooperation in that we must engage one another to meet our needs. I know nothing of fixing brakes, investment strategies, gourmet cooking, brewing, manufacturing, etc but someone does. And by virtue of the inherent inequality of society we can each take advantage of the strengths and weaknesses of others to benefit ourselves while at the same time helping others. This is the essence of a free society. Inequality creates an order out of the chaos through a market system unimpeded by government coercion so that we may flourish. This concept is also called the division of labor of which I am sure you are familiar. Through the division of labor, which in this modern era has spread across the globe, the entrepreneur and the capitalists are better able to satisfy consumer needs of greater value at a lower price and yet satisfy the capitalist or entrepreneur with a decent return on investment.
Instead of viewing inequality as bad we should understand that it is necessary to a vibrant society. The only way in which to rid inequality from the world would be to have the government intervene and forcefully reallocate resources. Human action is all about cooperation and inequality forces us to cooperate because through a series of mutually beneficial exchanges we can benefit ourselves and seek to improve our station in life. I may have used the low wage laborer example here but it can be applied in any situation. The student, working professional, capitalist, entrepreneur, manager, etc. Inequality creates an interdependence amongst individuals and allows for a civil society. The best method of taking account of the existing inequality is to simply create a general framework by which an individual may save, invest, or pursue goals that further his or her vision of success.
Many philosophers still suffer from the afflictions of their Hellenistic forebears in wanting to impress upon the masses their version of the good life and a “better” understanding of happiness. I bring this up due to a recent podcast on EthicsBites from the Open University in which James Garvey was interviewed to discuss the ethics of climate change. Rather than address just climate change the feeling expressed by Garvey can be further applied to other aspects of our lives. Philosophers such as Garvey believe in a principle of distributive justice outlined exhaustively by John Rawls. Essentially you, as an independent individual, do an injustice upon the weaker members of society due to the very fact you draw breath and seek to live your version of the good life because the way in which you live robs the poor or lesser members of society of their ability to live the good life. The solution to this would be for those of us who are living the good life to give up much of what gives us happiness in order to provide opportunity for those unable to pursue happiness. This focus only deals with what is enabling one to pursue the good life when in fact it is that struggle or series of choices that create the good life. For instance if tomorrow everyone had their checking account balances doubled would human happiness and prosperity really increase? If we were all given a large sum of money tomorrow would it really enable us to achieve the good life? This would certainly be nice but here is why philosophers fail to realize the dangers of distributive justice or this notion of the lack of opportunity as a function of socio-economic status, they have no understanding of economics.
Not all poor are unhappy and wretched, the fact that our checking accounts may be doubled, or the fact that large sums of money may pop up unexpectedly does not translate to increased happiness. In fact it may contribute to a further destruction of happiness and an impediment to living the good life. Money is earned in order to satisfy needs which lead to happiness. Therefore, we incur a disutility in acquiring money in order to enjoy the utility of various goods and services. If this disutility is not incurred we lack the ability to allocate our monetary incomes to their most urgent needs on our value scale. Furthermore, it is not understood by many philosophers that although we have various classes of people market economies force us all to engage in mutually beneficial exchanges which serve to distribute resources across the world and if this continues allows for savings and investment to occur which lead to prosperity. However, such a process may take decades to reveal itself and currently many of our leaders and philosophers do not wish to wait. Let us go back to the examples of our checking accounts being increased or a large sum of many being dropped on our doorstep. This would be nice to begin with but the market economy would adjust the price structure so as to account for this money which is inflationary thus negating any positive effects it could have rendered. It would further only benefit the ones who managed to spend the money first before the market has a chance to correct thus only increasing the burden on various members of society. Realistically however, is the notion of distributive justice or the lowering of the socio-economic of one group in order to bring up another group thus equalizing or station or essentially creating an egalitarian society, which if you have an understanding of economic theory is the ultimate evil. This is highly immoral and the philosophers that argue for such measures may be viewed as anti-human. It is not moral for one group to rob another by force of their ability to live the good life through the exercise of their own faculties and human volition. I fail to see how the allocation of resources from one realm to another increases prosperity and happiness. As I said before happiness and the ability to make life choices or what I like to call the spice of life does not stem from our socio-economic status but from our ability to make choices and engage with others in society. It is my view the current trend of philosophy is very shallow and places too much emphasis on the material aspect of our existence.
