Thursday, January 29, 2009 99 Comments

A gentle introduction to Unqualified Reservations (part 4)

The trouble with last week's examples is that, while they may convince you that some seriously foul residue has built up in the democratic feedback cycle of State, School, and People, they don't really help us understand just what that gunk is, how it can be pumped back out of the pipes, or how much better the kitchen will smell without it.

The cases of AGW, KFM and HNU, assuming we've analyzed them correctly (if one or even two are wrong, it is not hard to come up with others), do not constitute anything like a real picture of the actual, real reality behind the official reality show. Counting the Loyalists, we have four little paint chips from the real picture. We know something is weird, because each of the chips is orange - and there is no orange on the official picture. But four chips are not a picture.

For example: the four positions, Loyalism and AGW, KFM and HNU denialism, all seem to appear - not in any precise sense, just as a matter of obvious perception, on one side of the political spectrum. That would be the right side.

Is this a coincidence? No, I don't think it's a coincidence. Does it offer an easy formula for correcting your television picture? By tuning it permanently, perhaps, to Fox News? By my count, Fox News and I agree on exactly one of the four.

Erik von Kuehnelt-Leddihn once put the formula as briefly as possible: "Right is right, and Left is wrong." Which is perfectly accurate, if you define Right as right, and add the obvious caveat that Left puts its pants on one leg at a time. The first clause is thus a tautology, and we reduce to: "Left is sometimes wrong." Anyone who doesn't already agree is well past the reach of reason.

And if we define Right as the political position of some antileftist political movement or other - Fox News, the National Socialist German Workers' Party, the Rotary Club, you name it - K-L's formula can only be wrong. Because not all these groups agree with each other. We could say that, between factions of the Right, the rightmost is always the rightest, but (apart from the fact that the rightmost also tends to be the craziest) this brings us back to our original problem of defining "right." Again - we are getting nowhere.

What we're starting to notice is that it's much more difficult to think outside the box than in it. When we were in the box, we had these authorities we trusted - the Times, Harvard, National Public Radio. If someone asked us about X, our answer was: what does Harvard say about X?

Of all easy formulas for obtaining the truth, this official formula is by far the most accurate. Which is perhaps the most compelling of the many safeguards that hold so many in the Matrix. Switch off the pumps, open the hatch, stick your head out - and inhale an infinite vista of raw, unfiltered garbage. This is the reality of the political Right in the democratic era. To the starved for truth, the Right offers a well-stirred cocktail of truth, secondhand leftism, and pure ordure.

Can I offer you an anti-Dreyfusard with that week-old turd? Do you prefer democracy, or more democracy? Would you like those stale coffee grounds with Dr. King on top? Which is tastier: anti-Semitism, or a used condom?

As a political faction, Right just means "not left." There are many Rights and only one Left. The modern Left evolved from one 18th-century Anglo-American tradition (English Radicalism), which over the last two centuries captured almost every intellectual and political institution in the world. Any post-1945 perspective outside this movement (Updike's, for instance) is not the product of any significant intellectual quality-control process, because the modern Right has no significant intellectual institutions (by the standards of the modern Left).

Worse, as a political movement, the democratic Right exists only to the extent that it can recruit voters. Its doctrine is not a red pill, because it was never designed to be a red pill. It was designed to persuade as many bipeds as possible to pull the right lever. Ideas prosper in the modern Right if, and only if, they increase this number rather than decreasing it. Thus the blend of reality, leftism and nonsense - each of which has its own way of attracting voters.

Our reconstructions all seem right-wing because "right" just means "heresy." Where the truth is orthodox, there is no need to reconstruct. But we cannot reverse the process: just as not all orthodoxies are false, not all heresies are true.

Our basic problem in reconstructing reality is that there is only one way to tell the difference between a healthy neuron and a parasitic filament: know what the neuron should look like. Clearly, the State is sick; by definition, it is sick because it is not healthy; but what, exactly, is a healthy State?

For example: WTF is wrong with Washington? Why, for example, is it so grimly and joyously intent on crushing productive industries and rewarding inept ones? Such are the psychic mysteries that have baffled many a thinktank. Yet the royalist surgeon steps into the room, glances quickly into America's open skull, and scribbles a diagnosis as obvious as it is concise: republicanism. ("As bad a case as I've ever seen. Very little hope, I'm afraid.")

Is royalism the answer? It would surely be an improvement. But we must blame royalism for the faults of democracy, because the former decayed into the latter. It would be a bit of a waste to go to all the trouble of restoring the Stuarts, then see the same thing happen again.

In any case, we are not on original ground here. I'm asking more or less the same question that Carlyle posed in his Latter-Day Pamphlets (especially #3 and #4, Downing Street and New Downing Street), and I get more or less the same answer. This is UR for you: a late, decadent, second-rate imitation of Carlyle:
And secondly it is felt that "reform" in that Downing-Street department of affairs is precisely the reform which were worth all others; that those administrative establishments in Downing Street are really the Government of this huge ungoverned Empire; that to clean out the dead pedantries, unveracities, indolent somnolent impotences, and accumulated dung-mountains there, is the beginning of all practical good whatsoever. Yes, get down once again to the actual pavement of that; ascertain what the thing is, and was before dung accumulated in it; and what it should and may, and must, for the life's sake of this Empire, henceforth become: here clearly lies the heart of the whole matter.
For "Downing Street," of course, read "Beltway." Which is longer, loopier, and has more lanes. Everything else is the same - including the bit about the live coal. (And I fear not a few of the Beltway's dung-mountains were inherited intact, perhaps via Lend-Lease, from Downing Street.)

Here's how we'll explore Carlyle's question: we'll take Matthew Yglesias' challenge, and solve the financial crisis. UR's cure for the monetary blues, hereafter to be known as Plan Moldbug, is (a) instantaneously effective, (b) thoroughly fair, (c) certain to be wildly popular, and (d) results in a stable, free-market monetary system.

Don't get your hopes up, though: Plan Moldbug will never happen. We'll explain why, and show how this is just one example of the difference between a sick State and a healthy one.

Let's start with a science-fiction scenario. Long ago, the Andromeda Cloud was ruled with an iron fist by the Fourth Empire, a basically Nazi-like operation based on a secret, now-lost, and thoroughly evil hyperdrive technology powered by burning kittens. For currency, the Fourth Empire used the sol, a swastika-stamped disk of moolium - an artificial element produced only in the kittendrive's exhaust stream.

Deafened by their own fascist death disco, the Fourth Empire's spaceführers fell long ago, and with them went the evil secret of the kittendrive. But moolium is nearly indestructible. Thus, Fourth Empire sols are scattered throughout the Cloud and form an ideal galactic currency, whose supply is fixed for ever and cannot be forged or counterfeited.

On the planet of Urf, which has recovered nicely from the collapse of interstellar trade and communication, archeologists have recovered 2,047,822,917,502 Fourth Empire sols. We'll make it a nice round number, and call it two trillion. Urf's surface has been surveyed with moolium-detecting blimps, ensuring that no further sols will be discovered.

But one day, after 30,000 years of isolation, the automated, sail-driven trading ship Monx-138, sent from the distant planet of Gubble, reaches Urf. Gubble's technology is vastly more advanced than Urf's; its nanoassemblers can produce almost any product that Urfers desire.

This implies that Urfers cannot produce anything of value to Gubbleans - which is indeed the case. But Gubble too uses the Fourth Empire monetary system. Monx-138 has no use for Urf's products. It only wants Urf's sols. But this works, too.

The first thing about Urf that Monx-138 notices is a strange fact. There are only two trillion sols on Urf. However, the net market capitalization of all financial assets on Urf is about 100 trillion sols. How should Monx-138 interpret this fact?

"Financial asset" is a broad category. Let's look at one category of Urf assets - corporate bonds. On a planet with 2T sols, Urf has 10T in corporate bonds, at the current market price. Obviously, bonds currently selling for 10T are expected to pay out over 10T if held to maturity - call it 15T.

This suggests a possibility for Monx-138. If Urf markets are right, we can exchange our Gubble products for all of Urf's corporate bonds, wait around until they mature (solar sailing is slow, anyway), then leave Urf with all 15T sols. But wait: Urf markets cannot possibly be right, because there are only 2T sols on Urf. So how can the bonds be worth 10T, or pay out 15T? Perhaps Monx-138 should forget about its nanoreplicator - and just short Urf bonds.

Believe it or not, Earth has roughly the same financial structure as Urf - with dollars, of course, not sols. Despite recent frenzied printing, there are fewer than 2T dollars in the world, but the personal net worth of all Americans (alone) is roughly 50T dollars.

One may ask: does this make sense? It is surprisingly hard to show that it doesn't. For example, since Monx-138 is not actually hoovering up all payments on all corporate bonds and sailing them back to Gubble, it is possible that these dollars go around in a circle. The bondholders spend them on corporate goods and services, etc, etc.

But, to make a long story short, no: it doesn't make sense. If dollars were sols and could not be printed, this structure would collapse instantly. Even though dollars can be printed, it remains so unstable that it is collapsing anyway. Here is my analysis of what this crazy thing is and why it is falling apart. (Basically, the source of the instability is a loophole in bank accounting, which lets banks pretend to teleport money from the future into the present. This loophole has not been closed because it is (a) very lucrative and (b) very old.)

These details are irrelevant, though, to the points I want to observe here.

One: the net value of all financial assets must be in some way related to the amount of money available to buy them. It looks a little weird that Urf has 100T in financial assets but only 2T in cash. It would look even weirder if Urf had only 2B, 2M, or 2,000 sols.

Two: whatever the force that amplifies 2T in cash to 100T in assets is, it is not a force of nature. The factor of 25 amplification cannot be an immutable, eternal constant, such as pi or e. We would be no more or less surprised if the latter number was 30, 60, or 120T.

Thus we can see deductively - without even understanding the Rube Goldberg machine that created it - that this system must be unstable. Whatever the amplifying force is, it is not constant; so it can vary. And indeed, that's exactly what we see: long periods of expansion in financial asset prices (without any corresponding production of actual dollars), punctuated by sharp declines in asset prices (without any corresponding destruction of actual dollars).

What happens when financial asset prices fall? What we're seeing now. But let's explain it.

The principal factor in a person's spending decisions is how much money she has to spend. Rich people splurge. Poor people scrimp. For each dollar you add to your wallet, your propensity to hold on to that dollar decreases, and your propensity to spend it increases.

By money, in this calculation, do we mean actual dollars? No, we mean financial assets. In general (with some exceptions, for hard-to-liquidate assets), your propensity to spend is not a function of the composition of your portfolio. It is only a function of the magnitude. If your net worth is ten million dollars, you are rich, whether your brokerage statement says you hold gold, dollars, or Intel shares; and you will spend like it.

Thus, we would expect an overall decline in financial-asset prices to result in a decline in spending, ie, consumption. 20th-century economic planners generally manage economies in terms of national production aggregates, such as GDP. Since global consumption must equal global production, a fall in consumption implies a fall in production. And this is how a banking crisis becomes a "recession."

What we call a "recession" is a gap between what consumers, with their 2009 brokerage statements, want to consume, and what producers, who did not expect the asset price collapse, planned to produce. These numbers must be equal. The obvious way for them to converge is for the productive economy to reduce capacity - close factories, lay off employees, etc. As Andrew Mellon put it: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate."

And there is a real case to be made that liquidation is the right solution. It is the traditional solution of Austrian economists, for example, who had the right analysis of the banking problem to begin with. And it is the right-wing solution, although as we've seen this indicator is fallible.

Moreover, there is a logic to liquidation. When the Rube Goldberg machine of asset-price expansion was operating in its pleasant, forward gear, a substantial percentage of consumer spending can be directly attributed to its efforts. For example, direct mortgage-equity withdrawal alone tended to be about 3% of GDP - and this is only the visible fraction of the effect. Obviously, a healthy society is not dependent on the practice of printing money to purchase goods that would not otherwise be produced. Thus, even if we just turn the machine off, production must fall.

Nonetheless, I think liquidation is an error. Here's why.

Imagine that, instead of holding securities, everyone held cash. We can then replicate the chain of events from portfolio decline to consumer-spending recession, by replacing a decline in asset prices with a simple destruction of money. Suppose, for example, that every dollar whose serial number is divisible by 2 was badly manufactured. One day, all these dollars disintegrate.

Thus, everyone's net dollar worth falls by 50%; spending craters; so does production; and we get, in short, exactly what we're seeing now, with our 50% decline in financial-asset prices.

Now, how should a healthy government - a New Downing Street - react to this event? Option one: it can do nothing, allow consumption to fall, and let production stabilize at its new equilibrium. This is the liquidationist solution.

If dollars were Fourth Empire sols (or gold), liquidation would be the only possible solution. However, they are not. In the famous words of Ben Bernanke, USG has a "device called a printing press" which can produce them at zero cost.

More traditionally, USG can raise an arbitrary number of dollars by borrowing them, ie exchanging them for risk-free government bonds (which are risk-free because of said printing press). This is a difference of degree: a bond of zero maturity is simply a dollar note, and a bond of nonzero maturity is equivalent to a dollar with a "not valid until" date. Thus borrowing, for a monetary authority, just means printing money that is not ripe yet. (The purpose of printing unripe money is to reduce its positive effect on present consumption and hence present prices; since our problem is the opposite, not "inflation" but "deflation," there is no reason not to just print ripe money.)

If this confuses you, don't worry. Just remember that the US cannot possibly run out of its own Monopoly money. Although fiat currency is what got us into this mess in the first place, it also gives us more than one angle for getting out of it.

Option two: the US can stimulate consumption by printing new dollars and lending them to banks, who will then in turn lend to consumers, who will spend. This is the monetarist (Fisher/Friedman) solution. It is not available to us at present, because economic actors are so deeply indebted that they cannot borrow even at zero interest rates.

Option three: the Keynesian "stimulus." The US can stimulate consumption by printing new money and spending it. For reasons that are essentially cosmetic, this is generally done by hiring people to do useless jobs - Keynes himself, for example, once suggested burying stacks of bills in abandoned mineshafts, then filling up the mines, to produce an equivalent of gold mining for fiat currency. Most of your "green jobs," inasmuch as they produce nothing of any practical use to anyone, are of just this sort.

The process can be short-circuited, however, with an even simpler approach. USG could simply print money to buy unwanted goods and services. (It already does this in agriculture.) For example, if demand for Hummers falls, there is nothing at all which prevents Congress from appropriating (printing) a billion dollars or two to buy Hummers. These can then be sunk in the ocean as an artificial reef, creating fish. (I have no joke - I just like saying "creating fish.")

Perhaps this reductio ad absurdum brings home the fundamentally Soviet logic of Keynesianism. In the future, we will all do worthless work for worthless money. Change.

So: option one results in considerable personal suffering and destruction of industrial capacity. Option two does not work. This leaves us with option three, which has no historical record of working (at least, it neither cured the Great Depression nor ended Japan's "lost decade"), and is obviously absurd. Nonetheless, logic must admit the possibility that it could work - for some values of the word "work." So it seems like our best bet.

However, there is a fourth option. My example was specially crafted to make it obvious. Hopefully, you are already jumping up and down in your seat with your hand raised.

Option four is to simply replace the defective dollars. If you held dollars with serial numbers divisible by 2, you now have a wallet full of green lint. Send us the green lint. We'll weigh it, figure out exactly how many dollars you used to have, and print new ones to replace them.

Note how much simpler and more elegant this approach is. We are actually fixing the actual problem: the destruction of money. We are curing the disease, not the symptoms. We are giving the feverish patient antibiotics, not immersing him in a bath of icewater.

Moreover, option 4 is also the fair solution. Whose fault is the crisis? USG's. What did USG do wrong? It printed defective dollars. How can it make its wrong right? Replace the defective products. Not only does this restore the equilibrium of production and consumption, it also restores the contents of its citizens' wallets.

Of course, the financial crisis was not actually caused by defective dollars. No: it was caused by a defective banking system. This system, while nominally "private," was constructed and operated under the laws of USG, which claimed and exercised the right to regulate it down to the last crossed T - even if this regulation was in many cases inadequate or even counterproductive. Moreover, the Rube Goldberg machine that managed to amplify two trillion actual dollars into a $100 trillion securities market could not have operated without an incestuous connection between bank and state, in the form of both formal deposit insurance and informal "too big to fail" moral hazard. Again: the fault is clear.

Thus, Plan Moldbug: the real-life equivalent of mailing in your green lint. Replacing a defective financial system is harder than replacing a defective printing press. But still quite doable, as we'll see.

Step zero: call up Larry and Sergei, and get them to lend USG a few hundred of Google's best coders. We'll need them to write our new financial system. (We don't have time to do it the Beltway way.)

Step one: nationalize all market-priced financial assets at the present market price, exchanging them for new dollars. USG buys all publicly-traded American securities, and foreign securities held by Americans. It thus becomes the sole owner and operator of all public companies, and in doing so it also acquires all the banks (for the price of their common stock, which is not much these days). By acquiring all the banks, it acquires all their dodgy mortgages and other "bad" securities. Obviously, after this process, all debts USG owes to itself are cancelled.

Hedge funds, private equity, and other exotic assets held by individuals may require some appraisal. But these are held by rich people, who are patriotic and don't mind taking a bit of a haircut. Also requiring appraisal are homes; if you are a homeowner, USG calculates your home equity (perhaps using an automated appraisal, such as Zillow's), and buys it from you. You are now a renter; USG is your landlord. Your new rent is calculated as a percentage of your home appraisal.

The result of step one is that USG owns all financial assets, major corporations, and real estate. In return, each USG citizen has one number: how many dollars they have. Perhaps the most straightforward way to implement this is to give every American a direct account at the Federal Reserve (a privilege now held only by banks). Thus, all your portfolios are automatically sold at the current market price, and your statement is mailed from the Eccles Building. The little number at the bottom, however, is the number you care about. This number has not changed. If your portfolio was worth $250,000, you now have $250,000.

Step two: triple each of these dollars. If your portfolio was worth $250,000, you now have $750,000. (I told you the plan would be popular.)

