Author: VD

Upending economics

Steve Keen’s Debunking Economics is less a critique than slashing out the legs upon which economics has rested for centuries. One of the pillars he topples has a direct connection to the deflation dichotomy, as he attempts to explain to Mish why the Federal Reserve’s big increase in bank reserves has not led to more lending:

That “increase reserves to increase lending” argument is so hard to shake, but reserves can’t be lent from simply from a double-entry bookkeeping point of view.

The way that accountants keep track of the “assets equals liabilities plus equity” rule is to record an increase in assets as a positive and an increase in liabilities as a negative (your liabilities rise, so a negative gets bigger). Reserves are an asset, as are loans, and shown as a positive. Deposits–which are created by a loan–are a liability and shown as a negative

So to lend to a customer, a bank has to show a negative on that customer’s accounts. This can be matched by a positive on the loans entry–because the loan has increased in size. No problem.

But if banks were to lend from reserves, they would need to record a minus there–reserves have fallen. And on the liabilities side, they want to … also show a negative. Whoops! No can do.

The end result of this logic is that reserves are there for settlement of accounts between banks, and for the government’s interface with the private banking sector, but not for lending from.

Banks themselves may (if they are allowed–I simply don’t know the rules here) swap those assets for other forms of assets that are income-yielding, but they are not able to lend from them.

As Keen points out in his book, it’s not merely an accounting perspective that suggests the conventional economic understanding of the relationship between deposits and loans in a fractional reserve system cannot be correct, but the empirical observation of banker’s activities as well. Loans not only don’t depend upon deposits, they usually precede them.

This also helps explain why the artificially low interest rates maintained by the Bank of Japan and the Federal Reserve, have not, as the monetarists expected, produced increased borrowing.

That could create a problem

Sure, the macroeconomic statistics are fiction, but it would be rather hard to make decisions based on them look convincing when they don’t even exist:

Istat, the Italian statistics agency, says its resources are strained to breaking point amid the country’s tough austerity drive to repair its public finances. From January 2013, the agency – the equivalent of the UK’s own Office for National Statistics – warned it will stop putting out any official data, if the government goes ahead with planned budget cuts.

“Spending cuts are putting Istat at risk. From January onwards we will not issue any statistics,” Enrico Giovannini, head of the agency, told newspaper La Repubblica.

Zen question of the day: If an economy doesn’t have any statistics reported, does economic activity still occur?

SS grows up

It would appear that the SF/F genre is gradually becoming more aware of the existence of Stupefying Stories and the writers it publishes: “Return to Earth,” by Ryan M. Jones, first published in STUPEFYING STORIES 1.1 (October 2011), is this week’s Main Fiction feature on StarShipSofa, the Hugo Award-winning SF podcast.

Congratulations to the OC and everyone else involved.

Mailvox: rethinking Paterno

Adognameop asks about the Vox, What do you make of the recent FBI report regarding Penn State? It seems to reveal what everybody already knew; that Paterno was an accomplice to child rape. Does it affect your opinion of Paterno?

First, I would note that Paterno’s actions did not, in any way, make him “an accomplice to child rape”. An an accomplice is a person who is present at the scene of the crime, actively participates in its commission, and has the same degree of guilt as the person he or she is assisting, is subject to prosecution for the same crime, and faces the same criminal penalties. None of this applies to Paterno.

So, let’s take a look at what Paterno actually did, as opposed to the rhetorical exaggerations of the preening moralists who are presently in competition to see who can feign the most outrage:

Louis J. Freeh, the former federal judge and director of the F.B.I. who spent the last seven months examining the Sandusky scandal at Penn State, issued a damning conclusion Thursday: The most senior officials at Penn State had shown a “total and consistent disregard” for the welfare of children, had worked together to actively conceal Mr. Sandusky’s assaults, and had done so for one central reason: fear of bad publicity. That publicity, Mr. Freeh said Thursday, would have hurt the nationally ranked football program, Mr. Paterno’s reputation as a coach of high principles, the Penn State “brand” and the university’s ability to raise money as one of the most respected public institutions in the country….

