It's A Bit Out Of Control - Soviet Style - Isn't It?
June 03, 2011
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How I Escaped Mainstream Economics
One of the things that shook my faith in mainstream economists is when I learned how easily they were duped by Soviet econometrics. The Soviets would put out production numbers, growth numbers, etc, and Western econometricians just fawned all over them. As late as the 1980s, the most influential Western economists were speculating upon the future economic dominance of the Soviet Union.
"Every economy has its contradictions …. What counts is results, and there can be no doubt that the Soviet planning system has been a powerful engine for economic growth." ~ Paul Samuelson, Economics, 1985 edition
"Contrary to what many skeptics had earlier believed, the Soviet economy is proof that … a socialist command economy can function and even thrive." ~ Paul Samuelson, Economics, 1989 edition
Paul Samuelson is the most influential economist of the 20th century. He was also an economic ignoramus. While selling 4 millions copies of his Keynesian texts to Universities throughout America, thus poisining an entire generation of American scholars with his utter nonsense (see some of our fellow CAPS fools for proof), he continued to predict the eventual rise of the planned economy of the USSR.
During that time another economist, toiling away in obscurity at a small technical college in NYC, was predicting the opposite. Without any fanfare, Murray N. Rothbard laid out his case against the planned economy. Prices rely on exchange, he theorized (what a novel concept!) How can there be prices if there is no exchange? How can you exchange with yourself? If the entire economy is planned by a central authority, then the central authority in essence, owns everything! Therefore, there is no exchange and no prices.
But there certainly were prices in the USSR, and rosy economic statistics. Where did these prices come from? The Soviets did a lot of catalog shopping, it turns out. The Soviet economists would read catalogs from Western nations and copy their prices. Seems like a good idea, if you've been state educated (in other words, mis-educated.) But prices are determined by several factors, among the most of important is the scarcity of the good in question in relation to wants. Since the scarcities in California and Hong Kong are different than they are in Kiev or Vladivostock, these prices didn't do the central planners all that much good. It also raises the question of why anyone would pay another person to look through a catalog and copy prices, but as we are learning, most of the modern economics profession provides little worth to the market.
Government is Government, Liars are Liars
So the Soviets had prices. They had a growing GDP. They had a fully employed labor force. Certainly after 70 years of central planning they must have been one of the most formidable economies in the world. Keynesians agreed. Murray N. Rothbard, last of the Austrian School, knew it was all smoke and mirrors, but nobody was listening. The "profession" had made up its mind.
When the wall came down and the Iron Curtain was exposed as nothing more than a Cotton Sheet, news spread quickly that the USSR was little more than "Bangladesh with missiles." It was among the poorest nations on Earth. How could this be? Paul Samuelson blamed the Soviets for his errors. How could he have known the numbers were juiced, he protested?
Well, why did you believe them?
Keynesians have always wanted to believe that central planning works, no matter the evidence. They are wrong and will always be wrong. Today's America bears many similarities with the USSR, besides the obvious foray into the Graveyard of Empires.
It's Looking Awfully Familiar
Every month, government economists fiddle with economic data to paint as rosy a picture as they can without being laughed out of the room. The Sons of Samuelson have been trumpeting a recovery for over a year now. The government economists say the recession ended in 2009! Meanwhile, the Sons of Rothbard continue to be ignored by the rest of the "profession." They predicted the crash. They predicted that economic recovery would be hampered by central planning and government intervention. (See Thomas Woods' sensational book Meltdown, written immediately after the crash, for a detailed prediction of everything that has happened since.) Once again, they were correct.
One of the ways it has become more interesting is that a new school, Modern Monetary Theory, has popped up to become the chic defenders of central planning. Cullen Roche, their most popular proponent and blogger at The Pragmatic Capitalist, has been denying inflation and blaming commodity price rises on speculation for several years now. You would think he'd get a clue at some point.
While Cullen spends his days, much like our CAPS Keynesians, looking at flawed econometrics, the rest of us try to carry the torch of Rothbard by doing our best to understand how an economy works.
Just to highlight the ridiculous position that Cullen has backed himself into, if speculators have been driving up the price of commodities for years, what has fallen in price? If there is no inflation, the money driving up commodities (and stocks, and everything else) is money that can't be spent elsewhere in the economy. The overall effect would be no change in the general price level. If this has been going on for years, what has been falling in price during that time? Housing? But housing was rising in price along with gold for years before the bust. How did that happen?
MMT is no different in this regard than the Keynesians they mock. They use the same methodology (new and improved, they claim), look at the same numbers, and have the same fake definitions for inflation and deflation.
Inflation is the overissue of currency. How can you deny inflation when there was $27 billion in excess reserves in 2008, and there is $1.5 trillion today? Is that not an overissue of currency? How can you deny rising prices when the things you actually need are rapidly rising in price, while the things you don't are holding steady or barely ticking south?
We know that all econometrics are ultimately flawed. Keynesians and MMTers do not grasp this idea. They believe they act "scientifically." Instead, they expose themselves as fools.
Changing Gears
One of the worst aspects of the funny money revolution that occured in 1971 has been the explosion in paramilitary police statism. Thugs, no more intelligent and curious than the feces I just deposited in the plumbing ssytem, armed with assault rifles and covered from head-to-toe in kevlar, are ready to pounce the moment you don't quietly consent to your masters.
There is a market for this kind of activity, but it's a fake market. People do not want this. They want protection, not the ability to blow up every house in the neighborhood. Governments seek out this kind of destructive weaponry, because governments must always maintain control. Any loss of control is a loss of revenue.
Do you want to end that? It's very simple. Cut off their paychecks. These paramilitary criminals are mercaneries, no more and no less. They are treasonous, and in many cases, murderers. But you can't fight them directly, so you have to take away their raison d'etre. That's the paycheck. You have to take away the government's monopoly privilege in the issuance of currency. If you can't do that, those thugs will one day be marching in your neighborhood. I guarantee it.
Of all the reasons I can think of for ending the Federal Reserve and the government monopoly of currency, the protection of the liberty of Americans is the most obvious. I don't know what it will take to get statists and Keynesians to see the light on this one. It seems they are in perpetual denial of the creeping totalitarian state. It seems they believe that Americans want fully battle armed police officers with itchy trigger fingers on every corner, in every school, at every place of business, asking for your papers and beating down anyone (even women and children) incorrgible enough to display the slightest resistance to such unconstitutional probing.
Well, Keynesians are always the last ones to figure out everything else. Why should this issue be any different?
David in Qatar
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