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Democracy and Monarchy
Democracy and Monarchy
Regarding the country as their own private property, the monarchist-aristocratic class will wish to preserve the capital-value and thus will promote the mechanisms that allow for wealth accumulation.
Democratic interests, on the other hand, are by nature populist and short-term thinking. The masses have never been rational, nor has the monarchist-aristocratic class ever been truly responsible to all private-property owners.
This is what makes the Canadian system – theoretically — superior to the American Republic. The Canadian system preserves this monarchical element to ensure democratic interests don’t undermine the long-term interests of the country.
Neither Canada nor the United States are strictly democracies, but rather, constitutional governments bound by certain democratic elements, more so in the American system. Both systems fail to live up to their theories, because, as Professor Hoppe has keenly demonstrated, the theory of democracy is fundamentally flawed.
Yet while ratifying the constitution in the provincial legislatures, George-Étienne Cartier commented on the lessons that should be learned from the American experience of an overbearing democracy:
“We were not now discussing the great problem presented to our consideration in order to propagate democratic principles. Our attempt was for the purpose of forming a federation with a view of perpetuating the monarchical element. The distinction therefore between ourselves and our neighbours was just this: in our federation the monarchical principle would form the leading feature, while on the other side of the lines, judging by the past history and present condition of the country, the ruling power was the will of the mob, the rule of the populace.”
“They [the Americans] had founded a federation for the purpose of carrying out and perpetuating democracy on this continent; but we, who had the benefit of being able to contemplate republicanism in action during a period of eighty years, saw its effects, and felt convinced that purely democratic institutions could not be conducive to the peace and prosperity of nations.”
Indeed, it’s never a bad time for Canadians to restore their distrust in democracy.
Venezuela isn’t looking too hot
Venezuela isn’t looking too hot
If anarcho-capitalists should move to Somalia, then socialists – especially, “social democrats” — should move to Venezuela. The country is a complete disaster. But don’t take my word for it, read what a Caracas homemaker said after she tried to buy three cans of sardines and was ordered to put one back due to food rationing: “This is a disaster.”
Food shortages, rising prices, inflation, corrupted incentives, and rampant crime are all symptoms of a primordial problem: socialism. Just because the Socialist Party was democratically elected does not mean that the economic calculation problem has been solved. It’s as if the gods needed one more example to shove down the throats of Western leftists. Economic chaos, food rationing and a complete break down of the social order aren’t lessons of a misguided dictatorship of the proletariat, but a fundamental reality of socialism, whether democratic or not.
Democracy is just an insidious form of communism and the Venezuelan December 6th legislative elections won’t likely loosen the power the Socialists hold over the judiciary and government watchdog agencies. But since street protests led to more state violence, the Venezuelan people have retreated to a electoral solution.
Like Canada, where government workers prefer to vote for the party that offers more tax-funded goods, it’s assumed that in Venezuela, the government-controlled TV and radio stations will convince enough people to vote for the Socialists.
Pollster Luis Vicente Leon said that over 16 years in power, first Chavez and now [President Nicolas] Maduro have mastered the electoral arts. “They fiercely control the institutions and the money which allow them to become stronger through electoral engineering even when their support is flagging,” Leon wrote in the Caracas daily El Universal.
…click on the above link to read the rest of the article…
Yes, You Do Understand Economics
Yes, You Do Understand Economics
The following conversation between my good friend Michael McKay and a friend of his illustrates that we all understand and use economic principles every day. In fact we could not function without understanding these basic economic principles. Pat Barron
The other day I was having coffee with a new friend, a retired businessman who customized luxury cars in California. I mentioned I had recently retired from owning an investment firm and had many years of study of economics, especially Austrian Economics.
As so many people I have met before him, he said, “I really don’t understand economics and always have been confused by it.”
To which I surprised him with, “Of course you understand economics; it is the thought process you use every day to deal with three things: Scarcity, Property and Relationships.”
His eyes got big and he said, “Whoa! Say that again.”
“OK”, I said and continued, “Everything in human life is organized around how we decide about three things: Scarcity, Property and Relationships.
