Another Case Against the Fed

What if we used statistical techniques to quantify the impact of the Federal Reserve and population growth on Real GDP from 1800 to today?

If we assume that annual changes in Real GDP are a function of annual population growth and the 1800-1913 vs. the 1914-2006 era what would be their impact? Why pre 1913 vs post 1914? That's because the Fed was established in 1913.

So here's what I found (using a dummy variable for Fed years 1914-2007):

1. Real GDP Growth is ~4.1% per year from 1800 to present.
2. Population growth and GDP growth are almost perfectly inversely related- meaning a 1% growth in population causes a 1% decline in GDP growth.
3. And, most surprisingly, the existence of the Fed actually reduces growth .6% per year!

Now, the confidence interval is quite wide (-2.8% to 1.6% at a 95% level of confidence), but low statistical significance hasn't gotten in the way of the super-governmental organizations from making bold pronouncements on climate so why should it stop me from drawing conclusions?

Anyway, the data seems to say that the Fed actually SLOWS economic growth.

So you are now saying, "that this is probably true but there is a tradeoff in terms of lower growth for less economic volatility."

But is that assumption true?

If we take the standard deviation of Real per capita GDP from 1800 to 1913 the range is +-3.7%. But the surprising thing is that the deviation from 1914-2006 is +-5.1%! In other words, the existence of the Fed corresponds with HIGHER VOLATILITY in per capita income growth!

What the hell is going on?

The analysis is telling us that the Fed SLOWS GROWTH AND INCREASES VOLATILITY! Had the Fed not been created, ostensibly to smooth out the business cycle, our REAL incomes would be 25% higher today!

So why do we have a Fed again?


Source Data: Louis Johnston, Department of Economics,College of Saint Benedict at Saint John's University and Samuel H. Williamson, Department of Economics, emeritus
The Miami University

What Is Seen and What Is Not Seen

Liberals know what they are doing! They are believers in the State but not in a manner which most naive, proletarian, nimrods would understand. To them, the State is not a vehicle to promote general prosperity. Unless they are utterly ignorant of economics, they know that the pathway to greater prosperity is through limited government intervention in the economy which is too hopelessly complex to be managed productively.

No, what liberals really believe in is obtaining public adulation. Politics is Hollywood for ugly people. They need the pats on the back. It makes them feel good to play Robin Hood. Their mechanism is to use the power of taxation to soak a minority or unpopular populations and redistribute that wealth to their drooling, teary-eyed, back slapping constituencies. Then they congratulate themselves for their quasi-charity.

There was an economist named Frederic Bastiat that described this process perfectly in the 19th century. He described it as "What is Seen and What is Not Seen". You see, a liberal will tell you (in many different forms) that smashing storefront windows will improve the general welfare by creating jobs for window-glaziers. And no one in the media has the brains to ask them what the shopkeepers would have spent their money on had they not had to replace their broken windows. The point is redistributing wealth does not INCREASE wealth. In fact, it makes it smaller because bureaucrats take their cut and because it destroys production incentives

Obama and Hillary and all liberals manipulate the moronic American electorate with this lame argument over and over and the teary-eyed, neophytes get all wet over the message.

They promise socialized health care, FDR style jobs programs, protection of sloppy, inefficient domestic industries, free college, etc. People with brains ask: Paid for by Who? Why can't I be left to acquire my own? What gives you the right to make my economic decisions for me? Why should I produce if you are going to take the fruits of my labor and give it to non producers?

FDR ravaged the American economy for a decade with his jobs programs, cartelization of major industries, price fixing, and taxation. He created great benefits for his selected constituency- corporate monopolists, unions, dairy farmers who were paid to flush milk down the toilet. The cost for the rest of America was a recession that drug on until 1942.

And Americans, enamoured with his cult of personality, reelected this tyrant three times!