It is not practical to actually unwind all the financial transactions of 2008. Our goal is simply to (a) preserve some vestige of fairness, and (b) return the equilibrium of production and consumption to roughly where it was in 2007. In particular, we are tripling dollars, but not tripling debt. (Otherwise, this step would be meaningless.)

We triple the dollars rather than doubling them, because doubling them would roughly restore everyone's net worth, and the old balance of production and consumption existed not in a world of stable asset prices but a world of rising asset prices. (Thus, for instance, the systemic mortgage equity withdrawal.) In the new financial system, prices will be stable and magic money will not be created out of nowhere. So, to roughly match the spending level, while preferring an overshoot ("inflation") to an undershoot ("deflation"), we triple.

This may also annoy poor people, who have no assets to triple. Instead, poor people have debts. Thanks to our cleanup, these debts are now held by USG itself (which acquired them from the old financial institutions). There is no reason for USG, which can print dollars, to be squeezing them out of the hides of the poor. Forgive them all. Call it a Jubilee.

Step three: calculate the expected shortfall in future entitlements (Medicare and Social Security), and print new dollars to fill the gap. (About 50 trillion of them, to be exact.) For extra credit, print unripe dollars (bonds) and issue them directly to the actual entitlement recipients, as per the actuarial value of their policies. Otherwise, just hold the dollars until they are needed.

Why all this printing? Basically, the problem is that (as, presumably, on Urf) our money supply has become inextricably confused with our financial-asset market. We could have $100T financial assets and $2T dollars only because a significant percentage of the value of all these assets was a consequence of Professor Bernanke's printing press. The same can be said even for entitlement payments - USG will never default on your Social Security, because it can always print money and mail it to you.

We are going to break this printing press. But before we break it, we have to use it - or we may well end up with $2T dollars, and $2T in financial assets. If you haven't been skimming, you know what effect that would have on GDP. Basically, we are finding all the fuzzy, virtual, implicit, green-lint dollars in the world, and replacing them with actual dollars.

Step four: auction all the financial assets previously nationalized - corporations, real estate, etc. There is certainly plenty of cash around to buy them with. Destroy the dollars received in the auction.

Why are we selling the assets we just bought? We bought them to close out a broken financial system, in which the relationship between asset prices and dollars was unstable and unhealthy. We are selling them to establish their free-market price in a stable, healthy financial system. We do not know what the right relationship between the number of dollars in the world and the net price of its financial assets should be. So we ask the market, and the market tells us.

If you were a homeowner before step one, you sold your house to the government and now rent. We don't want to evict anyone unnecessarily, so we'll offer you the opportunity to buy back your house for 10% less than the winning bidder - presumably some faceless conglomerate. If you reject this opportunity, your rent to the conglomerate is a function of the price it paid.

Step five: renumber the currency. Every dollar in the world (perhaps about 200T) has a new serial number - from 0 to 200T. This limit will never change. Write it into the Constitution. As long as we can hold the line on this number, our new financial system is built on a fiat currency that will be harder than gold (since new gold can be mined).

Or, for extra credit, redenominate the currency (including debts and contracts, this time) so that rather than a random decimal number of dollars, there is a round binary number - such as 2^64. This has two advantages: (1) micropayments, and (2) a round binary limit will rapidly get baked into all sorts of financial software, and become almost impossible to change.

And that's Plan Moldbug. If this isn't a full reboot of the financial system, what is? If the financial system doesn't need a full reboot, what does? Now, let's review the advantages, as previously claimed, of this plan.

Is it instantaneously effective? Only inasmuch as the Googlers can implement all five steps instantaneously, perhaps; but only steps one and two are needed to reverse deflation, and these are easy. Is it effective? Yes, because tripling everyone's net worth should restore consumer spending quite handily. Is it fair? Perhaps not perfectly, but at least your new net worth is a function of your old net worth, and the government picks no winners or losers. Is it popular? Does a bear...

And does it restore a stable, free-market financial system? USG sells all the assets it nationalized, and its new dollar is the hardest currency in human history. We are increasing total dollar net worth over its pre-crash level, to make up for the termination of credit expansion, so the new dollar may have a slightly lower purchasing power. But the new dollar is watertight and does not leak, so there will be no persistent inflation.

And none of this matters at all, because Plan Moldbug will never, ever happen. At least, not as long as we have anything like the government we have now.

The problem with Plan Moldbug is that it can only be executed by a strong government. The election of Barack Obama has considerably strengthened USG, by removing the fraudulent Outer Party and returning Washington to its natural "apolitical" condition as a one-party state. Nonetheless, not all one-party states are created equal, and ours is weak and getting weaker. You may think this is a good thing. Please allow me to disabuse you of this notion.

What do we want in a government, anyway? What makes government good or bad?

First, there are two models of preference in government. You can prefer government X to government Y because either (a) X provides better government to its subjects, or (b) you, personally, have more power in the administration of X. Better, as Milton put it, to reign in Hell. We can call (a) the Popean model, (b) the Luciferian model.

Whether or not to worship the Devil is always a matter of taste. For me it is Taste 101, however, and I will go with Pope:
For Forms of Government let fools contest;
Whate'er is best administer'd is best.
Of all Luciferian motivations, democracy is the lowest. It is one thing to rule in Hell. It is quite another to have one hundred-millionth of a say in the selection of an official whose role in Hell is primarily ceremonial.

Most fans of democracy do not, I think, support it for Luciferian reasons. They support it for Popean reasons. They think that deposing Lucifer and holding elections in Hell stands at least some chance of turning Hell into Heaven. While this is definitely not an opinion that anyone was ever reasoned into, it beats pathetic grasping at homeopathic fractions of power. Note, however, that many believe others support democracy for Luciferian reasons.

So we focus on the question: what is quality of government, and what design for government is most likely to provide it? And when we say "quality," we mean quality from the perspective of the government's subjects, not its rulers, ministers, employees, etc. From the Popean perspective, government is a product, and we are its consumers - whether we like it or not.

This unsurprising, but strangely uncommon, perspective also allows us to distinguish between quality and price. The price of a government is simply the level of taxation it imposes. Of course, as consumers we are prepared to balance quality and price, but our key goal at the moment is an engineering problem: how do we even create a high-quality government? Once we know how to build it, we can focus on getting the price down.

It so happens that, until I read Carlyle, I thought of myself as a libertarian. For me, a better government was a smaller government - case closed. Carlyle is often thought of as a prototype of fascism, a direction easy to see in even an early bit of late Carlyle such as the Pamphlets, and of course the absolute nemesis of any libertarian is the fascist. So how was I won over?

For me, quality of government comes in two dimensions: responsibility and authority. Both qualities are monotonically positive. There is no Goldilocks about them. A government cannot be too responsible or too authoritative - any more than food can be too tasty, bass too funky, or sex too hot. A serviceable Saxon synonym for the latter is strong, and responsibility is no more than common sense. So all we're saying is that strong, sensible states govern the best.

Let's take them in order. First, we will make the state sensible; then we will make it strong.

The common incidence of irresponsible kings, for purely biological reasons, is one of the main reasons cited for the demise of the European monarchical system, which of course created the great Continental nation-states now plainly going to the dogs. I think this problem may be slightly overstated (the main reason I would cite starts with "E" and ends with "land"), but it is nonetheless a problem.

An easy way to see this is to see the royal family as a family business, that business being the State. A sovereign state has no law above it to govern its affairs, and exists solely as a function of its own ability to defend itself. In all other respects it is exactly the same as any other corporate enterprise. For example, states and private corporations can, should, and usually do use the same accounting conventions, HR procedures, management structures, etc, etc. If sovereignty were not boolean, the difference between a real-estate developer and a state would be a difference of degree.

Unfortunately, the monarchies of Europe were already in decline when the most important organizational invention of the last millennium, the joint-stock corporation, was born. (And, of course, it was born in England, which had already done in its own rightful king and was soon to do away with everyone else's.) Therefore, no royalist intellectuals that I am aware of ever proposed converting the old family businesses into what might be called joint-stock republics.

The joint-stock republic is a very different entity from your ordinary, democratic republic. Its shares are negotiable and freely traded. Owning a share is not a "right," except in the sense that if you own a share of Intel you have a right to receive Intel dividends. And, most importantly, the republic is operated for the exclusive benefit of its shareholders. All corporate governance mechanisms are otherwise the same, although without a superior sovereign to enforce them they must enforce themselves. Briefly: combine this technology with this one. (Those Google engineers will be busy.)

If the republic is operated for the exclusive benefit of its shareholders, who of course are likely to resemble the corporate shareholders of the present day (pension funds, fat cats, Saudi sheikhs, etc), how on earth does it provide high-quality government? Shouldn't it be operated for the benefit of its customers?

This is the miracle of capitalism, so familiar and yet still so strange. The capitalist restaurant is operated for the benefit of its owners. The Communist restaurant is operated for the benefit of its customers. But which has better food?

We must agree that a restaurant operated effectively for the benefit of the customers will be a better restaurant than any operated for the benefit of the owners. But it is not possible to design a management structure that will reliably achieve this result. The problem is fundamental: we cannot state a precise and unambiguous definition of "good food" that we know all customers will agree on. We cannot characterize the results objectively or quantitatively.

We can, however, operate a restaurant effectively for the benefit of the owners, because we can describe what the owners want objectively and quantitatively: money. The more, the better. Thus the restaurant can be accountable to its owners, as it never can to its customers. And it is this accountability, this quality of tautness, which causes it to serve its customers well. A string can be loose in many ways, but tight in only one.

In a joint-stock republic, the mapping from profitable ownership to high-quality government is straightforward. The return on each share is a function of the value of the capital. The capital is the country, ie, its real estate. The value of real estate is its price. How does a government maximize the price of its real estate? By making the country as pleasant a place to live as possible, ie, by providing high-quality government.

CEOs of private corporations today may be effective or ineffective. There is no escaping the bell curve. On the right end, you have Steve Jobs; on the left, Gil Amelio. However, one quality shared by almost all corporate CEOs is sanity. One generally does not hear of them going crazy and murdering the entire board of directors with a fire-exit axe, or the like. I realize that this is a low standard - but consider the record of heads of state in the democratic era.

Thus, responsibility. Let's look at the more interesting question of authority - or strength.

Authority is the state's ability to act decisively, cohesively, proactively and intelligently. From our experience in the private sector (not to mention the military sector), the formula for authority is clear: unity of command. A single extremely capable individual can manage an organization of any size, and our society has no shortage of such individuals. From this apex descends the familiar hierarchical pyramid. As an old Prussian Army saying went: who wishes to command, must first learn to obey.

Note your reaction to this. You are well aware that any large corporation which adopted any management structure besides a simple hierarchy would be halfway already to bankruptcy court, and that simple hierarchical command is the difference between an army and a mob. In both these cases, there is a single individual at the apex of command, which is completely normal.

However, in the terminology of government, this system would be described as an absolute dictatorship, or (once) an Oriental despotism, and you consider it the most dangerous possible design - one certain to practice sadistic, Kafkaesque mass murder. The salient examples, of course, are Stalin and Hitler.

There are quite a few mistakes in this perception, but one of the main ones is to take examples from outside one's own tradition of government. In the post-WWII era, everyone's tradition of government is the Anglo-American tradition, and when we think of absolute personal rule we should be thinking of Elizabeth I. (If you're going to argue that Elizabeth and Hitler were truly comparable, I'd like you to start by showing me the Nazi Shakespeare.)

Hitler and Stalin are abortions of the democratic era - cases of what Jacob Talmon called totalitarian democracy. This is easily seen in their unprecedented efforts to control public opinion, through both propaganda and violence. Elizabeth's legitimacy was a function of her identity - it could be removed only by killing her. Her regime was certainly not the stablest government in history, and nor was it entirely free from propaganda, but she had no need to terrorize her subjects into supporting her. Not so the dictators of the democratic era, each of whom could have been removed by a combination of their subordinates, and depended absolutely on personal mass popularity to avert this fate. And killing or incarcerating opponents is a pretty obvious way to maintain one's popularity.

(And, of course, none of the three had anything like an accountability mechanism. It is not purely a coincidence that Elizabeth was sane whereas Hitler and Stalin were demented, but the process that produced the former at least did not select in favor of insanity.)

My favorite analogy for official authority is the stellar cycle. If the authority of government is the temperature of the star, and the size of government is the size of the star, Washington is easily identifiable as a red giant, like Betelgeuse - enormous and cool.

For former libertarians, such as myself, this inverse relationship is critical. The paradox is that weakening government makes it larger. At least, to a libertarian, this seems like a paradox. Once it seems quite natural, you may no longer be a libertarian.

Perhaps the most significant fallacious principle in the Anglo-American democratic mind is the principle of division of authority - immortalized by Montesquieu as the separation of powers. Montesquieu, of course, was an Anglophile, and he was head-over-heels in love with the supposed balance of powers created by the "Glorious" Revolution of 1688. To refute this principle, it should be sufficient to note that in the Britain of 2009, only one - at most - of Montesquieu's three powers still has any power at all.

The division of authority is simply the destruction of order. The Romans knew it as the political solecism of imperium in imperio, and Harvard Business School dreads it no less. There is no conceivable balance between competing authorities; they will fight until one kills the others, and even when they collaborate it is in the fashion of partners in crime.

Of course, divided authority tends to be quite popular among those who divide the authority. Power is fun, and power shared three ways creates more total fun than power held by one. Note also the entropic quality of division: it is much easier to divide than to reunify. The stellar cycle is entropic, of course, as well.

Democracy is a classic case of division of authority. It purports to dole out microscopic slivers of power equally to all subjects of the government. In fact this power is simply transferred to those who form, instruct, and organize large bodies of voters, whose average thoughts are unsophisticated by definition. Carlyle and others of his ilk called these men wire-pullers, and did not regard their growing importance as a good omen for the British polity. Surely the disaster of Great Britain in the democratic era evinces of some prescience in this regard.

We must not be too harsh on the the advocates of divided authority, however. The principle is easily recognizable as what it is: a bad, but not completely ineffective, attempt to produce accountability. Lacking anything like the shareholder structure of the joint-stock republic - which is categorically distinct from democracy, most notably because the interests of all shareholders are identical, whereas the interests of democratic voters differ and conflict - division of authority seems like a decent compromise. That it weakens the State is obvious, but the more people you have in a room the more likely they are to agree on something sane.

The great error of libertarians, as well as many liberals, progressives, etc, is to suppose that the weaker the State is, the freer its subjects are. The opposite is very nearly true. A weak government is a large government - and the smaller the State, the freer its subjects are. Every time you weaken your government, you give it another excuse to become larger.

Essentially, big government is big because it is constantly competing with itself. Restore unified authority, clean the Augean stables, and the great dungheaps which exist only for the sake of themselves are washed out with the Orontes. Ideally, the dungheaps exist only for themselves, but in order to justify their existence they often put quite a bit of energy into molesting the poor customer.

We can see this easily by looking at a level of weakness the US has not quite achieved: personal corruption. In a country where government officials take bribes, the principle of divided authority has reached the individual level. The bribetaker is personally sovereign, in a sense. His actions are not in the interest of the State as a whole, but the State as a whole did not just pull you over for driving 50 in a 55 zone. He did, and he wants a 500-peso note along with your driver's license.

In the US, not individuals but agencies of the State compete for power and importance. Each seeks to expand its own impact, budget, and personnel. If USG, tomorrow, were to find itself operated as a single authority, it would set quite a number of live coals under quite a number of superfluous agencies.

There are many reasons that Plan Moldbug cannot happen, but this is perhaps the most salient. Our financial system cannot be rebooted, because there is no one in Washington with anywhere near the authority required to make any such decision. Even in FDR's day it would have been a stretch, and the Beltway hasn't spent the last 75 years turning into Betelgeuse for nothing.

This is especially the case because the logic behind the plan is not pseudoscience, but common sense. Common sense smacks of personal authority, and all bureaucracies have an intense jealousy of personal authority. One major goal of a bureaucracy is to distribute as much importance (ie, power, or at least apparent power) as possible to its employees, which argues for maximizing the number of individuals involved in every decision. Impact means power means status, and it's not for the money that bright young people flock to Dupont Circle.

In this environment, anything that smacks of proactive management or personal decisionmaking becomes almost offensive. To the extent that decisions must be taken at all, they should be taken on the basis of (a) science; (b) if not science, law; (c) if not law, at least some regular process. As we've seen, science has expanded wonderfully to fill this vacuum (congratulations to the climate modelers, by the way; our "stimulus" gives them another $140 million), and law and process are not far behind.

The ultimate power in the US system, the summum imperium, which of course belongs to the Supreme Court, reflects this paralysis perfectly. There is no question but that sovereignty resides in the nine bodies of the Court. If they order Barack Obama to deliver his next press conference standing on his head, he has to do it.

But not even the united Supreme Court, voting 9-0, can execute Plan Moldbug, because in exchange for the power of ultimate appeal, their authority is quintessentially reactive. The matter would have to reach them in a lawsuit, and the policy of rebooting the financial system would have to emerge in some way from that suit. The Court can decide whatever it wants, but it only gets to make a small number of decisions on a certain class of problems, and those problems have to come to it. Once again, authority has been driven out of the system.

Betelgeuse, of course, will end in a supernova. The fate of the red-giant state is similar. First, a phenomenon Carlyle would no doubt see everywhere in modern America and Europe, since he saw it even in the England of 1850: anarchy. The breakdown of a single general order, the emergence of transient local centers of power - gangs, terrorists, "activists," and the like.

With its invention of that wondrous dream, the Third World, America has inflicted the horrors of anarchy on almost every corner of the planet outside itself. Even Europe is not immune, and nor are certain corners of most American cities. But I live in one of the least well-governed American cities, and I hardly get a glimpse of it. This, slowly - very slowly, I hope - will change.

So the conclusion we've come to about democratic government as a whole is oddly similar to our conclusion about the financial system. The conclusion is that it's fatally broken, and needs to be replaced by something completely different. Even in Carlyle's day, repair did not seem like an option. How less it is today! And still the dungheaps grow, the bats flit in and out, the stacks of paper molder. And we notice, with a chill: the whole damned thing is a colossal firetrap.

