Lessons from Russia's Economic "Stimulus"

Entrepreunurial Stimulus

A couple weeks ago (NYT Aug. 9, 2013) Russia announced a REAL economic stimulus plan:
let the business-people who are in jail for 'economic crime' (e.g. not being friends with Vlad Putin) out of the Gulag and let them practice their craft.  The Times reports that there are 110,000 people in Russian jails for 'economic crimes'.

First we must deconstruct this.  A stimulus plan in modern parlance simply means that people have given-up their independence and have given the right to the State their economic determinism. The whole idea being 'stimulus' is a 20th century concept, Keynesian economics.  Where it is seen that it is up to the State to provide 'jobs'.  This whole idea is counter-causal.  It is business-people (entrepreneurs) seeking a profit by providing things that others want to buy which has given us such abundance (smartphones, IKEA furniture, $5 per bottle South American wine, unlimited music and film on youtube etc).

It is this people who need good employees.  In fact the way to do this is to profit share (after of course their employees prove their worth) so in fact it is not a "job" but a cooperative partnership with a future. The whole notion of "jobs" is a scare tactic short-termism which again is what the State has become under the last 75+ years of Keynesian.  (To be fair, perhaps J.M. Keynes would not appreciate all that is being done under his name, at least according to his friend Friedrich Hayek.)

The State cannot provide "jobs" in any sustainable way, because the State takes wealth from the productive and gives it to the unproductive (those seeking State subsidies or trade protectionism etc.  Those seeking political favors from a monopolistic State as apposed to earning their worth in voluntary exchange).

So it is not "jobs" the State should create, but the correct political environment ("regime", see Robert Higgs) to allow investment and capital accumulation through a solid predictable rule of law which reduces the uncertainty of the future.  Not one where the State is constantly trying this or that program and creating Us v. Them antagonism.

It is only through private investment that economic growth is achieved.  Giving bureaucrats and politicians Other People's Money (OPM) to spend does not create growth due to the incompatible incentive structure.  Bureaucrats and politicians just don't have the incentive to invest OPM wisely.  Why should they?  But most importantly of course, why on Earth does the voting populace think they might ?!  Or as a friend of mine said, "Democracy is a scam". 

(Hint, one answer is Rational Ignorance, the voter knows that his or her vote won't determine an election outcome, so why should they educate themselves in politics?  The State takes advantage of this rational ignorance to grow itself and its power.  Thus the reason that State labor union employees make twice that on average than the average American employed in the productive sector.)

Just a few day's later (NYT Aug. 12, 2013) Attorney General Holder stated that mandatory sentences for drug crimes would be reformed due to prison overcrowding. Well again deconstruction time.  The USA "land of the free and home of the brave" has the highest prison incarceration rate in the world.  Even more than the Peoples Republic of China, both in nominal and per person terms, and half of these are drug-crimes !  So then why don't we follow Russia's "stimulus" plan. Decriminalize drugs and set these imprisoned entrepreneurs free.  Alcohol is worse for people than even the hardest of drugs so let's face that not only has the "War on Drugs" failed, but its hypocritical as well.  The State has to always be at war in order to make taxpayers and other victims of the State's "jobs" programs kowtow ever more.

On Social Realism Art of the 1930s

Idealism Gone Bad

When I look at social realism art of the 1920s and 1930s I get sad.  The reason for this is reason.  During this “inter-war” period we lost our way in terms of the rights of individuals to be free from harm caused by others, our individual reasoning was overcome by a collectivist reason where we assign our agency to others.  Social realism art is a meme for collectivism, where we find ourselves in an artificial class struggle.  Instead of individuals we become de-personalized depictations in a Them versus Us artform, where ideal-types replace subjectivity. 

   Both socialism and fascism, although opposed historically, are the same in Statist ideology.  This period of history, and it might be argued through today, is where our individual aspirations, known and realized only by our own individual actions in free-association and cooperation with others, take a secondary position to the political class who have the ‘fatal conceit’ to believe that they know more than the individual what is best for that individual.  We become aggregates in “State-istics” (statistics) where we lose ourselves to the State. And the State is not a government “for the people” but an entity unto itself, looking out for its own best interests as it enlarges its own power and control.

