Tag: economics

The Great Inflation-Deflation Debate

Nate forces my hand by kicking it off on his own blog:

It appears to me that there seems to be a bit of confusion out there about what the money supply is doing.  Is it growing?  is it shrinking?  Inflation?  Deflation?  Stagflation?   Obviously I am a hyper-inflationist…   Our buddy Vox is a deflationist.  So what gives?  Does it matter?

Well… if we’re going to talk about this we’re going to have to establish some kind of basic vocabulary.  For example… what is money?  I know… you’re thinking dollar bills and coins.  Yes and no.  Money is an exchange medium that is used to complete a transaction.  The critical characteristic of money is that it does not require any additional transactions to satisfy the terms of the exchange.  You got your money… and that’s good enough.  Lets look at gold for example.  Gold is money.  It always has been money.  You want some of my cattle… you give me a small amount of gold… and we’re done.  Modern cash is similar.  You give me cash.. I give you a cow or two… we’re done.  Cash is money.

What about debit cards?  I swipe your debit card… I give you cows…  we’re not done.  Your bank has to send money to my bank.  That’s an additional transaction.  Debit cards aren’t money.   Same for checks.  Checks aren’t money either.  They are IOUs for money.

Go to his place.  Read the whole thing.  If it doesn’t make sense, read it again.  Grok it in its fullness.  I will respond here within one week.

Mailvox: value is not objective

Asher claims to know something of economics despite making a massive and fundamental error that requires complete ignorance of subjective value theory:

My undergrad was economics and my grad work was in philosophy focusing on theory of mind and the social sciences, prompted by investigating whether or not economics is a positive body of knowledge. Yeah, I know just a little bit about the topic.

A little bit is not enough to intelligently discuss these matters.  Other than the Mises Institute, there is not a single undergraduate economics program of which I am aware that is not based on the neoclassical assumption of objective value.  Unfortunately, the state of economic education is now such that one can possess considerable economic academic credentials while still knowing nothing of some of the most fundamental basics.  Subjective value is a proto-Austrian concept that is not taught in either Econ 101 or 301; most economics PhDs, to say nothing of undergrads, are completely unfamiliar with the scholastics and the pre-Smithian economists and genuinely believe that economics is a 200-year old discipline that began with Adam Smith.

This is where Asher demonstrated that he simply does not know what “subjective value” is:

 This is where the subjective theory of value leads. If everything of value has to be reflected in a market price then to not pay anyone for something of value is ‘unjust’.

Subjective value does not lead there; it cannot lead there because it neither requires anything, (much less everything), of value to be reflected in a price nor assigns any significance beyond the immediate exchange to the exchange value.  As it happens, I’ve been reading Volume II of Rothbard’s excellent Austrian Perspective on the History of Economic Thought, which I recommend to everyone, but especially Asher, and happened to read the following at the gym today:

In contrast to the Smith-Ricardo mainstream of Smithians who set forth the labour theory (or at very best, the cost-of-production theory) of value, J.B. Say firmly re-established the scholastic-continental-French utility analysis. It is utility and utility alone that gives rise to exchange value, and Say settled the value paradox to his own satisfaction by disposing of ‘use-value’ altogether as not being relevant to the world of exchange. Not only that: Say adopted a subjective value theory, since he believed that value rests on acts of valuation by the consumers. In addition to being subjective, these degrees of valuation are relative, since the value of one good or service is always being compared against another. These values, or utilities, depend on all manner of wants, desires and knowledge on the part of individuals: ‘upon the moral and physical nature of man, the climate he lives in, and on the manner and legislation of his country. He has wants of the body, wants of the mind, and of the soul; wants for himself, others for his family, others still as a member of society’.  Political economy, Say sagely pointed out, must take these values and preferences of people as givens, ‘as one of the data of its reasonings; leaving to the moralist and the practical man, the several duties of enlightening and of guiding their fellow-creatures, as well in this, as in other particulars of human conduct’.

At some points, Say went up to the edge of discovering the marginal utility concept, without ever quite doing so. Thus he saw that relative valuations of goods depends on ‘degrees of estimation in the mind of the valuer’. But since he did not discover the marginal concept, he could not fully solve the value paradox. In fact, he did far less well at solving it than his continental predecessors. And so Say simply dismissed use-value and the value paradox altogether, and decided to concentrate on exchange-value….

