The consensus argument (which is often wrong) is that the banking system has caused the current economic malaise. In general, recessions and depressions are monetary. The Great Depression was a monetary phenomenon. This time, the Fed has ballooned money supply yet the slowdown continues. Of course, it is likely that there is a lag, and in a month, two or three there will be a turnaround. The stock market, however, continues to fall. This may have to do with continued media publicity. If the lag or media publicity arguments do not turn out to hold, the culprit is the banking system itself, which is what I keep hearing.
Not that money supply is independent of the banking system. Much of the money supply is created by the banks. But if the money supply is the reason for depressions and recessions, there is an argument to maintain the current banking system--the Fed can counter panics and so fractional reserve banking's chief problem (the threat of runs) can be countered. But not if the banking system itself is faulty. Then the argument for the current fractional reserve system is attenuated. Then, fractional reserve banking is in part responsible for misallocation and slowdowns, and money supply (itself a product of fractional reserve banking) is only partly to blame. In that case, a clear thinking public (sans the New York Times, pro-bank "liberals" and the like) ought to ask why the the banking is perpetuated given its dismal performance.
Fractional reserve banking is a form of fraud and need not be legal. Bankers lend out more money than they have on reserve. For every one dollar deposit, banks lend out up to six additional dollars. These dollars are covered by incoming new deposits. The system is not far from a Ponzi scheme. New investment covers old loans. It works if borrowers come and go with regularity. The problem until the days of the New Deal was that they frequently did not. There would be "runs", banks would falter and depressions would result.
Without fractional reserve banking there would be more savings and less economic activity. The economic activity that occurred would be more rational than it is with fractional reserve banking. Over time, better projects would be built and there would be more innovation because investors would be more focused on rational investments. This would stabilize economic outcomes over time, as more good ideas were implemented as were fewer bad ones. There would be less reckless depredation of the environment as unnecessary housing and manufacturing would be cut back. Higher unemployment levels over the intermediate and perhaps long term could be subsidized through relief, just as it is now. Interest rates would be higher and more people would save. There would be less or no inflation (and perhaps deflation) so people planning for retirement would not need to rely on the stock market. Savings would generate adequate returns for retirement. Better investment would be made, so that statistical economic growth might be slower but substantive economic growth would be much faster. The difference to which I'm alluding, satistical versus substantive economic growth, is that statistical growth includes garbage investment like sub-prime housing and public schools that do not produce value. Substantive economic growth would include private schools that do produce value and housing that people really want.
Banks need not be permitted to lend more money than they have. The argument for doing so is economic growth. But the argument against it is the rape of America's retirees; and the stifling of innovation caused by the misallocation of credit and irrational turns in the economy due to banking panics--on the part of bankers themselves.
Friday, January 23, 2009
A Taxing Question--New Yorkers ARE INSANE
How much do you pay in taxes? And what's the payback? I recently spoke with someone at the gym. In my neighborhood leftists reign supreme, and this guy was no exception. He told me that the school in Phoenicia, New York is terrible, so he sends his two kids to a private school in Stone Ridge, New York for $8,000 apiece. When I said to him, "It's terrible that we pay all these school taxes and you can't send your kids to public school," he replied, "I believe in taxes."
This individual was somewhat status conscious and self-conscious of his own status-consciousness. It is not a bad thing to "keep up with the Joneses" but enforced "liberalism" is different. He told me that he was brought up in a large house in Scarsdale and that he could afford an apartment in Manhattan as well as private school and a house here. It did not occur to him that while paying several thousand dollars in school taxes did not prevent him from sending his own children to private school, taxes likely prevent many local residents from being able to afford private schools. So, unlike my rich "liberal" friend who loves taxes and sends his children to private school, others whose children's education the taxes harm are not so rich or so lucky.
The question is: what does someone in New York pay in taxes? First off, there's Social Security. The rate in 2008 was 6.2% for employees and 6.2% for employers. Most economists agree that the employer's portion is largely a deduction from wages, so let's say the total is 10%. Medicare is another 1.45% for employee and employer, so let's call that 2.0%. In 2005, the mean household earnings for a 45-54 year old was $74,446, according to a Boston College study, so let's say the individual earns $80,000. The New York State income tax would be $4,686, or 5.8%. The federal income taxes are about $12,000, or 15%, including deductions. As well, the sales tax around here is about 8%. Also, there are premium and similar kinds of consumption taxes. Let's say 2% of income goes into sales tax. As well, property taxes are easily $4,000 for local property tax (5%) and $2,000 for school tax (2.5%) I'm not counting higher prices due to corporate taxes (corporate taxes are passed on to consumers), capital gains, license and DMV fees, tolls. So if we add up the tax bill for the average household: 10% (Social Security) + 2% (Medicare) + 5.8% (State income) + 15% (Federal income) + 2% (sales) + 5% (property) + 2.5% (sales) = 42.3%.