   What is most sad for me is that we have done this voluntarily, turning our self-actualization, which can only be learned through trial-and-error and corrections in our own consciousness, over to others, who we then acknowledge to be wiser about our own conditions than we are ourselves.   

   I do understand that art of this period, social or socialist realism, tries to cut through the temporal poverty and alienation of factory labor, and provide hope for a “new man (person)” moving forward.  However as applied, the individual became a tool for the collective, where the ends justify the means.  This results in a Statist ideology, creating poverty and servitude, both in Fascist countries (Italy and Germany) as well as Communist countries (the USSR and its satellites) as the State extends its power, both domestically and through imperialism, on the back of the people. 

   Sad to say the same holds true for the USA, where under the New Deal farmers were paid to reduce crop outputs in the Heartland while people were starving in the Bowery.  Central planning under the New Deal failed miserably though few admit this.

   The social (-ist) realism art of the period showed “hope” for a new idealized life for mankind, but in the end this idealism lead to nothing more than Nation-States creating war over minute shades of Statism during WWII.  The “free world” was not, and the Iron Curtain was nothing but a Them to allow the military-industrial complex of the US to earn exorbitant profits in (cold) war procurement.  This is unfortunately a moment which extends through today with US troops in over 100 countries and our Secretary of State (whoever she or he may be at a given point in time) travelling the world telling other people what to do.

   Today with the drone kill-list on the US president’s desk every AM, and the Statist drug war giving the USA (land of the free?) the highest incarceration rate in the world, we can look back at the idealism of socialist realism art and be sad how it has all turned out.  There is no one to blame but ourselves.  We can look at social realism art and dream of how it might have turned out with the depicted bold idealism, but, alas it did not turn out to be a new Man, but rather an enslaved person kowtowing to an ever more powerful State.   

Movie Review : Ides of March

Politics is a Loser's Game

Workers saw the movie Ides of March, funded in part I believe by Titanic money (it was co-produced by Leo DiCaprio), based on a play called "Farragut North" by Beau Williman.

For readers not familiar with the ways of Wash DC our nation's capital, Farragut North is the metro stop for Gucci Gulch, the heart of beltway bandicy, so thus the movie is about the politics of politics. About lobbyists, political consultants, playing to the primacy of the polls and whatever manipulation and sell-out it takes to get the delegates or to get the interns or for the interns to get to those in political power (no more about that here, but fundamental to the plot).

George Clooney plays a congressman gunning for the Democrat presidential nomination, and gets kudos for not stereo-typically making (American) liberals seem the answer to all that ails us. The movie is interesting for more than this. There is not a single redeemable character or action or idea in the movie, yet the movie comes-off as good entertainment (something about tragedy or watching people be mean to each-other that appeals I guess. Just watch any TV show, reality TV or not. And Americans do watch an average of 5 hours a day).

In fact for those of us against government coercion, the film is quite good. There is a scene where Clooney's character says in a brain-storming session full of his campaign staff that he would like to introduce "public service" to his campaign, where college grads could get their (no doubt government-subsidized) school loans clean-slated if they did "public service", which of course would then be the cure to the nation's unemployment ills (of course the nation's out-of-control-debt and the dollar down-grade is not mentioned: it is a Hollywood film after-all.)

One of the paid political consultants then says why don't we take it abit further and require government service. After-all, it would only apply to those less than 18 years-old today, and they can't vote anyway. All agreed, a brilliant idea.

So you get the cynical tone of the movie and of, well, mainstream American politics.

The Philip Seymour Hoffman character, who - spoiler alert - gets booted from the campaign due to a rival's blackmailing of the candidate - moves on to a million-dollar-a-year job in the Gucci Gulch. Experience with cynical manipulation pays the 1% in our nation's capital. Sad, but true.

Review of "Brighton Rock" Film

Laws and Rules

Workers saw the new (2010) Brighton Rock, based on the Grahame Greene 1938 novel updated for 1964, with the context being the youth gang fights between the Mods and Rockers (long an interest). I read the book a long time ago but don't remember it much, just the ambience of the ever cloudy and slightly cold Brighton, and the film did capture this well.

