no third solution

Blogging about liberty, anarchy, economics and politics

The Return to Depression Era Economics

August 12th, 2009

First it was the broken-window debacle known formally as CARS, or colloquially as “Cash For Clunkers”: by Government edict, thousands of functioning vehicles were destroyed with sodium silicate. Adding insult to injury, the vehicles (parts of which were ostensibly salvageable) will be scrapped. Thanks to CARS, the replacement driver-side door that you neede for your 1995 whatchamacallit is going to be a little bit harder to find. The market for used cars, and the market for replacement/salvage parts just got a little bit thinner, so prices go up a little bit more.

And then there is agriculture, which has been silently (but openly) engaging in what can only be described as price-fixing. It’s been said elsewhere, but I’ll repeat it: if any other industry openly flaunted it’s price-fixing policies (Big Oil, anyone?) it would quickly draw the ire of politicians, bloggers, and Joe Six-Packs everywhere. Everyone would be in an uproar over “price gouging”.  But I’ve heard nary a whisper about this:

U.S. dairies will remove 86,710 cows from their herds to be sold to slaughterhouses as part of an industry-funded program intended to boost milk prices by curbing output.

The buyout is the third such cull in nine months, the Arlington, Virginia-based National Milk Producers Federation said today in a statement. The most recent buyout completed last month involved 101,000 cows, the most ever for the groups so- called Cooperatives Working Together program, which began in 2003.

AZCentral

It makes no difference whether these attempts at price-fixing are done at government’s behest, or by cooperatives or cartels trying to bolster their own bottom lines. Attempts to maintain these prices are as sure to fail in the medium- to long-run as water is sure to find its level. In the 1930s, during the height of the Great Depression, farmers were urged to cull their herds, slaughter baby pigs, plow under their fields, etc., all with the goal of keeping prices high. Employers were urged to keep wages high (although many cut working hours to save on expenses) based on the fraudulent notion that production depends on consumption, when in fact it is exactly the opposite.

[I]t is of paramount importance to recognize that such an abundance of goods and services can only arise through production at some historical time, or in other words, that in order to consume, production must first occur. — Say’s Law of Markets: The Case For Doing Nothing

Given the frequency with which people fail to comprehend Say’s Law, you’d think it is a novelty. Unfortunately, it’s not. During a depression/recession, the problem is not that prices have fallen, on the contrary, the problem manifests itself because prices were too high in the first place, and indeed are still too high.

The Great Depression was awful. And it’s frightening to witness the “endarkenment” happening right before our eyes. These same policies have all been tried before, and they’ve never done anyone a damn bit of good. This time won’t be any different.

Via CoyoteBlog by way of Beck.

Cash For Clunkers Program Ran Out of Money

July 31st, 2009

After less than a week, the government has pulled the plug on the cash-for-clunkers program, a part of the Auto Industry Bailout designed to encourage people to scrap their old, fuel-inefficient vehicles in favor of a large credit (up to $4,500) towards the purchase of a new, fuel-efficient vehicle. The program has been suspended because of fears that the $1 Billion allocated to it have been exhausted.

The U.S. government plans to temporarily suspend its “cash for clunkers” incentive program because Obama administration officials believe its $1 billion budget has been exhausted after just one week, said several congressional officials.

I am not particularly sad to see it go — sure, it happens to be several orders of magnitude smaller than the bailouts given to the banking industry, but it’s no less reprehensible. I’m just as surprised as anyone that the plan “worked” as well as it did.

From the start, I was very skeptical of this program: I just didn’t understand why people would be willing to turn in a serviceable vehicle (albeit, an old one) for a brand new one. On the surface, it sounds nice, but brand new vehicles also have brand new vehicle payments — $400/month or more. A clunker has zero monthly payment, although some allowance needs to be made for maintenace.

I also took issue with the program, as a combination of some of the most heinous economic fallacies. First, most people don’t pay cash for new cars, even with a nice big government subsidy to dampen the price. Most people finance new cars, which means they take on debt. And debt is kinda-sorta the root of the current economic crisis: adding to that shitpile isn’t going to (in the long run) be in anyone’s best interest.

