Monthly Archives: December 2008

A Good Argument Against “Stimulus”

Normally I hate to pass along others’ thoughts without commentary, but this one strikes right to the heart of an issue in a way that requires no further thought. Regarding the question of whether massive government spending will stimulate the economy, Tad DeHaven over at Cato@Liberty has this response:

But isn’t spending tons of money exactly what government at all levels has been doing in recent years? According to U.S. Bureau of Economic Analysis numbers, combined federal, state, and local expenditures in 2000 were an already unhealthy 30% of GDP. Eight years and two recessions later, government spending now sucks up 35% of the nation’s economy and is trending higher. During that time we have witnessed the first $2 trillion federal budget and the first $3 trillion dollar budget.

With all the money federal, state, and local governments have been spending shouldn’t we be experiencing a boom? It would seem to me that proponents of government spending as a cure for our economic cold have it backward.

The feds have increased spending by over 50% since Bush took office, and my home state of California increased spending by about 44%. Why, then, is the only solution to this mess to increase spending even further?

Dismantling a ‘Libertarian’ Argument for Restricting Immigration

Few topics seem to trigger strong emotions like the question of immigration.  The body of classical liberal and libertarian philosophy is full of people who espouse laissez-faire positions on the movements of goods and investment across borders, then completely reverse this position when it comes to the free movement of people.  Much of the opposition seems willing to abandon liberty, even as it claims to be promoting liberty.

The Simple Argument in Favor of Open Borders:

I have a right to do business with whomever I want so long as they are willing and able to do business with me.

The Simple Argument in Favor of Open Borders Explained in Greater Detail:

I have a right to do business with whomever I want so long as they are willing and able to do business with me.  So long as that person does not trespass on someone else’s property or steal anyone else’s property in  order to do business with me, no one else has the right to physically restrain me from doing business with them.  As I wrote in an earlier post:

No, when confronted with a person who desires to leave Mexico, purchase a plane ticket from an airline, fly to Atlanta, rent an apartment from a property owner, find employment in a factory, all of which are peaceful transactions that any individual should be free to do, the vast majority of White Nationalists cheerfully and openly call upon others to thwart these peaceful transactions at every turn. They want armed men to prevent him from stepping off the aircraft, from being allowed to rent the property, from being allowed to enter an employment contract with the factory, from driving on public roads, etc. They wish to force all these transactions to be constrained for people who aren’t members of the White race.

When a person considers how limits on immigration are put into effect, one immediately can see that liberty is destroyed, not enhanced by such restrictions.  The armed man preventing an airline from permitting a paying customer from boarding, preventing a man from renting an apartment, or from selling his labor services to a factory is attacking not only the man whom they are trying to keep out of the country, but those with whom that man wishes to do business.  These restrictions inherently involve attacks on liberty.

The ‘Libertarian’ Argument Against Open Borders

An interesting argument is one leveled by Dr Hans-Herman Hoppe: » Read more

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

A Libertarian-Friendly Economic Stimulus Plan?

Based on Brad’s recent post about the stimulus plan and the comments to it, I’ve come up with a plan that puts money in the hands where it can do some good, ours, while allowing the politicians in Washington to claim they’ve done something.

Here are my starting assumptions:

1) The plan must be revenue neutral or else it would die in Congress.
2) The plan must align with the Federal Reserve’s goal of increasing liquidity in the economy to gain its support.
3) The plan must get money in the hands of the people, where it belongs.
4) The quickest way to get money into the economy is to stop withholding it from paychecks.

Based on this, the solution seems simple. Implement a tax holiday period funded by newly-printed dollars from the Federal Reserve. Americans see an immediate boost in the amount of money available to them while federal spending is not negatively (or positively) impacted.

Here are some numbers generated in response to Louis Gohmert’s tax holiday plan:

According to American Solutions, a conservative think tank founded by former Speaker of the House Newt Gingrich, Americans pay $101.6 billion per month in personal income tax and $65.6 billion per month in FICA tax.

A three month tax holiday would inject approximately $501.6 billion into the economy far faster and more efficiently than Obama’s job program can or the Bush stimulus checks did. By balancing the uncollected tax with newly printed dollars, the Federal Government can fast-track money into circulation without having to enlist the aid of banks, who are understandably cautious about lending.

Now, because this idea seems too good to be true, I’ll ask you, the readers, to blow some holes in it. Go!

» Read more

Grievous, That’s What

Kevin Drum, in response to a Tyler Cowen post explaining that we have very little evidence that fiscal stimulus actually works, suggests we try it anyway:

But do we need examples? I’d argue that we’re basically in terra incognita today. In the postwar era, we’ve virtually never seen an industrialized country, let alone the whole world, stuck in a liquidity trap before. The only example that comes to mind is Japan in the 90s, and their experience with fiscal stimulus was pretty mixed. Depending on your preconceptions, you could take the Japanese experience either as proof that massive stimulus doesn’t work or as evidence that not enough was done. And either way, it’s only one example, so it would hardly be proof enough for skeptics anyway.

