Monday, April 11, 2016

France's Economic System Doesn't Come Close

The students in my classes are products of the New York City school system and the New York City media milieu, and they tend to believe the propaganda and indoctrination that they receive from the two.  One of their misconceptions is the belief that the French are better off economically than Americans are.  

France's economic system has been in trouble for many years, and this UK Telegraph article sums it up . A big part of the problem in France is the state's punitive attacks on small business. In some ways New York State has long followed a similar set of policies, so New York's population growth has been a small fraction of the country's as a whole. 

One student mentioned that although France's GDP per capita is 30 percent lower than the United States' GDP per capita, the overall quality of life might be better in France.  I looked for some alternative measures to GDP per capita, and the UK business magazine The Economist reported in 2013 about an Organization for Cooperation and Development (OECD) study of quality of life in the OECD countries, which are the richest countries.  The study is reported in this  Economist article and in a Forbes article.

Although America has the highest income inequality among the OECD countries, the poor in America are better off than the poor in the other OECD countries, with the exceptions of Canada, Sweden, and Australia (all small countries), but the difference in the quality-of-life index for the bottom 10 percent among the four--US, Canada, Sweden, and Australia--are small.  Notice that Canada and Australia have less-regulated economies than the US does, and Sweden's is only slightly more regulated.

The quality of life of the BOTTOM 10 percent in America (.65) is within striking distance of the TOP 10 percent in France (.73).  As the Forbes article points out, the BOTTOM 10 percent in America does better than the TOP 10 percent in Israel, Russia, Portugal, Brazil, Turkey, and Mexico. The top ten percent in America has the highest quality of life in the world.

 The rising income inequality in the US and the other OECD countries since the late 1970s is correlated with increases in the money supply and consequent reductions in interest rates that boost the stock market, real estate market, and other asset markets. The top 10 percent in income rely on asset markets for both income and wealth, so the Obama bailouts and quantitative easing have contributed to income inequality.

The New York Times has consistently favored regulations that harm small business in the name of addressing income inequality, but it also has consistently favored aggressive monetary expansion that helps Wall Street and big business and increases income inequality.

As well, the rising income inequality since the late 1970s follows an increase in government spending.  In 1950, when income inequality was significantly lower than today, total government spending was about 22.5% of the economy. In the late 1970s, when the Gini coefficient (a measure of income inequality) began to rise, government spending was about 28% of the economy, and in 2011 government spending was about 36%.  Hence, a 60% increase in government spending over the past 66 years has been correlated with a 60% increase in income inequality.

I am claiming that both rising income inequality and government spending are linked to monetary expansion. A prediction of this correlation was first made by the Austrian economist Ludwig von Mises in 1912. On page 209 of his book 
The Theory of Money and Credit, he predicted that a pure paper currency would result in rising income inequality .
 

The chart below is of GDP per capita, oil exports, population, and economic freedom among the 15-richest countries. France is not among the top-15 countries, for its GDP per capita is about $35,000, about 30 percent lower than the United States'. As you can see on the list, seven of the 15 countries with high GDP per capita are in the top-15 ranking of economic freedom (lack of regulation).   These are Qatar, Singapore, UAE, Switzerland, the US, Hong Kong, and Australia. Another seven of the top-15 countries are oil exporters (Qatar, Brunei, Kuwait, Norway, UAE, Saudi Arabia, and Bahrain).  The only country on the list with a population in excess of 25 million is the United States.  Several small countries such as San Marino, which receives subsidies from Italy and has a population of 300,000, are anomalies.


Saturday, April 2, 2016

Minimum Wage Push May Inadvertently Provide New American Model

The minimum wage presents one of many value choices that divide America.  That is nothing new, but because it is one of the few areas in which some states are exceeding the federal government's degree of coercion, its differential adoption across the states suggests a potential model for overhauling the American political system.  The country can be divided into a green half that favors coercion, equality, and the religions of Marx and Comte and a blue half that favors freedom, economic growth, and the religions of Jesus and Moses.

In the nineteenth century the economic divisions between North and South led to two major conflicts: the conflict over the Tariff of Abominations in the late 1820s and early 1830s, which nearly led to a civil war, and the Civil War, which was fought not about slavery but about its abolition in new territories, which meant more land for white, small-scale farmers from the North.

The party of big business and white labor, the Republican Party, was also the party of abolition. Although Lincoln was not elected on an abolitionist platform, and Lincoln was a racist who wanted to send African American slaves to Africa, the conflict between states' rights and national power became associated with racism. This unfortunate historical confluence played into the hands of the big business-oriented Whigs, who had become a cornerstone of the Republicans.  Lincoln, for instance, was a railroad lawyer and lobbyist who directly benefited from the transcontinental railroad, which he authorized.  As well, increasing national power played directly into the hands of a host of large corporate clients, especially Wall Street. Regulation, painted as anti-business, was a bulwark of the corporatization of the American economy.  Universities were bolstered not only to provide scientific support to large-scale industry but also to provide ideological justification for centralizing policies that support their architects and funders: the federal government, Wall Street, and big business.

