The gold market had looked bearish for the past couple of weeks and gold seemed to be breaking through support, but Bloomberg reports that the more recent spurt of price increase is due to Chinese buying. In other words, the Chinese central bank aims to hold gold. It currently has almost $2 trillion in foreign currency reserves. If it follows Russia and builds a 10% reserve holding, gold will be the winner and the dollar will be the loser.
There could be longer term repercussions as to the Chinese acquisition of gold. Why stop at 10%? There is no reason to trust the Fed or the dollar, and the American republic is running out of steam. This is due to self indulgence and corruption among American elites. Wall Street will not permit slow monetary growth, and foreign dollar holders will lose. If the Chinese are smart, they will convert all of their dollar holdings into gold.
Americans should think in terms of pressuring their Congressmen to repeal the legal tender laws that were passed during the Civil War. There is no reason why Federal Reserve monopoly money should be mandatory or "legal tender". There should be a free market in money. The Fed does not represent the public. Why should the public be forced to accept their garbage notes?
Sunday, April 26, 2009
Charisma in History
Charisma is sometimes suggested as a source of value. Great leadership can stimulate effort. Katz and Kahn argued that leadership can provide an increment of effort. But is charismatic leadership the true source of economic growth?
The answer is no. Economists recognize that technology and capital investment are critical sources of economic growth. Charisma existed throughout history. Ramses the Great claimed to have defeated the Hittites at Kadesh and Shakespeare commemorates Henry V's victory at Agincourt as he exhorts his outnumbered army:
"This story shall the good man teach his son;
And Crispin Crispian shall ne'er go by,
From this day to the ending of the world,
But we in it shall be remember'd;
We few, we happy few, we band of brothers;
For he to-day that sheds his blood with me
Shall be my brother; be he ne'er so vile,
This day shall gentle his condition:
And gentlemen in England now a-bed
Shall think themselves accursed they were not here,
And hold their manhoods cheap whiles any speaks
That fought with us upon Saint Crispin's day."
To what extent can charisma create economic value? It would seem incrementally. The major advances in economic history occurred because of innovation at the individual and firm levels. They occurred in the 19th and twentieth century, especially during the period of laissez-faire from the 19th to the early 20th century in England and America.
There were many examples of charisma throughout ancient and medieval history, but the economy did not progress. Fundamental progress is due to technological breakthrough, capital accumulation wisely administered and understanding of customer value. In countries where the state predominates, such as the Soviet Union, China, Cuba and Sweden, there has been little economic advance. Just like the medieval world (according to which it is conceptualized), socialism is an ideology of economic stagnation and decline. State capitalism is less socialistic and so sees less decline. The socialist economies that do function, such as Sweden's, do so in the context of globalized trading with market economies. Without globalization the Swedes would still be serfs in the bruks and communistic shared fields.
What is the role of charisma then? It provides interest, stimulation and incremental motivation. It is rarer in business than in the military or other walks of life. But there has been much more progress in business than in other institutions, except for science. And charisma is notably absent from scientific endeavor as well.
The answer is no. Economists recognize that technology and capital investment are critical sources of economic growth. Charisma existed throughout history. Ramses the Great claimed to have defeated the Hittites at Kadesh and Shakespeare commemorates Henry V's victory at Agincourt as he exhorts his outnumbered army:
"This story shall the good man teach his son;
And Crispin Crispian shall ne'er go by,
From this day to the ending of the world,
But we in it shall be remember'd;
We few, we happy few, we band of brothers;
For he to-day that sheds his blood with me
Shall be my brother; be he ne'er so vile,
This day shall gentle his condition:
And gentlemen in England now a-bed
Shall think themselves accursed they were not here,
And hold their manhoods cheap whiles any speaks
That fought with us upon Saint Crispin's day."
To what extent can charisma create economic value? It would seem incrementally. The major advances in economic history occurred because of innovation at the individual and firm levels. They occurred in the 19th and twentieth century, especially during the period of laissez-faire from the 19th to the early 20th century in England and America.
There were many examples of charisma throughout ancient and medieval history, but the economy did not progress. Fundamental progress is due to technological breakthrough, capital accumulation wisely administered and understanding of customer value. In countries where the state predominates, such as the Soviet Union, China, Cuba and Sweden, there has been little economic advance. Just like the medieval world (according to which it is conceptualized), socialism is an ideology of economic stagnation and decline. State capitalism is less socialistic and so sees less decline. The socialist economies that do function, such as Sweden's, do so in the context of globalized trading with market economies. Without globalization the Swedes would still be serfs in the bruks and communistic shared fields.
What is the role of charisma then? It provides interest, stimulation and incremental motivation. It is rarer in business than in the military or other walks of life. But there has been much more progress in business than in other institutions, except for science. And charisma is notably absent from scientific endeavor as well.
