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Letter to Vox Day V

Luke responds to my fourth letter:

Vox,

We agree that a rational demonstration that someone is wrong – about the facts of evolution or their own knowledge of theology, for example – can be taken as an insult. Your continuous implications that I am ignorant or stupid sounded like insults to me, but perhaps you only meant to rebut my factual claim to have some understanding of Christian theology.

Then again, maybe not. I thought the purpose of our dialogue was to get at the truth, but you seem proudly preoccupied with your self-described role as a “Cruelty Artist” bent on orchestrating my own “self-evisceration” (self-disemboweling) which is a “more perfect beauty” than “any collection of dabs of paint on canvas.”

In any case, I am not motivated to defend my theological knowledge. I have read many books on theology and taken many courses. I have spent hundreds of hours reading the Bible and popular commentaries. But if you still think I am ignorant, well… that’s your own judgment.

Read the rest at Common Sense Atheism.

RGD on Lew Rockwell

The Return of the Great Depression

It can quite reasonably be said that at no point in economic history has technical knowledge ever been less relevant to being a good economist than today. Mainstream economics is in complete disarray. In the UK, economists are reeling in shock as their predicted third-quarter recovery has failed to appear, while in the USA, Nobel-winning Keynesians are first calculating the need for a $600 billion stimulus, then turning around and declaring a $787 billion stimulus is insufficient. A report from the Kiel Institute entitled The Financial Crisis and the Systemic Failure of Academic Economics has concluded that a “reconsideration” of the “basic premises” of standard macro and finance models is required due to their inability “to provide any insight into ongoing events.” And even the venerable Economist has been wondering aloud where economics went wrong.

Garbage in, garbage out. The truth that is known to every computer programmer is finally beginning to penetrate the economic elite. Keynesian models have failed. Monetarist models have failed. Neo-Keynesian and Post-Keynesian models have failed. The only known concepts that have not completely failed – yet – are the financial instability hypothesis of Hyman Minsky, Richard Koo’s concept of a balance-sheet recession, and the credit-focused cycle theory of the Austrian School.

Mr. Rockwell, the chairman of the Mises Institute and a great champion of both Austrian economics and human liberty, was kind enough to ask me to personally introduce RGD to his readership. This is an article I wrote specifically lewrockwell.com for the official launch of the book today, and I’d encourage you to check it out. I have to admit, I was a bit taken aback to hear the host quote the opening sentence of it during my interview on The Rob Johnson Show.

Falsifying RGD

I’ve been asked to consider the possibility that the thesis of my latest book, The Return of the Great Depression is incorrect. If I were the Mogambo Guru, this would of course be the correct occasion to respond with nothing more than the Mighty Mogambo Snort of Derision (MMSoD) followed by a verbose and entertaining rant involving pitchforks, firearms, indignities performed upon the corpses of deceased central bankers, and gold, but as I am merely an Internet Superintelligence with a tendency to take things literally even when they are clearly intended as metaphor, sarcasm, or irony, sometimes for the purposes of illustration but more often for my own amusement, I shall consider the question of what would indicate that I am incorrect and we are not in the early stages of a massive worldwide economic contraction.

As it happens, I have gone into some detail in examining the possibility that I am wrong in the book itself by cataloging the six plausible scenarios, five of which are presently part of the present economic discourse. While the five scenarios that range from Saint Bernanke and the Green Shoots to Great Depression 2.0 each have their public advocates who are listed by the scenario they are forecasting, I have yet to discover any economist who is genuinely convinced that we are headed for the sixth scenario: Fallout 4 Live.

Since a significant part of my conclusions are based on Austrian theory with a much-lesser nod to Minsky’s financial instability hypothesis, the first indication that I could be wrong is related to bank credit. Austrian theory teaches that either the money supply and/or bank credit has to contract; as Mises puts it: “[T]he moment must eventually come when no further extension of the circulation of fiduciary media is possible.” So, an sustained increase in either TOTLL or total credit market debt would be the first and strongest sign that either a) the depression is coming to an end or b) Whiskey Zulu India, the hyperinflation scenario, is coming to pass. TOTLL is presently down 8.2% from its peak one year ago, while TCMD was very slightly down in the second quarter; we are still waiting for the third quarter results.