And I have no solution at all to this problem. I am hardly the first to notice that Washington is broken beyond repair - at least according to this spurious poll, 71% of Americans agree with me. Perhaps this is the simple beginning of wisdom: yes, this thing is broken; no, it is not going to fix itself; no, we cannot fix it, either; and yes, it is getting slowly but surely worse.

Honestly, I am happy just to stop believing in my government. The idea that, just because you are right and the State is wrong, you should be able to do something about it, is a nematode rather than a neuron. It is unique to the democratic era. We am lucky simply that I'm allowed to post these posts, that you're allowed to read them, that we can both go to Google Books and scroll through politically unacceptable tomes from the 19th century until our eyes glaze over.

If you by some chance agree with what I've written here, please avoid the impulse to act on it. Surrender completely to the impulse to think on it. Remember that the inexorable slope of the line is slow, slow, slow. There is no shortage of time for thinking, none at all.

99 Comments:

Blogger G. M. Palmer said...

This seems weirdly typed. The repetition of the beetlejuice analogy, the "we am" at the end. . .

What's going on, Moldbug?

January 29, 2009 at 6:57 AM  
Blogger Aaron Davies said...

minor nitpick: last time i checked my h-r theory, betelgeuse will end as a white (and eventually black) dwarf

January 29, 2009 at 7:44 AM  
Anonymous m said...

Historically, this has been the equation:

Right = nationalist
Left = trans-nationalist

For the last 70 years - after Progressives took over higher education - but perhaps even before, when Progressives took over the official media and stamped out yellow journalism, mainstream Rightists have been the previous generation's mainstream Leftists - nationalist only in their generational foot-dragging with regards to global governance.

I hate when Mencius goes all nerd-crazy, living in some fantasy world...

January 29, 2009 at 8:17 AM  
Blogger xlbrl said...

Say it like you mean it-- Washington is broken beyond repair.

The New Deal entered the old form and devoured its meaning from within. The revolutionaries were inside, the defenders outside. A government that had beed supported by the people and so controlled by the people became one that supported the people and so controlled them--Garrett

January 29, 2009 at 8:20 AM  
Anonymous The Undiscovered Jew said...

"And I have no solution at all to this problem"

How about defunding the humanities departments? Or forcing colleges to introduce more video lectures and distance learning courses into liberal arts education so that we cut down on the need for so many leftwing educators?

The media is being neatly disembowled by the internet. The NYTimes may not even exist in five years. If we just stopped funding the leftist professors we would be well on our way to killing the Cathedral or at least reducing its influence.

But maybe Moldbug doesn't like this idea because it's too simple and doesn't involve analogies to interstellar empires?

;)

January 29, 2009 at 9:24 AM  
Blogger Daniel A. Nagy said...

You can discuss this article by placing comments right next to each phrase over at Thiblo.

Don't just write comments on a long piece of toilet-paper; annotate the original!

January 29, 2009 at 9:30 AM  
Blogger G. M. Palmer said...

that and it takes too long. . .

And Hahvad's endowment makes them pretty immune from such things.

And established intellectuals are the one making policy anyway -- so it's not likely to happen.

Since that's true, why not shoot for the moon?

January 29, 2009 at 9:33 AM  
Anonymous Anonymous said...

In a joint-stock republic, the mapping from profitable ownership to high-quality government is straightforward. The return on each share is a function of the value of the capital. The capital is the country, ie, its real estate. The value of real estate is its price. How does a government maximize the price of its real estate? By making the country as pleasant a place to live as possible, ie, by providing high-quality government.

The "value" of a country does not map to its land area, or the US and Brazil (and France and Afghanistan) will have the same "value". If the inhabitants of France and Afghanistan swapped countries, very soon France would be a Third World shithole and Somalia would be a cultured and industrious place. High quality government (and high quality everything else) depends primarily on the human capital, not the real estate. But hey, if you don't believe this, have fun turning Cuba or Ghana into neocameralist paradises as some buffoons have suggested.

one quality shared by almost all corporate CEOs is sanity. One generally does not hear of them going crazy and murdering the entire board of directors with a fire-exit axe, or the like.

This is because there is a law outside the corporation (the government) which can enforce penalties on homicidal CEOs. If the corporation was the government, who would do so?

It is not purely a coincidence that Elizabeth was sane whereas Hitler and Stalin were demented,

Hitler and Stalin were not "demented" in any meaningful sense. They were rational within the systems in which they operated. Simply calling them "demented" is intellectually lazy and makes it impossible to understand them.

January 29, 2009 at 9:54 AM  
Anonymous Anonymous said...

very soon France would be a Third World shithole and Somalia would be a cultured and industrious place.

Ooops, read Afghanistan for Somalia. But same idea.

With open borders, of course, France may well actually become Afghanistan (or Somalia) in the fullness of time, just as the US may become Brazil.

January 29, 2009 at 9:56 AM  
Blogger G. M. Palmer said...

Anonymous,

You still don't have a name and you still don't understand.

MM's plan takes into account the things that make real estate valuable -- stability and safety. Indeed, he suggests rounding up the deviants and Matrix-izing them.

Cuba would have a quick turn around if I were the dictator and had the ring of fnargl to kill off/imprison/eliminate the chaff.

Sure Cuba might be fairly empty (after all, you've got two generations of people who've grown soft under the opiate arm of Castrunism) but then I would be in posession of an island state with an industrious group of people and plenty of real estate.

Now, explain how this would be such a problem.

January 29, 2009 at 10:31 AM  
Anonymous Leonard said...

The "value" of a country does not map to its land area

True. MM did not say that.

MM said it is the value of the land, which is not the full truth. It is the value of the land and all fixed capital, plus the value of the subjects, insofar as they won't or cannot leave. (Obviously a state cannot extract full value from people who are free to leave.) But above all it is the value of rule of law, which serves as a sort of multiplier to the base values above.

High quality government (and high quality everything else) depends primarily on the human capital, not the real estate.

Certainly it does not depend on the real estate. But neither does it depend on most of the humans, except insofar as they have gone and done something foolish like set up democracy. Then, of course, it does depend on them, and you get wild differences between Afghanistan and France.

In democracy, you can think of good policy as a problem that is presented to each voter. Each voter has the same power, thus, we should expect the country to get policy that is on average as smart as the voters. Thus, the pattern we see in the modern world: countries with (on average) European IQs get one quality of government, with a few wild exceptions (China, North Korea) for obvious enough reasons. Countries with lower average IQs do worse, right down to the African basket cases. (See IQ and the Wealth of Nations for more in this line.)

Whereas, in neocameralism, policy is ultimately controlled by the shareholders. They can be expected (on average) to be much better problem-solvers than average people, because a fool and his money (or his trust-fund stock) are soon parted.

But hey, if you don't believe this, have fun turning Cuba or Ghana into neocameralist paradises as some buffoons have suggested.

In fact it would seem that neocameral government should be expected to do relatively more for third world shitholes than it should do for first world countries, exactly because they have a smaller proportion of the people fit to exercise power. Given a world market for neocameral corporate stock ownership, all countries should end up with pretty much the same average IQ of owners. Which is above that of average voters, now, even in the first world. But it may not be that much higher; perhaps it would be IQ=110 (just to throw out a number). But we can see that although the USA would benefit from that, increasing its average IQ of rule by 10 points, Haiti would benefit far, far more, increasing its average IQ of rule from what it is now (70 or whatever) to 110, +40 points.

This is the big-picture view as to why colonialism worked, whereas the very-similar independent states resulting from decolonization didn't and don't. (At the small scale, of course it is specify policy.) This is why MM is fond of mentioning the example of the Earl of Cromer and his 5000 men running Egypt in great peace and prosperity a century ago.

January 29, 2009 at 10:44 AM  
Blogger G. M. Palmer said...

In other news,

Dubai might not be so clean and shiny after all. . .

January 29, 2009 at 10:52 AM  
Blogger Vilhelm S said...

Entertaining as always!

Nitpick: "device called a printing press" should be "technology called a printing press".

January 29, 2009 at 11:28 AM  
Anonymous The Undiscovered Jew said...

G. M. Palmer said...

"that and it takes too long. . .

And Hahvad's endowment makes them pretty immune from such things.

And established intellectuals are the one making policy anyway -- so it's not likely to happen.

Since that's true, why not shoot for the moon?

January 29, 2009 9:33 AM"

Very well then, bring on the Stuarts!

January 29, 2009 at 11:56 AM  
Blogger drank said...

We can, however, operate a restaurant effectively for the benefit of the owners, because we can describe what the owners want objectively and quantitatively: money. The more, the better. Thus the restaurant can be accountable to its owners, as it never can to its customers. And it is this accountability, this quality of tautness, which causes it to serve its customers well.

The reason why the restaurant is managed for the benefit of its owners but still serves tasty food is that customers are free to patronize it or not. The owners of the restaurant get rich if and only if they can persuade lots of customers to voluntarily come and exchange their money for a meal.

The relationship between Sovereign and Subject is not an example of this kind of uncoerced exchange, and there is no possible way (by definition) for a third party to intervene in that relationship. There are endless examples of sovereign "family businesses" that benefit the owners by expropriating the wealth of the citizenry, using them as slave labor, or denying them the opportunity to leave for a more congenial regime. There are also plenty of examples from corporate governance where a narrow majority of shareholders enacts policies that benefit themselves at the expense of the minority shareholders or customers. Why should we expect all NeoCameralist states to go through this laborious process of persuading people to exchange wealth for good governance, when they have far more direct means of extracting wealth available to them?

Or said differently, Kim Jong Il can get all the hookers, mansions and bling that he wants by using his subjects as slaves. As a bonus, he gets to humiliate a new generation of grovelling WashCorp diplomats every few years. Why should he care about running North Korea so as to extract the Laffer maximum from the GDP of a well-governed state?

We come upon this point in every discussion of the NeoCameralism. I'd love to see Mencius actually address it, instead of wrapping the same ideas in yet another clever fairy tale about how imaginary governments are required to behave in some imaginary world that bears little resemblance to our own.

January 29, 2009 at 1:01 PM  
Blogger Alrenous said...

While I haven't done the research, I think the point is that these little mishaps still don't put the quality of Dubai's management below that of your average democracy, or indeed of your more upstanding democracies.

I get this impression because the news I see of Dubai is almost entirely negative - but is both rare and never particularly bad.


And yes, the reason accountability to management works is because every non-monopoly business is ultimately accountable to the customers, because they are the sole source of funding.

Ultimately, trying to serve the customers directly does the same thing in reverse; the funding is not the customer and thus the accountability is not to the customer.

Why should he care about running North Korea so as to extract the Laffer maximum from the GDP of a well-governed state?

Because it is, in fact, higher. Either Jong Il is trapped by his own supporters, or he can't figure out how to convert his populace into people worth investing in.

More likely, the relative poverty diverts the U.S. from trying to step in. Jong Il or one of his advisers was watching Rhodesia and drew some accurate conclusions. I can't imagine a truly authoritarian, rich country would last long enough to fart.

January 29, 2009 at 1:26 PM  
Blogger drank said...

Because it is, in fact, higher. Either Jong Il is trapped by his own supporters, or he can't figure out how to convert his populace into people worth investing in.

No doubt there's more money to be made from running Dubai than North Korea. It's also a lot more work and headaches - nobody is running news stories, after all, about raw sewage on NoKo's luxury beach resorts.

We've all heard of "lifestyle businesses" - I think North Korea is something of a "lifestyle sovcorp".

But woe to you if you line the barricades for the Moldbug Revolution and then get stuck in somebody's lifestyle city state!

January 29, 2009 at 1:40 PM  
Anonymous Finkledork Nuzzlechucker said...

Believe it or not, Earth has roughly the same financial structure as Urf - with dollars, of course, not sols. Despite recent frenzied printing, there are fewer than 2T dollars in the world, but the personal net worth of all Americans (alone) is roughly 50T dollars.

One may ask: does this make sense? It is surprisingly hard to show that it doesn't. For example, since Monx-138 is not actually hoovering up all payments on all corporate bonds and sailing them back to Gubble, it is possible that these dollars go around in a circle. The bondholders spend them on corporate goods and services, etc, etc.


Right about here is where the analysis falls apart. Money does indeed go around in a circle. This circular flow, also known as the velocity of money, is what allows 2T in cash to service greater than 2T in assets.

The ratio of cash to assets, whether it be 2:50, 2:25, 2:10, etc., is determined by the supply and demand conditions for money. For example, in a world with 2T in cash and 50T in assets, it's possible that people find themselves preferring that a larger portion of their wealth be held in liquid cash. Accordingly, demand for cash increases, demand for assets fall, prices of assets fall, and the ratio is altered. At the new ratio, say 2:25, the demand for liquidity is satisfied, because although there is still only 2T in cash, it is worth more in real terms.

Now as best as I can make of it, Plan Moldbug recommends creating a 1:1 ratio between cash and non-cash assets, which seems entirely arbitrary. Most likely, people will find themselves with far too much liquidity. Dis-hoarding of cash will occur, and supply and demand conditions will alter the ratio back towards whatever it was, causing absurd amounts of inflation.

As I see it, the problem is not that 2T in cash must service 50T in assets. It's that 2T in cash is acting as 10T in cash, through fractional reserve banking. The trouble being that FRB can break down, so that banks can no longer magically turn 2T into 10T. The resultant is a sudden, painful shortage of liquid cash, requiring the Fed to print the difference. In theory, it would be a lot simpler to just have 10T in cash acting as 10T in cash within a 100% reserve banking system, so that these fiascos never happen. But who really knows?

January 29, 2009 at 4:29 PM  
Anonymous Leonard said...

The reason why the restaurant is managed for the benefit of its owners but still serves tasty food is that customers are free to patronize it or not. The owners of the restaurant get rich if and only if they can persuade lots of customers to voluntarily come and exchange their money for a meal.

Actually it is a bit of both. Restaurants with private owners but captive customers tend to be much worse than those with free customers. But at least they exist... it's hard to even think of an exemplary communally-owned restaurant, except where there is no private ownership, or in conjunction with captive customers. I mean, you can go on a cruise and eat at a restaurant with no competition. (Directly -- obviously, food quality is one of the things they compete on at the higher level). But it's very hard to find a publicly owned restaurant anywhere in America (the best example I can think of is school cafeterias, but they suffer from both public ownership and captive customers).

And although I agree with you that wrt governance, MM doesn't pay as much attention to the demand side as he should, nonetheless he is aware of it; this is why he proposes a patchwork of "tens, even hundreds, of thousands" of small neocameral states, instead of just one giant world-corp-state. But he is certainly prepared to go the full mile and argue for Fnargocracy too. Just that we can do better by fragmentation.

I do think there is a significant difference between captive customers (who you presumably don't do everything for), and captive subjects. The customers spend most of their time elsewhere; subjects are always yours. So the incentive to keep them happy (to boost their production and thus spending ability/taxes) is different. No matter how happy a restauranteur makes a customer, he captures only a fraction of the customer's surplus. Whereas, at least in theory, a sovereign can get it all.

January 30, 2009 at 6:49 AM  
Blogger G. M. Palmer said...

For those of you who think all is rosy, there are a few gang members who would like a word with you.

And your wallet.

January 30, 2009 at 7:04 AM  
Anonymous Leonard said...

drank, there are several pretty significant differences between an individual dictator and a corporation (meaning, a set of stockholders). One is that the pleasure of actually exercising power is there for a dictator, but not so much for stockholders. They do have the power, and they can tell the CEO to give the annual report standing on his head or whatever. But they don't get the day to day power-junkie rush of having subordinates crawl. Thus, we can expect them to be far less interested in power, and much more interested in money.

Another very significant difference is that a corp will be much more venal. There is a very good reason why Kim Jong Il does not care about maximizing his tax take -- because even ruling a nation of starvelings, he gets all the wealth he can consume. He is just one man; one man can only consume so much. By contrast, given reasonably broad stock ownership, no state will ever generate enough taxes to sate the consumption of 51% of the owners. Thus, for a corporation the incentive to maximize tax income (and thus to maximize wealth) will always be present, whereas for an individual dictator there is no similar incentive.

January 30, 2009 at 8:28 AM  
Anonymous Leet said...

I'm not an economist, so I have to ask: what are the downsides of a fixed money supply? It seems the economic environment would be perpetually deflationary punctuated with short periods of inflation -- the opposite of our current system. The very minute someone turned a lump of iron into a Buick, the currency would increase in buying power. Right? Any time value is created, each dollar gains proportionately.

The good news is that cash in the mattress actually earns a return in such an environment. But doesn't this have deleterious effects? I mean take the fellow turning iron into Buicks. He spends dollars to buy iron and every Buick he creates with that iron causes the currency to increase in buying power. This means, when he sells the Buick, he is getting stronger but fewer dollars in return. Why then, would anyone create Buicks? Better to save the dollars you would otherwise be spending on iron and play golf until someone else makes a Buick. If everyone does that -- no Buicks. (Which may soon be the case anyway, but I digress...)

In this case, the golf courses gather dollars as profits, create nothing of value, and outperform the guys turning iron into Buicks.

This seems like an undesirable world to live in, where you're penalized for value-creation.

What am I missing?

January 30, 2009 at 11:19 AM  
Blogger Isegoria said...

Despite recent frenzied printing, there are fewer than 2T dollars in the world, but the personal net worth of all Americans (alone) is roughly 50T dollars.

One may ask: does this make sense? It is surprisingly hard to show that it doesn't.


Why should we be alarmed that Americans' combined net worth is larger than the number of dollars out there?

If we listed prices in ounces of gold, Americans' combined net worth would be larger than the number of gold coins out there.

If we listed prices in Big Macs — a favorite unit of account over at The Economist — Americans' combined net worth would be vastly larger than the number of Big Macs out there.

January 30, 2009 at 11:38 AM  
Blogger drank said...

Leonard:there are several pretty significant differences between an individual dictator and a corporation (meaning, a set of stockholders)

I think the one trivially devolves into the other. If there are 10,000 city states in the Patchwork, the average value of one of them is probably on the order of Global GDP/10000, or $6.5 Billion. There are roughly 1,000 people in the world who could make such a purchase outright. Some of them, certainly, are outstanding business leaders who would devote themselves to good governance and profits as MM claims.