Now Obama (another personality) wants to do the same thing all over again. He will raise tax rates to 52%. He will soak the 'evil' corporations. How does he expect to "create" jobs when he chases even more corporations out of the country? He will tax your carbon using the hoax of manmade global warming as justification (there's been no global temperature increase in almost 10 years!). He will spend $210 billion to create governement works projects. How many jobs will be destroyed in the private sector so that we can pay people to dig holes and fill them back up again?

And, like the 1930s, the naive American electorate can't get enough.

Unfortunately, the Republocrat alternative isn't much of an alternative. 100 year wars are not good for the economy. God help us all!

The Predictable Liberal Response to Bullying

Since the Columbine Shootings, there has been something of a national movement directed against bullying. I think it is based on the assumption that Eric Harris and Dylan Klebold were oppressed loners, victimized by bullies and who one day just exploded with terrible results. The assumption is probably wrong but pervasive none-the-less. If only the social workers could have intervened with counseling maybe 13 kids would not have been murdered. In response, an army of psycho-crats are applying for federal aid in order to pump out pamphlets, directives, and policies that advise kids and parents on how to best deal with these coercive individuals.

Kids who are being bullied have always wanted to know, "What can I do to make it stop?" Unfortunately, the response from the liberal-leaning school bureaucrats is inane, frequently useless, and quite predictable. In almost every case, the advice is to simply "tell an adult" (preferably a teacher) and never resort to violence. How profound! And how many resources were dedicated to coming up with this directive?

Now telling an adult may work on occasion, and I do agree that an adult should be told (preferably a parent first), but establishing this notion that blindly trusting some public authority (like a teacher) rather than telling a parent or fighting back will or even can solve a bullying problem is emblematic of our society-wide journey towards dependancy and the nanny-state.

Modern liberals assume that a well-crafted, academically contrived policy can cure any evil. They place their existence (and yours as well) solely in the hands of anointed authorities. If some one is stealing your property- pray that the police show up. If someone is raping you- don't fight back, just get counseling afterwards. If someone is extorting your lunch money- trust a teacher to make it stop.

One of the inviolable rights of man is the right to defend yourself. That includes the bearing of arms if necessary and extends all the way down to the use of fists when appropriate. Modern liberals repudiate this personal, inalienable right. They want you to trust some agent of the government to solve your problems rather than having you take matters into your own hands (or fists). Their logic: How can the population possibly be controlled if everyone is taking matters into their own hands?

When I was 12 years old I was bullied by a smirky-faced punk named Anthony Romero. In those days, before all these goofy, dangerous, far-liberal ideas permeated our culture, I was conditioned to take my problems to my dad. I expected him to go over to Anthony's house and kick Anthony's ass for me and his dad's ass too. To my surprise, he didn't. Nor did he tell me to go crying to a teacher. He told me to stand up to the bully by punching him in the nose with the hardest haymaker I could muster. Can you imagine if an edu-crat got wind of this? There would probably be a social worker knocking on our door the next day ready to spirit me away to some foster home.

This caused me great anxiety for the next couple of days preceding the inevitable confrontation. I was afflicted by interminable butterflies. I could not sleep at night. What tortue! Why was my dad doing this to me? Then the day came. Although I did not succeed in crushing Anthony's nose, the experience was empowering more than any other experience in my early childhood. I confronted my fear directly and much to my surprise, I did not die in the process. We used to call these moments 'life experience'. This particular experience taught me that you sometimes have to be an active participant in your own survival. Courage matters. It is shameful that, in our efforts to sanitize life and create utopia for children, we are denying kids real, useful life experience.

After the fight we were hauled into principal Jab's office. Watching a humiliated Mr. Romero sobbing uncontrollably was one of the most satisfying experiences of my life. The world made sense to me again as justice had been served. Principal Jab's was a wise man who knew of Anthony's reputation and also knew that his humiliation was probably appropriate punishment. We were both released on our own recognizance and Anthony never bullied me again.