New Yorkers are INSANE! For 42.3% of their income they get:
Terrible schools + badly paved roads + ?
The only good thing is the snow plowing, I'll give them that. But if I spent 42.3% of my income on something and got back snow plowing, I would sue for fraud. But New Yorkers keep electing the same politicians, over and over, who keep trying to raise taxes even more.
They are INSANE!
This individual was somewhat status conscious and self-conscious of his own status-consciousness. It is not a bad thing to "keep up with the Joneses" but enforced "liberalism" is different. He told me that he was brought up in a large house in Scarsdale and that he could afford an apartment in Manhattan as well as private school and a house here. It did not occur to him that while paying several thousand dollars in school taxes did not prevent him from sending his own children to private school, taxes likely prevent many local residents from being able to afford private schools. So, unlike my rich "liberal" friend who loves taxes and sends his children to private school, others whose children's education the taxes harm are not so rich or so lucky.
The question is: what does someone in New York pay in taxes? First off, there's Social Security. The rate in 2008 was 6.2% for employees and 6.2% for employers. Most economists agree that the employer's portion is largely a deduction from wages, so let's say the total is 10%. Medicare is another 1.45% for employee and employer, so let's call that 2.0%. In 2005, the mean household earnings for a 45-54 year old was $74,446, according to a Boston College study, so let's say the individual earns $80,000. The New York State income tax would be $4,686, or 5.8%. The federal income taxes are about $12,000, or 15%, including deductions. As well, the sales tax around here is about 8%. Also, there are premium and similar kinds of consumption taxes. Let's say 2% of income goes into sales tax. As well, property taxes are easily $4,000 for local property tax (5%) and $2,000 for school tax (2.5%) I'm not counting higher prices due to corporate taxes (corporate taxes are passed on to consumers), capital gains, license and DMV fees, tolls. So if we add up the tax bill for the average household: 10% (Social Security) + 2% (Medicare) + 5.8% (State income) + 15% (Federal income) + 2% (sales) + 5% (property) + 2.5% (sales) = 42.3%.
New Yorkers are INSANE! For 42.3% of their income they get:
Terrible schools + badly paved roads + ?
The only good thing is the snow plowing, I'll give them that. But if I spent 42.3% of my income on something and got back snow plowing, I would sue for fraud. But New Yorkers keep electing the same politicians, over and over, who keep trying to raise taxes even more.
They are INSANE!
My Blog at Republican Liberty Caucus
The Republican Liberty Caucus has set me up to blog on their site, and I will be blogging there a few times a week as well as here. My first RLC blog appeared a day or two ago.
My wife Freda and I had lunch this afternoon with Lee Currie, excecutive director of the Foundation for Economic Education in Irvington on Hudson, New York. I heartily recommend this organization for anyone concerned about the economy. FEE has played a historic role in furthering economic ideas. Milton Friedman, William F. Buckley and Ralph Nader (yes, you read right) published early articles in their journal, the Freeman, and FEE was the means by which Ludwig von Mises was able to make a living after fleeing the Nazis in the late 1930s.
Where is America going? Things have not been going well for libertarians and conservatives. Our problem HAS NOT been the election of President Obama. As Shakespeare put it in Julius Ceaser, "the fault, dear Brutus, lies not in our stars, but in ourselves if we are underlings". I don't like to think of myself as an "underling" but if the sandal fits, I'll wear it.
The public is unhappy with the bailout, but what have libertarians done to push the issue? We need a new Andrew Jackson who is going to run against Nicholas Biddle Bernanke and John Quincy Obama. Now is the time.
My old friend, Professor Chuck Gengler of Baruch College in New York forwarded this clip from the old movie Network. Let's not take it any more. It is time to start overthrowing the old guard in the Republican Party. We need to get revved up.
My wife Freda and I had lunch this afternoon with Lee Currie, excecutive director of the Foundation for Economic Education in Irvington on Hudson, New York. I heartily recommend this organization for anyone concerned about the economy. FEE has played a historic role in furthering economic ideas. Milton Friedman, William F. Buckley and Ralph Nader (yes, you read right) published early articles in their journal, the Freeman, and FEE was the means by which Ludwig von Mises was able to make a living after fleeing the Nazis in the late 1930s.
Where is America going? Things have not been going well for libertarians and conservatives. Our problem HAS NOT been the election of President Obama. As Shakespeare put it in Julius Ceaser, "the fault, dear Brutus, lies not in our stars, but in ourselves if we are underlings". I don't like to think of myself as an "underling" but if the sandal fits, I'll wear it.
The public is unhappy with the bailout, but what have libertarians done to push the issue? We need a new Andrew Jackson who is going to run against Nicholas Biddle Bernanke and John Quincy Obama. Now is the time.
My old friend, Professor Chuck Gengler of Baruch College in New York forwarded this clip from the old movie Network. Let's not take it any more. It is time to start overthrowing the old guard in the Republican Party. We need to get revved up.
