Bastiat Was a Genius

I've thougth about trying to put all this down in writing for a long time. It has always seemed like such a jumble of concepts that it is difficult to comb them straight. But, I think that if I use a concept that Bastiat discusses in "That Which is Seen, and That Which is Not Seen," commonly know as the "Broken Window Parable," I can make this reasonably short and straigth forward. Bastiat's parable speaks directly to this issue. And, I think he make very good sense. (http://bastiat.org/en/twisatwins.html)

The concept Bastiat uses is the idea of an estate. He doesn't use the word, but, the writing has the idea running through it. An estate is that collection of durable items or things which an individual truly ownes. I think it can even include intangibles, like an education (but, that is beside the point).

We are all concerned with providing for ourselves and our loved ones. So, we want to grown our stores of durable valuable stuff. The larger that collection gets and the more secure the owner feels about that collection, the more likely the owner is to be willing to risk some of it. We all, naturally, try to increase the value of our estate. We each have our individual estates. There is also, the aggregate national estate, our corporate saved wealth.

The beauty of capitalism is that it allows two separate estates to voluntarily come to an understanding of mutual benefit and trade part of their estates. That 'mutual benefit' thing means both parties estates increase in value as a result of the transaction.

I think in Bastiat's opinion, and in mine, that trick of identifying and pursuing transactions of mutual benefit is the most efficient way to move capital, or value around an economy. Every time there is a move, the values of estates are increased.

Obviously, this is idealized. Some attempts at some transactions of mutual benefit fail. But, at least, in the realm of such transactions, there is the possibility of success. Some large portion of these attempted transactions will result in increased values of the two estates.

Our economy is the aggregation of many millions, maybe billions, of such transactions. Each tiny transaction potentially increases the value of the aggregate national estate. This increase is measure annually as GDP, the gross increase in the value of our national estate.

Unemployment insurance, the forced taking of value from one estate to pay to maintain another, thus, lacks half of the potential benefit. One estate sees benefit in the transaction, but, the other sees none. It is necessarily one sided.

While I agree with the offering of unemployment insurance to those who have lost jobs, I see it purely as a humanitarian dynamic. It completely lacks this idea of mutual benefit. He who must give up part of his estate to pay unemployment benefits has no hope of seeing his estate increase in value as a result of that transaction. There may be some partial pay back or circular path through multiple other transactions, through which he may see some repayment via the state of the general economy. But, there is no hope that his entire cost will be repayed, much less, will he make a profit on the transaction.


For me, every transaction should be compared to that ideal mutually beneficial transaction. Both parties, or all parties involved, ideally will improve their condition. Anytime we force, via gov't policy, a class of transactions that fall short of this ideal, we should be very clear that we are not growing the corporate national estate (the aggregate of all our individual estates). Instead, we are, at least, inhibiting its growth and, probably worse, we're engineering into the system a disincentive to performance which ends in a shrinking national estate.


Further, as we take value from estates that are sound and performing well, we shrink or, at least inhibit the growth of those estates. Consequently, those estates will percieve more risk in their environment and will naturally become more conservative in their dealings. So, I argue that the alleged improvement (or, forestalling of slow down) in the general economy that might be achieved by paying the unemployed is largely offset by the tightening of the purse strings by estates that might otherwise be willing to spend.

The Vice President Strikes, Again, Sort of.

http://blogs.abcnews.com/george/2009/07/biden-we-misread-the-economy-.html

Thanks go to Drudge for posting the link in the first place.

The first thing that impressed me about this particular appearance by the Vice President was just how incident free it was. Mr. Biden went from being fairly visible at the beginning of the Obama administration to becoming rather more subdued. This is understandable, after making cracks on the President about the prevalence of his teleprompter and his dropping the F bomb in front of a live mic for the press. Classic. He seems much more composed, far less reactionary. The change from his “shoot from the hip” style of dealing with the press is a pleasant change of pace, but the drastic nature of this change just goes to highlight his inability to deal with direct questions in an improvised manner in an unplanned context. Nice try, though.