“First let’s talk about Scarcity which you’ve known about all of your life – you notice when something is missing or about to be missing; it is how you decide when it’s time go to the grocery store, do your laundry or whether you should drive your car faster so not to be late for an appointment.
“Every human being is an expert in the decision process of Scarcity. It is something we all naturally do whenever we act and choose – which, by the way, we are doing all the time, every day, all day long.”
I smiled, “I could go on and on. You want more?”
“Sure.”, he smiled back.
…click on the above link to read the rest of the article…
Austrians vs. The World On Canadian Fiscal Austerity
Austrians vs. The World On Canadian Fiscal Austerity
I don’t know whether this is something the average Canadian discusses over coffee, but the sharp fiscal turnaround in the mid-1990s is still providing fodder for today’s economists to argue. In September 2014, I summarized the Canadian budget triumph, in which the federal government turned its deficit into a surplus largely through spending cuts, with the economy suffering no ill effects.
But I also explained that it’s crucial for Keynesians like Paul Krugman to explain away the success of this so-called austerity by pointing to falling interest rates. Thus, Krugman argued, it’s not that cutting government spending actually helps an economy, but rather it’s that looser monetary policy can pick up the gaping hole in Aggregate Demand.
In my first Mises CA post and then a follow-up, I gave various arguments and evidence to say that the Bank of Canada did not appear to have loosened policy. For example, the growth in the Bank of Canada’s assets almost came to a halt in 1996, and it was no higher in subsequent years than it had been earlier in the decade. Furthermore, CPI inflation showed no signs of heating up during the period when Krugman must claim that monetary policy loosened.
The one metric that lines up with Krugman’s story is that Canadian interest rates fell. But, I pointed out that this is exactly what we would expect to happen naturally, as the federal government greatly reduced its borrowing and fears of a bond crisis evaporated. After all, this was just the mirror image of what happens in a situation of high government deficits, when “crowding out” and fears of a default go hand in hand with high interest rates.
The debate flared up once again last month, prompted by another Krugman post in which he (again) said that the Canadian experience in the 1990s showed the importance of loose money to offset budget cuts. This time, Market Monetarist David Beckworth jumped into the fray, taking the Keynesian position.
…click on the above link to read the rest of the article…
QE is “Not on the Table,” says Joe Oliver
QE is “Not on the Table,” says Joe Oliver
In a world where central banks are given free rein over the supply of money and credit, and where any examination of these secretive institutions is considered interference with their “independence,” Finance Minister Joe Oliver’s comments about QE have not gone unnoticed. The other week Oliver was quoted as saying that quantitative easing was “not on the table” as a tool to combat the “economic downturn.”
Economic professors and commentators around the country criticized the Finance Minister, saying that he overstepped his power. Ian Lee of Carelton’s University’s Sprott School of Business said, “You may think that, you may privately say that, but that’s not the sort of thing I think the minister of finance should be saying.” Stephen Gordon, an econ professor at Laval University, agreed, calling the comments “worrisome.”
Because, you know, the Finance Minister is not supposed to comment on the country’s finances. Especially when the federal government is the sole shareholder of the Bank of Canada.
In October 2013, the late Jim Flaherty told reporters something similar. He did not support the US Fed’s bond-buying program known as QE. At the time, Flaherty’s stance was at odds with Bank of Canada Governor Stephen Poloz’s. However, Poloz has stated that a QE decision would be a joint-effort between the Bank and the federal government’s finance ministry.
Quantitative easing, for those who don’t know, is when the central bank prints money and then uses the fiat to purchase government bonds. The new money, once circulating in the economy, appears as a liability on the central bank’s balance sheet, whereas the new bonds are supposed to resemble interest-earning assets. Central bankers do this when they can’t push interest rates any lower. Often it’s after a solid hour of head-scratching when they decide that the problem is that they simply haven’t created enough inflation.