In short the film is a serious crime drama with a love story subtext. Gritty and super-real, I enjoyed the film very much. Whats appropriate then for this blog space is the English gangster story. There are two gangs doing gambling and protection in Brighton. One is sordid and dirty the other clean and wealthy. The "rich" gang frowns-upon the (sadistic) violence of the "poor" gang. There are rules that need to be abided by, so that things don't get out of hand and suppressed by the man. The gangs had a relatively peaceful duopoly until the young modish thug anti-hero (who steals a Vespa and rides it around Brighton with all the Mods in town without getting beat up or even recognized as an outsider..which is kind of stretch) decides he wants to be the boss, and gets in over his head.

The community's informal rules (Bob Dylan's "to live outside the law you must be honest") were violated and the offender ex-communicated while the community comes together after the drama. Sometimes informal rules and norms for behavior do evolve and change for the better, however attempted "shocks" at change usually are counter-productive towards anything lasting.

The love story is wonderful, and the metaphysical ending relatedly was perfect as a counter-point to the subtext of violence during the rest of the film.

How is President Obama Like FDR, Let Us Count the Ways

The Great Recession

The period we are living in now is unfortunately not too dissimilar from the Great Depression, when FDR got elected 4x to office. Government policy interventions are preventing the market from working, unemployment is high and prolonged, and we face an uncertain business climate, or, what Robert Higgs calls "regime uncertainty".

So what exactly makes FDR and President Obama ("O") similar, let us count the ways:

1) O keeps-up the rheotoric of "tax the rich" just like FDR kept raising taxes in the 1930's. Many if not most economists know that you tax the things you want to decrease the existence of. Taxing the rich (in the USA) means less rich (in the USA), and it is the "rich" who have the capital to invest in job-creating technologies and innovations. Therefore O's rheotoric has scared off those who have capital to invest in the USA, just like FDR's rheotoric and policies did the same.

2) O like FDR enjoys labor union support. FDR did the Wagner Act giving monopoly bargaining power to the unions, which increased unionization and therefore labor immobility by 200% in the 1930's, while O has a new National Labor Relations Board which creates fear in one of America's largest exporters (Boeing). The new activist NLRB makes potential USA manufactoring people think twice about investing in the USA and so go with China or Korea, Taiwan, India, Brazil, etc.

3) FDR created the SEC, while O has created the Financial Stability Oversight Council, neither of which address the problem of debt-creation (and write-off of interest on debt payments while equity, ownership interests, are taxed 2x) under the US taxcode, which started with the introduction of the Income Taxe in 1914. At least the SEC was created as a watchdog (albiet one which has shown agency capture theory has a non-disprovable hypothesis) while the latest under O is a pro-active rendition, one which makes the Administration and not the court system the arbiter of bancruptcy for privately-owned businesses if the goverment deems someone "too big too fail". This destroys decades of common-law bancruptcy practice in the USA and creates again more regime uncertainty. That giant sucking sound you hear is people running away from investing in the US economy due to a now ambiguous rule of law.

4) While FDR had his Works Progress Administration (WPA) which gave jobs to people building unneccesary public works in politically advantageous locales (those who gave FDR votes or those whose votes FDR needed), O has his "fiscal stimulus" doing the same, "creating jobs" for political reasons. Of course in both cases then these people are not available for real sustainable work in private sector profitable activities.

So then. The Great Recession (prolonged high levels of unemployment) which began with the housing market crash in the Bush II era in 2007 (the bubble and crash itself a product of bad policy) continues under the President Obama era.

Just like the stock market crash of 1929 under President Hoover ushered in FDR (and 10 years of an average 15% unemployment), unfortunately we find the same today. The housing-finance crash under Bush II, ushered in O, and so far we have had 3 years of higher than 9% unemployment (depending on how you measure it, some say as high as 18%). Prior to the 2007 financial crisis average unemployment in the US economy had been a satisfactory 5% for the previous 20 years.

Marx might call the similarities between O and FDR "history repeating itself as farce". Too bad.... no wonder US Government debt has garnered a down-grade.

If Not Now, When, Ben?