The second sign will be rising property tax revenues, particularly at the state and local level. While it is easy for governments to play games with statistics, it is much more difficult for them to falsify their tax revenues. The document “State Finance in the Great Depression” is useful on this score. “After the Depression began, local government property tax collections did not again reach the 1927 level until 1944. For states, it took until 1952 to reach the 1927 level, although in the interval, states had reduced their reliance upon the tax.” Since state and local governments now already derive their revenue from a much broader range of taxes, it is unclear if one can use aggregate tax revenues as a similar indicator, but the collapse in cumulative tax revenues from declines in sales and income taxes suggests that this may be the case.

“Among the worst cases is Indiana where revenue collections were 8 percent below forecast, or $254 million lower than expected, leading state budget officials to speculate revenue could fall $1 billion by the end of the fiscal year.”

Most economists will be looking primarily at the GDP figures, and indeed, a positive report above three percent will probably be widely cited as evidence that the recovery has arrived, although anything south of the 3.3% growth expected by the mainstream consensus will likely sink the markets. But the current numbers are considerably juiced by the summer housing and automotive subsidies and the “positive” aspects of the improvement from the second quarter were entirely the result of a) government spending, and b) Americans buying fewer imports, neither of which is a legitimate sign of economic growth. But, I would regard two quarters of economic growth of four percent growth without any substantial government programs propping up consumer spending to be a legitimate sign of recovery. The fact that it is looking increasingly likely that the home buyer’s credit act will now be extended to April 2010 does not inspire great confidence in the legitimacy of the GDP numbers for the third and fourth quarters. I will be analyzing the Q3 Advance report on the RGD blog later for those who happen to be interested. (UPDATE: the BEA is reporting 3.5% growth for Q3, of which almost half, 1.7%, is from “motor vehicle output”. In other words, from additional government-subsidized debt.)

Finally, it is important to remember that GDP is an artificial construct intended to provide a means of modelling Keynes’s general theory which is predicated first and foremost on employment. The very concept of a “jobless recovery” is a contradiction in economic terms. As with GDP, U3 and U6 are subject to government statistical shenanigans, but unemployment is a little harder to disguise, so regardless of how the BLS plays around with the consistency of the “labor force” in order to make the rate look lower, seeing the Employment/Population ratio move back above the 60% would also be a strong sign of genuine economic recovery. Note that we are presently at 1984 rates of employment-to-population.

A fifth indicator that I am incorrect and the hyperinflationary scenario is unfolding instead of the debt-deflationary one is a rapid increase in the price of gold. Please note that this is not an economic recovery scenario, it is only a different form of the massively contractionary one. I believe that gold, being a form of money, can benefit from deflation. So, $1,075 gold is not conclusive, especially since it’s still lower than the $1,425 inflation-corrected 1981 peak. But only inflation could possibly account for the sort of rapid rise in price that would be projected to take it above, say, $5,000 per ounce, and if there is hyperinflation, the gold price can safely be expected to exceed that by a considerable margin.

Finally, physical shipments of goods are a necessary and relatively objective measure of economic activity. The Baltic Dry Index is a daily average of international shipping prices and it was at 11,771 at its peak in 2008. It is presently below 3,000 but rose as high as 4,291 in May, so any move above 5,000 would be an initial indication that an economic recovery is underway. Above 10,000 would appear to be positive proof that the economy was completely back on track, barring the hyperinflationary scenario, of course.