Mr. Freeh’s investigation makes clear it was Mr. Paterno, long regarded as the single most powerful official at the university, who persuaded the university president and others not to report Mr. Sandusky to the authorities in 2001 after he had violently assaulted another boy in the football showers.

What is new here is that whereas before we knew that Paterno had reported Sandusky’s actions to the correct authorities, now we know that he was the one primarily responsible for matters not going any further. Whereas before it appeared that his only failing was the excusable moral one of doing no more than his legally defined duty, now we know that he was the main instigator of the coverup. This is a very different thing, and I note that it is actually considerably worse than anything Paterno’s most vehement critics accused him of doing previously.

And yes, it does change my opinion to a certain extent. In light of the latest revelations, I think it would be appropriate for the Penn State football program to receive the death sentence for three or four years from the NCAA. That would send the most unmistakable message to everyone, and would be the one punishment that Paterno would have felt most deeply. How Penn State chooses to respond is really no concern of mine, but as a general rule, I don’t favor whitewashing history. If I were the responsible individual at Penn State, I would not remove Paterno’s name from the various buildings he funded and tear down his statue, but rather seek to use him as an example to teach about the dangers that hubris poses to even the most upstanding and successful.

All men are fallen. I still think Paterno was, for the most part, a good man who made a very foolish and counterproductive attempt to protect his reputation and his football program. Was it wrong? Certainly. Did it have evil consequences? Most likely. Does it merit a harsh punishment? Definitely. But was it indicative of an evil or malevolent intent? I don’t believe so, and to conflate the moral failings of a Paterno with the overt and predatory evil of a Sandusky is a fundamental mistake. It is important to remember that this is not simply a Joe Paterno scandal, but rather a Penn State scandal.

The Freeh report is somewhat ironic in that Louis Freeh would certainly know a coverup when he sees one, given his involvement in similar whitewashes of Ruby Ridge and Waco.

Free trade is anti-property rights

In the comments, PG constructed an interesting and effective logical argument against free trade, which I have organized thusly:

1. Free traders insist upon the existence of property rights and the sovereign exercise of those rights as axiomatic. From this foundation, they argue that all actions concerning with whom one will trade, regardless of their location or nation, are protected by those property rights and cannot be morally infringed.

2. If a group of people happen to share the rights to a property in an ownership group, they must decide together on how those rights are exercised. No single individual can sell the property or permit its use by others without the agreement of the other rights holders. The ownership group collectively has the right to decide who and what are permitted to enter their property. It is not an infringement of any one owner’s property right if the greater part of the ownership group does not wish to sell the property or to permit entry to certain parties or items.

3. A nation is a group of people who share a common property that is delineated by the national borders. This group of people must therefore decide in some consensus manner how the rights to that property are exercised. They can therefore decide who and what are permitted to enter the national property in precisely the same manner that a house-owning group decide who and what are permitted to enter their house. It is not an infringement of any one individual’s property right if the greater part of the nation does not wish to sell the land possessed by the nation or permit entry to certain parties or items.

4. To deny a nation the property right to enact tariffs or refuse permission for goods, capital, or labor to cross its borders, is tantamount to either denying a) property rights or b) the nation’s existence.

5. However, denying the existence of nations is not only empirically false, it creates a logical contradiction for the free trader because it requires denying the individual property-owner the right to form collective property-ownership groups from which nations are made. The free trade position depends upon the idea that individuals possess property rights, but groups of more than one individual cannot.

6. Therefore, free trade doctrine requires the denial of the very property rights upon which it is founded. As PG correctly concludes, “their whole argument is an outright logical contradiction”.

As evidence in support of PG’s logical construction, I offer the following statements concerning the existence of nations from two champions of the dogma, Mr. Gary North and our own Unger.