But the list also includes its share of shady characters with large Swiss bank accounts. People who are probably more motivated by personal power than profit. So suppose you're Robert Mugabe and you get run out of Zimbabwe on a rail. How long does it take you to get bored with the consumption of luxury goods and to realize that you miss the sweet, sweet sound of underlings grovelling as you hold the power of life and death over them? So you execute a hostile takeover of 51% of some city state, declare yourself President For Life, close the borders, and let the good times roll.

But wait: Mencius claims NeoCameralism as the solution to the problem of poor SovCorp customer service. This is BS. It hands each customer a lottery ticket. If your city state comes up with Steve Jobs as majority shareholder, you get tragically hip governance and profits. If it's Rick Wagoner, you get a Brezhnevite wasteland where 49% of the shares are held by city employees. And if it's Kim Jong Il, well, today just wasn't your lucky day.

January 30, 2009 at 12:24 PM  
Anonymous Leonard said...

If there are 10,000 city states in the Patchwork, the average value of one of them is probably on the order of Global GDP/10000, or $6.5 Billion

No. The P/E ratio of normal stocks is, say, 15-20 on average. That is, they get something like 5% ROI. That builds in riskiness. Sovcorps will be very stable, so they will be seen as very low risk, and people will accept lower ROI for them because of it. So we might expect something like say 25 P/E ratio for them. Thus if they captured all of their 'GSP' (gross sovcorp product), their average value is something like 25x what you guess above. That is about $162 billion. But with the assumption that the Laffer maximum is about 40% (about the average modern level of taxation), we find a value of $65 billion.

I agree with you that a few are likely to be bought up by power hungry deca billionaires. But... there really are very few of these, and so the problem is limited in scope. Say there are 10 of them at any one time who are also power hungry enough to want to sacrifice their fortune for the sake of power... then we are consigning on average 1/1000 of the world's population to hellholes. Well, in our current world, 24m people live in North Korea; that's about 1/300 of the world's population right there. Then we add everyone living in Africa...

January 30, 2009 at 1:01 PM  
Anonymous Leonard said...

Leet, if money changes value during production, you simply build that into your sell price. I.e., let's take your example and put a few numbers on it:

take the fellow turning iron into Buicks. He spends dollars to buy iron and every Buick he creates with that iron causes the currency to increase in buying power. This means, when he sells the Buick, he is getting stronger but fewer dollars in return. Why then, would anyone create Buicks?

You create Buicks to sell. Say that in our world, you spend $10000 on labor, capital, materials, etc., and 3 months later sell the Buick for $12000. OK? Since the up-front money tends to be degraded in purchasing power by maybe 4%/year or whatever on average, over that 3 months of production it loses 1%. Thus, in effect you make an extra 1% in profit by spending your inflating money early. This concords with what we know about inflation -- holding money is penalized. Your total profit at time of sale is thus effectively $2100, in terms of the money at that time.

So, how can you possibly make money in an economy which uses hard money? Easy enough. Just set your price higher. I.e., in the above, say that there is 4% deflation per year, or 1% in the 3 month period of production. In this case, your $10000 up front would have been worth $10100 after production, thus, your profit is only $1900.

So how can you possibly make a profit of $2100... ? You set the sale price $200 higher, to $12200! Rocket science, baby!

January 30, 2009 at 1:16 PM  
Blogger Leonard said...

Leet, btw you are right that it is undesirable to live in a world where creating value is penalized -- look at our world, with high taxation on corporate and personal profit. But certainly if people can stand 40% taxation on profit and not stop producing, a small 1 or 2% loss coming from the opportunity cost of money is not going to stop the economy. If it turns out it really does cause problems for long-term wealth creation, sovcorps would just lower taxes by 2%.

January 30, 2009 at 1:28 PM  
Anonymous Anonymous said...

You still don't have a name and you still don't understand.

So what, and yes I do, I just don't agree with it.

MM's plan takes into account the things that make real estate valuable -- stability and safety. Indeed, he suggests rounding up the deviants and Matrix-izing them.

Bah, you are dragging in things from previous posts. That's not what he's saying here. The post as stated is insufficient to prove the case.

Cuba would have a quick turn around if I were the dictator and had the ring of fnargl to kill off/imprison/eliminate the chaff. Sure Cuba might be fairly empty (after all, you've got two generations of people who've grown soft under the opiate arm of Castrunism) but then I would be in posession of an island state with an industrious group of people and plenty of real estate. Now, explain how this would be such a problem.

Refer to a previous MM post! Your plan depends on the fallacy of Human Neurological Uniformity (as well as socio-cultural uniformity). You believe that all humans are blank slates, and all any group needs to succeed is "good government". You have the right answer to write on these hapless slates! You think you can turn a bunch of brainwashed communist slaves into a bastion of for-profit success with a snap of your finger! These people have spent their lives avoiding work and believing that capitalism and profits are evil, but you can end this simply by shooting enough people until the rest submit. Thank God you will never have the opportunity to put such an idiotic and immoral theory into practice. Your plan here differs very little from the Communist experiment in Russia and China - they, like you, hoped to write a magic formula for success on what they thought was the blank slate of the Russian and Chinese peasantry - and you propose to use much the same techniques they did.

Certainly it does not depend on the real estate. But neither does it depend on most of the humans, except insofar as they have gone and done something foolish like set up democracy. Then, of course, it does depend on them, and you get wild differences between Afghanistan and France.

High quality government always depends on the humans (both the governors and the governed). Colonial regimes delivered high quality government from the standpoint of the governors, but not the governed. Yes, democracy has in many cases proven even worse, but the badness of democracy in Africa does not prove the goodness of colonialism.

Whereas, in neocameralism, policy is ultimately controlled by the shareholders. They can be expected (on average) to be much better problem-solvers than average people, because a fool and his money (or his trust-fund stock) are soon parted.

It is not clear to me that the behavior of shareholders demonstrates much in the way of problem-solving skills.

This is the big-picture view as to why colonialism worked, whereas the very-similar independent states resulting from decolonization didn't and don't. (At the small scale, of course it is specify policy.) This is why MM is fond of mentioning the example of the Earl of Cromer and his 5000 men running Egypt in great peace and prosperity a century ago.

Rubbish. Colonialism "worked" for the people sitting on the verandah sipping gin and tonic. For the rabble, not so much. Egypt under British rule from 1882 to (say) 1914 may look peaceful and prosperous from the perspective of 100 years distance and at 30,000 feet altitude, but if we put you in the wayback machine and dropped you into the Cairo slums of 1900 I dare say you might have a different opinion of how well governed the place was.

January 30, 2009 at 8:48 PM  
Blogger Alrenous said...

Isegoria,

If we listed prices in ounces of gold, Americans' combined net worth would be larger than the number of gold coins out there.

Which is bad.

If we listed prices in Big Macs — a favorite unit of account over at The Economist — Americans' combined net worth would be vastly larger than the number of Big Macs out there.

Which is fine, as Big Macs are not a medium of exchange.

Here's the most extreme possible problem from this particular multiplier. Monx tries to sell their stock for the 15T promised, of which only 2T exist.

Supply just hit the roof, and prices are going to gouge a trough in the floor.

Or rather, demand for money just hit the roof, and the price of everything is going to be in that trough, because the price of money itself is skyrocketing.

(I always have trouble with this. Even in a one-currency regime, you can measure the price of money. The price of a dollar in our Buicks is 1/10 000. If the price of a dollar in Buicks starts hitting 1/5000 or 1/500, you have a problem. Real world; see metal prices. If they move in tandem, it is because the price of money is changing. Ideal world; see the market interest rate. More demand for borrowing, the premium over inflation/deflation goes up.)

In the real world it takes a lot less than a galactic trading empire to kill the money supply, because only a fraction of the money is discretionary at any time.

Hence, the banks suddenly try to realize all these assets they have in long-term devices, but there just isn't that much money available to buy them.

And, suddenly, we have a financial crisis.

(There were also amplifying effects, specifically fractional-reserve and having the money represent debt. For each absolute dollar the banks could not recover, the economy lost at least ten dollars. So demand was rising and supply was contracting. Banks also leverage.)

This is why MM wants to buy everything and then auction it back. This will set the prices in a stable way, such that anyone can sell anything at any time without causing trouble for the entire world. You'll still be able to bomb particular stocks, just not the entire system.

Reading what I've written, it seems bad when you can rationally say the economy as a whole is leveraging. Leveraging is a valid tactic for speculators.


drank,

But the list also includes its share of shady characters with large Swiss bank accounts. People who are probably more motivated by personal power than profit. So suppose you're Robert Mugabe and you get run out of Zimbabwe on a rail.

Yeah, sure, Mugabe can do this. Once. Running patches like this is not profitable. His riches are going to be slowly chipped away by expenses. In relative terms, if not absolute terms.

I ran across a similar objection to a proposal to allow people to own forests. "But what if they just want to burn them?" Well, they can. Once. Then they run out of money, the empty land is bought by someone who didn't burn their assets, and they let the forest regrow. (Or whatever.)


Leonard,

There is a very good reason why Kim Jong Il does not care about maximizing his tax take -- because even ruling a nation of starvelings, he gets all the wealth he can consume.

Rationally speaking I suppose this is true. Two problems, though.

With a little imagination Jong Il could consume an infinite amount of money. Why, he doesn't even have his own space program yet!

Second, people aren't completely 'rational' this way. Sure Jong Il can get all the hookers he can possibly use. But he wants to be richer anyway, just, you know, because. He also wants more land and more people to own. The marginal benefits of these things are insignificant to him, but he wants them anyway.

January 31, 2009 at 7:17 AM  
Blogger Patri Friedman said...

I have a solution. Create a turnkey system for building cities on the ocean. This enables people with visions of a better form of social organization, like MM, to go try out their ideas with people who like them. The whole world can then see what works and what doesn't. We replace the current oligopoly of government service providers (< 200 nations) with a diverse ecosystem of small, innovative providers. I suspect some of these small countries will be democracies (which will work better b/c there are few voters), and some will be corporations, as MM suggests (these will be much better at raising investment).

Lots more information at http://seasteading.org/

January 31, 2009 at 12:13 PM  
Blogger Patri Friedman said...

I don't understand why it is a problem to have $2T in hard money and $100T in financial assets. That is, I understand the instability problem based on the multiplier being arbitrary. But in terms of just plain common sense, or aliens, I don't see the problem.

Normally, hard money does not leave the system. So if someone wanted to buy up all $100T in financial assets, they could. Just sell goods for $1T in hard money, buy $1T in financial assets, let that money get back into the system, repeat 100 times. Money is just a counter, and counters get passed around and reused.

In the case of Monx-138 exporting hard money, suppose they sell $1T worth of goods, and then send half the Urxian hard money supply home to Monx. Now we have deflated the Sol by 50%. The prices of all financial assets should halve, to $50T. This doesn't mean Urx's stock market has lost half its value! Prices relative to each other are all still the same. Money is just a counter.

Now in order to buy up the remaining Sols, Monx-138 will have to sell twice as many goods from their nanoreplicator. So they buy up $500M, say, and send it home. Again, prices double. The process continues, with prices increasing astronomically (ha ha), the Monxians needing to sell more and more goods to purchase the few remaining Sols, but *relative* prices all continuing to make perfect sense. There may be some dislocation costs due to debt and other contractual obligations stated in money. But if this is done slowly enough (or we ignore the dislocations), there is no logical inconsistency. There is a monetary singularity at zero, so the Monxians can't buy up quite all the Sols, but they can buy most of them.

I just don't see a problem here with a monetary base supporting a larger system of bonds.

January 31, 2009 at 12:47 PM  
Blogger Reginald said...

Your financial plan won't work for the same reason the gold standard didn't: it relies on the government to not create money. Who will guard the guards? Answer: no one. If the Constitution disallows printing, it will be amended due to an emergency (e.g. war), and open Pandora's box once again. Physical gold and 100% reserve banking (e.g. basic warehouses) is the best solution.

January 31, 2009 at 3:30 PM  
Blogger G. M. Palmer said...

MM's plan takes into account the things that make real estate valuable -- stability and safety. Indeed, he suggests rounding up the deviants and Matrix-izing them.

Bah, you are dragging in things from previous posts. That's not what he's saying here. The post as stated is insufficient to prove the case.


Hello, a) this is part 4 of a set of posts and b) MM doesn't need to reargue his points each time.

Cuba would have a quick turn around if I were the dictator and had the ring of fnargl to kill off/imprison/eliminate the chaff. Sure Cuba might be fairly empty (after all, you've got two generations of people who've grown soft under the opiate arm of Castrunism) but then I would be in posession of an island state with an industrious group of people and plenty of real estate. Now, explain how this would be such a problem.

Refer to a previous MM post! Your plan depends on the fallacy of Human Neurological Uniformity (as well as socio-cultural uniformity). You believe that all humans are blank slates, and all any group needs to succeed is "good government". You have the right answer to write on these hapless slates! You think you can turn a bunch of brainwashed communist slaves into a bastion of for-profit success with a snap of your finger! These people have spent their lives avoiding work and believing that capitalism and profits are evil, but you can end this simply by shooting enough people until the rest submit. Thank God you will never have the opportunity to put such an idiotic and immoral theory into practice. Your plan here differs very little from the Communist experiment in Russia and China - they, like you, hoped to write a magic formula for success on what they thought was the blank slate of the Russian and Chinese peasantry - and you propose to use much the same techniques they did.


Sorry that you couldn't supply the obvious missing information -- PEOPLE WOULD MOVE TO CUBA.

Oh, and as Fnargl, I would control immigration. I'd pay for industrious, civilized, intelligent folk to move there.

And you need a handle so we can know who the hell we're talking to. You seem to be the same idiot Anonymous who keeps posting whenever I or anyone mentions rehabbing a country like Cuba or Haiti.

February 1, 2009 at 6:59 PM  
Anonymous Anonymous said...

Hello, a) this is part 4 of a set of posts and b) MM doesn't need to reargue his points each time.

He does when they contradict each other, but only TGGP is keeping track of that when it happens.

Sorry that you couldn't supply the obvious missing information -- PEOPLE WOULD MOVE TO CUBA.

Oh, and as Fnargl, I would control immigration. I'd pay for industrious, civilized, intelligent folk to move there.


ROFLMAO! Oh yeah, you can right away see how worthwhile people would want to move to an island controlled by a dictatorial freak who is liquidating and imprisoning everyone he doesn't like or who he considers unworthy as he implements his crazy social experiment. That place will be an immigrant mecca, I tell you, just like Cuba is now (and for much the same reasons - homicidal dictator, etc). Every Objectivist in Silicon Valley will rush to join you!

You seem to be the same idiot Anonymous who keeps posting whenever I or anyone mentions rehabbing a country like Cuba or Haiti.

It is stupid every time you mention it, it will always be stupid whenever you mention it, and I will always say so.

February 1, 2009 at 7:12 PM  
Blogger G. M. Palmer said...

Dear Idiot Anonymous:

Obviously you would stay away from CubaCorp. However, I imagine that a great many people would come if I were to say:

Hello, I have a lovely country over here called Cuba. We've got a few thousand miles of beaches and millions of acres of land to buy. There are very few laws here -- they are all clearly delineated, and if you don't break them, you will be perfectly safe and happy. The only tax you'll pay is property tax. Even for you big corporations!

Oh, and it's never too hot or too cold! Did we mention it's a big island? In the Carribean? Without crime? Without taxes? If you're willing to relocate a business here or buy property worth $500,000, we'll even pay for your airfare!


And there are a fair lot of folks for whom the elimination of the vampiric population wouldn't cause a problem. Remember MM's solution to the populace -- anyone who doesn't want to contribute to society can either 1) be a dependent of someone who does or 2) be Matricized -- their choice.

What's your solution, Idiot Anonymous?

February 1, 2009 at 7:42 PM  
Blogger G. M. Palmer said...

(meant "without income taxes")

February 1, 2009 at 7:43 PM  
Anonymous Leet said...

Leonard,

I see your point and I think you're right. But there's another problem that occurs to me as I consider your response.

Our industrious friend is taking lumps of iron and turning them into Buicks, which is creating value and making dollars stronger. I agree that he can profit from this activity by charging the appropriate number of dollars at the point of sale. But what would be the incentive for a smart Buick shopper to part with his dollars at all? He wants a Buick, but if he just waits another day, his dollars will be stronger, and it will take fewer of them to get that same Buick. Multiply this by all Buick shoppers, hell, multiply by it by all shoppers period. The ever-strengthening dollar would seem to bring consumption to a grinding halt.

If this happens, our friend has to scale back production, maybe even go out of business. Fewer Buicks are created. The ones in existence depreciate, and value is destroyed. With a fixed money supply and the value of Buicks going down, dollars lose purchasing power, and we enter a period of inflation. With cash now getting negative returns, Buick shoppers come out to snatch up Buicks. They all come out at once causing -- you guessed it -- a bubble in Buick prices.

With Buicks selling like hotcakes, everyone starts turning every last lump of iron they can find into Buicks. The value created causes deflation again, and consumers go back to sitting on their dollars and not spending them.

Lather, rinse, repeat.

There are key differences between this round of events and the ones we deal with in our system. But I don't see how MM's plan avoids booms and busts. They will be different, but just as bad, if not worse.

February 2, 2009 at 9:02 AM  
Anonymous spirit said...

2 Leet

> But what would be the incentive
> for a smart Buick shopper to
> part with his dollars at all? He
> wants a Buick, but if he just
> waits another day, his dollars
> will be stronger, and it will
> take fewer of them to get that
> same Buick. Multiply this by all
> Buick shoppers, hell, multiply
> by it by all shoppers period.
> The ever-strengthening dollar
> would seem to bring consumption
> to a grinding halt

This analysis is wrong, because we have exactly the same situation in computers and electronics now (if you wait some time, you will get much better product for your money), and we don't see "consumption going to a grinding halt". So I don't see any reason why consumption of Buicks should disappear under appreciating money

February 2, 2009 at 11:36 AM  
Anonymous Anonymous said...