But whereas Say simply discarded use-value, Ricardo made the value paradox and the unfortunate split between use- and exchange-value the key to his value theory. For Ricardo, iron was worth less than gold because the labour cost of digging and producing gold was greater than the labour cost of producing iron. Ricardo admitted that utility ‘is certainly the foundation of value’, but this was apparently of only remote interest, since the ‘degree of utility’ can never be the measure by which to estimate its value. All too true, but Ricardo failed to see the absurdity of looking for such a measure in the first place. His second absurdity, as we shall see further below, was in thinking that labour cost provided such a ‘true’ and invariable measure of value. As Say wrote in his annotations on the French translation of Ricardo’s Principles, ‘an invariable measure of value is a pure chimera’.

Smith, and still more Ricardo, were pushed into their labour cost theory by concentrating on the long-run ‘natural’ price of products. Say’s analysis was aided greatly by his realistic concentration on the explanation of real market price.

– Murry Rothbard, An Austrian Perspective on the History of Economic Thought, 1.5 Utility, productivity and distribution

Not only does Asher not understand what subjective value is, he then compounds his error by leaping to an erroneous conclusion on the basis of his false understanding.  Subjective value severs any possible connection between price and justice; it specifically denies even the possibility that there is necessarily any connection between the exchange value of a particular object to two parties at one point in time and the value of that same object to those two parties at a different point in time, much less any significance to any one else of either of those two different exchange values.

Nor is subjective value theory new.  Rothbard traces it back to Democritus, a contemporary of Socrates, of whom he writes: “Democritus contributed two important strands of thought to the development of economics. First, he was the founder of subjective value theory. Moral values, ethics, were absolute, Democritus taught, but economic values were necessarily subjective. ‘The same thing’, Democritus writes, may be ‘good and true for all men, but the pleasant differs from one and another’.”

Rothbard also noted that Saint Augustine grasped the essence of subjective value: “Augustine’s economic views were scattered throughout The City of God and his other highly influential writings. But he definitely, and presumably independently of Aristotle, arrived at the view that people’s payments for goods, the valuation they placed on them, was determined by their own needs rather than by any more objective criterion or by their rank in the order of nature. This was at least the basis of the later Austrian theory of subjective value.”

There is, there can be, no such thing as a “just price” under subjective value theory because the value placed upon an object by an individual, which is used to establish the price, is both unique and dynamic.  This is in direct contradiction to the objective value concept that has dominated economics ever since Adam Smith revived the ancient value paradox by confusing exchange value with use value.

Mailvox: a rabbit attempts econ

It’s fascinating to see a creature that can’t count to six attempt to tackle supply and demand.  Phoenician returns and a modicum of economic hilarity ensues:

“And the more women that work, the more women have to work and the less time women who don’t work will have with their husbands who support them, because an INCREASE in the SUPPLY of labor necessitates a DECREASE in the PRICE of labor, demand remaining constant.”

Alas, dipshit, demand doesn’t stay constant – the women working and earning wages also spend those wages.  Fucked up again with basic economics, dipshit.

Wait, working women are going to spend their wages?  Why didn’t someone point that out to me earlier?  This changes everything!

Actually, it doesn’t.  It is obvious that consumption patterns change when a woman works instead of staying home.  More office clothes and restaurant meals, to say nothing of day care and transportation costs.  So how much does total female demand have to increase in order for this altered female consumption to break even with the increase in the labor supply, everything else remaining equal?

35 percent net.  Since not all women work, every single woman who does and is part of the aforementioned post-1950 delta would have to increase her new work-inspired consumption 81.7 percent just to balance her wage depressing effect.  Since Does that sound even remotely plausible given that real household income has remained essentially flat between 1965 and 2012?

And anyhow, we can forget that required 81.7 percent increase because it is extremely unlikely that female consumption-based demand has increased AT ALL due to more women in the labor force for the obvious reason that working women bear fewer children.  The US fertility rate has fallen from 3.7 to 1.9 children per woman since 1955, which means that the increased number of women in the labor force has reduced overall consumption and demand due to there being 1.8 less children in the average family.  At the USDA middle-range estimate of $234,900 to raise a child to 18, that reduced fertility rate translates to $422,820 in reduced demand per woman, or $983,302 per working woman in the delta.

