Visual Economics

Economics in one page

2004-08-24T14:36:00.000Z

I found a nice one-page summary of economics here on the Mark Skousen site. Recycled here with care.

1. Self-interest: "The desire of bettering our condition comes with us from the womb and never leaves till we go into the grave" (Adam Smith). No one spends someone else's money as carefully as he spends his own.

2. Economic growth: The key to a higher standard of living is to expand savings, capital formation, education, and technology.

3. Trade: In all voluntary exchanges, where accurate information is known, both the buyer and seller gain; therefore, an increase in trade between individuals, groups, or nations benefits both parties.

4. Competition: Given the universal existence of limited resources and unlimited wants, competition exists in all societies and cannot be abolished by government edict.

5. Cooperation: Since most individuals are not self-sufficient, and almost all natural resources must be transformed in order to become usable, individuals--laborers, landlords, capitalists, and entrepreneurs--must work together to produce valuable goods and services.

6. Division of labor and comparative advantage: Differences in talents, intelligence, knowledge, and property lead to specialization and comparative advantage by each individual, firm, and nation.

7. Dispersion of knowledge: Information about market behavior is so diverse and ubiquitous that it cannot be captured and calculated by a central authority.

8. Profit and loss: Profit and loss are the market mechanisms that guide what should and should not be produced over the long run.

9. Opportunity cost: Given the limitations of time and resources, there are always trade-offs in life. If you want to do something, you must give up other things you may wish to do. The price you pay to engage in one activity is equal to the cost of other activities you have forgone.

10. Price theory: Prices are determined by the subjective valuations of buyers (demand) and sellers (supply), not by any objective cost of production; the higher the price, the smaller the quantity purchasers will be willing to buy and the larger the quantity sellers will be willing to offer for sale.

11. Causality: For every cause there is an effect. Actions taken by individuals, firms, and governments have an impact on other actors in the economy that may be predictable, although the level of predictability depends on the complexity of the actions involved.

12. Uncertainty: There is always a degree of risk and uncertainty about the future because people are often reevaluating, learning from their mistakes, and changing their minds, thus making it difficult to predict their behavior in the future.

13. Labor economics: Higher wages can only be achieved in the long run by greater productivity, i.e., applying more capital investment per worker; chronic unemployment is caused by government fixing wage rates above equilibrium market levels.

14. Government controls: Price-rent-wage controls may benefit some individuals and groups, but not society as a whole; ultimately, they create shortages, black markets, and a deterioration of quality and services. There is no such thing as a free lunch.

15. Money: Deliberate attempts to depreciate the nation's currency, artificially lower interest rates, and engage in "easy money" policies inevitably lead to inflation, boom-bust cycles, and economic crisis. The market, not the state, should determine money and credit.

16. Public finance: In all public enterprises, in order to maintain a high degree of efficiency and good management, market principles should be adopted whenever possible: (1) Government should try to do only what private enterprise cannot do; government should not engage in businesses that private enterprise can do better; (2) government should live within its means; (3) cost-benefit analysis: marginal benefits should exceed marginal costs; and (4) the accountability principle: those who benefit from a service should pay for the service.

The Environment

2004-08-16T14:58:00.002Z

I'm back from blog-break. There are many reasons for my blog-absence, including tendinitis, broken pc and vacation. Anyhows... I found this site, Bizarre Science, during a random www-walk during coffie break today. Very good stuff, similar to antigreen and the book Global Warming and Other Eco Myths in content. Reading the material on this site, few economic fallacies are apparent. Usually it involves forgetting to bring all the factors to the equation. It is easy to say that this recycling or that windmill is so good for the environment and even good for economic progress, if one forgets all of the direct and indirect economic and environmental costs.

Left-wing fascists

2004-07-25T00:59:00.000Z

"The ideas of Benito Mussolini, the founder of Fascism, are remarkably similar to the ideas of modern-day Western Leftists. If Mussolini was not the direct teacher of modern-day Leftists, he was certainly a major predecessor. What Leftists advocate today is not, of course, totally identical with what Mussolini was advocating and doing 60 to 80 years ago in Italy but there are nonetheless extensive and amazing parallels." - Says John J. Ray, the ever vigilant left-spanking Aussie and author of Dissect Leftism and many other sites.

Nature linx

2004-07-23T15:46:00.000Z

Bjarni has gone patriotic and has posted some Iceland links on his page.

I'm confused over this Abu Raja character.

"The garbage will soon, like, take over the whole world and, like, kill everybody"

2004-07-20T12:19:00.000Z

The Newcastle golf course in Seattle. A former landfill site.
Hat-tip for picture: andriki

An New York Times article by John Tierney, Recycling Is Garbage, is one of the best fallacy-buster that I have read in some time. In the article he starts describing an environmental talk in a local school in New York. One of the millions of me-save-the-world pundits was scaring a bunch of shool kids into recycling obedience. "The garbage will soon, like, take over the whole world and, like, kill everybody". Well, this is something you can tell 10 year olds, and add a slide show full of half-truths and misconceptions, you have won the day. The lecture she held, and many other similar talks all have one thing in common. They only count the benefits and forget much or all of the costs. It is easy to say, hey, if we had not recycled, then we would not have this bottle and this paper that we can use again. This is of course true. If you recycle something, chances are that it will be of some use to someone. The catch is that recycling costs. It costs time, energy and manpower, and thus has some economic costs.

Every time a sanitation department crew picks up a load of bottles and cans from the curb, New York City loses money. The recycling program consumes resources. It requires extra administrators and a continual public relations campaign explaining what to do with dozens of different products- recycle milk jugs but not milk cartons, index cards but not construction paper. (Most New Yorkers still don't know the rules.) It requires enforcement agents to inspect garbage and issue tickets. Most of all, it requires extra collection crews and trucks. Collecting a ton of recyclable items is three times more expensive than collecting a ton of garbage because the crews pick up less material at each stop. For every ton of glass, plastic and metal that the truck delivers to a private recycler, the city currently spends $200 more than it would spend to bury the material in a landfill. City officials hoped to recover this extra cost by selling the material but the market price of a ton has never been anywhere near $200. In fact, it has rarely risen as high as zero. Private recyclers usually demand a fee because their processing costs exceed the eventual sales price of the recycled materials. So the city, having already lost $200 collecting the ton of material typically has to pay another $40 to get rid of it.

Good economics is a difficult to achieve, but it is a start to count the costs as well as the benefits. But there is always an mental escape for believers, an high ranking Scandinavian official was heard saying that when it comes to the environment then economics do not mater.

Rationing and Germany and Famine

2004-07-19T16:36:00.000Z

So much for rationing policy. Is it possible that the fertile land of Germany could only sustain half the calories that an adult needs to stay healthy? A third or a quarter of what an athlete needs? This is so close to famine, really.

This was 1946 and what happend two years of unnecessary suffering later, when the price controls were discontinued and the foundations of the modern (but now degenerative) economic system was laid down on recommendation of few Austrian-style economist:

The effect on the German economy was electric. Wallich wrote: "The spirit of the country changed overnight. The gray, hungry, dead-looking figures wandering about the streets in their everlasting search for food came to life. - David R. Henderson

This is the same old story. Mess around with the market and you will induce human suffering. Pic borrowed from The CounterRevolutionary.

New template. Interesting blogs

2004-07-18T17:36:00.000Z

The old and patched template crashed today. I don't know what happend, but it came out all wrong and not for the first time. So it is time to find a new and improved template. Please show patience.

Some interesting blogs:

Order from Chaos, I got a link from David Peterson. A nice libertarian blog.

Another libertarian blog, common knowledge.

Catallarchy on price controls.

Report of positive effects of 'global warming' in Samizdata. I concurr.

The doc shares my admiration of the rude fallacy-busting magicians, Penn and Teller.

The absence of a central government in Iceland

2004-07-18T13:20:00.000Z

"Now I ask thee, Hall of the Side, and thee Runolf of the Dale,and thee Hjallti Skeggi's son, and thee Einar of Thvera, and thee Hafr the Wise, that I may be allowed to make an atonement for theslaying of Hauskuld on my son's behalf; and I wish that those menwho are best fitted to do so shall utter the award." - Njáll Þorgeirsson.

A long time ago bunch of outcasts from Norway settled in Iceland. The society in Iceland did not have an executive branch of government, the courts were private and there was no such thing as a government property as Thomas Whiston explains:

"Iceland did not have an executive branch of government. Instead of a king they had local chieftains. One permanent official in their system was the "logsogumadr" or law-speaker. His duties included the memorization of laws, the provision of advice on legislative issues, and the recitation of all legislative acts one time while in office. Instead of a judicial branch of government there were private courts that were the responsibility of the godar. To solve disputes, members of this court system were chosen after the crime happened. The defendant and plaintiff each had the right to pick half the arbitrators. There was another level of courts called the Varthing. This was a Thing court in which the judges were chosen by the godar of the Thing. David Friedman has found that these courts were rarely used and not much is known about them. [1] Then there was the National Assembly or the Althing. Each quarter was represented by their own Althing. If a dispute was not settled by the private courts, the dispute would go up the ladder to the next highest court until the dispute was resolved. There was no public property during the era of the Vikings in Iceland, all property was privately owned."

This system was in place for nearly 300 years and apparently functioned sufficiently well. The documentation comes from the Icelandic Sagas that were written after that era and there is no way of ascertaining how well the system brought justice to the inhabitants of Iceland. But here is a well documented case of a society that functioned well without a central government with well developed and sophisticated legal system.

The Icelandic Sagas in Icelandic and English.

Chaotic ramblings

2004-07-17T11:31:00.000Z

Bjarni has some interesting posts on the CPI, but as we all know, inflation is not the same as a raise in prices or the CPI.

Here is a nice piece by George Orwell on nationalism. A must read.

A few new updates on my dicatorial page. Evil stuff.

I saw Micael Moore in an old film of his and this confirmed what I always knew: he eats at McDonalds. The film is called 'the big one'.

'DDT is good'. Try to say this to anyone and observe the reaction. What is more important, a dead bird or a dead baby.

Geir thinks nazis are on the left.

In Sky News I learned that in the UK there are plans for something called 'congestion tax', or something like that. A tax on (the owners of) cars, the more congestion the more tax revenue for the government. Ok, lets look past the fact that this will mean that the government make more money if it does not build new roads. This will mean that, on top on all other car-related taxes, some individuals will have to pay up to 170 Pounds per month if this plan will go through.

Simlar control measures are being planned in Iceland.

Bad economics and socialism and dictatorship

2004-07-14T22:20:00.000Z

What all of the ideologies that help catapult dictators to power have in common is a gross misunderstanding of economic reality. The same themes are played again and again, but with some different styles as is expected. This is not only true of the usual suspects of the Twentieth century, Marxism and the Nazis. Most revolutionaries that have seized control of the various countries have adopted similar ideas and methods. One defining event in world history is Marxism, but it has been a source of inspiration for most revolutionaries since it is deceptively clever in letting the reader believe that the superficial impressions that most of us feel at one time or another, is the whole truth, and nothing else.

The labor theory of value

Although Marxism is not the main point in this discussion, it is worthwhile to dwell on of his main fallacy, the labor theory of value that he takes to the extreme. But there are many more.