…click on the above link to read the rest of the article…
Gold Prices Disprove Krugman
Gold Prices Disprove Krugman
Recently Krugman wrote an op ed ridiculing Ron Paul titled, “The Old Man and the CPI.”(In case you don’t get the reference, he’s alluding to Hemingway.) Ron Paul has responded in this video, but I want to focus on Krugman’s complains about gold bugs:
Ron Paul has been making the same prediction year after year — in fact, he’s been making this prediction at least since 1981!— and has been wrong year after year. It’s hard to think of a doctrine that has been as thoroughly refuted by events as goldbug economics. For a while gold prices did go up, although not for the reasons the goldbugs thought, but now even that has gone into reverse. So why would anyone pay money for this guy’s analysis?
This has been quite the cause for celebration among progressive economists. (I won’t link to some of the lesser lights and reward them for their smugness.) And it’s true that a simple story relating the Fed’s balance sheet to the price of gold doesn’t work out very well:
In the chart above, total Fed assets (red line, left axis) are plotted against the price of gold (blue line, right axis). People who thought the price of gold would move in lockstep with the Fed’s QE programs were sitting pretty during QE and QE2, but then things turned around with QE3. It almost looks as if the commencement of QE3 (when the red line started stairclimbing up) was the catalyst for making gold plunge about $600 an ounce.
Nonetheless, suppose someone bought into the warnings of Ron Paul (and guys like me) when Bernanke began his unprecedented monetary inflation, back in late 2008 / early 2009, and began buying gold as a hedge. Depending on when exactly you got in, gold was selling for anywhere from $700 – $900 an ounce.
…click on the above link to read the rest of the article…
Are Austrian Criticisms of Mainstream Economics Still Relevant?
Are Austrian Criticisms of Mainstream Economics Still Relevant?
Occasionally, when Austrians try to distinguish their brand of doing economics from the mainstream, they get hit with accusations that they are attacking straw men; that no one believes what Austrians claim is the mainstream approach.
Is this true? Are Austrians attacking enemies that don’t exist anymore? I say no. While it might be true that many of the top economists may in general agree with broad Austrian methodological conclusions, the typical economist is much more likely to either (a) explicitly deny the Austrian criticisms, or (b) implicitly or casually invoke these fallacies during their analyses for reasons I shall explain below. Let’s look at the evidence.
Econometrics
The position often attributed to Austrians regarding econometrics is that Austrians reject the field completely. But this is not true. Austrians criticize econometrics only when it is either (1) trying to prove or disprove (or “falsify”) pure economic theory, (2) trying to establish universal magnitudes between economic phenomena, or (3) trying to forecast economic data. To Austrians, econometrics is only useful as a tool of history: it can tell us quantitative information about a specific period in the past, and that’s it. Econometric findings are not generalizable to all of the past, and cannot be projected to precisely predict the future.
The second case was one of the principle ambitions of the first econometricians. In Human Action, Mises refers to the University of Chicago economist Henry Schultz. Schultz (a founding member of the Econometric Society) had tried to determine “the” price elasticities of demand for a whole bunch of goods. In other words, he wanted to find out exactly how much the how many more potatoes would be sold if their price per kilogram went up $1. Mises correctly demonstrated why this whole endeavour was doomed to failure: all prices are historical, and are subject to change at any time. There are no constants in economics.
…click on the above link to read the rest of the article…
Don’t Call it a Recession!
Don’t Call it a Recession!
“But pretty soon the word “recession” also became too harsh for the delicate sensibilities of the American public. It now seems that we had our last recession in 1957–58. For since then, we have only had “downturns,” or, even better, “slowdowns,” or “sidewise movements.” So be of good cheer; from now on, depressions and even recessions have been outlawed by the semantic fiat of economists; from now on, the worst that can possibly happen to us are “slowdowns.” Such are the wonders of the “New Economics.” — Murray Rothbard, Economic Depressions: Their Cause and Cure
Forty-six years later and Bank of Canada Governor Stephen Poloz has jumped on the semantic fiat bandwagon, calling the “r” word unhelpful. What Canada experienced in the early months of 2015 with the drop in oil prices and its subsequent effects was merely a “mild contraction.”