Which effect, I note, is something I had already pointed out in the post to which Phoenician was so ineptly responding: “The reduced birth rate has a negative effect on consumption, and
therefore the demand for labor, 20 years before the consequent negative
effects on the supply of labor can help balance it out, putting further
negative pressure on wage rates.”

It was brave of the little guy, though, wasn’t it?  Perhaps if he’d only thrown in a few more vulgarities, he would have won the debate, because rhetoric is always so effective in an intrinsically dialectical discourse.  Well, there is always next time.  Hop along now, furry little fellow.

The intellectual costs of Calvinism

It is really rather remarkable how many historical and intellectual crimes can be quite reasonably be traced back to Calvinist thought and be considered the natural consequences of Calvinism:

It was, indeed, Adam Smith who was almost solely responsible for the injection into economics of the labour theory of value. And hence it was Smith who may plausibly be held responsible for the emergence and the momentous consequences of Marxism….

Paul Douglas properly and with rare insight noted that Marx was, in this matter, simply a Smithian-Ricardian trying to work out the theory of his masters:

“Marx has been berated by two generations of orthodox economists for his value theory. The most charitable of the critics have called him a fool and the most severe have called him a knave for what they deem to be transparent contradictions of his theory. Curiously enough these very critics generally commend Ricardo and Adam Smith very highly. Yet the sober facts are that Marx saw more clearly than any English economist the differences between the labor-cost and the labor-command theories and tried more earnestly than anyone else to solve the contradictions which the adoption of a labor-cost theory inevitably entailed. He failed, of course: but with him Ricardo and Smith failed as well… The failure was a failure not of one man but of a philosophy of value, and the roots of the ultimate contradiction made manifest, in the third volume of Das Kapital, lie imbedded in the first volume of the Wealth of Nations.”

Adam Smith also gave hostage to the later emergence of socialism by his repeatedly stated view that rent and profit are deductions from the produce of labour. In the primitive world, he opined, ‘the whole produce of labour belongs to the labourer’. But as soon as ‘stock’ (capital) is accumulated, some will employ industrious people in order to make a profit by the sale of the materials. Smith indicates that the capitalist (the ‘undertaker’) reaps profits in return for the risk, and for interest on the investment for maintaining the workers until the product is sold – so that the capitalist earns profit for important functions. He adds, however, that ‘In this state of things the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock who employs him’. By using such phrases, and by not making clear why labourers might be happy to pay capitalists for their services, Smith left the door open for later socialists who would call for restructuring institutions so as to enable workers to capture their ‘whole product’. This hostage to socialism was aggravated by the fact that Smith, unlike the later Austrian School, did not demonstrate logically and step by step how industrious and thrifty people accumulate capital out of savings. He was content simply to begin with the alleged reality of a minority of wealthy capitalists in society, a reality which later socialists were of course not ready to endorse…..

Modern writers have tried to salvage the unsalvageable labour theory of value of Adam Smith by asserting that, in a sense he did not really mean what he was saying but was instead seeking to find an invariable standard by which he could measure value and wealth over time. But, to the extent that this search was true, Smith simply added another fallacy on top of all the others. For since value is subjective to each individual, there is no invariant measure or yardstick of value, and any attempts to discover them can at best distort the enterprise of economic theory and send it off chasing an impossible chimera. At worst, the entire structure of economic theory is permeated with fallacy and error…. There is a more fundamental and convincing reason for Adam Smith’s throwing over centuries of sound economic analysis, his abandonment of utility and scarcity, and his turn to the erroneous and pernicious labour theory of value. This is the same reason that Smith dwelled on the fallacious doctrine of productive versus unproductive labour. It is the explanation stressed by Emil Kauder, and partially by Paul Douglas: Adam Smith’s dour Calvinism.