Thursday, January 22, 2009
Managerial versus Statist Ideology
In Work and Authority in Industry the sociologist Reinhard Bendix traces the evolution of managerial ideology in England, the US, Russia and East Germany (the book was published in 1956). Bendix dissects the ideologies of managerial power in each nation. In the case of the nations that turned out to be economically successful, the United States and the UK, there was an evolution of ideology. Bendix traces the pattern whereby Calvinism gave way to an emphasis on virtue, as in the case of Benjamin Franklin's writings on success. In turn, the virtue ethic morphed into social Darwinism and social Darwinism into the New Thought ideas that positive thinking leads to success. In turn, the success-conscious ideology was replaced by scientific management. Bendix implies that the scientific management and human relations school ideas that were prevalent in the 1950s were themselves ideological rather than empirically based. That was not the case. Scientific management had an efficiency rationalization that 19th century managerial ideologies, based on justification to aristocrats in England and to the public, lacked. However, scientific management in fact increased productivity. To the extent that the human relations school tempered scientific management and reduced labor problems while maintaining constant or increasing levels of productivity, it too could be validated. However, the chief advances in the second half of the twentieth century in management, lean manufacturing, computer integrated manufacturing and total quality management, had even greater effects on productivity.
Political ideologies have not advanced in the same manner as managerial ideologies. THe ideology of the 19th century, laissez faire, was associated with rapid industrial advance. Its competitor, mercantilism, had been associated with economic progress in the 17th and 18th centuries, but paled in comparison to the progress that laissez faire generated in the 19th. This was true in Britain and the US. Marxism, various strands of socialism and in the late 19th century progressivism evolved as critiques of some of the social ramifications of laissez faire. These ideologies, though, once implemented, were unable to evolve, unlike the managerial ideologies. Marxism today does not posit an economic model much different from Marxism in the 19th century. Oskar Lange was unable to overcome the arguments of Ludwig von Mises, and in any case socialism in practice was unable to efficiently implement Lange's idea. Similarly, the ideas of Progressivism intensified into the New Deal, but have not evolved since the early twentieth century. Progressives today still rely on scale economies rather than innovative management practice as a source of value. But scale is no longer a critical source of economic value. Correspondence of output to customer needs, reduction of loss through stabilization of the production funciton and taut management of production processes (along with evolution of organization structure to flatten hierarchy and increase employee responsiveness) have not been viewed as possible within the public sector. Much as processes have failed to improve, so program conceptualization, strategy and flexibility in the public sector remain rooted in early twentieth century bureaucratic forms. The evolution of centralizing tendencies in public sector management goes back to the 17th century and reflects the ideas of Lord Shaftesbury and other mercantilists. The debate between Federalists and anti-Federalists, Whigs and Jacksonian Democrats and Progressives and advocates of laissez faire revolved around the question of the relative merits of centralization and decentralization, of price versus central plan, of economies of scale versus dynamism of innovation. However, unlike the ideology of decentralization and laissez faire, which considerably evolved in the twentieth century, the ideology of Progressivism and planning stagnated.
Political ideologies have not advanced in the same manner as managerial ideologies. THe ideology of the 19th century, laissez faire, was associated with rapid industrial advance. Its competitor, mercantilism, had been associated with economic progress in the 17th and 18th centuries, but paled in comparison to the progress that laissez faire generated in the 19th. This was true in Britain and the US. Marxism, various strands of socialism and in the late 19th century progressivism evolved as critiques of some of the social ramifications of laissez faire. These ideologies, though, once implemented, were unable to evolve, unlike the managerial ideologies. Marxism today does not posit an economic model much different from Marxism in the 19th century. Oskar Lange was unable to overcome the arguments of Ludwig von Mises, and in any case socialism in practice was unable to efficiently implement Lange's idea. Similarly, the ideas of Progressivism intensified into the New Deal, but have not evolved since the early twentieth century. Progressives today still rely on scale economies rather than innovative management practice as a source of value. But scale is no longer a critical source of economic value. Correspondence of output to customer needs, reduction of loss through stabilization of the production funciton and taut management of production processes (along with evolution of organization structure to flatten hierarchy and increase employee responsiveness) have not been viewed as possible within the public sector. Much as processes have failed to improve, so program conceptualization, strategy and flexibility in the public sector remain rooted in early twentieth century bureaucratic forms. The evolution of centralizing tendencies in public sector management goes back to the 17th century and reflects the ideas of Lord Shaftesbury and other mercantilists. The debate between Federalists and anti-Federalists, Whigs and Jacksonian Democrats and Progressives and advocates of laissez faire revolved around the question of the relative merits of centralization and decentralization, of price versus central plan, of economies of scale versus dynamism of innovation. However, unlike the ideology of decentralization and laissez faire, which considerably evolved in the twentieth century, the ideology of Progressivism and planning stagnated.
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