In summary: 1) Increasing bank credit and overall debt. 2) Rising state and local property tax revenues. Possibly increasing aggregate tax revenues as well. 3) Consecutive quarters featuring four-percent plus GDP gains not created by government spending, reduced imports and consumer spending subsidies. 4) Employment to population ratio over 60 percent. 5) Rapidly increasing price of gold over $1,500 per ounce. 6) The Baltic Dry Index exceeding 5,000. If anyone else has any suggestions, please feel free to list them.

The world as Python skit

Teenage folk singer killed by coyotes

How, I wonder, do you attempt to explain this sort of thing to the next-of-kin if you’re the responsible policeman? I mean, somewhere under the badge, you too are a human being, you have feelings, and you probably wouldn’t be given the assignment if you weren’t at least somewhat sensitive to the emotions of others. But then comes that critical moment when you are asked how it happened, and you have to answer “Coyotes.”

Wolves would be one thing. Bears, no problem at all. Even ants, I could understand, having kept a suspicious eye on the little bastards since reading about Leiningen’s encounter with them as a child. Squirrels or lemmings, on the other hand, would be even worse. And then of course, when one first reads the headline, it’s hard to escape the fleeting thought that there could be an element of divine justice at work there.

Granolas never seem to grasp that “communing with Nature” sometimes means that you’ll be playing the part of the bread and wine.

Modern Warfare 2 lights a fuse

The usual suspects are going to be VERY unhappy about this CoD:MW2 mission, considering it begins with gunning down civilians in an airport.  Of course, I think the scenario will probably have great appeal to lots of people, considering what they face whenever they’re dealing with the security goons at the scanners.  Speaking of which, where was the security anyhow?

Anyhow, throw in the devastation of Washington DC as well and Infinity Ward/Activision clearly have a huge winner on their hands.  They should have kept the dedicated server support, though.

Predictable progressives

The reason that they’re always paranoid about the right-wing wanting to oppress them is nothing more than classic psychological projection.  Jonah Goldberg highlights how it’s not only economics that has headed back to the 1930s, as progressive politics appear to be following suit:

No doubt the fact that neither climate models nor doomsday predictions have panned out (there has been no increase in global temperatures since 1998) is a big part of the story.  But my hunch is that the bigger reason for the shift is that Democrats are threatening to really do something about it, and the costs no longer seem hypothetical. Throw in a bad economy, and Americans simply balk. And that’s Americans — the notion that China, India, and Brazil are going to don carbon handcuffs is just silly. Those countries want to get rich, and they’ll gladly sell their carbon to do it.

But the anti-global-warming industry seems to be on autopilot, churning out books that only half-jokingly propose eating your pets. Others insist that Americans will have to restrict themselves to only one child, just like in authoritarian China. If those are the costs, free people will not pay them. In response to popular reluctance, the Jeremiahs are not only getting more shrill, they’re starting to resent democracy itself, sounding more and more like they want to make an end-run around the people.

I always found it totally absurd that anyone thought for five seconds that any society would voluntarily accept a lower standard of living in order to “save the planet”.  I mean, when you consider that Americans won’t accept the standard of living they can afford without debt even though it means future generations will be impoverished, it’s a little far-fetched to believe that they’re going to worry overmuch about how a few degrees of temperature over the next 100 years are going to affect the Western Spotted Frog.

And to be blunt, the world would be much better off without progressives than dogs.  If totalitarianism is on the table, I can think of a few better uses for it than the progressives appear to have in mind.

A perfect picture

The end of the March bear market rally appears to be approaching confirmation. That’s a perfect picture of an A-B-C corrective wave.  Mike Shedlock goes into more detail, whereas I will merely note that the S&P500 is right smack in the middle of the 1,000 to 1,100 mark that Bob Prechter anticipated would be an excellent shorting opportunity back in July.