It is Calvinism that scorns man’s consumption and pleasure, and stresses the importance of labour virtually for its own sake. It is the dour Calvinist who made the extravagant statement that diamonds had ‘scarce any value in use’. And perhaps it is also the dour Calvinist who scorned, in the words of Robertson and Taylor, real-world ‘market values which depended on monetary whims and fashions on the market’, and turned his attention instead to the long-run price where such fripperies played no part, and the grim eternal verities of labour toil seemingly played the decisive economic role. Surely this is a far more realistic view of Adam Smith than the Quixotic romantic in quest of the impossible dream of an invariable measure of value. And while Smith’s most famous follower, David Ricardo, was not a Calvinist, his leading immediate disciple, Dugald Stewart, was a Scottish Presbyterian, and the leading Ricardians – John R. McCulloch and James Mill – were both Scottish and educated in Dugald Stewart’s University of Edinburgh. The Calvinist connection continued to dominate British – and hence classical – economics.
– Murray Rothbard, An Austrian Perspective on the History of Economic Thought, 16.5: “The Theory of Value”

While one cannot conclusively ascertain the truth or falsehood of Calvinist theology except through its various departures from scripture, I do find it more than a little informative that the mental gymnastics and contorted interpretations that we have witnessed on numerous occasions here in the past can also be observed in the approach of various notable Calvinists to non-theological matters such as economics.

I am not entirely convinced that Smith’s Calvinism is entirely to blame; I don’t see that a contradiction between the search for an invariable measure of value and a dour Calvinistic tendency to exalt Man’s toil is either necessary or intrinsic.  After all, even after witnessing centuries of futility in attempting to not only define objective value, but make substantive policy decisions on the basis of objective price, leading economists still insist on ignoring the basic concept of subjective value and its inevitable consequences.

Nevertheless, when contemplating the vagaries of Calvinism, one cannot ignore the “fruits” test to which all Christian theologies merit comparison.  After all, if it is reasonable to view my libertarianism as a natural intellectual consequence of my aprevistan free will theology, then surely it is every bit as reasonable to suppose that fatalism, irresponsibility, socialism are at least a possible consequence of a omniderigent Calvinistic theology.

One of the fascinating things about Rothbard’s magnum opus is the way in which the atheist Rothbard came to see the importance of the religious perspective, both overt and implicit, in the formulation of economic theory, past and present.  Indeed, it would not be exaggerating matters to regard economics to be less a science or a philosophy than a series of competing theologies masked by a thin pseudo-scientific layer of statistics and mathematical equations.

Economics and the fate of feminism

What we have here is a failure to connect the obvious dots:

 Over the next 30 years this emphasis on equalizing gender roles at home as well as at work produced a revolutionary transformation in Americans’ attitudes. It was not instant. As late as 1977, two-thirds of Americans believed that it was “much better for everyone involved if the man is the achiever outside the home and the woman takes care of the home and family.” By 1994, two-thirds of Americans rejected this notion.

But during the second half of the 1990s and first few years of the 2000s, the equality revolution seemed to stall. Between 1994 and 2004, the percentage of Americans preferring the male breadwinner/female homemaker family model actually rose to 40 percent from 34 percent. Between 1997 and 2007, the number of full-time working mothers who said they would prefer to work part time increased to 60 percent from 48 percent. In 1997, a quarter of stay-at-home mothers said full-time work would be ideal. By 2007, only 16 percent of stay-at-home mothers wanted to work full time. 

Women’s labor-force participation in the United States also leveled off in the second half of the 1990s, in contrast to its continued increase in most other countries. Gender desegregation of college majors and occupations slowed. And although single mothers continued to increase their hours of paid labor, there was a significant jump in the percentage of married women, especially married women with infants, who left the labor force. By 2004, a smaller percentage of married women with children under 3 were in the labor force than in 1993…. 

For more than two decades the demands and hours of work have been intensifying. Yet progress in adopting family-friendly work practices and social policies has proceeded at a glacial pace.

Today the main barriers to further progress toward gender equity no longer lie in people’s personal attitudes and relationships. Instead, structural impediments prevent people from acting on their egalitarian values, forcing men and women into personal accommodations and rationalizations that do not reflect their preferences. The gender revolution is not in a stall. It has hit a wall.

In today’s political climate, it’s startling to remember that 80 years ago, in 1933, the Senate overwhelmingly voted to establish a 30-hour workweek. The bill failed in the House, but five years later the Fair Labor Standards Act of 1938 gave Americans a statutory 40-hour workweek. By the 1960s, American workers spent less time on the job than their counterparts in Europe and Japan.