The anti-human aspect of it is that some philosophers view the human as chattel or better yet a piece of clay to be molded, broken apart, and reformed in their own vision. However, humans are independent beings who cooperate with other humans within a society to achieve the common goals of prosperity and peace. Garvey was asked in his interview as mentioned earlier if he would go so far as to place limits on populations because we use too many resources. In response he said it could be considered and would be carried out through legislation. What madness is this! To him the lives of humans do not matter what matters is the warped sense of justice that says because of our current level of global development we must be punished because it harms the environment. Such a policy is extreme on many counts and given the information in my other posts on climate change should not be carried out when the science that we as humans are causing the problem is inconclusive. What he advocates is real injustice in the limiting of human potential and happiness and restricting our ability to live the good life simply because, based on his judgment, our version of happiness is not correct and the things we consider as living the good life are indeed not the good life. Justice is only the punishment of wrongs and the fact there are classes of people that arise or that certain things we do in our daily lives may cause another not to be able to enjoy certain things does not qualify as an injustice because it is not an act against anyone. We simply seek to enjoy our lives in the best way we can and there is nothing unjust in that.
Climate change is real and affecting on our world and presently governments around the world want to think of ways to limit green house gasses (GHGs) emissions and thus limit your prosperity. Like it or not GHGs are necessary for human development and for prosperity. What I speak out against is the force feeding of climate change alarmism rhetoric down our throats. Leaders continue to speak of dooms day scenarios and the large scale destruction of areas of the world and yet there is no conclusive evidence of any of it. In a previous post I spoke of the Copenhagen talks and how a report was obtained from the EPA that said their models failed on many grounds to take into account various factors that impact weather and temperature. In short the models were unrealistic. Then “climate gate” happened which further proved that the science that links our current climate changes with man-made GHGs is inconclusive. If the evidence for what is causing climate change is so inconclusive why are governments continually saying it is conclusive and there is a scientific consensus? While I do not want to say governments are being blatantly dishonest I will say that the potential tax revenues and limits that can be placed on countries provide a perverse incentive to be dishonest.
There have been periods of warming and cooling for decades including this one yet climate change today is being framed as a human exterminating force. The reality is that it will not result in what they say. The models are still not correct and do not take into account various factors that can influence temperature. The environmentalist movement and various interest groups are pushing hard for these policies to benefit certain companies and individuals and it has become a political tool for candidates. If you want to make a difference please do so but do not force everyone to play along. As I pointed out in my previous post on climate change and the Copenhagen talks climate change has become a circus in which the political leaders of the world perform for incentives and favors at the detriment of others. I will close with a quote on bumper sticker I noticed recently that reads,”I’m an environmentalist but not the anti-human collectivist kind.”
There are two ways of viewing economics; positive or normative. The United States and other nations have a long history of pursuing normative economics. Positive economics deals with the way things are and what is while normative economics is based upon value judgments and the desire to engineer factors to produce a particular outcome. Normative economics lies at the root of much of the evils governments perpetuate against their people under the pretense of good public policy. Popular examples of normative economics include cap and trade, global carbon taxes, subsidies to particular industries, bailouts, etc. None of these initiatives are rooted in economic theory, or the foundation of positive economics, and simply create more problems than they solve because of this fact. I recently spoke in class on this matter and said you cannot make good economic policy based on normative assumptions to which the teacher replied why not? Needless to say I was appalled and even more so by the nodding heads in agreement with the professor.
My answer would be because it is not rooted in economic theory. Of course this statement does not carry much weight to the average student or individual. To most people normative economics is all they have ever known. It is preached in all of our public school books and the intelligentsia laud this approach as the way to solve our problems. But, it only creates more. As governments continue to subsidize industries, offer them lines of credit, bailout with tax payer dollars, provided targeted tax incentives, etc the market is all the while creating more malinvestment. Malinvestment is the misallocation of capital and other resources into normally unproductive ventures now seemingly advantageous due to the various measures that have been taken to satisfy a government’s normative economic policy. Prime examples include the crash of 1929, John Law’s South Sea Bubble, Tulip Mania, Dot.Com bubble, and most recently the housing bubble. All arose due to normative policies instituted by governments to achieve a particular goal but all the while were undermining the economic system. Interest rates and monetary policy are powerful influences on the market and the slightest change can make a big difference. In Laissez-faire economy such catastrophes would not have occurred due to the self regulating nature of the market. However, that self-regulating mechanism has been largely dismantled due to the tens of thousands of pages of government regulations shackling the economy and not allowing it to perform its wealth maximizing and creating functions. Governments simply lack the tools necessary to manage an economy and any government regulation simply leads to the increase in lobbyists who jockey for favors from our legislators which further undermines the free market system.
Notes From the Underground 