Thursday, September 16, 2010

Hangovers, George Jetson, and iPods for Kings

After watching this debate, I can see why the UNLV economics department got rid of Hans Hoppe. After having any classes with him, the students were probably tearing up the other faculty. Malamud's concession that basically Roosevelt had no idea what was going on but that "it worked" reminded me of this:

Given that this discussion focused on FDR's policies, there was only brief mention of the fact that the damage is done during the boom. Misallocation of resources, malinvestment, and depletion of savings is the problem. The recession/depression is the result. Thus, any effort to "fix" the depression misses the point. Resources have to be reallocated, bad investments have to be purged, and savings (the basis of credit) has to be restored before there can be recovery. Any policy that retards this process will prolong the depression.

The common analogy is to an alcoholic. Heavy drinking leads to a hangover. Most people accept the hangover as the consequence of too much alcohol and deal with it. They spend Sunday recovering and make it in to work on Monday. The alcoholic on the other hand drowns out the hangover with more booze, playing a perpetual game of "kick the can." He misses work Monday, or worse yet, comes in drunk. He loses his job, destroys his liver, etc etc because he refuses to deal with some short term pain in order to sober up and become functional again. He lives in a high time preference world where the next moment is more important than the next day. Politicians live in this world. Hans Hoppe has demonstrated that high time preference is de-civilizing. This is why we saw a stagnation in the increase of the standard of living from the 20s through the depression. It's also been the case in America from the early 1970s to present (real wages per hour worked).

Another completely nonsensical goal of depression policies was that of job creation and propping up wages. Reed correctly points out that plowing under crops and killing livestock was absurd as it was wealth destruction in the name of propping up nominal prices (a confusion of money with wealth), but he missed an opportunity to take a swipe at every politician's goal (and the Federal Reserve's mission): creating "full employment."

An effective economy produces wealth, not jobs. The reason for having a job is to get stuff, not to work. Humans want to work less and have more. Even those who quit their jobs and move to Africa to do charity work are doing this. They want to minimize time spent on things of low subjective value and maximize time spent on things of high subjective value. This is axiomatic to human action.

Before the industrial revolution, 16 hour work days were the norm. Women worked. Children worked. Everyone except the elite worked (there must have been a glass ceiling for Kings). Abundant food was a rare blessing, not a fact of life. There was full employment. There wasn't enough food.

As the industrial revolution progressed, work days got shorter and wages (wealth per hour) increased (Henry Ford offered Model T assembly line workers high enough wages to buy the car they were producing ... even with an unheard of 8 hour work day).

Women and children no longer had to work, so most didn't. They viewed this as "progress." Relative to centuries past, there was massive unemployment. Despite this terrifying wave of unemployment, people had enough food. Many immigrants to America were shocked to find day old bread in the dumpsters in New York City. Americans stopped eating stale bread while Europeans still dealt with widespread hunger.

Then came the Federal Reserve, Hoover, and Roosevelt.

Government jobs are paid for by the productive economy. Government salaries must necessarily come from taxes, inflation (taxing savings), or borrowing (deferred inflation). All three of these methods destroy wealth by disincentivizing wealth production (taxes by definition). Thus, government work programs tend towards not enough food even if they do create jobs. Aggregate wealth production per hour worked is lower than it would otherwise be. Farms and bakeries were not destroyed during the '29 crash. Potential food production in America was unaffected until the dust bowl (destruction of natural capital), an event which didn't "end" until the 1940s when normal rain patterns returned. Of course by then most farmers had moved to better soil ... having wasted half a decade trying and failing to restore the soil through massive subsidies that were part of Roosevelt's polices. How much sooner would they have moved if there were no subsidies to stay? How much wealth was taken from productive farms in the midwest to subsidize dust bowl areas? How much worse did this make food shortages?

Of course in the future...
George Jetson has a flying car and lives in a space-needle type house. He works 1 hour a day 1 day a week doing the backbreaking work of pushing buttons. He complains about his job. He does not want more hours, he wants less. Presumably Jane does not want to get a 1 hour/week job pushing buttons just to show she can do it to. People prefer not to work. George would prefer to work less. Of course, a central banker would wonder, what is George's wage in nominal terms (as if it matters)? Does he have to deal with the horrors of falling prices (like the terrible trend of computers getting faster AND cheaper every year)?

Malamud referred several times to "Freedom from Want." During my first visit to D.C., I recall being especially disgusted at Roosevelt's temple (monument, as most Americans call them) when I read that phrase, etched in stone. Humans want more and want to work less. Always. Ghandi wanted more peace. Mother Theresa wanted to help more people. Jesus Christ wanted to spread his message to more people. How can the Government promise "Freedom from Want" when people who wanted or needed "nothing" material still had "wants" that were unsatisfied?

Some would say that Roosevelt simply meant physical wants (food, clothing, shelter). Of course, this too is relative. A well fed farmer from the 1500s is a nutritionally deficient person in today's society. Kings lived in drafty stone palaces with no central heat, air conditioning, or electricity. They didn't even have a computer to blog about their low standard of living. Who wants to live like a King anymore? Why drag a bunch of trumpeters around to announce your arrival when you can stuff all the music ever created through the middle ages onto an iPod? Given that iPods didn't exist in the middle ages or in the '30s, but that everyone has one now, is that part of "Freedom from Want" ... or are we stuck with a government issued tube radio? Who wants to live like a well-to-do 1930s aristocrat today?

A government guarantee of a standard of living is a sentence to a fixed or decreasing standard of living due to misallocation/wealth destruction (as Roosevelt gave Americans in the '30s and as Russians endured from 1917 - 1991). It impedes the human pursuit of less work and more stuff by guaranteeing free stuff now. Taken to its logical extreme it is a guarantee of one thing: not enough food.

Bread lines anyone?


No comments:

Post a Comment