Between 1990 and 2000, however, average annual work hours for employed Americans increased. By 2000, the United States had outstripped Japan — the former leader of the work pack — in the hours devoted to paid work. Today, almost 40 percent of men in professional jobs work 50 or more hours a week, as do almost a quarter of men in middle-income occupations. Individuals in lower-income and less-skilled jobs work fewer hours, but they are more likely to experience frequent changes in shifts, mandatory overtime on short notice, and nonstandard hours. And many low-income workers are forced to work two jobs to get by. When we look at dual-earner couples, the workload becomes even more daunting. As of 2000, the average dual-earner couple worked a combined 82 hours a week, while almost 15 percent of married couples had a joint workweek of 100 hours or more.

The reason “gender equality” stalled is because it is an economic impossibility.  The reason the average hours worked is so much higher than in the more “sexist” 1960s is because primarily there are more women in the workforce.  While immigration too plays a role here, the only significant effect native women have when they enter the labor force in greater numbers is to depress the price of labor.  Unlike immigrants, they don’t bring in new consumption to help mitigate their wage-depressing effects; the reason real hourly wages peaked in 1973 and have been falling ever since is because that was the year that the number of men younger than 20 and older than 65 leaving the labor force was surpassed by educated, middle-class women entering it.

One-third of working class women have always worked.  The change brought by feminism is that now middle class and upper middle class married women work as well.  And the more women that work, the more women have to work and the less time women who don’t work will have with their husbands who support them, because an INCREASE in the SUPPLY of labor necessitates a DECREASE in the PRICE of labor, demand remaining constant.

And to make matters worse, demand does not remain constant, but actually declines, because a woman who works is statistically much less likely to eventually become a wife and mother, and even when she does, she becomes one several years later and has fewer children.  This means that feminism is a structural economic failure as it creates a downward-spiraling vicious circle of three easily identifiable revolutions:

  1. The increase in the supply of labor causes wages to go down.  This is indisputable in either logical or empirical terms.
  2. Female hypergamy, female independence, and opportunity cost reduces the marriage rate and the average birth rate, while increased male work hours and work-related romantic opportunities increases the divorce rate.  These connections are all logically sound and readily observable.
  3. The reduced birth rate has a negative effect on consumption, and therefore the demand for labor, 20 years before the consequent negative effects on the supply of labor can help balance it out, putting further negative pressure on wage rates.  This is also indisputable, both logically and empirically.

While this didn’t have to be the case, feminism has also played a role in the debt crisis of the United States, as the Social Security system, Medicare, and Medicaid were set up structurally to be dependent upon the male breadwinner/female homemaker family model and a birthrate higher than the replacement level.  Funding for those systems was doomed post-1973, necessitating either their complete restructuring or funding them through debt; obviously the latter path was the one taken, much to the detriment of those who are now on the hook for it.

The complete systematic failure of feminism as well as every society which incorporates the concept of sexual equality is no less predictable than the complete systematic failure of socialism.  Ludwig von Mises correctly predicted the failure of socialist societies in his “Economic Calculation in the Socialist Commonwealth”, published only three years after the October Revolution, on the basis of socialism’s intrinsic inability to establish a pricing mechanism.

The economic flaws of feminism are no less obvious, no less fundamental and no more avoidable than the economic flaws of socialism.  Feminism’s structural inability to sustain wage rates and birth rates spells the inevitable doom of every feminist society, as surely as the inability to calculate prices spells the doom of every socialist society.  “Gender equality” hasn’t stalled because it isn’t being sufficiently enforced by the government, it has stalled because it is in the process of collapsing along with the society it has infested.

The impossibility of sexual equalitarian societies has nothing to do with fairness, traditional religious beliefs, human rights, or how intensely one feels that women are equal to men in every way.  It is a straightforward and unavoidable consequence of the law of supply and demand, and as such, is far more reliable than the Malthusian equation of the geometric increase of population outstripping the arithmetic increase of the food supply.

Live by the consumer, die by the consumer

It is not looking good for Q1-2013:

Wal-Mart Stores Inc. had the worst sales start to a month
in seven years as payroll-tax increases hit shoppers already battling a
slow economy, according to internal e-mails obtained by Bloomberg News.