Furthermore, the broken window fallacy is at play here. When I first heard that the vouchered vehicles needed to be scrapped after trade-in, I was immediately reminded of the farm policies during the great depression:

The [Agricultural Adjustment Act] immediately set out to slaughter six million baby pigs and reduce breeding sows to reduce pork production and raise prices. Since cotton plantings were thought to be excessive, cotton farmers were paid to plow under one-quarter of the forty million acres of cotton to reduce marketed production to boost prices.

Raising prices, or implementing policies intended to keep prices high when people are losing jobs hand-over-fist, and when people don’t have money or are reluctant to spend it, is the completely wrong thing to do. It is the destruction of an abundance of goods (i.e., affordable) at a time when people need affordable goods. Forcing people to destroy an otherwise functional piece of equipment impoverishes society. Every “clunker” that they scrap is a “clunker” that some poor college kid or some less-than-well-to-do person can no longer buy.

Artificially propping up automobile prices by destroying old vehicles, and subsidizing the purchase of new ones (with taxes and debt) is no different than artificially propping up agricultural prices by slaughtering baby pigs and plowing under the fields. It does not benefit the average consumer today, who gets shafted with a load of debt and unreasonably expensive goods, any more than the farm policies of the AAA and NRA benefitted the average sharecropper in the 1930s.

However, I suppose it illustrates that there will always be people willing to take a free-ride on someone else’s dime.

Marx and the Secret of Primitive Accumulation

February 1st, 2009

Marx’s exploitation theory relies in part on the so-called crime of primitive accumulation, without which one struggles to explain the class dichotomy between the haves and the have-nots so crucial to the exploitation theory. The secret of primitive accumulation posits that the economic sins of some people have condemned them and their progeny to the hell of labor, whereas the economic virtues of the others have placed them in a situation far superior to that of the former, viz., in accordance with their virtues, the virtuous have become vicious and themselves worthy of condemnation:.

In times long gone-by there were two sorts of people; one, the diligent, intelligent, and, above all, frugal elite; the other, lazy rascals, spending their substance, and more, in riotous living. The legend of theological original sin tells us certainly how man came to be condemned to eat his bread in the sweat of his brow; but the history of economic original sin reveals to us that there are people to whom this is by no means essential. Never mind! Thus it came to pass that the former sort accumulated wealth, and the latter sort had at last nothing to sell except their own skins. And from this original sin dates the poverty of the great majority that, despite all its labour, has up to now nothing to sell but itself, and the wealth of the few that increases constantly although they have long ceased to work.

This condemnation neglects to account for entrepreneurial failure in a competitive economy, rather, it assumes that capital itself is self-perpetuating: having become possessed of capital one need only sit back and watch wealth multiply (violating the laws of thermodynamics, the idea of self-perpetuating capital is so patently absurd as to deserve no further consideration).

Marx ignores competition between capitalists in a free market (the type of place no “Capitalist” wants to be!), the basis of which should tend towards generally less “exploitative” working conditions, as it would be in any individual capitalist’s best interest (economically speaking) to deviate from the oligopoly’s practices, and therefore even in light of primitive accumulation, one must question how the the oligopoly came to exist, in the absence of a state or pseudo-state. Both Marx and Rodbertus before him observed that some members of the working class will accomplish success, and that these successes are occasionally to be tolerated by the capitalists in order to preserve the illusion of freedom, but as a general rule, he neglects the possibility of entrepreneurship among the proletariat, by means of which they may lift themselves from the alleged depths of poverty they are forced to endure.

And yet we know from experience, that individuals of humble backgrounds have created fortunes with little more than an idea, and that capitalists do fail: fortunes are squandered, resources mis-allocated, projects undertaken which never fulfill their plans of grandeur, etc.

In other news: Marx is damn near unreadable.

no third solution

Blogging about liberty, anarchy, economics and politics