The ideas of Marxism, and other socialistic ideologies do only focus on what is easy to see and understand. In the labor theory of value, the value of a good is a subject of the human labor that created it. Most people, including me, accept that this is indeed important. Gold owes much of its value due to the labor in discovering new mines, creating useful tools and machines to extract it as well as the labor needed to extract it from the ground and transporting it around the world. This is easy for everyone to understand. However, it takes a little more imagination to see the value of the businessman that unlocks value by facilitating deals between landowners, business and government. Same goes for the accountants and administrative staff, that are essential in all complex ventures. The engineers create value by making sure that everything works smoothly in the mines, and coming up with clever solutions every now and then.

People understand the value created by the man with the shovel and hammer quite easily, he burst boulders with his sledge or digs an important channel with his shovel, of course all sweaty under the burning sun. Surely he must be creating some value. Strangely (or not) people sometimes have trouble in understanding the value of the stockbroker or the actuary, to name a few. Even today many question the value of money when it creates more money, especially when someone actually risks his money to gain more, thus the moneyman is just a profiteer. Simple things as education is also easily looked past, and politicians today lament that doctors have high wages but forget that to become a doctor one needs to spend a decade or so with no or sporadic wages.

How to exploit the injustice that is so evident

Genially shallow people like Marx seem to really have looked past all of the value that merely takes a tint of imagination to visualize. This, despite having worked in accounting and having all the time in the world to do real research to discover the truth (real, meaning mingling and exploring the real world outside the British Museum). The people that have adopted the ideas of Marx, or similar quack ideas, may or may not see past them. Their neural pathways may run in parallel with the likes of Marx, thus making the slightest creative thought and open-mindedness all but impossible, and thus, they swallowed the theories whole. But some of them probably did see the faults of those ideas, and this is likely, since the total stupidity of these works literally can bring tears to the sensible reader (out of compassion for someone harboring this degree of spite and shallowness in his mind).

The reason for the popularity of these ideas is that they are easy to use to gain popularity. It is so much more easy to say something about the damn profiteers that exploit the working people, especially if they are foreigners, than talk about the value of free trade or like. The popularist has also created a problem that is not difficult to remedy. If some one has taken that is not his (the surplus value, stolen land, or whatever it is called), it is only natural to take it back. For them it is not only natural, but also just and justifiable to do so.

What is said here above does not only apply to the Socialists. This is true, the Socialists, all of their innumerable fractions (Communists, Marxists, Fidelists, Trotskyists, Socialsits...), used this combination of economic mis-understanding and popularism to gain support of the masses. This is also the case with the Nazis, not a great surprise for a party called the National Socialist German Workers Party. The ideological mingling of the Nazis and the Marxists is well documented:

The Nazis adopted Marx’s view of capitalism and they accepted the socialist belief that the Jews were the personification of capitalism. Add to their anti-Semitism and socialism the ingredient of nationalism and you have the essence of the Nazi movement. Hitler’s nationalism was a response to the burdensome and unfair mandates imposed on Germany by the Versailles Treaty. With Germany being intentionally humiliated by the Allies the German people were ready for a nationalist movement. But Hitler’s secret of success was that he built his nationalism on a foundation of Marxist economics and socialist anti-Semitism both of which were widely accepted by the German people. The Marxist Origins of Hitlerian Hate. Jim Peron.

This is something that the world history has brought us time and time again. Popularistic movement, with some questionable characters leading the way, adopts ideology that incorporates some kind of proof that there are evil-doers that are exploiting the common people. The enemy can be whoever, landlords, traders, Jews, capitalists, or as we see in the middle east, the evil west. The ideology can be whatever, Communism, Nazism, Fidelism (also called Castroism, until 'the man' adopted Marxism), these profound ideologies pop up at an astonishing speed it seems.

How long does it take to copy and paste some Marxist-like ideology, regionalize it, and then start a revolution?

Russ Nelson: The Angry Economist

2004-07-13T22:57:00.000Z

Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society's fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen. - Ludwig von Mises

Russ Nelson is the Angry Economist and he is angry because of peoples indifference and ignorance of the important subject of economics. Not surprisingly I share much of his anger.

It is worth the time to read his economic blog. It is not only well written and informative, but Russ actually has a real job and takes many good experiences from his personal and professional life.

Price controls: Rent

2004-07-11T21:10:00.000Z

Half the harm that is done in this world is due to people who want to feel important. They don't mean to do harm -- but the harm does not interest them. Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves - T.S. Eliot

Laws and regulations can have tremendous impact on society. In the news today I saw a report on new and strict EU environmental regulations. In the UK this will result in a dramatic reduction in the number of landfills and the inevitable result of this is an increase in the illegal dumping of garbage and industrial waste. Of course an official recommended strict penalties, as if that would solve the problem.

I have depicted the evil (and inevitable) results of price controls before. In New York and in many other cities there are limits on how much people can rent out their own apartments. This is of course silly as Hazlitt explains quite clearly:

Still another example of our short-sighted legislation is rent control. This is usually imposed in the early stages of an inflation. As the inflation goes on, the discrepancy between the rent the landlord is allowed to charge, and the rent necessary to yield him a return comparable with that in other investments, becomes greater and greater. The landlord soon has neither the incentive to make repairs and improvements, nor the funds to make them.
When the rent control is first imposed, the government promises that new buildings will be exempt from it; but this assurance is soon repudiated by a new law. It becomes unprofitable to build new rental housing. New mortgage money for it becomes increasingly difficult to obtain. Landlords of old housing often can no longer supply even heat and other essential services. Some cannot even pay their taxes; their property has in effect been expropriated; they abandon it and disappear. Old rental housing is destroyed quicker than new housing is built
Some favoured tenants, already in possession, are momentary beneficiaries, but tenants or would-be tenants as a whole, in whose interest the legislation has been professedly passed, become the final victims. The irony is that the longer rent control is continued, and the more unrealistic the fixed rents become as compared with those that would yield an adequate return, the more certain the politicians are that any attempt to repeal the rent control would be "politically suicidal."

In the movie Duplex the characters of Stiller and Barrymore are a nice couple that buy an apartment that comes with an tenant from hell (that pays 88$ per month). Of course no one thinks killing the old bag is morally justified, but everyone can see the evil effects of the price controls in this movie. No one in his right mind will rent out a part of his apartment/building even if it would make sense to do so under normal circumstances. This is just one manifestation of price controls. Another one is seen in the movie The Super and another is seen here.

The economy of Nazi Germany

2004-07-05T20:03:00.001Z

Were the Nazis socialists and was the economic system of Nazi Germany more socialistic than capitalisitc?
Of course many people say: no, Hitler was on the "rigth", and the line of argument is usually that he fought the communists, was a racist and did not nationalise "the means of production". The material below is informative in that discussion, although there is no right aswer to the question if Hitler was a 'real" socialist.
The main problem in determening if Hitler was a socialist is that the concept of socialism not so easy to define."Socialism" is kind of a phantom concept, as is evident in an debate on the subject when the claim that the Soviet system was indeed not a true socialist system always seems to pop up. If one goes further and analyses socialistic governments and movements around the world, then it is evident that there is a great difference among the various socialistic movements. Nationalism, racism and private enterprise is found in "socialistic" systems all around the world.
It is therefore it is evident that shallow people can get lost in discussions on socialism and clever people can always find all kinds of exceptions to furhter their ideological cause.

It is my opinion that Nazi Germany was indeed "less socialistic" than the Soviet (although equally or more socialist than many other socialistic states). The ideas of class struggle were not a central to the Nazi ideology nor did they have much of the industry in private hands and formally recognized porperty rights. As is quite evident below, the Nazis had a tight grip on the industry and centrally directed the production toward the "war industry".

"Industrialists were visited by state auditors who had strict orders to examine the balance sheets and all bookkeeping entries of the company or individual businessmen for the preceding two, three, or more years until some error or false entry was found," explains Reimann. "The slightest formal mistake was punished with tremendous penalties. A fine of millions of marks was imposed for a single bookkeeping error."
....
While state representatives are busily engaged in investigating and interfering, our agents and salesmen are handicapped because they never know whether or not a sale at a higher price will mean denunciation as a 'profiteer' or 'saboteur,' followed by a prison sentence. You cannot imagine how taxation has increased. Yet everyone is afraid to complain. Everywhere there is a growing undercurrent of bitterness. Everyone has his doubts about the system, unless he is very young, very stupid, or is bound to it by the privileges he enjoys." - Ralph R. Reiland, citing from the book "The Vampire Economy: Doing Business Under Fascism" by Guenter Reimann

"Most cruel joke of all, however, has been played by Hitler & Co. on those German capitalists and small businessmen who once backed National Socialism as a means of saving Germany's bourgeois economic structure from radicalism. The Nazi credo that the individual belongs to the state also applies to business. Some businesses have been confiscated outright, on other what amounts to a capital tax has been levied. Profits have been strictly controlled. Some idea of the increasing Governmental control and interference in business could be deduced from the fact that 80% of all building and 50% of all industrial orders in Germany originated last year with the Government. Hard-pressed for food- stuffs as well as funds, the Nazi regime has taken over large estates and in many instances collectivized agriculture, a procedure fundamentally similar to Russian Communism." - Time Magazine; Jaunuary 2, 1938

"Between 1933 and 1936 the German GNP increased by an average annual rate of 9.5 percent, and the annual production index for industry and crafts rose by 17.2 percent. The principal source of this growth, which propelled the German economy out of a deep depression into full employment within less than four years, was increased demand by the Public sector, defined by German economists of the period as Staatskonjunktur (state prosperity). The average annual growth of public consumption during these four years was 18.7 percent, while private consumption rose only by 3.6 percent annually. These data alone already show that the Nazis overcame unemployment primarily through government-initiated public works and/or orders by the government and other public-sector authorities.
....
In March 1937 a special law authorised the RNS (Reichsnährstand; Ríkis-stofnun sem sá um að miðla matvælum frá framleiðendum til seljanda) to determine what crops were to be grown in order to increase the output of scarce produce, in particular vegetable fats. In July of the same year peasants were ordered to hand over all wheat and rye harvests to official purchase agencies, while the feeding of these grains to livestock was strictly forbidden. From August 1938 grains were stockpiled in specially requisitioned gymnasiums and dance halls.
....
Another campaign, accompanied by a clamorous propaganda drive, pursued an entirely different aim. In May 1938, with a great deal of publicity, Hitler laid the cornerstone for the plant that was to produce the popular Volkswagen. Even before the ceremony numerous Germans had begun to pay savings-installments toward future purchase of such a car. It is reasonable to assume that at the time, with accelerating war preparations, no one seriously intended to begin production of such cars in the foreseeable future. Instead, it was a measure directed toward the withdrawal of disposable income from the public, whose earnings had grown throughout the period of prosperity, wage restrictions notwithstanding. Hitler himself mentioned the issue in his foundation ceremony speech: 'If the German people spend all their wages on consumer goods, we cannot ... produce without limits, it will cause disaster. It is therefore vital to guide the purchasing power of the German people in other directions.' In this case the direction was toward recruiting savings for armaments, with an additional incentive to work overtime in order to realise the dream of owning a car. By the end of March 170,000 savers had deposited the sum of 110 million reichsmarks in the Volkswagen account for the popular model. However, when the plant began operating, it produced military vehicles and aircraft parts exclusively. Ferdinand Porsche's clever invention, the horizontal 'boxer engine,' achieved recognition and was mass-produced only some years after the war had ended. (actually the boxer engine was mass-produced during the war but only in war-machines like the famous Kubelwagen)" - A. Barkai, Ideology and the Economy, Implemented Policies (1990)