That leaves us with theory, which suggests that government spending when monetary policy has lost traction helps to stimulate the economy. But even if doesn’t, my question to Tyler is this: what harm does it do to try? Assuming that stimulus spending is implemented even modestly well, it will, at a minimum, help out a bunch of people with continued employment and produce a bunch of infrastructure improvements that will enhance our future welfare. The downside is more debt, and I’m open to the argument that this is a bad thing to the extent that this debt is funded from overseas and produces further deterioration in our current account balance. But is that the argument against spending? Or is it something else?

“what harm does it do to try?”

Believe it or not, folks, that’s actually a serious question. So let’s take one moment to ask what harm would occur. We’re left with a few simple questions.

  1. Where is the money going to come from?
  2. What are the negative effects of the provisioning of this money?
  3. What better things could the money be doing?

The answer to #1 can be threefold. First, that it is raised by spending offsets elsewhere. No, stop laughing! Second, it can be raised through taxation. Third, it can come from borrowing. Fourth, it can be printed out of thin air.

So based on the answer to #1, you can comprehend an answer to #2. If it is raised through taxation, that results in money being siphoned away from the productive economy at a time when it desperately needs liquidity. Especially due to the fact that most taxes are either on income or profits, and taxing the hell out of the portions of business who are actually earning during the downturn is not helpful. If it is raised through borrowing, you run into the same problem. You’re taking money away from productive enterprises who may have some risk in their needed borrowing by offering huge amounts of “safe” investments to the people with money. Essentially, you exacerbate the “liquidity trap” as the government soaks up the little liquidity that exists. Arguably, the printing press is the best of bad options, especially in a deflationary debt spiral, because it may stop the bleeding. But as I mentioned a mere two months ago, I don’t think they’ll know when to shut off the pump.

Based on all the negative answers to #2, you get a sense of the problems with #3. The real productive part of society is the private sector. Siphoning money away from that portion of the economy through taxation or borrowing hampers the ability of the private sector to operate. Trying to create make-work projects using printed money has the appearance of being much better, but it is only a matter of appearances — the economic activity is not “real” and every dollar spent makes everyone poorer through an inflation tax.

Drum’s argument is similar to one often used regarding FDR: “His small-scale socialism is what kept people fed and clothed enough to keep them from overthrowing the whole system.” It’s a nice claim, because it cannot be disproved, but the inherent claim is much simpler — “Doing nothing would be far worse than doing something.”

Drum suggests that even though we do not have any evidence that a massive fiscal stimulus program would work, it’s better than nothing*. He wants to put the burden of proof on us to show that massive fiscal stimulus is worse than doing nothing. But I think that the party who wants to either tax, borrow, or print anywhere between hundreds of billions to a few trillions of dollars for stimulus should carry the burden of proof. The default position is not to spend this money, and an absence of evidence of the utility of doing so is only further reason that we should do nothing.
» Read more

The Need for Deflation

In a follow-up on Tarran’s excellent Primer on Money, I’d like to take the opportunity to bring the lessons to bear on our current financial situation.

Tarran correctly points out what has happened with the US Government and its ability to control the money supply:

Today, the United States government has engaged in massive amounts of spending. They are not getting this money through taxation. Rather they are borrowing it, and a good portion of what is being borrowed is money created by the Federal Reserve.

As Milton Friedman pointed out, inflation is always a monetary phenomenon. Here’s my quick and dirty example of inflation:

Imagine if you were in a poker game with four other people. You each put $50 in. That means there’s $250 on the table. Now, you’re playing with chips instead of cash. The banker makes sure each of you get the equivalent of $50 in chips. So far, so good, right?

After a while, the guy sitting to your left starts losing chips on some bad bets. He’s not wiped out yet, but he’s not doing great either. You start watching him more carefully as he continues to lose money. Suddenly, through the buzz you’ve got going after four beers, you realize that he should have run out of money two hands ago. He’s been adding chips to the game! Worse, they look identical to the chips used by the banker.

You call the guy on it, and the rest of you decide it’s time to cash out. There’s a problem, though, because now there are more chips than there is real money. In other words, your chip supply has been inflated beyond whatever value was backing it. So, to cash out of the game, you would have to adjust the value of the chips so that all the chips added together equals $250, now making each chip worth less than it was before.

In this example, by introducing more chips into the game, our cheat was able to steal a little bit of money from each of the other players in the game to continue his play after the point he should’ve been bust. His deliberate inflation of the chip supply was theft.

Now, take this example and apply it to what happens when the US Government demands freshly-printed money from the Federal Reserve for spending. All the other dollars in circulation lose a little value upon the creation of that new money. In other words, the US Government has gotten the Federal Reserve to steal a little bit of buying power from your wallet, bank accounts, and investments by forcing them to print new money. That’s theft!

It’s theft in reality, but because of the party committing the theft, we have a special name for it: a tax. So, in the case of the US Government, inflation is taxation.

But, that’s not all that’s been going on. » Read more

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