Sunday, November 29, 2009

What Soviet Medicine Teaches Us

The health care debate now raging and the various bills now making their way through Congress and inevitably into law are far from new. In 1961, a pre-Governor of California Ronald Reagan released a record titled Ronald Reagan Speaks Out Against Socialized Medicine. You can listen to the audio from that record below:



Fast forwarding to today,What Soviet Medicine Teaches Us is a great article written by Yuri N. Maltsev. Mr. Maltsev is a Russian born economist who helped dismantle the USSR and thus offers us a much needed outside perspective on the health care debate.

It is incredible that Russian scholars are writing articles praising the virtues of what can best be described as former American values. Meanwhile, US economists and politicians are busy pushing Marxist ideology.

My favorite quote from the article is as follows:

My friend, a famous neurosurgeon in today's Russia, received a monthly salary of 150 rubles — one third of the average bus driver's salary.

When you reach the point described above, where looting is more profitable than working and certain groups are chosen favorites over the more deserving, the whole system is bound to cave in. The US has not reached the point where bus drivers are making more than doctors but with the rapidly collapsing middle class and the now en vogue "gouge the upper middle class" taxes being stuffed into every new bill, things have been headed that way for well over thirty years. A new health care bill, which will eventually make its way to the President's desk where it will be signed into law, will rob more regular people of wealth for the benefit of a chosen few.

I am not saying that I have all the answers, but I am fairly certain that a health care bill written by and for large multinational insurance and drug companies is not the cure for what ails us.

Wednesday, November 25, 2009

Boycott Amazon.com

Updated December 2, 2009: Amazon.com has lifted their ban on The Secret of Oz so the boycott is now off.

Bill Still is a former newspaper editor, publisher, writer of 22 books and creator of two documentary films. His latest documentary film, The Secret of Oz, argues that our current economic problems are caused by the debt based monetary system found in the United States. The US cannot issue money directly but it has to issue debt, which it then must pay interest on. This debt has piled up to the point where the interest is crushing the economy.

With neither warning nor provocation, The Secret of Oz was banned from sale on Amazon.com after being featured on the site for only three days.

Amazon.com has not responded to Mr. Still as to why the film has been banned, which can only lead us to believe that the film was banned for political reasons. Click here to view the Amazon.com page which now lists the video as unavailable. The reviews of the movie found on that page show that customers are quite upset that Amazon has decided to ban the movie. One person noted that "As a longtime customer of Amazon, I am deeply disappointed with them for this action. I'm afraid I'll have to reconsider how much of my money I spend on purchases through this website." We are ready to go one step further - an official boycott of Amazon.com.

I first heard about the ban from Nathan Martin of Nathan's Economic Edge with his post The Secret of Oz Banned on Amazon . Karl Denninger of The Market Ticker is already on board with a call to boycott with his article The Secret of Oz.

Here is how the boycott will work. You must agree to not purchase any items from Amazon.com until the ban on The Secret of Oz is lifted. Most importantly, please send an email to Amazon letting them know about your boycott and the reason for it. If you are a regular customer and were planning on making holiday purchases through Amazon.com, let them know that they have lost your business. You can email them by clicking on the help link on the top right corner of their website and then selecting the Contact Us button in the middle right portion of the Help page.

The following letter is what I have just sent to Amazon:



Hello Amazon.com staff. I have been a regular customer of Amazon for over ten years where I have purchased everything from books, DVDs, CDs, MP3 downloads, video games and household items. I also regularly recommend Amazon.com to friends and family. Amazon.com is one of the great business success stories of the past twenty years and deservedly so.

That's why it is unfortunate for me to notify you that I am now boycotting Amazon.com and I am advocating that others do so as well. This includes canceling my yearly Christmas shopping with Amazon, which I planned to do in the next few weeks. The reason? It has come to my attention that the DVD The Secret of Oz, found at http://www.amazon.com/Secret-Oz-James-Robertson-UK/dp/B002WLS890/ref=sr_1_1?ie=UTF8&s=dvd&qid=1259166984&sr=8-1, has been banned from your website. Several attempts have been made by the seller, Bill Still, to find out why his account has been shut down. With no response after several days and multiple messages sent by Mr. Still, I can only assume that the decision was made for political reasons.

The financial blog community has been made aware of this situation and is not pleased. I have called for a boycott of Amazon on my financial blog: http://soyouthinkyoucaninvest.blogspot.com/2009/11/boycott-amazoncom.html. Karl Denninger of The Market Ticker has called for a boycott as well: http://market-ticker.denninger.net/archives/1665-The-Secret-Of-Oz.html. Another popular financial blogger, Nathan Martin of Nathan's Economic Edge, has voiced his displeasure on this issue: http://economicedge.blogspot.com/2009/11/secret-of-oz-banned-on-amazon.html.

I have yet to watch this movie but if Michael Moore can freely distribute his films then The Secret of Oz deserves to be freely available as well. This is an issue of free speech and free markets.