Escape from New York

New York tries the California model as yet again, mainstream economists demonstrate their irrelevance by completely failing to consider the primary factors involved. I know nothing about New York’s revenue estimation models, but I can guarantee you that they don’t take into account any change in taxpayer behavior based on changes in the rates, much less changes in their income levels:

New Yorkers are fleeing the state and city in alarming numbers — and costing a fortune in lost tax dollars, a new study shows. More than 1.5 million state residents left for other parts of the United States from 2000 to 2008, according to the report from the Empire Center for New York State Policy. It was the biggest out-of-state migration in the country. The vast majority of the migrants, 1.1 million, were former residents of New York City — meaning one out of seven city taxpayers moved out…. What’s worse is that the families fleeing New York are being replaced by lower-income newcomers, who consequently pay less in taxes.

It’s simply incredible that a profession which is largely built around the concept of equilibrium pricing staunchly refuses to consider the effects of the cost of debt and taxation. This is just the most recent example; in RGD I cited an even more dramatic tax migration from the city of Baltimore. Of course, the fact that mainstream economists don’t bother to include either debt or taxation in their models makes their decision to exclude the price of housing, food, and fuel out of the “Core CPI” statistic a little more comprehensible. After all, you’re no more likely to eat, drive or own a house than you are to pay taxes or buy things on credit.

By the way, the WND publicist has embarked upon a fairly aggressive radio campaign, so I’m doing something like two radio shows a day, starting today. If you want to follow along and listen to me say pretty much the same thing over and over again, the schedule is posted at the RGD blog. The link on the right under the book cover, cleverly entitled “RGD Radio Schedule”, will take you to the page which will be updated on a daily basis.

Late, but better than never

It’s was obvious that the strategists had no idea what to do about 10 minutes after they successfully kicked out the Taliban with the help of the Northern Alliance. In fairness, this was mostly because there was nothing of material benefit to the USA to be gained there. The invasion and campaign were brilliant, but the occupation was awesomely stupid. I thought the decision to allow the DEA to co-opt foreign policy was the particular highlight.

“I have lost understanding of and confidence in the strategic purposes of the United States’ presence in Afghanistan,” he wrote Sept. 10 in a four-page letter to the department’s head of personnel. “I have doubts and reservations about our current strategy and planned future strategy, but my resignation is based not upon how we are pursuing this war, but why and to what end.”

[M]any Afghans, he wrote in his resignation letter, are fighting the United States largely because its troops are there — a growing military presence in villages and valleys where outsiders, including other Afghans, are not welcome and where the corrupt, U.S.-backed national government is rejected. While the Taliban is a malign presence, and Pakistan-based al-Qaeda needs to be confronted, he said, the United States is asking its troops to die in Afghanistan for what is essentially a far-off civil war.

While I applaud Captain Hoh’s integrity as well as his belated recognition of the futility of U.S. efforts in Afghanistan, he really should have recognized this several years ago. It is not a surprise that an occupied nation would fight the occupying forces and there is no rational national interest in the USA continuing to keep its military forces stationed in either Iraq or Afghanistan. All they can reasonably expect to do is to further destabilize the region while providing a sitting target for the various sides jousting for advantage there.

As the Romans knew, if you’re not going to settle colonists in a conquered territory, you’re not going to stay. And if you’re not going to stay, there is absolutely no reason to occupy territory once the initial objectives have been realized.

A brief note to the ankle-biters

On this fine afternoon, I find myself contemplating just what, precisely, could possibly be the purpose for your collective existence, which to the observer appears to testify against intelligent design and natural selection alike. I don’t pretend to understand what sickness of the soul causes you to repeatedly bash your heads against the unforgiving wall of my logic, or what compulsive disorder drives you to put yourselves in a position to be humiliated over and over again by my superior knowledge and intellect, as no sooner are you shot down than you rise, with all the sublime, shambling grace of a mindless zombie, and stumble back into the fray.

Are my ankles so sweet that you cannot resist snapping at them? Do your psychological scars run so deep that you cannot control your masochistic longings for brutal correction?