"Our socialism is no utopia, alienated from the real world, but natural life, full of pulsating blood ... the sole egalitarian economic demand it grants all the people is the right to work." - Otto Dietrich, Hitler's Press Secretary, Das Wirtschaftsdenken im Dritten Reich (1937)

"But industrial leadership, under the Nazis, differed from the Weimar model in certain respects. Commercial capital was no longer represented. In other words, free trade did not exist. Commercial capital had lost its predominant position, and heavy industry was restricted to some degree-at least to the extent that it could not interfere with the overall objectives of the regime in foreign and domestic policy. So, industrial leadership, under the Nazi regime, was smaller and much more integrated than it had been in the Weimar period. In a sense, the whole Nazi economy was under the rule of certain monopoly producers, who made a deal with the political rulers. Although, I hasten to add, that this does not mean that the Marxists are right in saying that the Nazi party represented a capitalist plot to save itself from disintegration. The Nazi movement was much more than a mere salvage operation of monopoly capitalism. Hitler used the capitalists as much as they used him." - Professor Gerhard Rempel, The Political System of the Third Reich

"Darre wished to "reform" the production and marketing of food and to raise prices for farmers. Darre's entire program was designed with one objective in mind: to insulate the peasant farmer from the market. To this end, Darre issued the Hereditary Farm Law in 1933, which had the purpose of preventing foreclosure on or the sale of farmland-at the expense of the peasant farmers` liberty. This "law" established that only Aryan Germans who could prove the purity of their bloodline back to 1800 could own a farm.
....
In 1936, Göring's Four Year Plan was inaugurated. This made Göring, who was almost as ignorant about economics as Hitler, Germany's economic dictator. In the drive for a total war economy, protectionism was decreed and autarchy the desire-the so-called "Battle of Production." Consumer imports were nearly eliminated, price and wage controls were enacted, and vast state projects were built to manufacture raw materials.
....
Businessmen and entrepreneurs were smothered by red tape, were told by the state what they could produce and how much and at what price, burdened by taxation, and were forced to make "special contributions" to the party. Corporations below a capitalization of $40,000 were dissolved and the founding of any below a capitalization of $2,000,000 was forbidden, which wiped out a fifth of all German businesses.

The cartelization of industry-which began before the Nazi regime-was made compulsory, and the Ministry of Economics was empowered to form new compulsory cartels or to force firms to join existing ones. The maze of business and trade associations created to lobby the Weimar Republic for various considerations in the law were nationalized and made compulsory for all businesses.
....
Then, in February 1935 all employment came under the exclusive control of government employment offices which determined who would work where and for how much. And on June 22, 1938, the Office of the Four Year Plan instituted guaranteed employment by conscripting labor. Every German worker was assigned a position from which he could not be released by the employer, nor could he switch jobs, without permission of the government employment office. Worker absenteeism was met with fines or imprisonment-all in the name of job security. A popular Nazi slogan at the time was "the Common Interest before Self"!
....
Social life too, was centralized by the Reich. Under the organization "Strength through Joy," the leisure time of the people was regimented. No organized social, sport or recreational groups-from chess and soccer clubs to bird-watching, to adult education, to the theatre, opera, and music concerts-were allowed to function without the oversight of the state. Besides the social costs of not trusting people to be able to look after themselves, there were the enormous costs of this vast bureaucracy that policed the private activities of the citizens." - Adam Young, Nazism is Socialism

"The German and the Russian systems of socialism have in common the fact that the government has full control of the means of production. It decides what shall be produced and how. It allots to each individual a share of consumer's goods for his consumption. These systems would not have to be called socialist if it were otherwise.
....
The German pattern differs from the Russian one in that it (seemingly and nominally) maintains private ownership of the means of production and keeps the appearance of ordinary prices, wages, and markets. There are, however, no longer entrepreneurs but only shop managers (Betriebsführer). These shop managers do the buying and selling, pay the workers, contract debts, and pay interest and amortization. There is no labor market; wages and salaries are fixed by the government. The government tells the shop managers what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell. The government decrees to whom and under what terms the capitalists must entrust their funds and where and at what wages laborers must work. Market exchange is only a sham. All the prices, wages, and interest rates are fixed by the central authority. They are prices, wages, and interest rates in appearance only; in reality they are merely determinations of quantity relations in the government's orders. The government, not the consumers, directs production. This is socialism in the outward guise of capitalism. Some labels of capitalistic market economy are retained but they mean something entirely different from what they mean in a genuine market economy." - Omnipotent Government by Ludwig von Mises

"Before Hitler came to power, Chancellor Brüning again introduced price control in Germany for the usual reasons. Hitler enforced it, even before the war started. For in Hitler’s Germany there was no private enterprise or private initiative. In Hitler’s Germany there was a system of socialism which differed from the Russian sys tem only to the extent that the terminology and labels of the free economic system were still retained. There still existed 50 Economic Policy “private enterprises,” as they were called. But the owner was no longer an entrepreneur, the owner was called a “shop manager” (Betriebsführer).
....
The whole of Germany was organized in a hierarchy of führers; there was the Highest Führer, Hitler of course, and then there were führers down to the many hierarchies of smaller führers. And the head of an enterprise was the Betriebsführer. And the workers of the enterprise were named by a word that, in the Middle Ages, had signified the retinue of a feudal lord: the Gefolgschaft. And all of these people had to obey the orders issued by an institution which had a terribly long name:Reichsführerwirtschaftsministerium (Führer of the Reich’s, i.e., the empire’s, Ministry of Economics), at the head of which was the well-known fat man, named Goering, adorned with jewelry and medals.
....
And from this body of ministers with the long name came all the orders to every enterprise: what to produce, in what quantity, where to get the raw materials and what to pay for them, to whom to sell the products and at what prices to sell them. The workers got the order to work in a definite factory, and they received wages which the government decreed. The whole economic system was now regulated in every detail by the government.
....
The Betriebsführer did not have the right to take the profits for himself; he received what amounted to a salary, and if he wanted to get more he would, for example, say: “I am very sick, I need an operation immediately, and the operation will cost 500 Marks,” then he had to ask the führer of the district (the Gauführer or Gauleiter) whether he had the right to take out more than the salary which was given to him. The prices were no longer prices, the wages were no longer wages, they were all quantitative terms in a system of socialism." - Ludvig von Mises, ECONOMIC POLICY. Thoughts for Today and Tomorrow. 1979

"When in power Hitler also implemented a quite socialist programme. Like F.D. Roosevelt, he provided employment by a much expanded programme of public works (including roadworks) and his Kraft durch Freude ("power through joy") movement was notable for such benefits as providing workers with subsidized holidays at a standard that only the rich could formerly afford. And while Hitler did not nationalize all industry, there was extensive compulsory reorganization of it and tight party control over it. It might be noted that even in the post-war Communist bloc there was never total nationalization of industry. In fact, in Poland, most agriculture always remained in private hands.
....
There always remained, however, one essential difference between Nazi and Communist ideology: Their responses to social class. Stalin preached class war and glorified class consciousness whereas Hitler wanted to abolish social classes and root out class-consciousness. Both leaders, as socialists, saw class inequality as a problem but their solutions to it differed radically. The great Nazi slogan Ein Reich, ein Volk, ein Fuehrer ("One State, one people, one leader") summed this up. Hitler wanted unity among Germans, not class antagonisms. He wanted loyalty to himself and to Germany as a whole, not loyalty to any class. Stalin wanted to unite the workers. Hitler wanted to unite ALL Germans. Stalin openly voiced his hatred of a large part of his own population; Hitler professed to love all Germans regardless of class (except for the Jews, of course). This was indeed a fundamental difference and substantially accounts both for Hitler's unwavering contempt for Bolshevism and his popularity among all classes of Germans.
....
Hitler was, however, more Rightist than Stalin in the sense that, as a popular leader, he did not need to resort to extreme forms of oppressive control over his people (Unger, 1965). German primary and secondary industry did not need to be nationalized because they largely did Hitler's bidding willingly. State control was indeed exercised over German industry but it was done without formally altering its ownership and without substantially alienating or killing its professional managers.

The contempt that Hitler had for Stalin and for "Bolshevism" generally should also not mislead us in assessing the similarity between Nazism and Communism. Leftist sects are very prone to rivalry, dissension, schism and hatred of one-another. One has only to think of the Bolsheviks versus the Mensheviks, Stalin versus Trotsky, China versus the Soviet Union, China "teaching Vietnam a lesson", the Vietnamese suppression of the Khmer Rouge etc. Similarity does not preclude rivalry and in the end it was mainly competition for power that set Hitler and Stalin on a collision course.
....
Hitler was not however original in being both a socialist and a nationalist. The Italian nationalist leader, Mussolini, came to power much before Hitler but was in fact even more Leftist than Hitler. Although generally regarded as the founder of Fascism, in his early years Mussolini was one of Italy's leading Marxist theoreticians. He was even an intimate of Lenin. He first received his well-known appellation of Il Duce ("the leader") while he was still a member of Italy's "Socialist" (Marxist) party and, although he had long been involved in democratic politics, he gained power by essentially revolutionary means (the march on Rome). Even after he had gained power, railing against "plutocrats" remained one of his favourite rhetorical ploys. He was, however, an instinctive Italian patriot and very early on added a nationalistic appeal to his message, thus being the first major figure to add the attraction of nationalism to the attraction of socialism. He was the first socialist to learn the lesson that Hitler and Stalin after him used to such "good" effect." - John J. Ray. Hitler was a Socialist.

"It is a common mistake to regard National Socialism as a mere revolt against reason, an irrational movement without intellectual background. If that were so, the movement would be much less dangerous than it is. But nothing could be further from the truth or more misleading. The doctrines of National Socialism are the culmination of a long evolution of thought, a process in which thinkers have had great influence far beyond the confines of Germany have taken part. Whatever one may think of the premises from which they started, it cannot be denied that the men who produced the new doctrines were powerful writers who left the impress of their ideas on the whole of European thought. Their system was developed with ruthless consistency. Once one accepts the premises from which it starts, there is no escape from its logic. It is simply collectivism freed from all traces of an individualist tradition which might hamper its realization." - Friedrich Hayek. The Road to Serfdom: The Socialist Roots of Naziism

"Like most other economies, Germany's economy had hit bottom in 1932. Under Hitler, the strategy for recovery was largely the work of his economics minister, Hjalmar Schaact, traditionally a conservative but dynamic in thought. Schaact stopped the sending of German money out of Germany. He reduced foreign trade largely to barter agreements, and he put strict limits on imports -- all this to keep wealth within the country. Under Schaact, private industry was compelled to reinvest its profits in manufacturing approved by the state. And crucial to Germany's recovery was government spending, much of it on public works, the most visible of which was a new highway system -- the autobahn -- which the army wanted for more efficient movements within Germany. There was also an electrification program, and government investment in industry. One third of Germany's income had as its source government payments and investments -- almost three times the percentage being spent by the U.S. government. And, as in Sweden, the government debt that Schaact was creating was quickly offset by the recovery in revenues that came with the rise in the economy.