Pretense of Knowledge Continues

Workers was pretty happy that the Fed chair went on the record saying that central bank monetary policy is not a "panacea" and that the US government too played a role in improving the economic outlook, specifically regarding the out-of-control spending of the welfare state.

These welfare state programs were set-up decades ago and just aren't sustainable given demographic shifts. People are living longer, there are less young taxpayers to support the not so young who are paid - way too early given new length-of-life expectations - to stop working, and concomitantly based on a decreasing rate of population growth. It would be nice, yes, to have a cogent immigration policy.

Well it turns out our optimism was premature. It's the same old thing. Yes balanced budgets and a fiscal policy which doesn't mean deficits, inflation, higher borrowing costs and debt build-up into the indefinite future is a good thing for business optimism and "job-creating investment", but well, just not yet, because we need fiscal stimulus (government deficit spending) to keep the recovery on track in the short-term.

So the question is when, then. Government spending crowds-out (replaces) private wealth-creating entrepreneurial profit-seeking because a dollar or a worker can't be two places at the same time, they are either working for the government or for someone privately investing their own money and taking risks from which we all gain.

As long as we hold on to the false notion that "stimulus" actually helps instead of harms there is no end in sight. More fake government "jobs creation" and government "investment". Until that kind of mass-hysteria populism type of thinking and discourse stops emanating from the technocrats (and well too the US President and Chairman of the Federal Reserve), we will forever be in a precarious situation.

There is no dichotomy between the long-run and the short-run. We are always in the long-run, so anything that can be done to make investors less nervous about the future should be done immediately. Increasing government debt and spending means wasted dollars means a devaluing dollar and a devaluing dollar expectation means no private sector dollar investments and no sustainable growth for those that live in the dollar economy.

It is always NOW in terms of doing the right thing to lay the foundation for a decent investment outlook. Workers thought maybe Bernanke finally realized that, especially as his Quantitative Easing has helped to create the largest price spikes in food, energy and other commodities ever. But alas, Helicopter Ben is ready for salvation (balanced budgets) but just not yet.

Central planners (government officials and the Fed, who seem to have a crystal ball, or maybe it is tea-leaves or tarot cards or the i-ching, in front of them) have been saying this for a few years now, we need to have a sustainable government expenditure outlook, but just not yet. It is getting old. Address the structural deficits now, stop saying 'stimulus' is helpful on the one hand, but harmful on the other. How lame.

A friend of Workers said he maybe hoped Ben would fall out of his helicopter. That is kind of mean, let's start with hoping he has enough gumption to be consistent and use his influence to help create a sound monetary policy, fiscal policy and rule of law (not least putting an end to overly complex and uncertain financial regulations that are chasing stock market listings to Asia) so that people actually want to invest in the US economy.

The IMF and Irresponsibility, Qu'elle Surprise !

Why the surprise?

The IMF should have been liquidated with the end of the gold exchange period after Nixon pulled out in 1971 in order inflate to fight the vietnam "war" (are we calling it a war yet or is it still a "police action"?). The IMF's purpose was to facilitate the gold exchange, so when that ended so should have the IMF's existence. But no (and the whole fixed exchange rates thing of the Bretton Woods was unsustainable, as all fixed prices are in the long run, with, usually, someone, someone wealthy with lots of patient capital, making a fortune when the dam does break).

Now the International Monetary Fund is in business to bail out nation-states that are irresponsible in their fiscal and monetary policies. And as a fun highlight, keeping people in power in irresponsible countries longer than they should be, suppressing dynamic change and economic and social liberty.

It shouldn't be too surprising then that the person in charge (and who elected him Workers wants to know?) of rewarding this irresponsible behaviour of promising to the populace more than the populace is willing to pay in taxes, and then not being able to make the interest payments on the debt unless getting a bailout from the IMF? Why should the person in charge of bailing-out the international monopoly-capital power structure (those staying in $3,000 per night hotelrooms on the taxpayers' dollars and yen and pound etc.) not act in a corrupt manner in his private life (if indeed he did, innocent until proven guilty, but the point here is that it should not come as surprise)? He is above the law is he not, because, well is international law really enforceable? No.