The second thing that scares me to death about this is the talk of a second stimulus. Yeah, very impressive referencing a Noble prize winning economist, but I remember when Al Gore and Yasser Arafat won theirs. Not terribly impressed and economics is nowhere near as complicated as people like to pretend it is. It functions on the exact same principles that running an household does. I don’t even really pay taxes (I am SO aware of the irony of this, believe me) and I don’t have a family, but I still have the same basic pressures on my income and for all the forbidding terminology that goes along with it, so do sovereign states.

Despite all this, we’re talking about a second stimulus $787 billion later. I'm not going to belabor the notion of the first stimulus—it passed, and here we all dealing with it. The problem is the door it opened. A stimulus is not only (quite literally) the most counterproductive solution that can be conceived, it's a free pass at any solutions that Congressional Democrats and the President to do whatever they want in terms of correcting the situation. What the Fed managed to accomplish with the bailout was an unprecedented coup in terms of not just government intervention in an economy, it was also an unprecedented assertion of government control over issues with which they originally had very little to do. This disturbs me, especially when they started doing things like continuing to assert that control over the banking and automotive industries while making life difficult for those who decided not to play ball. Government doesn’t operate that way, organized crime does. So why is it that our government continually tries to “fix” a problem that might not actually be a problem, but just a natural cycle? Why are they so bent on spending as much money as they can as if spending money will make the problem go away?

The stimulus package will not work and when it's failure is undeniable, they will simply do it again. The economy itself, ironically, a good indicator of the mood of the populace; as long as people are feeling unsure about the economic climate, they're simply not going to spend, which will keep the economy depressed. Coupled with the dip in Gallup/Rasmussen polls in the President's approval rating, we seem to get a pretty clear picture of the common mood: the stimulus is a bad idea. Even discussion of a second stimulus, even the open-ended response on the part of the Vice President, screams of an abject lack of responsibility on the part of our government. Each step of this public appearance was, I will admit, a series of deft political maneuvers designed for a viewer that is unfamiliar with the situation. Tax cuts for the poorest elements of the economy, expansion of unemployment benefits, taking shots at stimulus critics like Sen. Coburn are all textbook perfect moves. They're also all insulting superficial. Expanding unemployment benefits does nothing when there's no money to fund the system, the poorest elements of the economy aren't the sectors that drive it, and I find it interesting that the Vice President mentioned that forty seven of the programs pointed out by Sen. Coburn were cut after the Senator made them public. The current administration firmly believes that America is peopled by morons.

That's the thing about society, Mr. Vice President. It's a natural phenomenon borne out of all of our instincts, the best and the basest. It also moves like a natural cycle; seasons of thick and thin, feast and famine. The economy is an extension of that and moves in like style—no matter how badly you abuse it, the cycle will move forward and still right itself. Government is a similar beast. The season of overgovernment may be now, but treating the entirety of the American people like idiots naturally has serious consequences. Feast while you can.

Barney Frank pours gas on the smouldering Real Estate market

It is widely reported that a major contributor to the current economic mess was the collapse of the US (and other) housing market. A number of factors lead to that collapse including unscrupulous lending, relatively low interest rates at the Federal Reserve, buyers wanting and trying to buy more than they could possibly afford, and the injection of capital into the real estate markets by the two Government Sponsored Enterprises (GSE) Fanny Mae and Freddy Mac.

The size of each contribution to the problem can be debated and is. However, it is inescapable that FM/FM have played a significant role. Various sources show that FM/FM hold an enormous portion of the US mortgage market, something around 50%. Further, during recent decades, they have explicitly and deliberately sought to buy sub-prime mortgages with targets around 50% of their annual total. The scale of this GSE-created market for sub-prime loans is obvious.

In the wake of a collapsed US real estate market, where it was clear that sub-prime loans (loans made to uncreditworthy borrowers), our wizened leaders in Washington want to immediately start re-inflating the bubble. According to Reuters, Representatives Barney Frank, the chairman of the House Financial Services Committee is pressuring the two GSE to relax their lending standards. I wonder who does he know that is having trouble selling their condo?

Absolutely beautiful.
We've obviously learned nothing about what got the real estate markets in this mess to start with.