Wages and the standard of living remained relatively low for Germans, but the aim of the government was not public consumption but increased industrial production of non-consumer goods. Unemployment was falling, and business optimism returned. In 1935 compulsory labor service was introduced, and unemployment was reduced further as tax incentives were introduced to persuade women to leave the labor force, to return to what was considered traditional for German women: cooking, children and church attending (küche, kinder und kirche)." - Frank E. Smitha. World History.

"Walter Eucken was a professor of economics at the University of Freiburg, Germany and an architect of the economic reforms that led to the Economic Miracle. In this article Eucken wanted to explain the problems and weaknesses of centrally administered economies such as that of National Socialist (Nazi) Germany and the Soviet Union.

The Nazi economic system developed unintentionally. The initial objective in 1932-33 of its economic policy was just to reduce the high unemployment associated with the Great Depression. This involved public works, expansion of credit, easy monetary policy and manipulation of exchange rates. Generally Centrally Administered Economies (CAE's) have little trouble eliminating unemployment because they can create large public works projects and people are put to work regardless of whether or not their productivity exceeds their wage cost. Nazi Germany was successful in solving the unemployment problem, but after a few years the expansion of the money supply was threatening to create inflation.

The Nazi Government reacted to the threat of inflation by declaring a general price freeze in 1936. From that action the Nazi Government was driven to expand the role of the government in directing the economy and reducing the role played by market forces. Although private property was not nationalized, its use was more and more determined by the government rather than the owners.

Eucken uses the case of the leather industry. An individual leather factory produces at the direction of the Leather Control Office. This Control Office arranged for the factory to get the hides and other supplies it needed to produce leather. The output of leather was disposed of according to the dictates of the Leather Control Office. The Control Offices set their directives through a process involving four stages:
1. The collection of statistical information by a Statistical Section. The Statistical Section tried to assemble all the important data on past production, equipment, storage facilities and raw material requirements.
2. The planning of production taking into account the requirements of leather by other industries in their plans; e.g. the needs of the Shoe Control Office for supplies of leather. The available supply of hides limited the production of leather. There had to be a balancing of supply and demand. The result of the planning of all the control offices was a Balance Sheet. There was some effort at creating some system for solving the planning, such as production being limited by the narrowest bottleneck, but in practice the planning ended up being simply scaling up past production and planning figures.
3. The issuing of production orders to the individual factories.
4. Checking up on compliance with the planning orders." - Thayer Watkins. The Economy of Germany.

""The economic policies of the Nazis were designed to help the largest corporations in Germany, particularly ones where high-ranking Nazi official were majority shareholders. Small businesses and companies in non-essential industries were bought out, driven out of business or confiscated if the owners were enemies of the state such as Jews and Communists. Nazi-controlled corporations benefited because they both obtained the assets of the other companies and had fewer competitors as a result. The former owners of the small businesses, many of whom were highly skilled artisans, would then be forced to work for these large corporations in order to earn a living." - Review of "The Economics of Barbarism Hitler's New Economic Order in Europe". J. Kuczynski and M. Witt .

"By 1948 the German people had lived under price controls for 12 years. Adolf Hitler had imposed them on the German people in 1936 so that his government could buy war materials at artificially low prices. (Roosevelt and Churchill also imposed price controls.) In November 1945 the Allied Control Authority, formed by the governments of the United States, Britain, France, and the Soviet Union, agreed to keep Hitler's price controls in place." - The German Economic "Miracle" by David R. Henderson

"Hitler himself apparently never had a clue that the economic policies he had followed for the first three years of his regime were responsible for his production problems. By 1936, Kershaw makes clear, Hitler believed his own press clippings regarding his economic acumen. Thus, for Hitler, the food crisis only confirmed his preconceptions. In the secret memorandum on which Goring's Four Year Plan was based, Hitler wrote, "We are overpopulated and cannot feed ourselves from our own resources. The solution ultimately lies in extending the living space of our people, that is, in extending the sources of its raw materials and foodstuffs." That is, the problem is not my fault and the answer is war, not economic reform." - Book review by Michael McMenamin; Hitler, 1889-1936, by Ian Kershaw

"The state did not own industry in Germany. It consequently needed to have a legal instrument with which to implement the plan. The Nazis signed long-term contracts with industry groups to buy their outputs at fixed prices. These contracts where nominally contracts expressing agreement between the two parties. But they were decidedly unequal. The Nazis viewed property as conditional on its use - not a fundamental right. If the property was not being used to further Nazi goals, it could be nationalized. Prof. Junkers of the Junkers aeroplanes factory refused to follow the government's bidding in 1934. The Nazis thereupon took over the plant, compensating the Junkers for his loss. This was the context other contracts were negotiated." - Soviet and Nazi economic planing in the 1930's. Peter Temin (pdf).

Carpooling Fallacy

2004-07-04T09:15:00.000Z

The carpooling fallacy is probably as old as cars. The argument goes something like this: of course it saves energy to car pool, since then we need fewer cars.

If only the world would be that simple. The underlying thinking behind this fallacy is that oil is something special and needs more attention than other scarce resources. Sure, oil will run out in the end as will many other things but it is not time to panic.

Lets give the collectivists that have been coming up with the various schemes to force people to share cars some head start. Lets say that their schemes actually reduce their nations oil consumption (there are now special high-occupancy vehicle lanes and rules that restrict parking spaces in firms, all to increase the "incentive" for people to ride together).

The minus part of the equation is what is always forgotten. We are not potatoes on a conveyer belt when we drive to work every day, although an alien observer might be given that false impression when he sees the morning traffic. We are individuals and our ways are both mysterious and unpredictable to most persons.

If we are forced to give up some of our valuable freedom. Time is wasted in waiting for someone to be picked up on the way to work. People have to spend time and energy in co-ordinating their work schedule in order to be able to go home without too much delay. Flexibility is lost, since car-poolers can't go straight to pick up their kids or do some shopping after work. Is what we certainly give up really worth the unproven energy savings?

The car pooling fallacy is jus one more way of the collectivist to manipulate the lives of ordinary people.

German Economic "Miracle" and the Nazi economics

2004-07-03T23:27:00.000Z

One important lesson in the history of economics is the revival of the German economy after the WWII. Most people think that the Marshall plan was to thank for the miracle, although the plan only contributed 5% of the German GNI at its peak. The reason for the miracle is the same as for any other economic miracle: sound economic policies. Of course a country does not have to install a perfect economical system to prosper. Capitalism is resilient and can evidently thrive in moderately socialistic countries.

After the war the old Nazi system was still in place with high taxes and price controls. In an article by David R. Henderson the results of the abolishment of the old system is described quite well:

The effect on the German economy was electric. Wallich wrote: "The spirit of the country changed overnight. The gray, hungry, dead-looking figures wandering about the streets in their everlasting search for food came to life."

The same old story all over again, abolish restrictive controls of the economy and the results are foreseeable. Something for the politicians of today to think about.

Anti Green

2004-07-03T21:33:00.000Z

A new blog from the Australian John Ray: Anti Green. Critical review of environmentalists.

Talking about environmentalist spanking: Lomborg.

Russia of the Tzars

2004-06-30T14:22:00.000Z

The Russian empire was not underdeveloped before the Revolution. At the time it was the one of the largest economies in the world with a developed educational and transportation system. Above is a picture taken by Sergei Mikhailovich Prokudin-Gorskii in 1910. In my opinion a good photographer and quite prolific as one can easily see.

"Russia under Nicholas II, with all the survivals of feudalism, had opposition political parties, independent trade unions and newspapers, a rather radical parliament and a modern legal system. Its agriculture was on the level of the USA, with industry rapidly approaching the West European level. In the USSR there was total tyranny, no political liberties and practically no human rights. Its economy was not viable; agriculture was destroyed. The terror against the population reached a scope unprecedented in history. No wonder many Russians look back at Tsarist Russia as a paradise lost." Soviet defector, Oleg Gordievsky, letter to The Independent (London), 21st July 1998.

Advertising

2004-06-28T10:15:00.000Z

Is advertising of any value or is it pure "waste" that gives customers no real value and only increases prices of goods (and services, although people that critizise ads only talk about goods).

I´m not going to talk about this subject in any length, nor will I cite any articles or statistics to support my case. Simple logic will do.

To start with I want to mention two of the underlying problems that can cause misunderstanding of the value of advertising.

First, there is the age old fallacy of leftists only to focus on material things and discount the value of service and work that does not contribute directly to production. Surely a steel worker must add more value than accountant, and advertising is a pure waste. All of us have heard this before.

Second, advertising (most) often appeals to our lowest instincts. Hurry, hurry, only two days left. This product will change your life. You must have this. How can one see value in all of these sleasy adverts.

So is there any value in ads? My answer is yes. Of course not every ad has value, just as any apple does not have value (some are rotten), nor are all cars that surely add value to our society (some are Lemons). I say that ads in general are important factor in our society and are direct contributors to our wealth.

Let's take some examples. Say if a retailer sees an opportunity to buy 1.000 boxes of bananas at an exceptionally low price. The problem is the weekly average sales of bananas is only 100 boxes. What does he do? Should he buy the bananas and let most of them go to spoils or should he buy them and advertise cheap bananas so that both he and happy customers can be a little better off.

Has anyone bought a car or an apartment recently? Anyone want to place a ban on these ads, in order to let less of our valuable resources go to spoils? I need not go furhter on this topic I think.

Sure, many ads are no good, just the same way that some pizzas are ruined due to excess oil or movies that do not live up to the hype. It is a fallacy to condemn ads due to the fact that many of them are no good and/or are bad taste. They serve an important funcion in our society and allow people to save money as well as increase the scope of the consumer.

Of interest

2004-06-27T18:38:00.000Z

The Icelandic blogger Bjarni now has an english blog, Great Auk. He has a nice summary on the economic performance of Iceland during the past decades, but many of our friends on both sides of the Atlantic could learn one thing or two.

John Ray is ever prolific and has a nice link to an article on sociable psychopaths, that he wrote decades ago. Now as ever, quite relevant. It is common event for me to discover that some politician, businessman or some other person that I encounter is most definitely a psychopath. As John describes in his article, psychopaths often have positive characteristics such as outgoing and charming personalities. It is instinctive for many (if not all) of them to agree with everyone, if it fits their purpose at that particular moment. A politician that I know of always says, "yes, I can do this for you", when he is talking to voters. What happens later is irrelevant.

Dick McDonald writes about Saddam's WMD that have been popping up in the various places. Interesting stuff, but should not be surprising given David Key's report in January.

The Psychopathic Dictator

2004-06-27T10:16:00.000Z

Psychopathology has always played an important role in History. It is estimated that 2-5% of all individuals are psychopaths, and it is quite clear that the number is higher among politicians. Why the worst get on top is an interesting question per se and is a worthy subject by itself.

But who do we diagnose someone as a psychopath. There is no universal rule to do this, but since psychopaths are amoral and only care for themselves (although they most often maintain the opposite) and one should try to find signs and symptoms of just that in their life.