North: “Defenders of tariffs present themselves as defenders of the nation, when in fact the nation, from the point of view of economics, is not a collective entity. The nation, from an economic standpoint, is simply a convenient name that we give to people inside invisible judicial lines known as national borders.”

Unger: “I do not consider myself an ‘American’, except as a verbal convenience, or have any care at all for ‘America’.”

Now, it can certainly be pointed out that the mere existence of a nation does not mean that all of its members are voluntary members of it and it cannot be denied that the legitimate property rights of the nation can be abused or ignored just as they are in the case of individual property rights. But PG’s logic suffices to demonstrate that the property rights argument upon which many free traders heavily rely is far from the conclusive one that they believe it to be.

A future ambassador is born

One of Instapundit’s readers asks a revealing question:

Reader Dave Tulka writes: “Our daughter Caroline is headed off to college next month as an International Relations major at North Georgia. I doubt I am the only dad shopping laptop backpacks for a college-bound kid. Any preferences from the enlightened Instapundit readership?” Any suggestions?

The answer, obviously, is to not send her there in the first place. I mean, I can’t think of anywhere better to learn about International Relations than North Georgia college, can you? IR is among the easiest, most worthless majors besides art history, sociology, and Black/Womyn’s Studies. Seriously, what is wrong with parents that they are willing to permit their children to waste four to five years spending tens of thousands of dollars for what is less valuable than a pack of toilet paper?

Degrees are not education and they are not all created equal. If you’re going to Harvard Law or getting an engineering degree at CalTech, great. Do that, it will serve you well. But if you’re intending to acquire a degree in a lightweight humanities subject at a university that is not one of the top 100 nationwide, you are probably wasting your time as it is very unlikely that you are going to get any material benefit from it.

The return of the VPFL

This year, we’re not going to leave it until the last minute. So, if you’d like to throw your hat in the ring, please do so. There are only four spots available, as the fixed spots go to last year’s winner, Nate, the White Buffalo, the VP-AFL champion, and me, plus Ender has asked to play for the first time, so I will randomly select from the volunteers with first-timers given precedence.

Whoever is the VP-AFL champion should let me know in the comments who would be the three keepers from their roster and I will attempt to pair them up with an open team from the VPFL with one or more of those players.

So much for integration

But I’m sure the Univision viewers are deeply and intimately attached to some words on paper written by dead white Englishmen more than two centuries ago:

Univision was the No. 1 television network in America among the coveted adults 18-49 and adults 18-43 demos last week — just the third time that has happened. From July 2-8, the Spanish-language net beat CBS by 42%, ABC by 15%, NBC by 7% and Fox by 1% in 18-49. Among 18-34 the spread was more pronounced, with Univision outdelivering CBS by 150%, NBC by 60%, ABC by 57% and Fox by 16%.

Don’t worry. When the NFL and MLB start leading off their broadcasts in Spanish, I’m sure there will be some sort of red button that you can press to let you listen to the English commentary.

Mostest and importantest again

Joe Farah cracks under The Fear of a Black Second Term:

Do we hold our noses and vote for Mitt Romney? Or do we follow the none-of-the-above prescription?

Based on his long and contradictory political record, I do not have much hope that Romney is going to do a 180 if he wins. I don’t think he will steer the nation on the U-turn course that is absolutely necessary to save us from the brink of disaster.

However, the idea of a second term for Obama genuinely scares me. I don’t believe America could ever recover from such a cataclysm. The country will suffer irreparable harm, if it hasn’t done so already.

While I remain a principled constitutionalist who doesn’t believe in voting for anyone who does not understand and embrace its limitations on federal power, I believe 2012 is one of those rare election years in which freedom-loving Americans will, out of necessity, be forced to vote defensively.

I won’t be voting for Romney because I think he will save America or reverse our dangerous course. But I will likely be voting for him to buy America the time it needs to avoid catastrophe. It’s just that simple – and sad.