If Mr. Still's account was closed by mistake, please rectify the situation so that I can offer a retraction of my boycott. If, however, the ban is not lifted within the next few days, I will begin to contact additional individuals in the financial community, certain political organizations and various media outlets about this issue.

Thanks and regards.



By boycotting Amazon.com you are sending them a powerful message - we will not stand for strong armed censorship and we are prepared to fight it by spending our hard earned money elsewhere.

Here is the trailer for the movie:



If you would like to buy The Secret of Oz directly from Bill Still you can purchase it here.

Tuesday, November 17, 2009

Chris Martenson: The Energy Cliff

Embedded below is a ten minute presentation on energy and the economy given by Chris Martenson, an independent economic analyst. His conclusion is that peak oil may or may not have arrived but cheap oil production, at least, has peaked, and thus cheap oil prices are now gone forever. He also talks about a very important concept called the energy cliff. I don't know where I stand on peak oil per se but Chris's logic in regards to an energy cliff and the end of cheap oil is tough to dispute.

Some highlighted quotes from the video:
  • The next 20 years are going to be completely different from the last 20 years
  • We have an economy that, by design, must grow
  • Economic growth cannot happen without growth in energy
  • US oil production peaked in 1970
  • Net energy is the ratio of energy extracted from any given source minus the energy required for extraction. Net energy has been decreasing for oil drilling over the last century and is quickly approaching an "energy cliff."
  • Prior to 1930, the net energy ratio was 100:1. In other words, 1 barrel of oil was required to extract 100 barrels. In 1970, this ratio fell to 25:1. In 1990 it hit somewhere around 18:1 and 10:1. We don't know where the ratio stands today.
  • We are past peak oil for conventional oil aka cheap oil
Watch the video:



I also highly recommend the Crash Course series of videos by Chris Martenson. You can view part one of the series here. Visit Chris Martenson's website here.

Sunday, November 15, 2009

Make Mine Freedom

Embedded below is a 10 minute video entitled "Make Mine Freedom." It was created in 1948 to stand as an advocate of free market capitalism and opposition to communism. My favorite quote from the video is the following. "Whenever someone preaches disunity, tries to pit one of us against another, through class warfare, race hatred or religious intolerance, you know that person seeks to rob us of our freedom and destroy our very lives."

Monday, November 9, 2009

Was John Maynard Keynes A Gold Bug?


Since gold has been busy making new all time highs, it seems like an appropriate time to discuss John Maynard Keynes and his thoughts on gold. Keynes is commonly known as one of history’s biggest gold critics, famously referring to it as a “barbarous relic.” How accurate is this commonly held view? You might be surprised by what Keynes actually wrote on the subject. Dare we ask...Was John Maynard Keynes A Gold Bug?

Let’s find out by quoting the man directly from his most famous work, the 1933 tome The General Theory of Employment, Interest and Money. You can read the full text online for free here.

Before we start, I feel a disclaimer is necessary. I am not an economist, though I have read many economics works. I do own some gold but I am not a gold bug conspiracy theorist nut awaiting the collapse of civilization. Who and what I am is someone that knows how to disseminate well thought out arguments from utter nonsense and I am tired of what passes for economic insight by supposed experts. I do not think a fully implemented gold standard is likely to be implemented but a partially gold backed currency used to settle trade between nations is a definite possibility. If gold served no purpose, central banks would have sold their entire stocks many years ago.

Now that that’s settled, let’s get to the quotes. Keynes's words are in bold...


Chapter 10, Section VI
It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly “wasteful” forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly “wasteful” forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict “business” principals. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.

First of all, I have never heard even the most hardcore gold bug suggest that a solution to unemployment is gold mining. I have not read everything written by the popular economists of Keynes’s day, of course, so perhaps I am wrong, but this passage strikes me as the ultimate straw man argument.

Let’s move beyond the nonsensical argument to make one point. Gold mining does require a large commitment of labor, no doubt, but what of it? What are the alternatives? Fiat currency is certainly cheaper to produce but this is also its greatest weakness. The ease of production has ultimately been the undoing of all fiat currencies, while the difficultly of mining gold creates its scarcity and has led to its store of value for thousands of years.

As a working man myself, trading my labor for something that is difficult to produce (gold) makes a lot more sense than trading my labor for something that has nearly zero cost (fiat currency). If the treasury secretary can simply hand unlimited amounts of money to his friends who did not know how to run their businesses, why am I working so hard to obtain these same dollars? It is not a stupid question.


Chapter 10, Section VI
At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline. Thus gold-mines are of the greatest value and importance to civilisation. just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance; and each of these activities has played its part in progress-failing something better. To mention a detail, the tendency in slumps for the price of gold to rise in terms of labour and materials aids eventual recovery, because it increases the depth at which gold-digging pays and lowers the minimum grade of ore which is payable.