DSM-IV: Antisocial Personality Disorder Definition
Sociopathic Personality or Antisocial Personality Disorder is a personality disorder whose essential feature is a pervasive pattern of disregard for, and violation of, the rights of others that begins in childhood or early adolescence and continues into adulthood. The individual must be at least age 18 and must have a history of some symptoms of conduct disorder before age 15. It is diagnosed by the presence of three (or more) of the following:

failure to conform to social norms with respect to lawful behaviours as indicated by repeatedly performing acts that are grounds for arrest

deceitfulness, as indicated by repeated lying, use of aliases, or conning others for personal profit or pleasure

impulsivity or failure to plan ahead

irritability and aggressiveness, as indicated by repeated physical fights or assaults

reckless disregard for safety of self or others

consistent irresponsibility, as indicated by repeated failure to sustain consistent work behavior or honor financial obligations

lack of remorse, as indicated by being indifferent to or rationalizing having hurt, mistreated, or stolen from another

The occurrence of antisocial behavior is not exclusively during the course of schizophrenia or a manic episode. Some of the associated features are: depressed mood, drug addiction and erratic behavior.

ICD-10: F60.2 Dissocial (Antisocial) Personality Disorder
Personality disorder, usually coming to attention because of a gross disparity between behavior and the prevailing social norms, and characterized by at least 3 of the following:
(a) callous unconcern for the feelings of others;
(b) gross and persistent attitude of irresponsibility and disregard for social norms, rules and obligations;
(c) incapacity to maintain enduring relationships, though having no difficulty in establishing them;
(d) very low tolerance to frustration and a low threshold for discharge of aggression, including violence;
(e) incapacity to experience guilt and to profit from experience, particularly punishment;
(f) marked proneness to blame others, or to offer plausible rationalizations, for the behavior that has brought the patient into conflict with society.
There may also be persistent irritability as an associated feature. Conduct disorder during childhood and adolescence, though not invariably present, may further support the diagnosis.
Includes:
* amoral, antisocial, asocial, psychopathic, and sociopathic personality (disorder)
Excludes:
* conduct disorders
* emotionally unstable personality disorder

These are the diagnostic criteria that are most commonly used for a medical diagnosis of psychopaths. The criteria above are not irrefutable science, but with relevant experience they can be used for fairly accurate diagnosis.

The psychopath comes in every shape and form. No specific class or background does seem to generate more psychopaths than others. The psychopaths can be as good looking and clever as the next person and does only occasionally stand out in a crowd.

If one compares the diagnostic criteria seen above with the average dictator, chances are that most or all of the criteria apply. This is of course pretty easy to do, once they start to purge the nation of the Jews, counterrevolutionaries or whatever the propaganda machine deems to be the most likely for popularity to persecute. However, for those that the years before they came to power are well documented, it is usually quite easy to make the diagnosis.

Take the early years of one Adolph Hitler for example. In his childhood Hitler did show his famous temper tantrums, uncontrollable outburst of rage, when confronted or criticized. This is quite typical of psychopaths who almost invariably can't stand the slightest criticism. His personal life was also quite pathological. He had trouble bonding with people in a normal way and had few true friends growing up. His 'love' his niece Geli Raubal was more like an obsession that the poor girl got out of by committing suicide. Eva Braun also attempted suicide but survived, only commit suicide by her masters side a decade later. Hitler of course never blamed himself for his misfortunes as an young man, but he often barely survived in Vienna as an struggling artist. The same trait is evident and well documented, when things started to wrong in the war, he blamed everyone but himself.

The megalomania was also all-consuming. In the dying days of the war when he was in the famous Berlin bunker (with a horde of people, all but one were quite pathological characters) he said that if he should perish, the German people should as well. The United States Office of Strategic Services (OSS) made a psychological profile of Hitler and there are many quotes that are quite revealing of his character: "Do you realize that you are in the presence of the greatest German of all time?; I cannot be mistaken. What I do and say is historical; For the last twenty-four hours I was the supreme court of the German people; I am one of the hardest men Germany has had for decades, perhaps for centuries, equipped with the greatest authority of any German leader... but above all, I believe in my success. I believe in it unconditionally." The verdict of the OSS is of no surprise.

His ideology was, besides being evil, a mixed bag of socialistic ideas blended with fierce nationalism and xenophobia. These ideas were neither original nor coherent. The discrepancies are obvious to all to see and this is what most people have speculated over one time or another. Why was this non-Aryan looking man creating a master race of blond, strong and beautiful people? What is the difference between the Poles, Dutch and Russians and Germans, with respect to blondishness. There is no difference between these nations in that particular mater. What about the nationalism and the internationalism of the Aryan people, but Hitler said that the Nordic people, plus few other nations, were a little Aryan as well. What about his personal life and his hatred of the Jews. One would think that his family had been killed by some crazy Jews. This aspect of Hitler’s life has been studied well by bewildered historians and no reasonable explanation was discovered.

The discrepancies between Hitler’s life and his ideology are easily explainable by his personality; He just does not care.

Many other examples can be found throughout history. Fidel Castro is a fine example of a psychopathic individual that has been able to mesmerize a great deal (the left) of the human population. The son of a rich plantation owner, Castro did show at an early age many of the character traits that would eventually make him famous. His brother Raul said of him: "But Fidel was different. He dominated situations... And, every day, he would fight. He had a very explosive character. He challenged the biggest and the strongest ones, and when he was beaten, he started it all over again the next day. He never quit."* The shallow Fidel took identity refuge in the legendary revolutionary Jose Marti, again and again he discovered eerie similarities to his life and the one of Marti and talked endlessly of this in his numerous speeches. This is just what psychopaths do. They no only steal physical things and lie to advance their cause. They also heavily 'borrow' the identity of people, nations or national heritage. This is what Adolph Hitler did with the Nordic heritage and Wagner. He managed to damage Wagner’s image to the degree that only recently one of his Opera was first played in Israel.

Castro was not merely an unruly teenager in his university years. He was actually quite active in one of the university gangs that was in constant war with other 'youth movements', and Castro was implicated in several murders. This is Fidel Castro in his teens and early twenties. He was not convicted, but then again, are gang members ever convicted of anything.

After rising to power after the revolution, the friendly cigar-smoking revolutionary, started to kill anyone of those in his government that opposed him or was the slightest threat to his power. The all to familiar, after-the-revolution purges. He persecuted the imperialists (foreign companies) and land owners in from the onset of the revolution. But he did not stop there. Throughout his reign, he has persecuted small business owners and private farms, that by no means fit either category. He deviated from his particular form of socialism to pronounce himself a Marx-Leninist, when it became convenient to suck up to the Soviets. Hardly a strong sense of ideology.

We also can see the footprints of the megalomaniac in the Economic policies of Cuba. First, he decided that Cuba was too dependent on sugar production and started to divert the economy toward 'industrialization'. When that failed in a most disastrous way, he became obsessed with sugar, so much that in 1969-70 he forced the bulk of the nation to produce sugar, only to gain some goal that he had set by himself. He even changed the calendar and abolished Christmas, so feverish he was in reaching the goal. Of course the goal was not reached and in the following year a new law was introduced, 'slackers' were to punished severely.

These two are only random examples of psychopathic dictators. The point being, if one takes a good look at the lives and actions of these dictators and their henchmen it becomes obvious that most, if not all, are easily diagnosed as psychopaths. This applies to the megalomaniac Napoleon, cruel Saddam Hussein and the inhumane Chairman Mao and many many more.

*Volker Sierka, Fidel Castro. A biography. p.14)

Of interest

2004-06-18T21:39:00.000Z

Here is a nice blogentry by Geir on The Law by Bastiat . It was written more than 150 years ago and remains one of the best works on economics ever.

Bastiat was inspired by Richard Cobden, an Englishman that fought with success against the "corn law" in England. Mr. Cobdem started a little magazine on economics in the process.

The Angry Economist is one of the best Austrian-Style economic blogs I have encountered so far. Of course I found this site via the ever vigilant Joseph.

Iceland and the EU

2004-06-03T11:10:00.000Z

Why has Iceland not joined the EU (the same probably applies to Norway and Switzerland)? National pride? Independence? Backwardness?

When one tekes a look at this graph, one word comes to mind: Economics.

Why would 3 of the most prosperous countries in the world join assortment of countires that have either failed economic policies (judging by the numers) or are still poor (the newbies).

Eight Great Myths of Recycling

2004-05-29T14:08:00.000Z

Eight Great Myths of Recycling.

I found this nice piece on recycling, and I'm glad that there are more people than Penn and Teller that have any slightest tint of common sence.

Fidel Castro rules for 40 more years?

2004-05-28T00:02:00.000Z

It is not only the good health of the Cuban nation that is wildly exaggerated, the leader has to have his share as well:

Date: May 19 2004
Fidel Castro's doctor denied rumours that the president's health was ailing, saying today the 77-year-old leader is in excellent health and claiming he can live at least 140 years.
Dr Eugenio Selman Housein said Mr Castro continues to run and swim and pointed to the president's participation in a massive protest march on Friday.
Castro led the march past the US diplomatic mission in Havana to protest US policy against the island's communist government for about 800 metres, walking slowly and with some difficulty.
"He is formidably well," Mr Housein told reporters at a conference on "satisfactory longevity" in the capital city. The press "is always speculating about something, that he had a heart attack once, that he had cancer, some neurological problem."
But Mr Castro is healthy enough to live at least 140 years, said Mr Selman, who heads a "120-years Club" that promotes wholesome habits for the elderly.
"I am not exaggerating," said Mr Selman, who believes people are capable of living five times the number of years it takes for the human body to fully grow - which he said is around 25 years.
Cuba's life expectancy, which is 76.6 years, is one of Latin America's highest, and just below that of the United States, which is 77.4 years, according to the CIA World Factbook.
Mr Selman is never far from Mr Castro and marched near the leader on Friday. He is one of 250 medical experts from Latin American and the United States participating in the longevity conference, which runs to Friday.
AP

This story is just magnificent. Remember the story of the longevity of the healthy people of the Caucasus mountains, that were rumored to live way past the age of 100. That fabrication was the result of Stalins facination (and probably wish of) with longlivety. And the healthy Chairman Mao, who was so fit that he swam across a river, much to the delight of his western followers.

Lazy town, the new-new economy

2004-05-27T08:23:00.000Z

Recently Iceland got an new Institution, Lýðheilsustofnun, but it could be called the Public Health Institution or something like that in English. I would like to post a link to their website, but I can´t. There is none. Almost a year after they started operation for the institution that is intended to publish health informationion (among other important things), there is no website.

However, what they have managed to do is push their way into the media to agitate for special taxes for unhealthy foodexactlycactly this should be done is not well planned, and neither is how to deal with the substituted farm products, but most of those are far from healthy.

These muddled ideas are nothing compared to the private initiative taken by a local health-fittness guru. He started immensly popular concept of a town full of lazy and fat people, that a super-fittness hero helps bring to fitness. The children love it and now we have a tv version on the way. The picture above shows how the lazy-town economy works, but children get health coupons if they do a good job in staying fit and eating healthy, and and they can use the coupons for savings in the banking system. This economic system, strangely, works.

Henry Hazlitt

2004-05-22T05:10:00.000Z

For those that have not figured it out, there are four free online books by Henry Hazlitt on the net: Foundations of Morality, Conquest of Poverty, Time Will Run Back and The Wisdom of Henry Hazlitt. The books can be found here.