Centralization has relentlessly proceeded even as it has become more costly. It was never clear that economies of scale minus centralization's costs provided net benefits, but the costs have relentlessly increased and the benefits relentlessly dwindled as social democratic and socialistic policies invented in the Northeast and especially in New York have been imposed on the rest of America.  The minimum wage is a case in point: It causes unemployment, and its expansion is likely to cause further unemployment.  The effects of increasing enforced unemployment in American ghettos are unknowable, but the Democratic Party is eager to impose such costs in order to further the needs of its clients, especially the Service Employees' International Union.

However, not all states are beholden to the SEIU.  In an article in Seeking Alpha Vlae Kershner produces the chart below. It shows the states that have adopted above-federal minimum wages and those that have not:


Kershner suggests that increasing the minimum wage will harm Wal-Mart and help Amazon, and my guess is that Amazon's management is in favor of the minimum wage.  The green states, those with a minimum wage higher than the federal one, have in a sense adopted a social democratic model. The ones who have not, the blue, purple and dark blue states, have  a more constrained ideology, which likely includes elements of belief in freedom.

The relationship is not one to one. Pennsylvania, for example, may not fall into the freedom-oriented category and Alaska or Florida may.  Perhaps, though, Prof. Angelo Codevilla's country party finds most life in the twenty-one blue, dark blue, and purple states.

This suggests a new model for American governance.  There is no reason why we need a single federal system of the size and scope of today's United States. Two, three, or four systems linked by common trade and military policies might be more efficient and result in a greater degree of experimentation than the increasingly suppressive federal government with its increasingly idiotic voters.  Switzerland, with 26 relatively independent cantons and Canada, with two different languages, outperform the United States economically, politically, and spiritually.

Thursday, March 31, 2016

Gary Johnson for President



The Gary Johnson campaign forwarded a link to this video. Johnson is at least as well qualified as the major party candidates, and unlike Trump he has a coherent policy platform: to expand freedom.  A recent poll gives him 11% against Trump and Clinton. Let's go for 20%.

Friday, March 25, 2016

Krugman's Craziness

Seth Lipsky of the  New York Sun recently opined about Paul Krugman's rant about Ted Cruz's support for hard money.  Krugman's rant appeared in the New York Times, and it can be looked up.


Mr. Krugman is a Nobel Prize-winning  economist who lacks competence in economics, a paradox that illustrates the increasingly pronounced failure of American universities.  The positivism in which Mr. Krugman is schooled confuses short-term statistical findings with long-term economic processes, which are often reflected over decades or centuries.  

While there was a gold standard in place after the 1944 Bretton Woods Agreement, the monetary expansion that began with the Fed's founding has continued through today--abated chiefly by the Great Depression and the Volcker correction of the late Carter and early Reagan years.  In 1921 the M1 money stock was about $21 billion; in 1959 the M1 money stock was $138 billion; in 2016 it is $3,102 billion.
 
The expansion has facilitated higher earnings for the New York Times's investors; Paul Krugman's former employer, Princeton; and his clients like Enron.  It has diverted the availability of credit away from small entrepreneurs with radical technological and business concepts, reducing the growth in real earnings and in the real economy but subsidizing the stock market. 

Since its early phases the paper money system has facilitated a long list of wars: the First World War, the Second World War, the Korean War, the Vietnam War, and the Iraqi War. America's erstwhile free market and the depressions of the 1930s and 1970s gave the monetary expansion new life.  Over time, though, the innovation that was characteristic of the 19th century, including the inventions of radio and TV and of wave technology, have been fully exploited.  Innovations in a wide range of fields have slowed and have been replaced by investment in plants in low-labor-costs-overseas locations.  

Income inequality has increased as a result of the policies that Mr. Krugman advocates. Human capital investment has been maladroit because of government domination of the schools and universities, and firms are unwilling to engage in long-term training because of the minimum wage and the availability of printed money to expand overseas.  Monetary expansion--low interest rates and inflation-- erodes wages but boosts the stock market, Thus we gain insight into the conscience of social democrats: They favor themselves while boasting of their altruism. Krugman's is a low form of morality--even setting aside his pandering to anti-Semites like Malaysia's Prime Minister Mahathir Mohamad and the con men at Enron. 

The system about which Mr. Krugman is passionate has benefited his clients, Wall Street, the large commercial banks, the New York Times's owners, and Princeton University. It has harmed the average worker and recent college grads from nonelite universities.  It is no wonder Mr. Krugman is passionate about a system by which he has extracted wealth and fame.