There is a lot to digest in this passage so let’s start again at the beginning…

At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline.

This can only be construed as a positive remark by Keynes on gold. The more gold there is, the greater the wealth. I own gold and yet I completely disagree with these sentiments. An increase in the supply of gold does not increase real wealth whatsoever. An increase in the supply of gold will cause an increase in prices relative to gold, and may kick start an inflationary cycle which raises prices, but real wealth is much the same as before. You would think an economist would know the difference. If we go back to his original quote in this post, Keynes actually said the exact opposite – "gold-mining, which not only adds nothing whatever to the real wealth…" Is this man playing a trick on us or is he just incapable of consistency?

Thus gold-mines are of the greatest value and importance to civilisation, just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance; and each of these activities has played its part in progress-failing something better.

Wow – there is a lot said in just this one passage. First, Keynes claims that gold mines are of great value to civilization. Does that sound like someone who detests gold? Certainly not. Next, Keynes equates gold mining to wars in that both have led to great progress. Perhaps for the victors, whom go the spoils, war is the road to prosperity. As a whole civilization, however, war is a net negative. Economics is defined as the social science that studies the production, distribution, and consumption of goods and services. If nothing else, the job of an economist is to argue the merits of peace and free trade, and show how it is a superior form of civilization compared to war and tyranny. I submit that an economist who espouses the progress of war is not an economist at all.

To mention a detail, the tendency in slumps for the price of gold to rise in terms of labour and materials aids eventual recovery, because it increases the depth at which gold-digging pays and lowers the minimum grade of ore which is payable.

Keynes overplays the importance of the new profitability of gold mining as a catalyst for economic recovery. After all, exactly how many people does he expect to become gold miners? At the same time, in general, he is right. Economic slumps naturally correct themselves because input costs decrease in relation to money (deflation) to the point where new production will be revived. This is in line with what most Austrian economists believe and this directly contradicts the need for government intervention in markets during economic slumps. This article is about gold so I will move on from here but I will discuss this subject more in my next Keynes article.


Chapter 10, Section VI
Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely pyramid-building as well as the search for the precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance.


As in the previously quotes passage, as Keynes praises gold I find myself shaking my head in disgust. Ancient Egypt had “fabled wealth?” Wealth for whom? The pharaohs certainly lived a life of abundance. Do you think the slaves who worked backbreaking labor building pyramids in the scolding desert heat felt the same way? To them, Ancient Egypt may have been fabled but it certainly was not wealthy. In Keynes's mind, however, gold and pyramids were the cause of Egypt’s wealth and certainly not just a byproduct of other wealth creating mechanisms. What nonsense.


Chapter 23, Section II
The economic history of Spain in the latter part of the fifteenth and in the sixteenth centuries provides an example of a country whose foreign trade was destroyed by the effect on the wage-unit of an excessive abundance of the precious metals.

This directly contradicts the Keynes quote we featured earlier. “At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline.” I think both explanations by Keynes are wrong so I will restate my stance. An increase in the supply of gold does not increase real wealth whatsoever. An increase in the supply of gold will cause an increase in prices relative to gold, and may kick start an inflationary cycle which raises prices, but real wealth is much the same as before. Such an extreme example of a rapid increase of gold supply is interesting but not that useful in the grand scheme of things, since the supply of gold has been fairly steady over long periods of time. Compare the supply of gold over any one hundred year period to any fiat currency over that same period and I do not suspect that the fiat maintained a more stable supply over any period in history. Imperfect, yes, but superior to the alternatives.


Chapter 23, Section II
The history of India at all times has provided an example of a country impoverished by a preference for liquidity amounting to so strong a passion that even an enormous and chronic influx of the precious metals has been insufficient to bring down the rate of interest to a level which was compatible with the growth of real wealth.


I think the example of India unfairly blames gold for the economic condition of that country. Gold has been historically hoarded by Indians because of their weak economy and financial institutions, and thus is a symptom of their plight and not the cause. As the Indian economy continues to grow and prosper over the foreseeable future, we are likely to see a decrease in the hoarding of gold as better investment alternatives continue to expand. It is certainly an interesting topic for discussion, however, and I would love to hear more arguments on this subject, perhaps from someone who understands the Indian culture better than I do.


Conclusion
So was John Maynard Keynes a gold bug? Hardly. What we have shown, however, was that Keynes did not have a total disdain for gold as is often claimed. His constant contradictions on the subject are undoubtedly a source of confusion, so it is not surprising that the general understanding of his views on the subject is low. The more I read Keynes, the more I tend to think that this man was playing a trick on the world. He surely must have noticed the massive contradictions he presented on many subjects, in this case gold but I have other examples, and yet he always espoused his views with the certainty of law. Are half of his passages what he actually believes while the other half are in simply made in jest? I will attempt to answer that question as part of my next post on John Maynard Keynes. Until next time.

For an earlier post I wrote on John Maynard Keynes's views on stock markets click here.