And there are a fair lot of folks for whom the elimination of the vampiric population wouldn't cause a problem.

Yeah, and sensible people don't want to be around those folks, either. If you're living with a bunch of Good Germans who are OK with genocide, you never know when they're going to turn on you.

It is not necessary for me to propose a solution in order for my observation that your "solution" is idiotic and immoral to be valid.

February 2, 2009 at 11:57 AM  
Blogger Steve_Roberts said...

"..there are fewer than 2T dollars in the world, but the personal net worth of all Americans (alone) is roughly 50T dollars."

> Not a problem. The role of dollars is to service exchange of assets, and indeed to facilitate a delay in moving from one asset to another. The number of dollars required to do this is not closely related to the dollar value of the assets.

"The principal factor in a person's spending decisions is how much money she has to spend. Rich people splurge. Poor people scrimp. For each dollar you add to your wallet, your propensity to hold on to that dollar decreases, and your propensity to spend it increases"

> Up to a point. I have observed that people who splash their cash tend to stay living from paycheque to paycheck, ie they are poor, regardless of how big the pychecks are. People who systematically underspend their income tend to end up with significant assets. Accordingly the causal relationship you posit can run in reverse.

"USG can raise an arbitrary number of dollars by borrowing them, ie exchanging them for risk-free government bonds (which are risk-free because of said printing press)"

> That printing=press introduces a risk, the risk that having coverted an asset into dollars, when you want to buy an equivalent asset, you won't have enough dollars because the printing presses have been issuing more dollars.

"..option one results in considerable personal suffering and destruction of industrial capacity"

> There is little actual destruction of industrial capacity, it simply gets re-allocated - usually at a knock-down price - to people who can make better use of it than the previous owners. What gets destoyed are the dreams of the people who placed bets on the boom never coming to bust.

February 2, 2009 at 1:47 PM  
Anonymous Michael S. said...

The current American financial system is, to be sure, constructed and operated to a great extent under the laws of the U.S. government, but neither fractional reserve banking nor maturity transformation are artefacts of those laws. They are the inevitable concomitants of a credit economy and have existed since such an economy first emerged in Europe in the late middle ages. As organic elements of the commercial and industrial societies that have developed since that time, they cannot readily be eliminated by something as superficial as regulation.

Money is created upon a fractional reserve any time anyone (not just a bank) extends credit. If the ownership of the credit can be transferred, as for example by the sale of a merchant's receivables or a landlord's rents to a factor, that credit has effectively been monetized. The ability to engage in such transactions has been essential to the development of modern Western civilization. To suppress such monies of account based on a fractional reserve of specie (or some other arbitrary store of value) would be a cure worse than the disease, and furthermore very difficult to enforce..

The maturity transformation issue - speaking from my experience as a bank director, and at least at the level of an individual bank - is not quite as easy to identify as the source of economic fluctuation as it might have been in Bagehot's time. As a matter of fact, well managed banks do not "borrow short and lend long." Balancing the maturities of deposits and of risk-based assets (i.e., loans) is the central task of what bankers call 'funds management'. This is an art made much easier today by computerized analysis, so that ordinary bankers can today determine easily about their loan portfolios what a century ago perhaps only the Göttingen-educated mathematical genius J.P. Morgan was able to envision about his.

The troubles of the financial system today do not arise from such fundamental issues. They are problems of liquidity and capitalization. Capital, of course, is the longest-term obligation on the liability side of a bank's (or any business's) balance sheet. Unlike demand deposits, which can be withdrawn at any time, and time deposits, which may be withdrawn at the end of a certain term, capital is perpetual. Its owners cannot withdraw it - if they wish to liquidate, the only option open to them is to sell their share of it to a willing buyer at whatever price he is willing to pay.

The crucial thing about bank capital is that there be enough of it - that it not be over-leveraged. The U.S. commercial banking system is restricted by its regulators to rather conservative leverage ratios. The same has not been true of investment banks, and it has not been true for non-bank mortage lenders (e.g., the GSEs Fannie Mae and Freddie Mac, and outfits like Countrywide Financial). What distinguishes these operations from commercial banking is that they did/do not accept deposits from retail customers, a circumstance that put them outside the purview of commercial banking regulations (including capital requirements). To obtain the money they lent, or used to buy mortgages from others who initially made the loans, they issued securities, pledging the mortgages they held as collateral.

The way the financial collapse spread from mortgages on residential real estate to the commercial banking sector wasn't mainly directly through its loan portfolios but indirectly through its investments. Commercial banks obviously cannot lend all of the money deposited with them. They must keep some cash to satisfy those depositors who wish to withdraw it. In practice a bank may lend only about 70-80% of its deposits. But they don't keep the remaining 20-30% just as cash. They use some of it to buy securities. If there is a maturity-transformation issue in the commercial banking business, it is in its investments rather than its loans. Bonds are ordinarily long-term investments - perhaps as long as 30 years. This is of course longer than the longest time deposits ordinarily held at commercial banks, which normally have terms no longer than 72 months. However, maturity transformation in the investment portfolio doesn't ordinarily pose a liquidity problem because the assumption is that securities are marketable and can easily be sold as the need arises.

Today, of course, mortgage- backed securities issued by the GSEs and private-sector operations like Countrywide are not as easily marketable as the people who bought them expected they would be. Countrywide is in bankruptcy. Fan's & Fred's debt has only such worth as the implicit guarantee of Uncle Sam givs it. The preferred stock of the GSEs, sold as a gilt-edged investment, is now worthless.

How does this affect the commercial banks that bought such investments? Let's assume that a hypothetical bank, before the events of last fall, had a capital-to-deposits ratio of 8%, i.e., for every $100 million of deposits it had $8 million of capital. It would accordingly have been considered 'well capitalized' by regulators. Let's further assume that it was 75% loaned-up, i.e., for every $100 million of deposits it had $75 million in loans. The rest of its deposits were divided between cash and investments.

Now let's assume that 5% of its deposits were invested in bonds and preferred stocks issued by the GSEs, Fannie Mae and Freddie Mac - securities once considered 'bank-quality.' All of a sudden the unsoundness of these institutions becomes apparent, as it did last year. The market for the securities collapses - buyers cannot be found. As a result, our once well-capitalized bank becomes illiquid. It cannot sell the securities for anything near their purchase price, if at all. This is expressed as a marking to (non-existent) market, and all of it is a reduction of capital from the well-capitalized 8% down to perhaps half of that. There's now $4 million in capital for every $100 million in deposits. The bank is now no longer 'well capitalized,' but has insufficient capital to carry its deposits. This is true even if not one of the commercial or personal loans it holds is non-performing!

What has happened in the past few months illustrates the difficulty of relying upon regulation to stabilize the financial system. Commercial banks were subjected to very stringent regulation in the aftermath of the crash of 1929 and the subsequent depression. Contrary to much of what has been said in the popular news media, very little of this regulation has been removed. Indeed, it has been more added to than reduced for years. However, economic pressure is rather like hydraulic pressure - it leaks through all attempts to contain it, at the points of least resistance. During all this time, an extensive sphere of non-bank lending activity was allowed to develop completely outside the bounds of commercial banking. Because it didn't fall within the legal purview of bank regulation, it didn't have to meet standards of capitalization, and its loans didn't have to be as well collateralized. Leading figures in the non-bank financial sector like Franklin Raines and Angelo Mozilo paid very effective court to politicians like Christopher Dodd and Barney Frank to assure that they were not regulated as strictly as commercial banks. It is a travesty that these politicians are now permitted by the ideologically blindered news media to scapegoat others for the disaster they themselves were instrumental in causing.

The claim that the decline of monarchy was the result of "irresponsbile kings, for purely biological reasons" is a vast oversimplification. Louis XVI and Nicholas II were weak and ineffectual monarchs and indeed lost their thrones and their lives because of that. I suppose that Nicholas II could be said, by virtue of his and Alexandra's preoccupation with the hæmophilia of their son the tsarevich Alexis, to have been irresponsible for biological reasons by consequence of trusting in a series of charlatans, most famously Rasputin.

However, if we examine the history of monarchies as a whole, they survived surprisingly well through a series of madmen, imbeciles, and degenerates. Charles II of Spain was reportedly "short, lame, epileptic, senile, and completely bald before thirty-five" Probably impotent, he failed to produce an heir, though married twice; and although he was the last of the Spanish Habsburgs, the Spanish monarchy survived him in the hands of the Bourbons for more than two centuries. George III of England was intermittently insane during the last three decades of his life; his descendants remain on the British throne. Gian Gastone, the last Medici grand duke of Tuscany, was sexually dissipated, extremely obese, and given to drink. When he died without a direct heir, his domains fell to the Austrian Habsburgs, who ruled them until the house of Savoy took them at the time of the Risorgimento.

By contrast, Charles I (the 360th anniversary of whose decapitation was last Friday), his son James VII/II, and Charles X of France were all vigorous, decisive, and ordinarily intelligent kings. They all lost their thrones, not because of any biological defects, but because they believed firmly in the principle of absolute monarchy and refused to engage in politics with their own subjects. Charles X famously said that he "would rather hew wood than be a king under the conditions of the king of England."

One might say that these kings reflected a rigidity lacking in wordly wisdom, and it is my belief that their attitude, far more than the fatuous or dissolute character of other royals, led in historically documentable ways to the decline of the monarchical principle. Yet it is hard to imagine that MM would characterize Charles I, James II, or Charles X as irresponsible, when they conducted themselves just as he appears to believe rulers should do.

The analogy of monarchy to a family business, and of its equivalent non-monarchical form to a joint-stock corporation, is interesting, but also, I believe, not quite exact.

Western monarchies developed under feudal law. In this view, the monarch owns the allodium of his kingdom, and never dispones it (except perhaps by treaty with a fellow sovereign). All who live under his rule are tenants in feu, either direct (those who hold of him as tenants-in chief, i.e., in liberam baroniam) or indirectly as tenants of his direct feudatories.

Thus, the monarchy is not a family business. A family business can be sold (disponed). A monarchy is more like an entailed estate held under extreme restrictions, the tailzie not only affecting lands, but incorporeal hereditaments of jurisdiction. The parallel is to the entailed estate of a feudal baron, who may dispone (to the extent permitted by the prohibitory and irritant clauses of the tailzie) the dominium utile or even the dominium directum of major parts of his lands, or of hereditaments appurtaining thereto (such as thirlage or fishings), but so long as he holds the smallest part of the barony, retains title to "all and haill" of it.

Entailed estates are principally of historical interest today. The historic bias of all legal systems has been to favor the free alienability of property, and as tailzies limit this they are seen as diminishing the value of properties held under them and are generally considered undesirable by heirs. Another defect, from the standpoint of their institutors, is that they cover only lands or whatever feudal appurtenances that may be bound to them, be they of economic or jurisdictional character. The nature of a commercial and industrial economy has created many important assets that do not fall into these classes.

The present-day replacement for an entailed estate is a trust. A trust may hold both lands and rights connected with lands (such as rents and mortgages) but also personal property, including cash, securities, works of art and objets de vertù, whatever the creator of the trust may desire - and it may, in a fashion analogous to that of a tailzie, permit its beneficiaries only to enjoy the usufruct of its assets, while forbidding the alienation, hypothecation, or other impairment of its principal.

Following this logic, what MM should call for as a substitute for absolute monarchy is not government by joint-stock corporation, but government by a trustee or trustees. Given the recent history of nation-states, I suggest it should be that form of trust known as a spend-thrift trust, such as might be set up for a lunatic, mentally defective, or dipsomaniac beneficiary.

February 2, 2009 at 2:18 PM  
Blogger Aaron Davies said...

@michael s.: i cower before your terrifying command of Norman

February 2, 2009 at 9:01 PM  
Anonymous dmfdmf said...

To Michael S.

I agree that maturity transformations are a necessary consequence of a credit economy. I think that in principle banks do "borrow short and lend long" but with computers, advanced financial tools and assuming free and liquid markets, its basically a solved problem. MT are not "the" flaw that MM makes them out to be but a category of pooled risk that is a mature, well-understood issue in the banking and insurance fields.

Your statement that money is created anytime anyone extends credit is not true. Outside the banking system, credit either reduces to a *transfer* (not the creation) of monetary demand (i.e. money) from one party to another (such as a factor loan) or the actual transfer of goods -- such as when a manufacturer delivers goods and defers payment. From what I understand there are certain industries were the receivables of the dominant producers can circulate like money (usually among the smaller vendors and suppliers) but these are marginal, side issues not institutionalized money creation schemes like Fractional Reserve Banking.

What is unique about FRB is the ability to create monetary demand (i.e. unbacked, unredeemable money) without the production of any goods and without limit, bar the destruction of the currency. All the specific problems of the current crisis, such as bank capital ratios, are actually a consequence of FRB and arbitrary credit creation. Such credit creation necessarily has a positive feedback effect on the price of the underlying assets and thus justifies even more credit creation. That, in a nut shell, is what happened in the housing crisis -- the whole fault of which lies at the feet of Keynes, the Fed and the USG.

This has been ongoing for 60 years. Credit induced booms create malinvestment and implicitly destroys (i.e. consumes) capital because people are fooled into thinking and acting as if they are richer than they really are. Von Mises beat this issue to death if you want more.

The crisis we face today is the greatest credit-induced boom and bust in the history of mankind and it is going to get much worse and may destroy the US, if MM gets his way, as a free country.

February 2, 2009 at 10:25 PM  
Anonymous Anonymous said...

This is probably a stupid question, but I'll ask anyway: Why do left wing elites want to bring down their own societies?

February 3, 2009 at 12:59 AM  
Blogger Aaron Davies said...

being charitable, b/c nothing's ever good enough for them. being cynical, b/c then they get to be in charge of the ruins.

February 3, 2009 at 1:34 AM  
Anonymous Lawful Neutral said...

Anon 12:59,

I'm just spouting the party line, here, but being charitable I'd say because they're in the unholy thrall of a highly evolved super-meme brain-parasite. Being cynical, because they see everyone successful seems to be under the control of this meme complex and they prefer to be on the winning team.

February 3, 2009 at 3:35 AM  
Anonymous Michael S. said...

dmfdmf - historically, money creation through credit was accomplished by just such bills of exchange as were created by the sale of a promise to deliver payment in the future. This happened long before there was a Federal Reserve Bank or even a Bank of England. Fractional reserve banking, based on monies of account, existed in the days of the Medici and the Fuggers. It is worth pointing out that both those banks, after long expansion, eventually collapsed. The history of fractional-reserve banking has been one of trying to find, by a process of trial and error, the parameters within which it can safely operate. Someone or other is always exceeding them, with fatal results.

It is true that modern central banking has exacerbated the problem, but booms developed through the free expansion of credit even under the pre-WWI gold standard - and were followed by busts as gold reserves were drawn down. This was what led, as just one example, to J.P. Morgan's bailing out of the U.S. Treasury in the second administration of Grover Cleveland, and to William Jennings Bryan's famous "cross of gold" speech. Bryan's platform plank of free coinage of silver at a 16:1 ratio with gold was effectively a call for inflationary monetary policy, since with gold at $20.67/oz. silver would be supported at $1.29/oz - the level at which U.S. silver coinage of the time contained its face value in silver. However, at the time, market value of silver was about $0.35/oz.

World War I brought inflation, as other wars had done, but it was more pronounced than previous wartime inflations had ever been. This was facilitated by the central banks and by the governments' wartime suspension of the gold standard. Reintroduction of the gold standard in Britain at the pre-war ratio of £1 = US$4.86 led to profound deflation, and brought about a severe recession in 1921. Gradual recovery was followed by the even more dramatic crash in 1929 and the subsequent depression.

Central bank activities and government policies designed to stabilise the economy since WWI appear from present perspectives merely to have lengthened the frequency of the credit cycle at the expense of increasing its amplitude. But the cycle has existed since a much earlier time, perhaps even from the first emergence of a credit economy.

February 3, 2009 at 1:31 PM  
Blogger TGGP said...

First some links not directly relevant to this specific post.
Mencius likes to talk about Joe McCarthy, and there was actually a concerted effort on the part of the Polygon to destroy him. Steve Sailer's recent post on Roy Cohn is a helpful supplement that you probably won't find in the standard left or right wing take on the subject.
Stephen Walt asked readers to name the most underrated IR theorists, and one that seemed interested in some of Mencius' issues is the Ghanaian George Ayittey, who discusses why Africa is poor here. His conclusion is, like MM's, that they have terrible governments as a leftover of anti-colonialist nationalism resulting in lower living standards than the colonialism they were "liberated from". A good contrary point he makes though is how much many African countries approximate the revenue-maximizing stationary bandit that MM recommended with Fnargl. The richest Americans tend to do something productive in the private sector, de Tocqueville observed long ago that we don't generally pay our highest officials that well relative to other countries. In Africa the richest are always the Presidents for Life and their families.
Finally, this revisionist take on Reagan discusses New England trancendentalism, Quaker theology and related ills of our souls.

an anti-Dreyfusard
I remember you claiming that we got a bogus version of that history. I'd like to hear your alternate take. I hope it's as good as the one on the Armenian genocide.

There are many Rights and only one Left
The Left is generally considered more fragmented. There are many things for the Left to be FOR, and all the Right must be is AGAINST.

Updike
You're being far too kind to him. "Were the people in the State Department utterly stupid". It's hard to imagine MM getting past that line without laughing. Must the truth "have more nooks and crannies, more qualifications" than to say "Johnson and Nixon were simply dreadful Presidents"? No, it must not, and don't try any "b-b-but F.D.R".

Clearly, the State is sick; by definition, it is sick because it is not healthy; but what, exactly, is a healthy State?
That sets off my Szasz alarm. People who use such medical metaphors are invariably bull-shitters.

The factor of 25 amplification cannot be an immutable, eternal constant, such as pi or e
Instead of a constant it could be a function of several variables.

Thus we can see deductively - without even understanding the Rube Goldberg machine that created it - that this system must be unstable
If we destroyed civilization and lived as hunter-gatherers, the economy would be quite stable. If we entered into a Singularity of unimaginable prosperity, that would be unstable. So why obsess over stability?