One of the beutiful promises that sound so fine just before election time is a shorter working week. Who does not want that, why work for 40 hour when one can work less. The 'short working week' has not gained too much popularity in the US or Iceland but here the working week is 40 hours and if anyone works past 8 hours a day, the employer has to pay extra wages for those hours. This has not noticably hampered productivity since most people work more than 40 hours a week (many pundits actually complain about that), probably because most other countries have similar or more severe restrictions. In France the working week has been getting shorter and shorter for the last decades, and a few years ago the week was reduced to 35 hours.

These regulations do interfere with the natural right of employees and employers to make whatever contracts they choose, thus restricting economic development. It is quite sad to see that happen since most people actually do not want these restrictions, even in France.

The ideology behind the the short working week is based on the notion (fallacy) that this 'creates more jobs'. Henry Hazlitt did show this in his book THE Economics in one lesson. Alhtough more people might be employed in some sectors, at least initially, the productivity does not increase.

Hazlitt does attack the fallacy of overtime wages in , The Wisdom of Henry Hazlitt (free online text):

A similar judgment must be passed on all "spread-the-work" schemes. The existing Federal Wage-Hour Law has been on the books for many years. It provides that the employer must pay a 50 percent penalty overtime rate for all hours that an employee works in excess of 40 a week, no matter how high the employee's regular hourly rate of pay.
This provision was inserted at the insistence of the unions. Its purpose was to make it so costly for the employer to work men overtime that he would be obliged to take on additional workers.
Experience shows that the provision has in fact had the effect of narrowly restricting the length of the working week. In the ten year period, 1960 to 1969 inclusive, the average annual work week in manufacturing varied only between a low of 39.7 hours in 1960 and a high of 41.3 hours in 1966. Even monthly changes do not show much variation. The lowest average working week in manufacturing in the fourteen months from June, 1969 to July, 1970 was 39.7 hours and the highest was 41 hours.
But it does not follow that the hour-restriction either created more long-term jobs or yielded higher total payrolls than would have existed without the compulsory 50 percent overtime rate. No doubt in isolated cases more men have been employed than would otherwise have been. But the chief effect of the over time law has been to raise production costs. Firms already working full standard time often have to refuse new orders because they cannot afford to pay the penalty overtime necessary to fill those orders. They cannot afford to take on new employees to meet what may be only a temporarily higher demand because they may also have to install an equivalent number of additional machines.
Higher production costs mean higher prices. They must therefore mean narrowed markets and smaller sales. They mean that fewer goods and services are produced. In the long run the interests of the whole body of workers must be adversely affected by compulsory overtime penalties.
All this is not to argue that there ought to be a longer work week, but rather that the length of the work week, and the scale of overtime rates, ought to be left to voluntary agreement between individual workers or unions and their employers. In any case, legal restrictions on the length of the working week cannot in the long run increase the number of jobs. To the extent that they can do that in the short run, it must necessarily be at the expense of production and of the real income of the whole body of workers. The Wisdom of Henry Hazlitt: Chapter 23: False Remedies for Poverty

Oil prices

2004-05-21T01:29:00.000Z

For the last days the oil prices have been rising. Are we to worry?

Chaos Complexity and Hayek

2004-05-18T12:27:00.000Z



Chaotic systems can form structural and functional systems, without a central direction.

As Caldwell notes, Hayek initially thought the dividing line between possible and impossible positivism lay in the distinction between natural sciences and social sciences, but by the 1950s he had come to understand that the issue was really one of complexity. A positivist, predictive science is possible only for phenomena, whether human or natural, that are relatively simple—particle physics, for example. One can never fully model and predict complex phenomena such as the spontaneous orders produced by the interactions of simpler agents. These orders include the human brain, whose higher functions cannot possibly be inferred from its physical substratum, as well as ecosystems and, of course, markets, cultures, and other human institutions.
Hayek, in other words, fully anticipated the rise of what we now know as the study of complex adaptive systems, or complexity science. Drawing much of its inspiration from evolutionary biology, this approach is today practiced in such places as the Santa Fe Institute, a multidisciplinary think tank that uses agent-based simulations to model the emergence of complex behaviors on the part of larger collectivities. But Hayek would doubtless disapprove of the research agenda in much of the complexity field, which seeks to use these models to produce deterministic, predictive outcomes. HAYEK’S CHALLENGE: An Intellectual Biography of F. A. Hayek.

There goes the dirty Maximum

2004-05-11T23:34:00.000Z

But in the French Revolution maximum prices were not enforced by the same method of capital punishment which the Emperor Diocletian had used. There had also been an improvement in the technique of killing citizens. You all remember the famous Doctor J. I. Guillotin (1738-1814), who advocated the use of the guillotine. Despite the guillotine the French also failed with their laws of maximum prices. When Robespierre himself was carted off to the guillotine the people shouted, "There goes the dirty Maximum." von Mises

The state of Sweden

2004-05-11T00:06:00.000Z

There something rotten in the state of Sweden.

Rent controls

2004-05-10T23:54:00.000Z

This is the supermodel Kim Alexis. She lives in an cheap apartment in New York. The apartment is not cheap because it's in a poor state or in a bad neigbourhood. The reason why her big down town apartmet is cheap is due to rent control.

We have seen one presentation of price controls. This is another unfortunate result of rent controls. It is not possible to rent the apartment at market levels, so rich people often end up renting dirt cheap apartments.

Asymmetric Infromation: The story of the Dead Tulips

2004-05-08T17:59:00.000Z

The trem asymmetric information has been much talked about lateley, especially after George Akerlof, Michael Spence and Joseph E. Stiglitz were awarded the Nobel price in Economics in 2001. The Economist defines it in this way:

When somebody knows more than somebody else. Such asymmetric information can make it difficult for the two people to do business together, which is why economists, especially those practising GAME THEORY, are interested in it. Transactions involving asymmetric (or private) information are everywhere. A government selling broadcasting licences does not know what buyers are prepared to pay for them; a lender does not know how likely a borrower is to repay; a used-car seller knows more about the quality of the car being sold than do potential buyers. This kind of asymmetry can distort people's incentives and result in significant inefficiencies.

It is true that we would probably be better off without asymmetric information. People could buy more over the internet for example and therefore save considerable amounts, only if they would trust the other party. The same goes for used cars and many other things. We have all passed by good buys due to lack of trust, as well as buying lemons. Of course the world will never be without asymmetric information. God almighty would not only have to remove all dishonesty from the human race, but he would also have to remove all the information and knowledge as well.

The story below is how I first learned about asymmetric information:

Giorgio Inzerilli went to the flower market on his first day in Netherlands. There he saw the most beautiful set of tulips he had ever seen. Nothing close to that he had ever seen in his native Torino. And the price. Simply ridiculously low. He bought the tulips and placed them in the window of his apartment. The next day, much to his surprise, all of the flowers had died.

This little story shows us few things about asymmetric information. Not only does it show (and everyone can probably remember many similar events in his own life) that it is part of everyday life and we are either the ones that have more or less information than the other party.

We also see that the price of the flowers reflects the asymmetric information in that particular situation. The lady with the flowers knows that people don't trust her as much as a respected flower retailer. And what happens to the price, it goes down of course. The next day she might have new batch of flowers that would last the week, but the price would not go up. No one would trust her any more the next day; the market attempts to solve this problem by lowering the price the price of goods due to the uncertainity in the situation.

In most instances the market (society if you will) has attempted to solve these problems, often with quite good results . For example when I was buying a car last fall I could take the car to a repair shop for a detailed check before the purchase (very cheap actually). I could also get a good feel for the market by browsing the market on the net. Some entrepreneurs managed to sign up all of the car dealers in the region. This is a pure market driven solution that gives the buyer a valuable tool to explore the market and therefore reduce the 'information gap'. This is just a everyday example how the market solves the problem and there is no need for institutions to "to counteract the effects of quality uncertainty" as George A. Akerlof would have liked us to believe.

The Liver Palms of Kim Jong Il

2004-05-06T12:42:00.000Z

"In the past, I used to smoke and drink a lot. Now I've quit smoking and I only drink a little wine" - Kim Jong Il

The dear leader of North Korea shows us his liver palms. Those are the red spots on his palms.

Liver palms
Palmar erythema is a reddening of the palms of the hands affecting the thenar and hypothenar eminences. The soles of the feet are often also affected.

Palmar erythema can be a feature of chronic liver disease, pregnancy, thyrotoxicosis, rheumatoid arthritis, polycythaemia and rarely chronic febrile diseases, chronic leukaemia, or shoulder-hand syndrome.

Palmar erythema may also be the result of dermatoses such as eczema or psoriasis. It may also be a normal finding.

It has been attributed to high oestrogen levels. GP Notebook

Who is this young man

2004-05-06T00:37:00.000Z

He had been something of a bohemian in his youth, and always regarded young people and their idealism as the key to progress and the overcoming of outmoded prejudices. And he was widely admired by the young people of his country, many of whom belonged to organizations devoted to practicing and propagating his teachings. He had a lifelong passion for music, art, and architecture, and was even something of a painter. He rejected what he regarded as petty bourgeois moral hang-ups, and he and his girlfriend "lived together" for years. He counted a number of homosexuals as friends and collaborators, and took the view that a man's personal morals were none of his business; some scholars of his life believe that he himself may have been homosexual or bisexual. He was ahead of his time where a number of contemporary progressive causes are concerned: he disliked smoking, regarding it as a serious danger to public health, and took steps to combat it; he was a vegetarian and animal lover; he enacted tough gun control laws; and he advocated euthanasia for the incurably ill.

He championed the rights of workers, regarded capitalist society as brutal and unjust, and sought a third way between communism and the free market. In this regard, he and his associates greatly admired the strong steps taken by President Franklin Roosevelt's New Deal to take large-scale economic decision-making out of private hands and put it into those of government planning agencies. His aim was to institute a brand of socialism that avoided the inefficiencies that plagued the Soviet variety, and many former communists found his program highly congenial. He deplored the selfish individualism he took to be endemic to modern Western society, and wanted to replace it with an ethic of self-sacrifice: "As Christ proclaimed 'love one another'," he said, "so our call -- 'people's community,' 'public need before private greed,' 'communally-minded social consciousness' -- rings out…! This call will echo throughout the world!"

The reference to Christ notwithstanding, he was not personally a Christian, regarding the Catholicism he was baptized into as an irrational superstition. In fact he admired Islam more than Christianity, and he and his policies were highly respected by many of the Muslims of his day. He and his associates had a special distaste for the Catholic Church and, given a choice, preferred modern liberalized Protestantism, taking the view that the best form of Christianity would be one that forsook the traditional other-worldly focus on personal salvation and accommodated itself to the requirements of a program for social justice to be implemented by the state. They also considered the possibility that Christianity might eventually have to be abandoned altogether in favor of a return to paganism, a worldview many of them saw as more humane and truer to the heritage of their people. For he and his associates believed strongly that a people's ethnic and racial heritage was what mattered most. Some endorsed a kind of cultural relativism according to which what is true or false and right or wrong in some sense depends on one's ethnic worldview, and especially on what best promotes the well-being of one's ethnic group.