“In
case you haven’t seen a sales report these days, February MTD sales are
a total disaster,” Jerry Murray, Wal- Mart’s vice president of finance
and logistics, said in a Feb. 12 e-mail to other executives, referring
to month-to-date sales. “The worst start to a month I have seen in my ~7
years with the company.”

“Have you ever had one of those weeks where your best- prepared plans
weren’t good enough to accomplish everything you set out to do?” Geiger
asked in a Feb. 1 e-mail to executives. “Well, we just had one of those
weeks here at Walmart U.S. Where are all the customers? And where’s
their money?”

It sounds as if an awful lot of people just got the harsh wakeup of the Christmas-related credit bills combined with their tax and insurance hikes.  The “substitution” effect can only work so long before the consumer can’t even afford Wal-Mart.  The problem with kicking the credit can instead of addressing the problem is that the can keeps getting bigger every time it is kicked down the road.

Iceland has already shown the way out.  Default.  The fact that the politicians and bankers so vigorously prefer attempting to inflate their way out demonstrates that they don’t give a damn about the economy or the people, and that inflation in a sufficiently orderly manner is not always possible.

Sure, the government could borrow and spend $100 trillion tomorrow.  But the effect of that would be even worse than default.  So the Federal Reserve finds itself in between the Scylla of hyperinflation and the Charybdis of default, without an Odysseus at the helm.

“There is no means of avoiding the final collapse of a boom brought
about by credit expansion. The alternative is only whether the crisis
should come sooner as a result of a voluntary abandonment of further
credit expansion, or later as a final and total catastrophe of the
currency system involved.” 
– Ludwig von Mises

Turgot and the myth of progress

I had already read a considerable amount of Milton Friedman, declared my Economics major, and had two years of university classes under my belt when I first read Joseph Schumpeter’s History of Economic Analysis.  That book, more than any other, changed my perspective on not only economics, but how I regarded the world.  It was the first time in my life that I ever felt overwhelmed concerning a subject in which I was genuinely interested and believed I had a reasonable grasp of the issues concerned.

I understood, and shared, Schumpeter’s contempt for Ricardo and Keynes.  I was hardly surprised by his respect for Mises.  But I was shocked, in a way that I am very seldom shocked, by what almost appeared to be disdain for Adam Smith, the man I had always considered, and been taught to consider, the grand pinnacle of homo economicus.  And in Smith’s stead, Schumpeter praised, indeed, almost seemed to revere, a French nobody named Turgot, a man of whom I had literally never heard, not in any book, paper, or class lecture.

With Richard Cantillon, Anne-Robert-Jacques Turgot, Baron de Laune, should arguably be considered one of the finest and most brilliant economic thinkers in human history.  It borders on criminal that he is, even today, dismissed as a mere physiocrat and royal minister, it is an injustice that his name is not mentioned as one of the Great Economists while lesser minds such as Ricardo, Smith, and Keynes are celebrated and provide the theoretical source of present economic policies.

Turgot was not infallible.  Of him, it is written: “Turgot believed in
progress and in the perfectibility of man. The human mind, including
the exercise of reason and volition, has the potential for
progression. He predicted the future of reason and the inevitable
advancement of the human mind.”

And yet, Turgot’s own example, and the way in which knowledge of the law of diminishing returns was lost for over a century,  ironically demonstrates his misplaced faith in progress and human perfectibility.

One of Turgot’s most remarkable contributions to economics, the significance of which was lost until the twentieth century, was his brilliant and almost off-hand development of the law of diminishing returns, or, as it might be described, the law of variable proportions. This gem arose out of a contest which he had inspired to be held by the Royal Agricultural Society of Limoges, for prize-winning essays on indirect taxation. Unhappiness with the winning physiocratic essay by Guérineau de Saint-Péravy led him to develop his own views in ‘Observations on a Paper by Saint-Péravy’ (1767). Here Turgot went to the heart of the physiocratic error, in the Tableau, of assuming a fixed proportion of the various expenditures of different classes of people. But, Turgot pointed out, these proportions are variable, as are the proportions of physical factors in production. There are no constant proportions of factors in agriculture, for example, since the proportions vary according to the knowledge of the farmers, the value of the soil, the techniques used in production, and the nature of the soil and the climatic conditions.