What we call a "recession" is a gap between what consumers, with their 2009 brokerage statements, want to consume, and what producers, who did not expect the asset price collapse, planned to produce
If we lived in a society that cared less for individual freedom and planned out what we did in advance we might have one year in which we worked, produced and consumed a lot, the next year we decided to take it easy and voted to reduce production. That decrease in economic activity would be considered a recession, so the expecatations of producers is a distinct question.

As Andrew Mellon put it
No, Herbert Hoover probably made that up.

Moreover, option 4 is also the fair solution
When I hear the word "fair", I reach for my gun. It's only fair to Iraq that we fix what we broke. Yesterday I listened to Duncan Kennedy explain how it's only fair that we took in Cubans, Vietnamese & Soviets (though admitting we were only responsible for the fate of our Vietnamese allies) and now we should take in Palestinians and Israelis should pay them for the stolen land. I'm with Ron Paul and against Mike Huckabee in saying that when you've made a mistake you should just stop.

both formal deposit insurance
To play Devil's Advocate, from what I've heard it was worst among institutions that weren't even federally insured.

It thus becomes the sole owner and operator of all public companies
Are you trying to give me a heart attack?

Obviously, after this process, all debts USG owes to itself are cancelled.
What is it they always say about the national debt? "We only owe it to ourselves".

(a) preserve some vestige of fairness
Again, ugh. It was Rawls who expounded "Justice as Fairness", and we hates Rawls, hates him hard.

auction all the financial assets previously nationalized - corporations, real estate, etc
I recall your attack on Rawls was based on encouraging people to hope to be governmend by angels rather than men. Governments rarely auction off for profit-maximizing prices, they give sweetheart deals. That's why I've become more inclined to Kevin Carson's favored mutualization.

If the financial system doesn't need a full reboot, what does?
Zimbabwe's financial system. Personally, I'm not doing too bad and I'd rather not rock the boat. I guess that makes me a fuddy-duddy conservative.

What do we want in a government, anyway?
To go away.

They think that deposing Lucifer and holding elections in Hell stands at least some chance of turning Hell into Heaven
It seems a few places went to hell when they anointed Lucifer, so perhaps the logic is to do the reverse.

we are its consumers - whether we like it or not
Was the chattel slave a "consumer" of governance? Is the rabbit a "consumer" of the product of the fox?

Of course, as consumers we are prepared to balance quality and price
You can only do that if you are making decisions in the first place, and as Lysander Spooner pointed out, none of us signed the Constitution.

For me, quality of government comes in two dimensions: responsibility
I recall in your older posts you claimed that responsibility is power or authority and the New York Times & Harvard are very "responsible". I'll have none of your bullshit responsibility for my affairs.

A serviceable Saxon synonym for the latter is strong
I'm not a fan of Steven Colbert, but I'd like to steal his line about the fundamentals of the economy being both strong and vulnerable, by comparing them to a bodybuilder who engages in risky unprotected sex. Someone strong may most certainly be irresponsible. One may use authority irresponsibly. The "idiot grandson" CEO is a common example.

the main reason I would cite starts with "E" and ends with "land"
England? I don't see how they're the standout example here.

An easy way to see this is to see the royal family as a family business, that business being the State
Any business that doesn't have to work to gain customers will go to shit.

For example, states and private corporations can, should, and usually do use the same accounting conventions, HR procedures, management structures
A cult or prison could as well, but I don't see how that signifies anything.

which had already done in its own rightful king
Harold, I presume. Or perhaps Artur. I guess without the magical blood flowing in the proper heirs in the palace they were really doomed.

Therefore, no royalist intellectuals that I am aware of ever proposed converting the old family businesses into what might be called joint-stock republics.
The original joint-stock corporations were mercantilist creations of the royalty themselves, and presumably they had some reason not to adopt the practice themselves and a royalist intellectual who openly proposed it would become an ex-intellectual of the royalty.

The joint-stock republic is a very different entity from your ordinary, democratic republic
By "is", you mean "would be" as no such entity exists and you are imagining it. I recall Karl Marx saying something about how under communism the state would wither away.

although without a superior sovereign to enforce them they must enforce themselves
Other than that, how was the play, Mrs. Lincoln?

If the republic is operated for the exclusive benefit of its shareholders
It's somewhat questionable whether that's for the case for actually existing publicly owned joint-stock corporations now. I assume you've read more James Burnham than me, and the trend he and Galbraith were describing was the replacement of old-fashioned owner-operated capitalism with "managerialism" in both big business and government.

The capitalist restaurant is operated for the benefit of its owners
Who choose whether or not to eat there, duh.

Thus the restaurant can be accountable to its owners, as it never can to its customers
Unless it's a co-op and the two sets are the same, although I don't know how well those actually work.

Authority is the state's ability to act decisively, cohesively, proactively and intelligently
Well then I guess we just have to keep idiots out of power. Why didn't I think of that?

A single extremely capable individual can manage an organization of any size
The heads of major corporations are mostly figureheads. They have the ceremonial role you complain about in government. Their solution is the same: have presumably loyal subordinates manage things for them. Managerialism.

As an old Prussian Army saying went: who wishes to command, must first learn to obey
I think they stole that from Jesus. I don't think he was all that wise, myself.

You are well aware that any large corporation which adopted any management structure besides a simple hierarchy would be halfway already to bankruptcy court
Wrong.

when we think of absolute personal rule we should be thinking of Elizabeth I
More people think of the Stuarts. The ideal of absolute monarchy didn't begin until their era. Medieval feudalism was characterized by HIGH FRAGMENTED authority, where Kings were often merely the first among nobles and generally a lot less powerful than the transnational Church, whose civilizational authority was such that they sometimes had to grovel after being excommunicated. THe Protestant reformation fouled things up as time went on though.

I'd like you to start by showing me the Nazi Shakespeare
Wagner?

Hitler and Stalin are abortions of the democratic era
You remind me of all the communists that complain the USSR wasn't "real communism" and the few Strasserites who claim the Third Reich wasn't "real national socialism". Spare me. Oriental despotism it was, you can't deny the U.S was more democratic and less shitty.

This is easily seen in their unprecedented efforts to control public opinion, through both propaganda and violence
They were merely more succesful than prior rulers. They were STRONGER.

Elizabeth's legitimacy was a function of her identity
Didn't Mary Queen of Scots make claim to the throne based on her identity? Didn't Elizabeth employ spymasters and whip up anti-Spanish/Catholic propaganda?

but she had no need to terrorize her subjects into supporting her
The days of mass terror were gone by Brezhnev as well, yet that is what you always warn about our government becoming.

each of whom could have been removed by a combination of their subordinates
Yet very few were. Presidents of the United States may be impeached, thrown out of office by voters or reach term limits. Two were assassinated in the 20th century and two in the 19th. No General Secretary of the Soviet Union has died other than in his sleep. So why has the U.S fared so much better than the relatively stable despotisms?

Perhaps the most significant fallacious principle in the Anglo-American democratic mind is the principle of division of authority - immortalized by Montesquieu as the separation of powers
And yet the government founded on that principle did a far better job than the one that said "All power to the Soviets".

To refute this principle, it should be sufficient to note that in the Britain of 2009, only one - at most - of Montesquieu's three powers still has any power at all.
First question: do you think they are better off than America, which has more separation of powers? And are they worse off than the oriental despotisms that completely rejected it?

The paradox is that weakening government makes it larger.
Has strengthening it EVER made it smaller? And what about Somalia post-Barre? Was its government (or lack thereof) large or was it strong? It seems to me that it was obviously neither. It also was not a bad place to do business relative to neighbors which still had governments. Was feudal Europe characterized by large governments? How about the Greek or renaissance Italian city-states?

The Romans knew it as the political solecism of imperium in imperio
Did their government shrink when they ditched the Republic and reduced the Senate to, like the Reichstag, a glee-club?

even when they collaborate it is in the fashion of partners in crime
An appropriate choice of terms, as the State is a criminal enterprise writ large.

Power is fun, and power shared three ways creates more total fun than power held by one
Concentrated authority tends to be quite popular among those who concentrate it. Power is fun, and power all to yourself is more fun than power you take a small slice of.

Note also the entropic quality of division: it is much easier to divide than to reunify
Which is why the nobles were never brought to heel by the King and governing authority centralized. Thanks for the bizarro history lesson, Professor Stimpy.

Surely the disaster of Great Britain in the democratic era evinces of some prescience in this regard.
Some of the highest living standards in recorded history, what a fuck-up. They should be taking lessons from Castro! Longest serving head of state in the world, he have something right!

most notably because the interests of all shareholders are identical
Spoken like someone who's never heard of a proxy-fight or hostile takeover.

The great error of libertarians, as well as many liberals, progressives, etc, is to suppose that the weaker the State is, the freer its subjects are
Thanks for showing me the light, I'm buying tickets to Cuba as we speak.

A weak government is a large government - and the smaller the State, the freer its subjects are
Just the place for a Snark! I have said it thrice:
What I tell you three times is true."

Every time you weaken your government, you give it another excuse to become larger.
And there's such a dreadful shortage of excuses, isn't there.

Restore unified authority, clean the Augean stables, and the great dungheaps which exist only for the sake of themselves are washed out with the Orontes.
Then give us ONE EXAMPLE in which that ACTUALLY HAPPENED!

In a country where government officials take bribes, the principle of divided authority has reached the individual level
I think bribe-taking and corruption has much to be said for it. In that case you surely recognize feudal Europe, beloved by reactionaries, as having a terribly weak system of government. The nobles had far more power relative to the King than bribe-taking officials have relative to the head of government now.

the State as a whole did not just pull you over for driving 50 in a 55 zone
The State as a whole sets the speed limit at a number far below that at which they expect us to drive, and if we did in fact drive at that speed we'd block up the roads.

Our financial system cannot be rebooted, because there is no one in Washington with anywhere near the authority required to make any such decision.
You're right, we need to put Robert Mugabe in charge.

common sense
Another phrase that makes me reach for my gun.

which argues for maximizing the number of individuals involved in every decision
Try walking in to the Civil Rights Division at the DOJ and telling them about your great ideas of Fnargocracy, modeled on such proven successes as chattel slavery as medieval serfdom. They'l love to have your input in the decision process!

If they order Barack Obama to deliver his next press conference standing on his head, he has to do it.
The Supremes are all about precedent, claiming their authority from Marbury v Madison, and they failed to accomplish anything when they went head to head with Andrew Jackson, and they later buckled when up against FDR. Congress has the express authority to limit their jurisdiction, and people who've been reading the Volokh conspiracy know that the Roberts court has been quite deferential to Congress. The Israeli Supreme Court is supposed to be even more powerful, but its decisions have been ignored by the government recently.

But not even the united Supreme Court, voting 9-0, can execute Plan Moldbug
No duh, they haven't been given anything like that power under any legal theory I've heard of. Hence, no ultimate power.

their authority is quintessentially reactive
Just the ticket for a reactionary!

Betelgeuse, of course, will end in a supernova
And monkeys will fly out of my butt, just you wait, I don't have to give some range over which my claim can be falsified. As Aaron Haspel of the God of the Machine said: Rent's due.

the emergence of transient local centers of power
Local centers of power? Sounds like feudalism and federalism. I think the Catholic Church has a term for that.

terrorists
I don't think they can be considered much of a power center.

But I live in one of the least well-governed American cities
Why? I bet you'll tell me the lousy food comes in tiny portions as well.

The conclusion is that it's fatally broken, and needs to be replaced by something completely different
I think Voegelin called that idea political Gnosticism.

The idea that, just because you are right and the State is wrong, you should be able to do something about it, is a nematode rather than a neuron
Patri Friedman had a good post on that here.

We am lucky simply that I'm allowed to post these posts, that you're allowed to read them
What a horrible state of affairs. Somebody stop this anarchy!

February 3, 2009 at 9:12 PM  
Anonymous P.M.Lawrence said...

TGGP quoted "when we think of absolute personal rule we should be thinking of Elizabeth I", then wrote "More people think of the Stuarts. The ideal of absolute monarchy didn't begin until their era."

Actually, the first European absolutism started in 16th century Denmark, when the Danes narrowly averted a Swedish conquest and the offsetting features of Danish society were discredited. A special secret law entrenched the new system. In England, Henry VIII was roughly contemporary, and he ruled absolutely but somewhat in the manner of Stalin through mechanisms he had co-opted, e.g. Orders in (Privy) Council and royal pardons for people who carried out his illegal wishes.

February 3, 2009 at 9:41 PM  
Anonymous P.M.Lawrence said...

The only thing seriously wrong with Michael S's long comment - and it is serious, no mere quibble - is his repeated use of the term "King of England", as applied to a period after the Act of Union. A very great deal of the political/constitutional developments were a result of the interactions with Scotland, and to a lesser extent Ireland. The thing is, those interactions never led to a stable or quasi-stable state of affairs until after the '45, but rather each attempt at resolution incurred costs and caused new tensions elsewhere (attempts to deal with Ireland in the early 17th century flowing on to Scotland, then to deal with Scotland flowed back to England, and so around). The Acts of Union with Scotland and later with Ireland went a long way towards reducing the scale and scope of separate local sources of instability.

In fine, to speak of the "King of England" is a source of confusion and misdirection.

February 3, 2009 at 9:52 PM  
Blogger Deogolwulf said...

TGGP: “You remind me of all the communists that complain the USSR wasn’t ‘real communism’ and the few Strasserites who claim the Third Reich wasn’t ‘real national socialism’.”

Strictly speaking, the USSR wasn’t real communism. Indeed it was nowhere near to real communism, which is a libertarian-anarchistic ideal. Rather it was an attempt, according to Marxian ideology, at founding the preceding stage of socialism, an attempt, sincere on the part of some but not others, which led, as is well known, to a thoroughly mendacious oligarchy governing a mass-society, an outcome one should expect from such mass-based libertarian insanities, Marxian or not.

Communists and socialists often confuse two complaints: that communism and socialism have never been tried (a falsehood) with the complaint that communism and socialism have never been realised to their satisfaction (a truth bearing witness to the porridge-brains of these people).

February 4, 2009 at 2:41 AM  
Blogger G. M. Palmer said...

I'd like you to start by showing me the Nazi Shakespeare
Wagner?


So then Milton is the American Shakespeare? I mean really.

I'm glad that you're so pleased with the current state of affairs, TGGP, but looking around at waste, mismanagement, and rampant thuggery makes me wonder -- "damn, couldn't we do a better job?"

MM's diagnosis of why things are wrong continues to be refreshing, interesting, and accurate.

His description of how to fix it is fairly far afield, but it's a damn-fun thought experiment.

February 4, 2009 at 4:37 AM  
Anonymous Anonymous said...

The Left is generally considered more fragmented. There are many things for the Left to be FOR, and all the Right must be is AGAINST.

If you simplify the Right to "opposing an increase in state power", then you should also simplify the Left to "favoring an increase in state power". In practice, the Right is at least as fragmented as the Left, because different factions on the Right oppose different parts of the Leftist agenda while actually favoring an increase in state power (and spending) in other areas.

Zimbabwe's financial system. Personally, I'm not doing too bad and I'd rather not rock the boat.

If you believe people like Peter Schiff, Zimbabwe is where we're going if we don't turn the boat around.

What do we want in a government, anyway?
To go away.


Amen to that!

The heads of major corporations are mostly figureheads. They have the ceremonial role you complain about in government.

Not any of the ones I've worked for.

when we think of absolute personal rule we should be thinking of Elizabeth I
More people think of the Stuarts.


I think of Cromwell myself.

Yet very few were. Presidents of the United States may be impeached, thrown out of office by voters or reach term limits. Two were assassinated in the 20th century and two in the 19th. No General Secretary of the Soviet Union has died other than in his sleep. So why has the U.S fared so much better than the relatively stable despotisms?

My view is that contrary to the official story, Lenin, Stalin, and Andropov were all assassinated. Khrushchev was, of course, removed by a combination of his subordinates (guess he should have terrorized them more).

Some of the highest living standards in recorded history, what a fuck-up. They should be taking lessons from Castro! Longest serving head of state in the world, he have something right!

Aren't you the one who linked to an article complaining about the decline of Britain and the reversal of its economic position vis-a-vis Italy?

The Supremes are all about precedent,

Yet it's funny how often they basically make things up that have no basis in precedent, isn't it?

February 4, 2009 at 5:55 AM  
Anonymous dmfdmf said...

Michael S. - For the most part I agree with your reply to my post. The gold standard was replaced by the current central banking systems to address instability issues you discuss. But it was also created under political pressure to give the gov't the unlimited ability to inflate the credit-money supply (to fund war without raising taxes, and later the welfare state).

The cause of the boom/bust cycles is the ability to monetized debt or future profits -- whether this occurs within the banking system or outside is irrelevant, as we see with the current crisis. Creating a "lender of last resort" with the ability to monetize debt and increase the credit-money supply without limit has only made the situation much worse.

What we need is a banking system that has a finite limit in the amount of credit-money created (monetized debt or future profits has no limit even under a gold standard).
Also, the creation of credit-money must be rate-limited in its creation and destruction to prevent the positive feedback with the price system I mentioned in my first post. Finally the system can not allow the monetization of debt or profits within or outside of the banking system. I.E. outside the banking system all credit transactions are a transfer of monetary demand or the actual transfer of goods. Its a tall order but I think it can be done and I don't think it requires a return to the gold standard.

February 4, 2009 at 11:08 AM  
Anonymous dmfdmf said...

G.M. Palmer wrote...
< MM's diagnosis of why things are wrong continues to be refreshing, interesting, and accurate.>

Ironically, his analysis is very similar to an author he dismisses, Ayn Rand.

On the Iron Triangle: See her article "The Establishing of an Establishment"

On the impotence of the right: See "The Anatomy of a Compromise"

On the Progressive Education and the New Left: She wrote a whole book on the subject: "The New Left: The Anti-Industrial Revolution". See especially "The Comprochicos" and "Apollo and Dionysus"

Ayn Rand does not just wallow in politics like MM. She goes all the way to the core and traces politics back to ethics and ethics back to metaphysics and epistemology... and explains why civilations collapse. A must read for anyone who is serious about ideas.