Answer

The pot at the end of the garbage rainbow: Trash-sorting

2004-05-05T18:16:00.000Z

Last night I was watching the highly politically incorrect 'Penn and Teller Bullshit'. This program was about recycling. I'm not going to cover what was said in the program; recycling does not make any economical sense and we are not drowning in garbage etc. There is this one quote that I want to focus on. This is very interesting and quite telling in how absurd arguments can get, when someone tries to defend one economic fallacy or another. This is what Neil Seldman said, but he is the President of something called the Institute for Local Self-Reliance:

"That's what we call the pot at the end of the garbage rainbow, that's where the fifteen to twenty dollar an hour jobs, with health insurance etcetera, makes people able to make a decent living through recycling".

This is amazing, he is telling us that if the government takes away our money (I say our, since recycling is subsidised in every country with active recycling programs) only to create shitty jobs. The government destroys many jobs due to high taxes and inches many people closer to poverty, and then creates lousy jobs instead.

The argument that this Neil makes is not something new. Once more I quote Frédéric Bastiat, this time from one of his best work, What Is Seen and What Is Not Seen, where he responds to a similar argument as above:

Now, if I am not mistaken, no sooner will the author of the proposal have descended from the platform, than an orator will rush up and say:
"Discharge a hundred thousand men! What are you thinking of? What will become of them? What will they live on? On their earnings? But do you not know that there is unemployment everywhere? That all occupations are oversupplied? Do you wish to throw them on the market to increase the competition and to depress wage rates? Just at the moment when it is difficult to earn a meagre living, is it not fortunate that the state is giving bread to a hundred thousand individuals? Consider further that the army consumes wine, clothes, and weapons, that it thus spreads business to the factories and the garrison towns, and that it is nothing less than a godsend to its innumerable suppliers. Do you not tremble at the idea of bringing this immense industrial activity to an end?"
This speech, we see, concludes in favour of maintaining a hundred thousand soldiers, not because of the nation's need for the services rendered by the army, but for economic reasons. It is these considerations alone that I propose to refute.
A hundred thousand men, costing the taxpayers a hundred million francs, live as well and provide as good a living for their suppliers as a hundred million francs will allow: that is what is seen.
But a hundred million francs, coming from the pockets of the taxpayers, ceases to provide a living for these taxpayers and their suppliers, to the extent of a hundred million francs: that is what is not seen. Calculate, figure, and tell me where there is any profit for the mass of the people. Frédéric Bastiat, Selected Essays on Political Economy: What Is Seen and What Is Not Seen

The French in the 18th century where a lot more civilized than people today. Now we reduce the employment of thousands of people to sorting through garbage, an activity that is only reserved for the most poor in the third world.

How to reduce the trade deficit

2004-05-05T14:46:00.000Z

How to get rid of the trade deficit that most nations suffer so dearly from? It is very simple indeed as the picture above shows. Everyone sees only the negative aspects of this event, but there is indeed a positive side to it: it reduces the trade deficit. The French genius Frédéric Bastiat first came to this realization more than 150 years ago. The argument is as follows:

A French business man bought $1000 worth of goods in France and shipped them to the United States and sold the goods for $1200, thus a $200 profit. He bought cotton for the $1200 and shipped the goods from the United States back to France.

This little endeavour did hurt the interest of France in the most serious way, it created unfavourable balance of trade. If the ship had sunk midway in the first voyage, the customs officials would have accounted only for the $1000 worth of goods (in Franks of course) but not the $1200 worth of goods that came from across the ocean, thus, if that would have happened, the trade deficit of France would have been $1000 more favourable.

The problem was, that although highly beneficial for the trade balance, ships do not sink in a regular and predictable way, so Bastiat came up with a better solution:

There is still a further conclusion to be drawn from all this, namely, that, according to the theory of the balance of trade, France has a quite simple means of doubling her capital at any moment. It suffices merely to pass its products through the customhouse, and then throw them into the sea. In that case the exports will equal the amount of her capital; imports will be nonexistent and even impossible, and we shall gain all that the ocean has swallowed up. Bastiat, Frédéric, Economic Sophisms

Postscript: Is this what the Boston Tea Party was all about?

The Newcastle golf course in Seattle

2004-05-05T00:39:00.000Z

This place used to be a landfill.

Balance of trade

2004-05-04T20:54:00.000Z

This graph does show the US trade balance from 1970 to 2000. What is striking is that the graph is almost all of the years in the negative. How can that be, everyone know that a negative trade balance is bad, there is obviously something wrong with this picture. What is wrong is the understanding of what balance of trade is. It is deceptive to think that negative trade balance is something negative. This is only natural, since most often a word has only one particular meaning.

International trade balance is a national accounting phenomenon, and as such can be quite deceptive. Most importantly it only accounts for physical goods and does not include services. Also it counts foreign investment as dept. This means that software and other non-physical goods are not in the equation.

The trade balance is a number that is based on innumerable number of trades. For example if someone buys a new car from abroad, the balance 'worsens' but of course the trade is beneficial for both parties. The seller gains, say, $20.000 and the buyer gains a new car. Most often deals like this go as planned and both parties are happy.

Of course the buyer of the car has not done any damage to his country, although he has armed a politician with a lethal weapon, namely the 'trade balance has increased' exclamation that the opposition uses a lot in the times of plenty.

Think things.

The only bad trade deficit is the part that is created by deals that do not make sense from economical standpoint, such as many government projects.

Megalomania II

2004-05-04T11:55:00.000Z

Personality cult is the direct result of the megalomania that all these dictators suffer from. The same megalomania also dictates their adoption of political doctrine and the method of governance, all of them embrace some social variant as their political system and run the country in a top-down fashion.

'Laissez faire' does not exist in their lexicon.

Cuban Buildings

2004-05-04T10:43:00.000Z

Crumbling building in Cuba. Who takes responsibility of this building. The official response I just heard on the TV is something like this, "people don't take care of the buildings they live in. They live just wait for the government to do something." Of course no one repairs a building that he does not own, especially when everything that is needed for maintaining the building is rationed. Throw in some permissions that have to be obtained in order to do anything, the results are predictable.

This one needs more than paint. The Cuban government not only strangles all private effort but it is also totally negligent in maintaining the buildings in Havana. Economics is the study of the use of scarce resources, which have alternative uses. The government of Fidel Castro does make the resources extremely scarce and what is left is evidently not allocated by the central government to the people.

North Korea

2004-05-04T10:38:00.000Z

Personality cult. The distinction between socialistic (quack) economic ideas, autocratic rule and the megalomania of the leader can be hard to distinguish. The result of this toxic mix is sometimes maddening.

Scarcity This is a night-satellite photograph of a part of Asia. Notice the absence of lights in the happy-happy land of Kim Jong-Il. Everyone is "extremely happy in the prosperous North Korea" according to a governmental spokesperson.

Famine.

Sidney Opera House

2004-05-04T08:20:00.000Z

This is the Opera House in Sidney. A very pretty building indeed and if you ask any Australian, probably few have any regrets over it's construction.

However, the story of the Sidney Opera House is a typical for Formula for any grand government spending: Underestimate the cost and risk involving the project and overestimate the benefits. Then hire an army of consultants and agitators that use these questionable statistics to get the project underway.

Now, everyone says, look at this magnificent building, how can you say that this was an bad idea. The acoustics are magnificent to the delight of opera fans, and also think of the jobs that are created in the tourist industry due to this magnificent landmark. Sure, the project took 15 years, the cost was about $100 million and the operation still needs government funding, but surely the benefits outweigh the cost.

This is true. A grand house indeed and a true landmark that draws people from around the globe to Sidney. No one disputes that. What is missing from the equation is what is not so easily visible. Everyone can see the big building, but can you see the faces of frustrated Australian taxpayers decades ago or do you see the important road or bridge that was not built, due to financial constraints created by the Opera project. Of course not.

Megalomania

2004-05-04T00:10:00.000Z

megalomania \meg-uh-lo-MAY-nee-ah; -nyuh\, noun:
1. A mania for grandiose or extravagant things or actions.
2. A mental disorder characterized by delusions of grandeur.

And this is just mind-boggling: The Official Home Page of North-Korea*

* This is a not really the official site, but, as my friend said on occasions, it could be true and therefore it does not mater.

Magnitogorsk experience

2004-05-03T08:35:00.000Z

"Consumption is the sole end and purpose of all production." - Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations. Anno 1776. . People should know this and never forget. To produce something when no one is asking is a recipe for disaster as History shows us. If someone decides to invest a great part of his or his nations wealth in a single project, then there is no room for failure.

Magnitogorsk plant. This is the result of Stalins first 5 year plan. The original 5 year plan. The mother of all the other year plans, Hitlers 4 year plan, Icelandic 3 year plans and all the others.

Among the projects covered were ones such as Magnitogorsk, which was intended to be manned only partly by forced labor and was originally publicized as the greatest of steel works and a model city for prosperous proletarians. The steel works emerged, but the model city failed to follow. Economists pointed out that this “Largest Steel Mill in the World” would be located where fuel had to be delivered from afar, that the deposits might give out (as they did eventually), and so on. This ill-considered crash planning became a feature of the Gulag. Robert Conquest, The Economics of Forced Labor: The Soviet Gulag

The Soviet emphasis on steel is not surprising, given the governments agenda.

The wisdom of Che

2004-05-03T08:34:00.000Z

"To build communism, a new man must be created simultaneously with the material base." - Ernesto Che Guevara, Man and Socialism in Cuba

The great

2004-05-02T21:04:00.000Z

Normandie was one of the great ocean liner of last century. It had its maiden voyage in 1935 and captured the Blue Riband from Queen Mary. The motive for the construction of this grand and beautiful ship was not for pure economic reasons, but it was seen as a token of French industrial strength. It was never profitable.

In the seventies every superpower just had to have one. The US, British, French and even the Soviet started to build supersonic airliners. Above are the Soveit TU-144 and the Concorde. National pride but not economic reasons was the motivation for these flying financial disasters.

The progress of Fidel Castro

2004-05-02T12:36:00.000Z

"The setting up of a social system which eliminates selfish exploitation of the means of production, of a social system which converts the means of production into the people's property, something to be developed for the benefit of the whole people, finds its complement in the introduction of technology and machinery. As a result, not only can man work for society as a whole, but his work will also have a far higher productivity and he is freed from the kinds of work that are really hard.

You will understand perfectly well the effort required by 40 men working 8 hours in a climate such as ours, digging furrows; you will understand how much human energy, how much effort and how much sacrifice these machines eliminate.

Through such methods, as the result of its tremendous rate of progress thanks to the use of technology, a modern and just society can achieve successes which will permit even animals -- those animals we still look upon with sorrow from time to time, because we also see them working in the fields -- will be set free by these machines. - Fidel Castro (1968)

Visual Economics - Seeing The Unseen

2004-05-02T11:45:00.000Z

Often the results of economic fallacies are not so obvious except in the wallet of the individual. For example in Iceland the price of Milk is price controlled and this is something that one knows and is not obvious when one goes to an Icelandic supermarket. As times goes by the rules and regulations are that usually start as a beautiful promise by politicians will reveal themselves and we can watch the results.
Frédéric Bastiat wrote the essayWhat Is Seen and What Is Not Seen. There he writes about the bad ideas that are put into action because their long term effects are not easily visible. Everyone can see a beautiful bridge or a symphonic orchestra but who can see the more economical bridge that was not built or the shrinking wallet of taxpayers.
However, the disastrous effects of bad policy, human stupidity and ideological madness are often visible in a most dramatic way in the long run:

Justified state project This monster of a house was built for a radio station in Iceland. A radio station, someone might as. Are you crazy, nobody needs a palace for one silly radio station...this is by no means a economically viable endeavour. The catch is that the question if this was a smart idea from an economical standpoint was not raised and was indeed an non-issue. The house was was built by the state for a state owned radio station.