Developing this theme further, Turgot declared that ‘even if applied to the same field it [the product] is not proportional [to advances to the factors], and it can never be assumed that double the advances will yield double the product’. Not only are the proportions of factors to product variable, but also after a point, ‘all further expenditures would be useless, and that such increases could even become detrimental. In this case, the advances would be increased without increasing the product. There is therefore a maximum point of production which it is impossible to pass…’. Furthermore, after the maximum point is passed, it is ‘more than likely that as the advances are increased gradually past this point up to the point where they return nothing, each increase would be less and less productive’. On the other hand, if the farmer reduces the factors from the point of maximum production, the same changes in proportion would be found.

In short, Turgot had worked out, in fully developed form, an analysis of the law of diminishing returns which would not be surpassed, or possibly equalled, until the twentieth century.  (According to Schumpeter, not until a journal article by Edgeworth in 1911!)

The Mises Institute has a collection of the works of Turgot, which at 525 pages, are barely more than half the length of my most recent novel.  To return to the earlier topic of the fear of failure, it is deeply humbling to read the man’s writings and realized that even now, more than 230 years after his death, this is an individual who has been widely ignored and dismissed as a failure, when there may not have been 500 men of his intellectual accomplishment in the entire history of the species.  If that is failure, who needs success?

Paging Helicopter Ben

Apparently no one has alerted the government of Zimbabwe about the magic of the printing press:

Zimbabwe’s finance minister has taken a hard look at the cash strapped country’s bank accounts – and discovered it only has £138 and 34 pence left. Tendai Biti made the announcement at press conference yesterday declaring: ‘Last week when we paid civil servants there was $217 in government coffers.  Mr Biti went on to tell the shocked news reporters that they were individually likely to have healthier bank balances than the state’s.

Ah, my mistake.  It appears they do have a central bank and a printing press; this is merely a currency translation problem.  The government has ZWD 46.6 quantillion in the bank, which is the equivalent of $217 at the official exchange rate.

Although I do have a vision of the Dollarific Duo, Ben Bernanke and Paul Krugman, two econoheroes helicoptering into countries with contracting economies and rescuing them before riding off into the sunset on their tandem Neo-Keynesian cycle.

Triple-dip

Not that the BEA figures actually matter any more than any other fiction being published these days, but now that Obama has been safely re-elected, the economic bad news can be released again:

A stunner out of the BEA which just reported a Q4 GDP of -0.1% that
was leaps and bounds below the 1.1% estimate, and a plunge from Q3’s
3.1%. The factors: Private Inventories, Exports and Government
Expenditures all of which contracted, by -1.27%, -0.81%, and -1.33%. The
silver lining was in Personal Consumption Expenditures which added
1.52% to the negative print, most of it however driven by a surge in
spending ahead of the fiscal cliff. Ironically, this was the biggest
government-driven detraction from growth since Q1 2011, when GDP led to a
-1.49% cut in the GDP, same in Q4 when government spending on defense
fell the most since 1972. The solution is simple: print moar drones. Enter Mali. And since everything is now AMZN-ing, we can’t wait for the spin that the GDP’s margins were actually better than expected, leading to a 200 point surge in the DJIA.

How many recessionary dips will it take before the mainstream financial media admits that we’ve been in a depression since 2008?  My guess is five.

The UK and the “triple-dip”

Forget the “double-dip”.  Now we’re expected to believe that a “triple-dip” recession is nigh:

Economists believe the chances of such a scenario are high, given
that there has been no let up in the pressure on consumers and
businesses and snow disruption threatens to cost the economy an
estimated £500 million a day.

There is no official definition of a
triple dip, but it is widely accepted to mean that the economy has
fallen into recession three times without returning to a period of
robust growth in between. The UK plunged into a double dip
recession last year, contracting for three quarters in a row before
bouncing back with growth of 0.9% in the three months to September.

According
to the Office for National Statistics, there has not been a triple dip
recession since its records began in 1955, with Britain last suffering
such economic gloom in the Great Depression. 

There is no triple-dip recession.  There was no double-dip recession.  This is, as I have been saying since 2008, the Great Depression 2.0.  It is larger in scope than its predecessor and it is gradually revealing the concrete shortcomings of the reported economics statistics.

It is also interesting how we don’t hear much about the ongoing “economic recovery” in the USA anymore even though the GDP numbers are still nominally positive.