G.M. Palmer continued...
< His description of how to fix it is fairly far afield, but it's a damn-fun thought experiment.>

Fairly far afield is too generous. He's advocating the end of freedom -- the establishment of a corporate-fascist state. I am opposed. Ayn Rand reaches a far different conclusion -- Total Freedom instead of Total Control. See her book "Capitalism: The Unknown Ideal"

It has always been a mystery to me why seemingly intelligent writers are so dismissive of Ayn Rand. Perhaps MM can explain her error to me some day.

February 4, 2009 at 11:35 AM  
Anonymous Michael S. said...

P.M. Lawrence - in re-reading my post, I find my "repeated" references to the "king of England" after the Act of Union amounted to a quotation of Charles X of France in which he said he would "rather hew wood than be a king under the conditions of the king of England," and one reference to "George III of England."

In the former case it was Charles X, not I, who committed the solecism, my only part in it having been to quote him. In the latter case I followed the French monarch's royal (and customary) but inaccurate example - but I did note that George III's descendants remained on the "British" (not English) throne.

Referring to events before 1707, it is completely accurate to speak of rulers such as Charles I and James VII/II as kings of England or kings of Scotland. The Scots refer to what is commonly called the English civil war as the "War of Three Kingdoms" (i.e., England, Scotland, and Ireland). Charles II was crowned king of Scots at Scone on Jan. 1, 1651, but was not proclaimed king of England until May 8, 1660.The personal union of crowns did not place Scotland under the jurisdiction of the Westminster parliament. Indeed, even after 1707, Scotland and England retained separate legal systems, and still do. These differ to a greater extent than the legal systems of most U.S. states do from each other, and there are distinctions between the authority of the Crown in Scotland vis-a-vis England and Northern Ireland. Separate coinage and banknotes are issued for Scotland, and Scots point out the error of identifying thereon the sovereign as Elizabeth II. Scotland had no queen named Elizabeth before the present one.

February 4, 2009 at 11:48 AM  
Anonymous spirit said...

2 TGGP

> You remind me of all the
> communists that complain the USSR
> wasn't "real communism" and the
> few Strasserites who claim the
> Third Reich wasn't "real national
> socialism".

You do not understand what you are writing. Of course USSR wasn't "real communism". In fact nobody sane claimed it was. Official Soviet propaganda claimed that USSR was a "developed socialism" on its way to communism.
If you don't want to look silly, stick to the issues you know something about

February 4, 2009 at 1:29 PM  
Anonymous Currently In Asia Minor said...

'You do not understand what you are writing. Of course USSR wasn't "real communism". In fact nobody sane claimed it was.'
Spot on. But TGGP's postings clearly show his/hers strenghts are not....confided to a single issue.

BTW, when can we expect MM to mention major...ahem... Major Religions in this ongoing soap opera about Reset 5.0 or whatever?
I am...a vulgar fan who enjoys reading about obscure strains of gutter Middle East religions but would appreciate a bit more contemporary outlook. Otherwise, it's a bunch of Computer Science majors with a bong and too much time.

February 4, 2009 at 2:07 PM  
Blogger G. M. Palmer said...

kmfdm:

I like Rand.

The problem, as MM would see it, is the idea of freedom as choice of government.

This is simply a false notion -- someone mentioned Spooner saying that none of us signed the Constitution -- true dat, yo. We can't even pick our allegedly republican government (overcoming bias says repeat: my tribe is too large for me to influence), so the best case scenerio, in MMs view, is to engineer a government that does not need to interfere in the lives of its law-abiding citizens.

His argument is that a libertarian/Randian style government would always devolve into the bloated mess we have now.

Better to redesign the whole thing, he says.

February 4, 2009 at 6:02 PM  
Anonymous Libra said...

Michael S.

There is no difference between a liquidity crisis and maturity crisis. If you own a collection of debt, you should not care what the liquid, market value of that debt is. You should only care about the cash flow. If your solvency depends on the current liquid value, you are essentially maturity mismatching.

February 4, 2009 at 6:51 PM  
Blogger TGGP said...

Has anyone else noticed how similar IOZ has been sounding to Moldbug lately?

m:
Right = nationalist
Left = trans-nationalist

The original nationalists were generally "liberals" or "republicans" as they were called back then, and MM's stories of nationalist thugs (who breed like weeds under in "national liberation" struggles in the tail-end of colonialism) is on the mark. The ancien-regime was quite threatened by nationalism. The Catholic Church was a right-wing transnationalist organization.


The Undiscovered Jew:
How about defunding the humanities departments?
The Ivy Leagues are private and get most of their money from endowments. MM doesn't even thing the NYT going bankrupt will change anything.

Or forcing colleges to introduce more video lectures and distance learning courses into liberal arts education so that we cut down on the need for so many leftwing educators?
Who is doing this forcing and determining of WHAT is being taught? And who needs large numbers of voices if they are sufficiently amplified?


Anonymous January 29, 2009 9:54 AM:
High quality government (and high quality everything else) depends primarily on the human capital, not the real estate.
That's the point Greg Clark makes, and I think he is on to something. Now get a handle.


G. M. Palmer:
MM's plan takes into account the things that make real estate valuable -- stability and safety.
MM's plan is constructivist rationalism that thinks you need to have the right people or the right blueprint. The large differences between British ruled India and England suggest we should be looking at the working stiff.

Cuba would have a quick turn around if I were the dictator and had the ring of fnargl to kill off/imprison/eliminate the chaff.
Many rulers have believed such things and they have pretty much always been wrong.


Leonard:
Obviously a state cannot extract full value from people who are free to leave.
We don't want the State to.

above all it is the value of rule of law
Which MM seems to care less and less for as time goes on.

But neither does it depend on most of the humans, except insofar as they have gone and done something foolish like set up democracy
Afghanistan was not a democracy under the Taliban or warlords before them. It just has low human capital. Burma will inevitably beat Bangladesh.

a few wild exceptions (China, North Korea)
They aren't democracies.

right down to the African basket cases
One of the less democratic regions of the world.

Whereas, in neocameralism, policy is ultimately controlled by the shareholders.
Mencius has analogized monarchy to a shareholder of one. Don't North Korea and Cuba resemble that? Or the Congo Free State?

Haiti would benefit far, far more
See Edward Luttwak's Economics of Repression about Haiti under Papa Doc in Appendix A of Coup Detat: A Practical Handbook. That's someone who has thought out how to actually operate an absolute state that MM is trying to tell us will be so wonderful.


drank:
customers are free to patronize it or not
Thank you!

Or said differently, Kim Jong Il can get all the hookers, mansions and bling that he wants by using his subjects as slaves. As a bonus, he gets to humiliate a new generation of grovelling WashCorp diplomats every few years. Why should he care about running North Korea so as to extract the Laffer maximum from the GDP of a well-governed state?
Again, thank you for pointing out what should be obvious!

there is no possible way (by definition) for a third party to intervene in that relationship
That's why many suggest polycentric order rather than the vertically-integrated proprietary state that MM is trying to shill here.


Alrenous:
Because it is, in fact, higher. Either Jong Il is trapped by his own supporters, or he can't figure out how to convert his populace into people worth investing in.
Is that a proof by assertion? It's surely possible for North Korea to have a higher GDP, but those possibilities involve Kim taking a smaller cut and being less secure. You haven't presented any evidence about his subordinates "trapping" him, just asserted it because, surely, it must be the case! Make some actual arguments for that.

I can't imagine a truly authoritarian, rich country would last long enough to fart.
The country as a whole wouldn't remain rich, but the ruler might.


drank:
We've all heard of "lifestyle businesses" - I think North Korea is something of a "lifestyle sovcorp".
Plausible.


Leonard:
this is why he proposes a patchwork of "tens, even hundreds, of thousands" of small neocameral states
A good idea, harking back to the medieval era, but how can we get there (which makes neocameralist governance seem unimportant in comparson) and ensure it's a stable equilibrium? This is why I think Patri Friedman is much more worth listening to.

Whereas, at least in theory, a sovereign can get it all.
He can capture enough that there is no surplus at all. See my earlier link on why we want the State to maximally extract.


G. M. Palmer:
For those of you who think all is rosy, there are a few gang members who would like a word with you.
Your link didn't even claim crime was rising, it just discussed the composition of perpetrators, with gangs apparently gaining at some expense of Mexican drug distribution rings. I'm white and not involved in any criminal activity so my risk of victimization is minimal.

And your wallet.
The article suggests their in the drug business. So they want their clientele's continued support. They might even let me have the first try for free.


Leonard:
But they don't get the day to day power-junkie rush of having subordinates crawl. Thus, we can expect them to be far less interested in power, and much more interested in money.
Which might make it hard to convince them to hand over power to shareholders once we grant them the complete authority MM thinks will do the trick.

There is a very good reason why Kim Jong Il does not care about maximizing his tax take -- because even ruling a nation of starvelings, he gets all the wealth he can consume.
I think that's quite true. King Leopold's rule of the Congo was quite venal though.


Anonymous January 30, 2009 8:48 PM:
Good points. Now get a name!

if we put you in the wayback machine and dropped you into the Cairo slums of 1900 I dare say you might have a different opinion of how well governed the place was.
The relevant comparison should be the slums of today.


Alrenous:
Running patches like this is not profitable. His riches are going to be slowly chipped away by expenses
Crappy regimes can last a long time. I don't feel like waiting through it.

"But what if they just want to burn them?"
That's a far, far more serious question if you live in said forest.

With a little imagination Jong Il could consume an infinite amount of money.
Let's try not to throw the word "infinite" around so casually.

But he wants to be richer anyway, just, you know, because.
That's some impressive long-distance arm-chair psychiatry.


G. M. Palmer:
MM doesn't need to reargue his points each time.
Although he insists on going over things he's already said anyway. His "arguments" are mostly assertion here, just as they were when he made them before.

PEOPLE WOULD MOVE TO CUBA.
You can claim people would watch your movie if you ever go to make one, but that doesn't make it so. We think your regime would be shit and you'd be stuck with people who don't have any other option but to live under your rule.

And you need a handle so we can know who the hell we're talking to
Yes, even something like "Anonymous Commenter". If you don't feel like signing in under a name, put a signature at the end of your comments.


G. M. Palmer:
However, I imagine that a great many people would come if I were to say:
I imagine trees growing BBQ ribs. It's fun to do. Doesn't have any connection to reality.

There are very few laws here -- they are all clearly delineated, and if you don't break them, you will be perfectly safe and happy. The only tax you'll pay is property tax. Even for you big corporations!
The problem is that you can always change your mind. You have to effectively bind yourself in order to be convincing. This is a big problem with international aid/development.


Michael S:
speaking from my experience as a bank director
I didn't know you did that. I'm surprised you hadn't mentioned it earlier considering how much MM has written about this.

Interesting stuff on finance and royalty.

I suggest it should be that form of trust known as a spend-thrift trust, such as might be set up for a lunatic, mentally defective, or dipsomaniac beneficiary.
That was quite funny. I worry about who will run it. My sister did a bit of estate management for the incompetent and I suspect other people drawn into that role will also be liberals.


Anonymous February 3, 2009 12:59 AM:
Why do left wing elites want to bring down their own societies?
Why do you post as Anonymous? Also, beats me. The anti-German movement is a particularly funny example that might cause Lawrence Auster's brain to malfunction.


P. M. Lawrence:
I did not know that about Denmark.


Deogulwulf:
the USSR wasn’t real communism
If we take communism at its original, utopian (despite its protests to the contrary) conception. But such a thing has never existed and so we call what has actually existed "communism". Most of us do not take communists seriously when they tell us how great it should be, because communists got in power before it didn't out well. Similarly, I take MM's claims about the greatness of his system with a truckload of salt.


G. M. Palmer:
makes me wonder -- "damn, couldn't we do a better job?"
"There are those that look at things the way they are, and ask why? I dream of things that never were, and ask why not?" That's Robert F. Kennedy. The unconstrained vision in a nutshell. Conservatives are known for their constrained vision.


Anonymous February 4, 2009 5:55 AM:
If you simplify the Right to "opposing an increase in state power"
They could be in favor of social change undermining tradition as well. A reactionary is still likely to oppose that.

Aren't you the one who linked to an article complaining about the decline of Britain and the reversal of its economic position vis-a-vis Italy?
I don't know if Italy is actually better off than Britain, but I think it would be much worse without the corruption.

Yet it's funny how often they basically make things up that have no basis in precedent, isn't it?
Making stuff up can create precedent, and the more precedent you have the easier it is to avoid textualism/originalism. Even Roe v. Wade is based on Griswold v. Connecticut.


dmfdmf:
It has always been a mystery to me why seemingly intelligent writers are so dismissive of Ayn Rand.
Because she wrote philosophy and philosophy, especially ethical philosophy, is bullshit. I contributed to a book demolishing Ayn Rand (along with Rothbard, Tibor Machan, SEKIII and so on). Also, rape-lit. For laughs, see Mozart Was a Red.


sprit:
Official Soviet propaganda claimed that USSR was a "developed socialism" on its way to communism.
Yes. But who cares about "real communism"? People actually lived under "developing socialism"/"a degenderated worker's state"/"bureaucratic collectivism".

February 4, 2009 at 7:16 PM  
Anonymous Anonymous said...

So many words and no real answers. Why not get to the real heart of the problem, and sterilize/exterminate 95% of humanity, preferably those under a certain IQ level? What problems would that not solve?

February 4, 2009 at 8:52 PM  
Anonymous spirit said...

2 TGGP

>>spirit:
>>Official Soviet propaganda claimed
>>that USSR was a "developed
>>socialism" on its way to
>> communism.

> Yes. But who cares about
> "real communism"? People
> actually lived under "developing
> socialism"/"a degenderated
> worker's state"/"bureaucratic
> collectivism".

When you are using words like "communism" you need to understand their meaning. Claiming that USSR regime was communism makes as much sense as claiming that Hitler was a pineapple

February 4, 2009 at 9:43 PM  
Anonymous Anonymous said...

That was RFK quoting George Bernard Shaw BTW.

February 5, 2009 at 5:22 AM  
Anonymous Anonymous said...

"What problems would that not solve?"

How to live a happy and fulfilling life for 95% of the population.

February 5, 2009 at 7:21 AM  
Blogger Aaron Davies said...

i prefer roy zimmerman: Some look at things as they are and ask why. I look at things the way they are and ask, "Why me?"

February 5, 2009 at 7:23 AM  
Blogger Aaron Davies said...

re: rand, she was actually something of a democracy skeptic, iirc. i don't have my copy of the lexicon handy, but istr something about its only being a mechanism, not a goal. i would infer agreement with the famous churchill quote. (i got something similar from an ARI speaker whose presentation i attended last year.)

where she would of course disagree sharply with MM is on free speech--she would never have supported "free speech except for sedition".

that said, much of MM strikes me as an attempt (probably not deliberate) to create a society essentially compatible with rand's goals without the educational bootstrapping objectivists have always assumed is a necessary prerequisite. (rand generally refused to address concrete political questions on the grounds that they were: pointless until the public held the correct philosophy, and: self-resolving thereafter.)

MM did comment on rand (at my request), briefly, ages ago. dig through the archives.

February 5, 2009 at 7:31 AM  
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February 5, 2009 at 10:46 AM  
Anonymous Michael S. said...

TGGP - I'm sure I mentioned that I was a bank director here a long time ago. It may have been in one of the discussions back around the time Countrywide went bankrupt.

Libra, I don't disagree with you. What I was trying to do was to locate the trouble insofar as it affects the commercial banks - that is, more in their investment portfolios than in their loans. The assumption made by the people who acquired (for example) Fannie Mae or Freddie Mac preferred stock or mortgage-backed debt securities, was that there would be a liquid market for it at all times, so that maturity was not really a consideration. Now the preferred stock is basically valueless, and the GSEs' debt is valued only to the extent the Federal government has promised to pay it off.

The extent to which most ordinary commercial banks' mortgage loans are in trouble is a function of how well (or badly) they are collateralized, rather than a maturity issue. Most banks I know, including my own, were not big players in residential mortgages simply because Fan, Fred, and the non-bank mortgage originators and servicers dominated the market and set a competitive standard that commercial banks were not willing or able to meet or beat. This is why Fan & Fred held or guaranteed about 50% of the residential mortgages in the United States. They created the secondary mortgage market and were oligopsonistic buyers in it. We cannot understand current economic citcumstances properly without bearing this in mind.

Fan & Fred bought - and still will buy! - any 'conforming loan' up to $417,000 (or in some 'high cost' areas of the country, $625,000) and representing up to 97% of the appraised value of the property. This is an extremely high loan-to-value ratio. Furthermore it has been common knowledge for some years that appraisers who wished to do business with operations like Countrywide had to make high appraisals. The appraiser my bank uses told us that he could not get work from the store-front mortgage brokers because he was too conservative. Thus it is probable that many, if not most, of those 97% loans were based on inflated statements of their collaterals' value even as the bubble was yet on its way to bursting.

Just as a comparison, my bank's policy is not to make loans of more than 80% of appraised value. Additionally we don't make loans for more than 5 years. The amortization schedule may be for 20 or 30 years but the customer refinances the balloon due at the end of the 5-year term at whatever rate may then prevail. This avoids just the maturity transformation issue on which MM has placed so much past emphasis, since our longest CD term is 6 years. I can assure you that funds management looks very carefully at the terms of deposits vis-a-vis loans, and the computerized analysis we see can forecast the effect on earnings of shifts in prevailing interest rate of as little as 25 basis points. Anyway, our conservative collateral requirements and terms served to drive away the sort of customers whose loans later went sour, and probably gave up some margin to get the customers we have. The result is that for most of 2008 we had no "OREO" (other real estate owned) on our balance sheet, and were actually able to grow our loan portfolio by about 5%. Not bad, all things considered. Needless to say this was much easier to do because the bank is privately held and does not have to focus on short-term results the way publicly traded businesses do. Our current conundrum is, what do we do now that there is no loan demand from creditworthy customers?