Lebensraum The battle of Kursk. In 1943 the greatest tank battle ever took place on the vast plains of Russia. In the battle that lasted 5 days 435,000 German soldiers and 2,700 tanks fought against 1,550,000 Russians with 4,800 armoured vehicles.

Adolf Hitler was a sucker for silly ideologies and quack economic fallacies. He decided not to believe that trade and economic freedom was the best way to bread feed the people although the evidence was all around him. His adopted ideas of lebensraum was one of the chief motivators of the war and the invasion in the Soviet was to ensure enough food (note, not prosperity) for the Volk.

Freedom in trade and economics is a peaceful way of ensuring not only the modest goals of merely feeding the people but it is a source of immense wealth for those nations who decide to go that route. Frederic Bastiat said in Economic Harmonies: "By virtue of exchange, one man's prosperity is beneficial to all others." Megalomaniacs simply do not comprehend this.

It is certainly true that the productivity of the soil can be increased within certain limits; but only within defined limits and not indefinitely. By increasing the productive powers of the soil it will be possible to balance the effect of a surplus birth-rate in Germany for a certain period of time, without running any danger of hunger. But we have to face the fact that the general standard of living is rising more quickly than even the birth rate. The requirements of food and clothing are becoming greater from year to year and are out of proportion to those of our ancestors of, let us say, a hundred years ago. It would, therefore, be a mistaken view that every increase in the productive powers of the soil will supply the requisite conditions for an increase in the population. No. That is true up to a certain point only, for at least a portion of the increased produce of the soil will be consumed by the margin of increased demands caused by the steady rise in the standard of living.Adolf Hitler, Mein Kamf

A tale of three German cars. Mercedes Benz SKL and Trabant and the WW Beatle. Three cars produced by the same people. What is the difference?

People could actually buy the Mercedes cars in W-Germany and it was so common that it was hardly a status symbol to drive one. For the Trabant people would wait for years or decades to get their car from the state. Not only was the car inferior to what the same people could do 50 years earlier but was rationed as well. The third car was supposed to be produced for das Volk by the Nazi state but although many people did pay for it in advance, no Volkswagen was actually produced for the people in Hitler’s Germany.

Inflation. How did the German government respond to rising prices in the early twenties? They made printing money a large industry. Each new batch of money did only increase the prices further and this did in turn lead to more money to be printed. In less than two years the average prices rose by a factor of 20 billion. Don't believe me. What about the one mark note from 1920 and the 20 billion note from 1923. There is also a 200 billion note but unfortunately some politicians do realize the root of the problem even though they see such a note.

This mad printing spree did of course destroy the German economy where no one really knew the real value of things and an people did spend most of their valuable time chasing goods before the next price hike.

Centralised government. In 2009 the Stone Treasure Village will be below the surface of the Yangtse River when the Three Gorges dam will be finished. A monumental collective effort that was decided on by a selected few.

Centralised government. This gorge will go under as well. The collective that justifies it's existence because the market does not take "externalities" into account decided to build a dam here. The location was not decided due to a fancy NPV calculation or well balanced decision that takes economic and environmental factors into account. Bad economics, but some politicians can make a living in the Icelandic parliament for four more years.

State control of scarce resources. People waiting in queue in post-war Britain in order to get some food. Ques are a sure sign of food rationing but rationing is the the next stage after price controls in the road to serfdom.

Rules and regulations. Why are the old buildings in Amsterdam so narrow? According to Giorgio Inzerilli, the property tax was determined by the with of the facade and of course people responded by building these absurdly narrow houses in order to reduce their tax payments.

Centralised government. In the times of Soviet someone had the brilliant idea to reverse the flow of a river or two in order to produce more cotton. Obviously someone thought this was a good idea at the time.

Prosperity. Seattle protestors. If you see something like this then you know that you are in a prosperous country where people have the right to protest and obviously a lot of free time on their hands.

Visual Economics

2004-05-02T11:36:00.000Z

Government mismanagement. This a picture of Reykjavík Airport. It is situated very close to the town center and supports national flights for the region. The airport is situated only half an hour drife away from an international airport that could easily support all of those flights. The only apparent reason that the airport stays, and therefore locking in the most valuable building sites in the region, is because of the majority of Icelandic parlamentarians are from remote regions and enjoy the comfort of the airport close to the town center and the parliment.

Rent control from cradle to grave. Above is an interest group (angry man) as well as a intermediate product (Joe Pesci) and a final product (abandoned building) of rent control.

It might be strange that in Iceland there is no governmental rent control and people can make rental deals without too much influence from the government. The cause probably is that there is a tradition for people in Iceland to own their houses and to rent an apartment is usually a temporary arrangement. Therefore there is no large infuence group that begs politicians for rent control and politicians therefore pay attention to other groups that need special attention in order to win their vote.

Ok, one less evil for Iceland, but the results can be quite dramatic when the rent control has been in place for several years. One of those evils that no one sees in the beginning. Thomas Sowell has a good passage on this in his book Basic Economics:

Under rent control, for example, property rights can be reduced to worthlessness or even become negative. That is why owners of many apartment buildings in NYC have simply abandoned their buildings and fled the scene, when the costs of the legally mandated services they are required to provide exceed the rents that they are allowed to collect. Since abandonment of the buildings is illegal, these owners go underground when the value of their property right becomes negative. Under these conditions, selling the building is out of the question, since it has become an economic liability, rather than an asset, and finding a buyer may be impossible.
Property rights matter economically because of the incentives they create and the consequences of those incentives for people’s behavior.
In the Soviet Union, a country without property rights, or with the food being owned “by the people”, there was no given individual with sufficient incentives to ensure that this food did not spoil needlessly before it reached the consumer.
Widespread corruption and inefficiency found even under Stalinist totalitarianism suggests the limitations of official monitoring, as compared to automatic self-monitoring by property owners.
Property rights create self-monitoring, which tends to be both more effective and less costly than third party monitoring. (It also points out why employee ownership can truly make a difference.)
The only animals threatened with extinction are animals not owned by anybody. Colonel Sanders is not about to let chickens become extinct. Nor will McDonald’s stand idly by and let cows become extinct. It is things not owned by anybody (air and water, for example), which are polluted. In centuries past, sheep were allowed to graze on unowned land – “the commons” as it was called - with the net result that land on the commons was so heavily grazed that it had little left but patchy ground and the shepherds had hungry and scrawny sheep. But privately owned land adjacent to the common was usually in far better condition.
The empirical question of how the existence or non-existence of property rights affects the economic well being of society as a whole which provides the strongest evidence for the social benefits of property rights.
While strict adherence to property rights would allow landlords to evict tenants at will, the economic incentives are for them to do just the opposite – to try to keep their apartments as fully rented and as continuously occupied as possible, so long as the tenants pay their rent and behave themselves.
Under rent control and tenants rights laws, landlords have been known to try to harass tenants into leaving, whether in New York or in Hong Kong.
Under stringent rent control and tenants rights laws in Hong Kong, landlords were known to sneak into their own buildings late at night and vandalize the premises, in order to make them less attractive or even unlivable, so that tenants would move out and the empty building could then be torn down legally, to be replaced by something more lucrative as commercial or industrial property.

Henry Hazlitt also has a good passage in his modest free online book The Wisdom of Henry Hazlitt:

Still another example of our shortsighted legislation is rent control. This is usually imposed in the early stages of an inflation. As the inflation goes on, the discrepancy between the rent the landlord is allowed to charge, and the rent necessary to yield him a return comparable with that in other investments, becomes greater and greater. The landlord soon has neither the incentive to make repairs and improvements, nor the funds to make them.
When the rent control is first imposed, the government promises that new buildings will be exempt from it; but this assurance is soon repudiated by a new law. It becomes unprofitable to build new rental housing. New mortgage money for it becomes increasingly difficult to obtain. Landlords of old housing often can no longer supply even heat and other essential services. Some cannot even pay their taxes; their property has in effect been expropriated; they abandon it and disappear. Old rental housing is destroyed quicker than new housing is built
Some favored tenants, already in possession, are momentary beneficiaries, but tenants or would-be tenants as a whole, in whose interest the legislation has been professedly passed, become the final victims. The irony is that the longer rent control is continued, and the more unrealistic the fixed rents become as compared with those that would yield an adequate return, the more certain the politicians are that any attempt to repeal the rent control would be "politically suicidal."

More articles on price controls. A very good collection of articles in Capmag. I recommend the article on the book Forty Centuries of Wage and Price Controls. On my to-buy-list.

Visual Economics -War

2004-05-02T11:26:00.000Z

A typical war-time economic mentality. Sometimes economic systems like this prevails during peaceful times as recent examples show us (hint: milk, drugs, Cuba).

It is of course unwise to disconnect all sense of price and therefore make it difficult or impossible for people to decide what to produce to satisfy demand. How can one know if there is more shortage of beef or butter if everyting is rationed and no price increases that can direct production in the right direction (towards the customers needs).

There is nothing unique in consumtion of goods in times of war. If the state has to produce weapons and divert useful human and material resources to satisfy the need of the 'Victory', then there is less produced of essential and non-essential goods for the people of the nation. What changes, if the age-old useful concept of money is reduced to a shadow of itself by taking up a system of rationing and price controls?

Of course the beurocrats do not take into account corruption and the human nature of people to do what is best for them in any given situation. If you have something in a rationed economy, do you just take what you are rationed or do you go to the black market. History has the answer in this instance and I rest my case for now.

Visual Economics - Market Failure

2004-05-02T11:20:00.000Z

Market failure: Take 1. When one types "market failure" in google image search then almost all of the images are some silly graphs as if one can discover the truth of true market failures by drawing a few lines on a paper.

Market failure: Take 2. Castro virtually abolished the private market in Cuba with disastrous results. A country that was one of the richest in the region in 1958 is now one of the poorest. The underground market in Cuba prevents the total collapse of the Cuban economy. Honourable people collect dollars by serving tourists in a variety of ways in order to prevent starvation. That is a true market failure: the market should go on strike and let the empire fall. She keeps the economy afloat but she should be studying medicine or whatever she would be doing in a free economy.

Market failure: Take 3. Remember watching on tv the Argentinian pot-banging people took to the streets in protest against the government. This is what happens when one spends too much money. No dollar-peg, government bonds (with the dollar-peg they resorted to printing bonds) or IMF loans can prevent the inevitable. This is what happens to individuals who spend more than they can earn but unlike governments, no one believes the individual when he blames everyone but himself for his misfortunes.

Market failure: Take 4. This is the source of the largest market failure in history. This should be a picture of his brain but it is not available although a detailed description of the brain does exist. This is where people should look for market failures. The stupidity of politicians and intellectuals is the real cause of the true market failures. The only market failures are when someone poisons, kills or puts chains on the market.