It saddens me that principal Jab's life was cut short in a terrible car accident. He was a clear thinking, rational man who was loved by the teachers, students and parents of Vista Grande Elementary. He was not today's knee-jerk, moronic, edu-crats who rule by creating absurd rules like 'no playing tag' or 'no playing cops and robbers' on recess. We need more Mr. Jabs' and fewer morons running public schools today. Where do they find these imbeciles? Public Universities I imagine. But I digress...

How would a modern day edu-crat handle my scuffle with Anthony? Probably with zero tolerance. I would have been suspended for the use of violence and an enabled Mr. Romero would have bullied on. Worse yet, I probably would have never asked my dad for help and would have instead trusted the 'proper authorities' to deal with it on my behalf. After whining to teachers and being referred to counseling while the bullying continued, I would have resigned myself to a life of just taking it. In my view, that's really what the liberals want us to do- to sit down, shut up, and take it.

I'm not recommending standing up to a bully alone in every situation. Sometimes they are genuinely tougher than you and you need to find three or four friends to ambush them and beat their ass senseless to teach them a lesson. All kidding aside, the point is that contrary to modern liberals, violence is NOT always wrong. When used as self-defense it is justified. I would even argue that you are OBLIGATED! We shouldn't let the psychologists and edu-crats automatically rule it out as a method for dealing with bullies because they have a romanticized idea of society. Remember- they are bullies. Violence is their language.

Best regards.

Danish Publishers = Big Balls

Just when I had given up hope for Europe as they apathetically slouch towards collectivistic oblivion, these badasses in Denmark stand up for the ideal of Western Civilization!

THIS PROTEST REPRESENTS THE IDEOLOGICAL BATTLE OF OUR LIFE!

Free speech is not negotiable in a free society. Allow the fundamentalist goons intimidate us and we deserve a return to the Dark Ages.

Threatening people for being offensive is immoral. Disregard for individual liberty explains why fanatical countries have living standards that compare to 8th century Gaul.

You can have it you way in your third world, feudal dump but don't bring it to the West. We won't stand for it.

Hey McCain, Economics Is Very Simple

Before I changed my major to econ in 1996 I thought it was some complicated science that was the domain of bespectacled, bow-tie wearing poindexters. Especially macro.

When taught abstractly it can be daunting. But this complexity is all a ruse. Economists know that their science is a very simple and qualitive discipline. Many economists feel the need to "sex it up" so they can convince people to give them jobs explaining the obvious. Government economists are hardly a notch better than lawyers.

Econ is a science that tries to explain the alternatives in the allocation of limited resources. The same rules apply at the macro level as do at the individual level.

It all starts with a need. This need causes an individual to take an action to address the need. The chosen action is a function of his limited options and risk vs. reward of those options.

Hunger is a need. Hunting and gathering are productive options. The relative risk and reward of the available options are weighed by the individual and then he acts. Each person has their own concept of risk and reward. There is no one order that applies to all. Some prefer apples to oranges and some prefer oranges to apples. When some bureaucrat gets involved in ranking those preferences on individual's behalf, he can make a god-awful mess of things.

Individuals can act economical in isolation. But specialization and trade makes even more options available to the individual. Imagine if you could not trade, if you had to do everything yourself: Build your own shelter, hunt your own food, make your own clothes. You would certainly have full employment but your life would be a miserable hell as you toiled night and day. The bottom line: Specialization and trade are good. The more you have available to consume the better off you are.

In order to enhance future productivity, you can forgo some current consumption in order to make or acquire tools. Economists call this capital investment. The catch is that consumption today is worth more than the same amount of consumption in the future.

So putting it all together: There is a need. The need causes productive action. That production can be directed towards consumption, trade, or used to increase future production. That's really all there is to it. Don't let Wall Street analysts and baldheaded bureaucrats try to confuse you.

Distort one aspect and the system responds quite predictably.

Less abundance of goods and services means you will be worse off. Anti trade measures lessen the abundance of goods and services (unless you directly benefit from the protection scam).

Fixing prices will create a shortage. Worse yet, you will destroy the profit signal that compels producers to increase supply!