Yeah, that’s a new one. Principles are important, except of course when they are trumped by the frightening possibility of someone becoming president who is already president. It’s disappointing to see Farah buying the usual nonsense, which we have heard every four years since 1992, especially since he is throwing a lot of his hard-won credibility out the window.

Is President Goldman Sachs really that much worse than President Bain Capital? Is he actually worse than Satan himself? After all, less than seven months ago, Farah wrote: “I would not vote for Mitt Romney if he were running against Satan himself.”

My prediction: if Farah does vote for Romney and Romney wins, we’ll be reading a self-flagellating column sometime in 2013 where he laments having sacrificed his principles and voting for a man who so badly betrayed all the conservatives and the small-r republicans who voted for him. Doesn’t anyone ever learn from the past? Can’t anyone see how the game is played?

And in tangentially related news, it’s nice to see that conservatives attempting to manipulate others into voting against their principles are still mathematically illiterate.

“Any Christian who does not vote or writes in a name is casting a vote for Romney’s opponent, Barack Hussein Obama – a man who sat in Jeremiah Wright’s church for years, did not hold a public ceremony to mark the National Day of Prayer, and is a liberal who supports the killing of unborn babies and same-sex marriage,” [Brad Pitt’s mother Jane Pitt] continued. “I hope all Christians give their vote prayerful consideration because voting is a sacred privilege and a serious responsibility.”

If you truly do not understand that a non-vote for Romney is absolutely not a vote for Obama, you are an astonishingly stupid individual. 1+0!=2. A vote for Obama is a vote for Obama. Not voting for Obama cannot, in any sense, be considered a vote for Obama. Political applications do not alter mathematics. If you cannot master basic addition, I not only don’t want to hear your opinion about the election, I don’t think you should be permitted to vote. Negative, “pragmatic” voting is an inherently self-defeating concept that only guarantees the very results it is supposed to oppose.

So much for “the science is settled”

Now it is the turn of evolutionary scientists discover that Richard Dawkins is a deeply unpleasant individual:

A disagreement between the twin giants of genetic theory, Richard Dawkins and EO Wilson, is now being fought out by rival academic camps in an effort to understand how species evolve.

The learned spat was prompted by the publication of a searingly critical review of Wilson’s new book, The Social Conquest of Earth, in Prospect magazine this month. The review, written by Dawkins, author of the popular and influential books The Selfish Gene, The Blind Watchmaker and The God Delusion, has prompted more letters and on-line comment than any other article in the recent history of the magazine and attacks Wilson’s theory “as implausible and as unsupported by evidence”.

“I am not being funny when I say of Edward Wilson’s latest book that there are interesting and informative chapters on human evolution, and on the ways of social insects (which he knows better than any man alive), and it was a good idea to write a book comparing these two pinnacles of social evolution, but unfortunately one is obliged to wade through many pages of erroneous and downright perverse misunderstandings of evolutionary theory,” Dawkins writes.

The Oxford evolutionary biologist, 71, has also infuriated many readers by listing other established academics who, he says, are on his side when it comes to accurately representing the mechanism by which species evolve. Wilson, in a short piece penned promptly in response to Dawkins’s negative review, was also clearly annoyed by this attempt to outflank him.

“In any case,” Wilson writes, “making such lists is futile. If science depended on rhetoric and polls, we would still be burning objects with phlogiston [a mythical fire-like element] and navigating with geocentric maps.”

As I noted a few years ago in The Irrational Atheist, Richard Dawkins is not a scientist, he is an ex-scientist. Dawkins has always been inept when it comes to arguing against intelligent and informed interlocutors, so it should come as no surprise that he would blunder badly when trying to take on EO Wilson, even in the event that he happens to be right.

Dawkins’s statement also raises a serious question. If a famous and heavily credentialed biologist like EO Wilson truly does not understand evolutionary theory, what could possibly be the use of attempting to teach it in public schools?