Okay folks, show’s over, nothing to see here.
“I just find the discussion quite unhelpful,” Poloz told the press, “It’s especially unhelpful when what has happened to the economy is very narrowly defined.”
Yes, narrowly defined to the oil and gas sectors. The other 80% of the economy is doing just fine thank you very much. All those service sector jobs and real-estate related industries, like construction and banking and insurance. Nothing to worry about! Never-mind the fact that energy is a major export and that without these exports there are no imports. Imports that facilitate the real estate, construction, and service sector.
Now Poloz isn’t that clueless. He did mention the “outsize effect” where the oil and gas industry slow-downs start to affect the broader economy. But, remaining in a state of Keynesian ignorance, Poloz felt bold enough to proclaim: “The Canadian economy is undergoing a complex and significant adjustment.”
…click on the above link to read the rest of the article…
Stephen Poloz’s Zen Moment
Stephen Poloz’s Zen Moment
To cut or not to cut, that is the question. And fortunately for Bank of Canada Governor Stephen Poloz, it was a pretty easy question. A lagging US recovery, China’s downturn, lower oil prices and “bad weather” all contributed to this interest rate cut. “I wouldn’t describe it as a close decision,” he told the press, “It’s a decision where we had a number of trade-offs on the table. It requires a lot of deliberation and a lot of inputs, not a mechanical decision. Not even close.” But whereas Poloz admitted to feeling comfortable at the end of 2014, now there was a bunch of crap heading for the ceiling fan and that interest rate cut was Canada’s only way of taking cover.
Poloz is known for his metaphors but the above is mine. Poloz used the parable of the big oak tree to compare “analysing vulnerability” in the economy. The big oak tree is only a risk if there’s a branch that could break off and fall into your neighbours house. In Poloz’s mind, cutting interest rates must have been like sawing off that branch. He may have successfully migrated some future risk, but in doing so he didn’t bother with any long-term consequences. He may have sawed off that branch so it wouldn’t fall into the neighbours house, but by cutting without thinking ahead, the branch fell right into the neighbours house.
I hope that’s clear, because a lot of what the Bank of Canada says isn’t. Poloz is a fan ofGreenspeak but sometimes we get moments of incoherent clarity such as: “When other things are equal, a lower currency will be a stimulus to the economy.” When asked if China’s slow-down could affect Vancouver’s housing market and potentially the broader economy, Poloz crept back to his Greenspeak with a definite “I don’t know” and “I won’t speculate” sprinkled on top.
…click on the above link to read the rest of the article…
Side-Effects Include: Household Debt
Side-Effects Include: Household Debt
Bank of Canada Governor Stephen Poloz fancies himself a surgeon. He compares cutting interest rates to life-saving surgery for the economy. I consider it more like bloodletting, a terrible practice that is now widely accepted as pseudoscience. According to Canada’s central banker, if the interest rate cut resulted in an increase of household debt, that should be viewed as a necessary side effect.
If the Bank of Canada has one job it’s to focus on the 2 per cent inflation target and that means cutting the benchmark rate by 25 basis points when global crude oil prices tumble. Or at least, that’s what Stephen Poloz said to the central bank of central banks, the Bank for International Settlements.
“If the doctor says you need surgery to avoid death, the side effects usually don’t deter you, you just go ahead and manage them somehow,” Poloz said. “Other issues must be subordinate and I think of them as side effects.”
Likewise, if a bloodletter tells me I need to balance my “humors”, the side effects of losing so much blood won’t deter me. I’ll just go ahead and manage them somehow.
Of course, what Poloz is really saying is that the Bank needed to intervene to prevent death, or rather, a contraction of credit and available money. The side effects of more household debt, the prospect of higher prices in the future, the misallocation of resources – those are all side effects where the alternative is deflation. And we can’t have that.
“When we cut rates to stabilize the economy we don’t picture some heavily indebted household going out and adding to their debt pile, rather we picture a household with no debt at all deciding finally to buy a house and taking out a mortgage,” Poloz said.
…click on the above link to read the rest of the article…