Saturday, April 25, 2009
Governmental Loss Function
Government necessarily provides inferior service because of the scope of which it attempts. This is unavoidable, but losses can be reduced through particularization or decentralization. The Taguchi loss function formalizes the insights of Edward I. Deming. It can be applied to any production system or to services like government. The goal is to minimize variance from a customer's expectation target. In the case of government there are, of course, multiple targets. You can view governmental service as a multi-dimensional set of services. Some dimensions intersect with voter/customer preferences, others are for all purposes infinitely distant. Tax loss function presumably has a quality target of some low number. Some services are of concern to some voters, and the problem for government is to minimize losses arising from voters who are a finite distance from particular quality targets. In other cases, though, voters do not care about services.
Governmental loss functions cannot rotate without changing distance (amount of loss) for some and increasing it for others. Losses to taxpayers are increased as gains to tax consumers are increased. Moreover, the constellation of services can be changed only at taxpayer expense. Preferences form market segments. Identification of segments is part of political processes. However, total losses can increase even with a winning voter coalition. This is possible because vastly increasing losses for a minority can be accompanied by modest increases for the majority.
Limiting the scope of government would limit the losses because preferences can be targeted to varying segments. Loss minimization means better democracy and better satisfaction of public preferences. Thus, there is a quality advantage to decentralization.
The major threat to quality in government services is the Olson/Stigler economic loss due to political pressure. As size increases asymmetric advantages to specific groups increase. This is because lobbying and organizational costs increase and because small losses in a particular lobbying episode may be insufficient to motivate resistance. Multiple small losses across a large geography and population accumulate, resulting in far larger losses than would be possible in a smaller population and geographic area. Thus, satisfaction with state and local services is likely to be higher than satisfaction with federal government services. Lack of awareness of federal government services is likely to be greater than lack of awareness of state and local services.
Decentralized blocks can make more rational decisions because incentives to participate are greater.
Governmental loss functions cannot rotate without changing distance (amount of loss) for some and increasing it for others. Losses to taxpayers are increased as gains to tax consumers are increased. Moreover, the constellation of services can be changed only at taxpayer expense. Preferences form market segments. Identification of segments is part of political processes. However, total losses can increase even with a winning voter coalition. This is possible because vastly increasing losses for a minority can be accompanied by modest increases for the majority.
Limiting the scope of government would limit the losses because preferences can be targeted to varying segments. Loss minimization means better democracy and better satisfaction of public preferences. Thus, there is a quality advantage to decentralization.
The major threat to quality in government services is the Olson/Stigler economic loss due to political pressure. As size increases asymmetric advantages to specific groups increase. This is because lobbying and organizational costs increase and because small losses in a particular lobbying episode may be insufficient to motivate resistance. Multiple small losses across a large geography and population accumulate, resulting in far larger losses than would be possible in a smaller population and geographic area. Thus, satisfaction with state and local services is likely to be higher than satisfaction with federal government services. Lack of awareness of federal government services is likely to be greater than lack of awareness of state and local services.
Decentralized blocks can make more rational decisions because incentives to participate are greater.
My Letter to Congressman Maurice Hinchey Re HR 45
Dear Congressman Hinchey:
I oppose gun control and in particular HR 45, Representative Bobby Rush's (D-IL)Blair Holt's Firearm Licensing and Record of Sale Act of 2009, the text of which is located at http://www.opencongress.org/bill/111-h45/text.
As you likely know, the Federalist Papers #29, written by Alexander Hamilton, describes the nature of what the Founding Fathers saw as a militia. Hamilton leaves little doubt that the reason for the Second Amendment is protection against incursion against liberty by the state.
Given current developments in Washington, there is little reason to believe that the US government is legitimate or trustworthy. Rather, it is tyrannical. I have written to you previously advocating a 75% reduction in the federal budget, but you obviously have failed to respond in practice.
I would like to know your position on HR 45. I have indicated my e-mail and regular mailing address above.
Sincerely,
Mitchell Langbert
I oppose gun control and in particular HR 45, Representative Bobby Rush's (D-IL)Blair Holt's Firearm Licensing and Record of Sale Act of 2009, the text of which is located at http://www.opencongress.org/bill/111-h45/text.
As you likely know, the Federalist Papers #29, written by Alexander Hamilton, describes the nature of what the Founding Fathers saw as a militia. Hamilton leaves little doubt that the reason for the Second Amendment is protection against incursion against liberty by the state.
Given current developments in Washington, there is little reason to believe that the US government is legitimate or trustworthy. Rather, it is tyrannical. I have written to you previously advocating a 75% reduction in the federal budget, but you obviously have failed to respond in practice.
I would like to know your position on HR 45. I have indicated my e-mail and regular mailing address above.
Sincerely,
Mitchell Langbert
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