For years, I have told myself that even if your tedious and petty objections can only sharpen my arguments in the manner that butter sharpens steel, at least your desire to catch me in error, no matter how small that error might be, could nevertheless serve a useful purpose. Even the most flawlessly honed body benefits from its intestinal bacteria, after all. Although, unlike your more intelligent counterparts whose criticisms are thoughtful, substantive, and most of all relevant, you are not capable of understanding anything I write well enough to critique it in a meaningful manner, I assumed you were not only inclined to identify simple errors of basic fact, but were also capable of doing so.

It appears, however, that you have collectively failed at even this humble task. And this naturally raises a question. Is it possible that you could be more completely useless?

A few nights ago, I was reading Calculated Risk and noticed a link to historical pre-FDIC bank failure data. I followed it, being curious to know how far the official information parted from 1941 source material I had used in writing RGD. As I suspected, there were a few minor discrepancies as well as the usual Legend of the 4,000*. (The actual number of failed banks in 1933 is closer to 2,666, but the government always enjoys a nice round number.)

However, to my surprise, the number of failed bank deposits 1931 was much larger than I recalled it being. I checked my trusty and oft-updated bank failure spreadsheet and confirmed that the two not only did not match, but were not even close. The site said 1,690,232 and the spreadsheet said 160,232. The disturbing similarity made me suspect that the latter was supposed to be the former, albeit with a missing digit, and a check of the 1941 document confirmed the error. I had dropped the nine in when first typing the number into the spreadsheet… which significantly altered the percentage of bank failures about which I’d repeatedly written on this blog, in my column, and worst of all, in the book that was going to be announced the next day!

I couldn’t remember which chart I had put in the book. Which chart, dammit? Was it the year-by-year one, in which case the error would look like an absolute howler since the percentage of failed bank deposits would not be 0.34% but 3.6%? Or was it the cumulative chart wherein the difference between $68 billion and $90 billion would be visually negligible in comparison to the $666.6 billion in the neighboring column? And then, of course, there was the small matter of whether this error might call some of my conclusions about the similarity of the historical and present economic contractions into question.

Fortunately, Figure 6.3. Failed Bank Deposits and Losses in 2009 Dollars turned out to be the cumulative chart rather than the year-by-year one, which did not make the book. It was incorrect, but not embarrassingly so. The listing in the appendix couldn’t be helped, since the 160,232 number was directly in the table, but who reads the third appendix anyhow? Also, in that context it’s quite obviously a typo. And fortuitously, correcting the error also took care of a synchronicity problem that had been bothering me from the start. Since my belief is that 2010 compares 1931, why didn’t the bank failure data line up properly? And why was I following Milton Friedman’s lead in tracking the deposits from 1930 when the whole thing began in 1929?

Interestingly enough, exchanging the 1929 data for the incorrect 1931 data only required changing a single digit besides the year: “The amount of failed bank deposits as a percentage of total bank deposits is averaging 2.3 percent per year over the last two years, which is more than twice as high as the 1.01.1 percent annual failure rate in 19301929 and 19311930.” And now the bank failure comparisons are properly aligned with the beginnings of the economic contractions, which is nice.

Still, the typo involved in transferring the information from the book to the spreadsheet notwithstanding, I couldn’t believe that I hadn’t noticed an order of magnitude difference in the amount of failed deposits, especially when this meant that losses were more than 200 percent of failed deposits. This is theoretically possible since not all bank assets are deposits and actual losses are always higher than FDIC-estimated deposits, but the highest estimated actual loss to deposits in 2009 is only 107 percent so that should have been sufficient to signify that something was wrong. Ergo, mia culpa. I have, of course, created an errata page for the book and would appreciate it if any further errors are brought to my attention so that I can update it.

But, to return to my original point, if those of you who have dedicated yourselves to identifying and drawing attention to even the pettiest of my errors cannot be relied upon to catch such a relatively large and potentially significant mistake, you leave me with little choice but to conclude that you are, in fact, entirely worthless.