Discourage capital investment by taxation and future productivity will be less.

Increasing supply causes prices to fall. Print money- the value of money falls. Please inform your Federal Reserve Chairman Counterfitter of this!

That should be enough to get you started...

I Can't Throw My Vote Away (and other fallacies)

'I Can't Throw My Vote Away!'

I hear this lament from prospective voters all the time. They use it as justification for holding their nose and voting for a front-running candidate who really doesn't share their values or ideology (re: McCain).

The argument goes something like this: If I vote for the candidate I really agree with but is polling poorly, I will be enabling a more sinister candidate to win. Therefore, I must choose his rival with whom I have little agreement.

There is an axiom from Ayn Rand that says something like: If you feel the need to compromise, then recheck your assumptions. The assumption here is that your single, solitary, individual vote will actually impact the outcome. That assumtpion is unequivicably false!

No election of significance was EVER determined by a single vote. None. Therefore, the impact of your single vote is zero, zip, zilch! By voting for the 'lesser of evils' You are not being 'strategic'. You are not aiding your cause. In fact, the only compromise you are achieving is to compromise YOUR values and ideology.

Furthermore, you are enabling a monolithic political system that thrives by squashing challenges through this very process- by tricking you into compromising what you believe in! Bastardizing our beliefs by voting 'strategically' is a very undemocratic process. No election is determinable by you and your 1 puny, meaningless vote. Strategic voting is pointless and irrational.

In the spirit of democracy and for the preservation of your integrity, vote your conscience!

Why I Hate Hillary #2 (Response to her opinion piece in WSJ)

So the enlightened Mrs. Clinton says she is going to help America pass the "shared prosperity test" by cutting health care costs, fixing student loan interest rates, and by reducing our heating bills.

She says she will encourage saving by "giving new incentives to employers". She plans to "address the root causes of poverty" by increasing the minimum wage, and by creating a "green collar" job core that would make FDR proud.

She plans to offer universal pre-school, universal health care, and even universal broad band. She promises to close the income gap between blacks and whites, the math aptitude gap between women and men, and the cognitive development gap between smart and dumb pre-schoolers.

She is committed to your "pursuit of happiness" whether you are personally committed to it or not. And she will do all this while not borrowing money from "countries like China".

Since the 'paid for by whom' was omitted from her piece (refer to her website) I imagine the costs are inconsequential.

Why I Hate Hillary #1

Well, the socialists are at it again. Here is their latest legislative proposal:

The "Fair Pay Act" and the "Paycheck Fairness Act" aim to force companies to set pay scales based on some bureaucrat's definition of "social utility" rather than by allowing market forces to prevail. That means that, theoretically, truck drivers (who are usually male) cannot be paid more than paralegals (who are usually female).

This sounds great to the members of special interest groups that will benefit from the law. And those people will undoubtedly support it. But the problem is that we are creating a society that rewards not by voluntary, non-coercive, production and exchange but rather by forming political collectives, and petitioning government agents to steal wealth from other groups.

We're replacing our Republic with a Kleptocracy.

I find the practitioners and enablers of this brand of socialism-by-proxy spectacularly brazen, repugnant, and disastrously ignorant of economics.
Wages and prices send out critical signals to all of us. If truck drivers make more than paralegals, the signal being sent out is that truck drivers are either less abundant than and/or more needed than paralegals.

Tinkering with these signals will, without exception, cause a shortage of labor in the underpriced profession as potential truck drivers will not be enticed into the trade due to a wage that does not adequately compensate them for their skills and risks. It is these shortages (and offsetting surpluses) that lead to the systematic wasted productivity inherent in all socialistic systems.

Productivity drives income therefore, lost productivity translates into lost income.

The shocking thing is that leftists like Mrs. Clinton are either unforgivably ignorant on how economies work or know this going in but choose to exploit the special interest mechanism in order to attain power.

It is the latter that makes her and her ilk so distasteful to me. But in the words of Lenin, "Democracy is indispensable to socialism."