To put matters in perspective, there are something like 8500 commercial banks and thrifts in the United States, and last year there were 25 bank failures. This figure does not include investment banks/brokerage houses, non-bank financial firms and GSEs, or those commercial banks that have been 'saved' by forced mergers, e.g., Wachovia or WaMu. Looking at dollars of footings rather than number of institutions the trouble is more severe than the latter number suggests, but still the indication is clear that the bulk of the problem lies outside commercial banking.

February 5, 2009 at 11:23 AM  
Anonymous dmfdmf said...

TGGP wrote....
Because she [Ayn Rand] wrote philosophy and philosophy, especially ethical philosophy, is bullshit.

Translation: Philosophy of ethics is bad. Isn't that a normative statement? I think there might be a self contradiction here. Nevertheless, Ayn Rand wrote a whole book on the subject; "Philosophy: Who Needs It". Perhaps in today's rotting culture, to garner more attention with the self-rightiously ignorant, it should be reprinted with the title "Philosophy: Who the f*** needs it".

TGGP continued...
I contributed to a book demolishing Ayn Rand (along with Rothbard, Tibor Machan, SEKIII and so on).

To be clear I didn't say any writers are seemingly intelligent, just MM. Moreover, MM seems honest to me unlike the "authors" you recommend. For example, from the website you linked;

quoted from website;
For example, Rollins argues that Rand’s derivation of rights from the requirement of survival would not only give rights to humans but to animals as well

Funny thing is that Rand addresses that very question in her work (Short answer, animals don't use reason so they don't need rights). Puts the whole project in doubt when the author can't even read the material carefully. Rand's position on is/ought is beyond the scope of Mr. Rollins' work since that would require he understand her theory of concepts (not agree with, just understand it). This leads to another mystery to me -- do the critics of Ayn Rand believe that others won't read her books?

TGGP, you might want to check that the demolition you speak of is only in your mind.

February 5, 2009 at 8:00 PM  
Anonymous dmfdmf said...

Aaron Davies wrote...
re: rand, she was actually something of a democracy skeptic, iirc. i don't have my copy of the lexicon handy, but istr something about its only being a mechanism, not a goal.

She hated democracy which she considered mob-rule. She advocated a representative system with constitutional limits on gov't power.

Aaron Davies continued...
where she would of course disagree sharply with MM is on free speech--she would never have supported "free speech except for sedition".

I think this is safe to say ;-) However, she was clear that things would have to deteriorate a lot to justify a revolution in the USA.

Aaron Davies continues...
that said, much of MM strikes me as an attempt (probably not deliberate) to create a society essentially compatible with rand's goals without the educational bootstrapping objectivists have always assumed is a necessary prerequisite.

Maybe that's his error. He wants the end without understanding the cause. I agree that much of what he writes (analysis anyway) is semi-consistent with Rand, only more verbose and not as clearly thought through.

Aaron Davies again...
(rand generally refused to address concrete political questions on the grounds that they were: pointless until the public held the correct philosophy, and: self-resolving thereafter.)

She did not refuse to answer political questions but it was not her favorite thing. Partly for the reasons you cite -- politics is a consequence that follows from ethics which in turn follows from one's epistemology and metaphysics. She spent most of her time writing on these (apart from her fiction novels).

Aaron Davies...
MM did comment on rand (at my request), briefly, ages ago. dig through the archives.

I saw it... brief, dismissive comment. I was hoping for more but never found it.

February 5, 2009 at 8:26 PM  
Blogger Deogolwulf said...

"philosophy . . . is bullshit"

Sounds like a bad case of scientism, the acme of philosophical bullshit.

February 6, 2009 at 1:35 AM  
Blogger TGGP said...

dmfdmf:
Translation: Philosophy of ethics is bad. Isn't that a normative statement?
No. Bullshit may be meaningless or incorrect and yet still much fun. If you haven't engaged in some competitive bullshitting with your friends, you should really give it a try.

the "authors" you recommend
Who specifically are they?

so they don't need rights
Rand herself discussed the conditional nature of "musts" and how need does not give rights. She can't show that rationality gives rights, that man is rational and non-human animals are not.

Rand's position on is/ought is beyond the scope of Mr. Rollins' work since that would require he understand her theory of concepts (not agree with, just understand it)
Ah, the courtier's reply.

do the critics of Ayn Rand believe that others won't read her books?
I haven't bothered to read any of her books because I think it's a waste of time. I don't think I'm unusual in that respect. You can email L. A. Rollins and ask him his opinion if you want, he might email you a copy of Myth.

I think this is safe to say
She was a big supporter of intellectual property, which is a restriction on free speech.

He wants the end without understanding the cause
On the contrary, I think he focuses far too much on the cause (which is not necessarily to say he understands it) and never gets around to explaining how we are to get from here to there. Patri Friedman's seasteading is a great counter-example.


Deogolwulf:
Sounds like a bad case of scientism, the acme of philosophical bullshit.
When philosophy has something to show for itself, as science does, (see rockets to the moon, nukes) I'll start taking it more seriously.

February 6, 2009 at 5:18 PM  
Blogger Deogolwulf said...

(1) Philosophy is bullshit and has nothing to show for itself.
(2) This argument, or any other such argument, is an instance of philosophy.
Therefore
(3) This argument, or any other such argument, is bullshit and has nothing to show for itself.
(4) An argument that is bullshit and has nothing to show for itself must be either invalid or unsound.
(5) The logical inference from (1) and (2) to (3) is valid.
Therefore
(6) Either (1) or (2) or both is or are false.
(7) (2) is true.
Therefore,
(8) (1) is false.

Naturally, if you are a committed irrationalist, this simple instance of philosophy will not have the force to persuade you. Nor, I presume, will the hugely more complex instances worked out by Gödel, Frege, Kripke, Aristotle, and so on. Apparently, so I am told, philosophy has nothing to show for itself, so off it goes, farewell! Still, at least we can still be impressed by rockets that go to the moon.

“There are philosophers who have thought longer and better about the ethics of medicine than the professor of medicine ever had time to do. There are philosophers who have thought longer and better about the two-slit experiment than physicists have. There are philosophers who have thought longer and better about the foundations of mathematics than a mathematician is ever likely to do. And so on.” David Stove, “Why Have Philosophers?” Quadrant, July 1985.

But, of course, it is all bullshit. Or so some say without justification. But then, justification would require them to enter the realms of philosophical thought.

February 7, 2009 at 7:24 AM  
Blogger Alrenous said...

This is essentially Deogolwulf's point from a different angle.

When philosophy has something to show for itself, as science does, (see rockets to the moon, nukes) I'll start taking it more seriously.

This is a philosophical statement. It came from a philosopher somewhere, though I don't happen to know who; I'm not a historian of philosophy.

Specifically, you value technology. You do not, and indeed cannot, justify this value; it just is. There are an infinite variety of other things you could have valued, but didn't.

Just as progressives have a particular value set, even though these values are linked through happenstance (and trasmission effectiveness) rather than logic, you will also have all or almost all the values that are, by happenstance, linked with this value.

That is, you have a philosophy. Your philosophy is that philosophy hasn't given you anything and that therefore philosophy is bullshit.

Hmm. About that.


Actually what happened is that, for whatever reason, TGGP decided philosophy was bullshit and thus didn't study it, and unfortunately you need to know quite a bit about philosophy to recognize it effectively. As usual, the skills for recognizing expertise are part of the expertise itself.

On the other hand, there are numerous philosophers who believe that naive philosophy is not more valuable than advanced philosophy, and that therefore philosophy is only useful to the practitioner, and even then only as entertainment; a thing done for its own sake, because you like it.

So, TGGP, you want 'philosophy is only entertainment' not 'bullshit.'

You'll be wrong anyway, but at least it won't be self-contradictory, and it's not something one can feasibly disprove in a comment-sized response.

February 7, 2009 at 10:52 AM  
Anonymous dmfdmf said...

TGGP wrote...
If you haven't engaged in some competitive bullshitting with your friends, you should really give it a try.

No thanks. I take my ideas seriously and intend to act on them and not play games.

TGGP confessed...
I haven't bothered to read any of her books because I think it's a waste of time.

Ah, the moron's reply. So you demolished Ayn Rand's ideas without reading any of her books? Nice trick. Perhaps you meant that you physically demolished them, maybe in a book burning.

TGGP continued...
I don't think I'm unusual in that respect.

I agree.

February 7, 2009 at 11:05 AM  
Blogger TGGP said...

Deogolwulf:
This argument, or any other such argument, is an instance of philosophy
Everything is philosophy? Perhaps that helps to explain the tremendous amount of bullshit! I think I prefer Caledonian's taxonomy, in which philosophy is what's left over when everything that isn't bullshit is taken away.

longer and better
Longer may be established in an objective sense (though I don't know if it's true or not). I don't know how you can establish they've thought better other than by assertion.

David Stove was quite entertaining, but when he ventured off from making from of philosophers he made an ass of himself.


Alrenous:
It came from a philosopher somewhere, though I don't happen to know who
Oh, those imperialist philosophers, seizing my statements for their own by anonymously making them at some unspecified earlier time!

Specifically, you value technology
I think science can accomplish things that non-science can't. Whether those things are desirable is an entirely different story.

you will also have all or almost all the values that are, by happenstance, linked with this value.
You haven't actually established any of that, but you can pretend that's the case and psychoanalyze some imaginary person if you like.

and unfortunately you need to know quite a bit about philosophy to recognize it effectively
The Courtier's Reply again. You don't actually need to study physics to be impressed by a nuclear blast.

So, TGGP, you want 'philosophy is only entertainment' not 'bullshit.'
Not all bullshit is actually entertaining.

So you demolished Ayn Rand's ideas without reading any of her books?
No, L.A. Rollins read her books and demolished them.

February 7, 2009 at 12:20 PM  
Blogger Alrenous said...

Oh, those imperialist philosophers, seizing my statements for their own by anonymously making them at some unspecified earlier time!

I know. And, Shakespeare was such a cliched hack. Dunno why everyone pretends to be so impressed.

You haven't actually established any of that, but you can pretend that's the case and psychoanalyze some imaginary person if you like.

Notice of suppression of sarcasm. I'm getting better at it!

Your cut-paste technique is failing here. Immediately after I said;

"That is, you have a philosophy."

This isn't psychoanalysis. This is establishing that you have a philosophy.

I'm also suggesting that this philosophy came from somewhere else; that you didn't form it yourself; and that therefore you are at the end of a chain of transmission with a Shakespeare at the top. (Especially as you think philosophy is entertainment.)

You can verify this for yourself if you like. I don't much care. Similarly, other people can verify it relative to themselves.

I cannot 'establish' your values because I have to rely on your words, which can be untruthful or mistaken; the outcome can look the same regardless of whether I'm right.

Not all bullshit is actually entertaining.

Is this supposed to be an argument against? You seem to just be adding to my point.

February 7, 2009 at 12:35 PM  
Blogger Deogolwulf said...

This comment has been removed by the author.

February 7, 2009 at 2:24 PM  
Blogger Deogolwulf said...

TGGP,

A lame response that cannot even be credited with the name of artful bullshit. Now, since it ought to be obvious that from (2) it does not follow that everything is philosophy, I am left wondering whether you have trouble drawing elementary logical inference, or whether you are trying to wriggle out of admitting that you hold a dumb belief.

(1)-(8) is a simple instance of an argument of the kind that will be found in philosophical thought. It aims to show, to a reasonable man, the falsehood of (1), a claim that is quite commonly made by chumps who think it will somehow make them appear more scientific — and it does, to other chumps. It is your bold — some might say, idiotic — contention that everything in philosophy — the work of all these men: the Gödels, the Freges, the Kripkes, and so forth — is merely bullshit with nothing to show for itself. It is a contention, furthermore, for which you have given absolutely no rational justification. Yet, I realise the predicament you are in. Attempting to show that even one of these men, say, Gödel, is wrong would take more brains than you have, and, furthermore, you would have to engage in philosophical thought, for which you have shown no aptitude, and which is in any case, by your own lights, bullshit. What then could be more pleasant, or easier, for you than to repose in ignorance, and remain wedded to your cut-price, second-hand empirico-irrationalism?

“I think I prefer Caledonian’s taxonomy, in which philosophy is what’s left over when everything that isn’t bullshit is taken away.”

Some standard-issue blog-moron comes up with a cretinous “taxonomy” and you prefer it to what? Reason?

I did, however, make the silly mistake of taking you seriously. Forgive me. I promise it won’t happen again.

February 7, 2009 at 2:25 PM  
Anonymous dmfdmf said...

TGGP wrote...
No, L.A. Rollins read her books and demolished them.

It makes one wonder what sort of contribution to the book you could possibly have made. Perhaps you are an illustrator and sketched pictures of the little strawmen that Rollins knocked down.

Anyway, so that things do not stray to far afield, I must point out that your skill at demolition detection seems a bit suspect. Whereas I merely hinted that there is a flaw in your position, Deogolwulf and Alrenous generously took the time to demolish it from two different angles, no less. This fact you seem unable to admit. You should go back and read what they wrote and try to understand it before hitting "puree" on your cut-and-paste blender. Once you understand then you can thank them.

As for me, I don't have the time or the energy to lead horses (or jackasses) to water, precisely because I never know who will drink. I (and others) have pointed the way, the rest is up to you. The philosophy you hold but refuse to name is called Pragmatism. You should discover what it means and where it leads.

February 7, 2009 at 3:12 PM  
Anonymous dmfdmf said...

To G.M. Palmer

(I wasn't ignoring you... I just missed your post in the flurry of other replies)

Palmer wrote...
The problem, as MM would see it, is the idea of freedom as choice of government. This is simply a false notion -- someone mentioned Spooner saying that none of us signed the Constitution -- true dat, yo.

It is true that we are all born under an unchosen gov't. So what? If your gov't (essentially) protects individual rights and property there is no rational basis to oppose it. And as long as there is freedom of speech then you always have the essential tool necessary to argue for change in a free society, hence no need for any other choice or a revolution.

The "freedom to choose my gov't" argument ignores the fact that any gov't that does not protect individual rights is morally an invalid choice and should be overthrown. Any gov't that recognizes such rights can be changed from within -- so this is a total non-issue. The actual source of this conundrum is a subjective concept of freedom.

Palmer wrote...
We can't even pick our allegedly republican government (overcoming bias says repeat: my tribe is too large for me to influence),

MM's line on voting as 'homeopathic levels of power' is on the mark here, and quite funny. But the issue is not the vote and influencing one's tribe but what kind of power do the elected officials have once they are elected.

Palmer continued...
so the best case scenerio, in MMs view, is to engineer a government that does not need to interfere in the lives of its law-abiding citizens.

Exactly. A republic with constitutionally limited power is the best system. The problem today is that the USG's power is virtually unlimited and everyone is fighting for control to save their own necks. Ayn Rand called this "civilized civil war". Its unstable, it won't last another generation.

Palmer....
His argument is that a libertarian/Randian style government would always devolve into the bloated mess we have now.

As long as people fail to see the connection between politics and ethics and refuse to question their altruist/judeo-christian values, then we will continue to move toward statism.

Palmer ended...
Better to redesign the whole thing, he says.

The redesign necessary is not at the level of politics but in ethics.

February 7, 2009 at 7:17 PM  
Blogger TGGP said...

Alrenous:
And, Shakespeare was such a cliched hack. Dunno why everyone pretends to be so impressed
My guess is that a lot of people actually like his work, though they don't appeal to me personally. If I was a Randian I'd come up with some argument about how their aesthetic preferences are irrational, but I regard that sort of thing as silly.

"That is, you have a philosophy."
What would it mean for me not to have one?

I'm also suggesting that this philosophy came from somewhere else; that you didn't form it yourself
I think I'll have to echo Hayek here against Galbraith. The vast majority of people are not hermits raised by wolves, we are all buffeted constantly by ideas from others and nobody comes up with anything in a complete vacuum.

and that therefore you are at the end of a chain of transmission with a Shakespeare at the top
Who says Shakespeare doesn't have anybody above him? From what I've heard he built a lot on the work of others. Feel free to correct me on Shakespeare, as mentioned I'm not a fan and probably know less about him than most here. I don't quite know how you concluded that Shakespeare is the source of my half-formed ideas.

Especially as you think philosophy is entertainment.
Did I ever say I thought it cleared that bar?

You can verify this for yourself if you like
Verify this stuff about Shakespeare? You made an assertion without explaining how you arrived at such a conclusion and you tell me I can verify it? Would you recommend peyote for that verification process?

Similarly, other people can verify it relative to themselves.
Personally, I'm skeptical we have that kind of access to the workings of our thoughts and the source of our ideas.

the outcome can look the same regardless of whether I'm right.
Ah, the irrelevance of accuracy in assertions! You're getting the hang of this bullshit thing already!


Deogolwulf:
What would you say is philosophy? I wouldn't include mathematics in there. As I implied in my link to Sailer, mathetmatics is quite useful while philosophy is not.

prefer it to what? Reason?
How many people think themselves unreasonable? What's reasonable is in dispute.

I did, however, make the silly mistake
Is your blogroll now sullied for all time?


dmfdmf:
There are no illustrations, my part was a preface to the titular essay. And on what basis do you claim that Rollins is attacking strawmen? Have you actually read it?

As for me, I don't have the time or the energy
Oh, I'd say anyone reading this blog, much less participating in the comment sections, has an excess of free time.

The philosophy you hold but refuse to name is called Pragmatism.
That was discussed a bit at the Distributed Republic here, but whether or not I adhere to or violate "Pragmatism" is irrelevant to me. Why should I be concerned? What are the dire consequences? Make me a pitch for your cult.

If your gov't (essentially) protects individual rights and property there is no rational basis to oppose it.
There is MM's Luciferean motive, which could meet most standard definitions of "rational", which is quite another thing from that of an Objectivist. Since most people aren't Objectivists you'll have to explain a bit more of that to them. Also, you should be specific as to what qualifies as "essentially" and which rights you're referring to.

And as long as there is freedom of speech then you always have the essential tool necessary to argue for change in a free society, hence no need for any other choice or a revolution.
MM long ago gave the example of Fnargl. Imagine that he does allow free speech (as MM seemed to expect). How can your speech change anything? The real reason not to opt for revolution is the conservative idea that revolution IS the hell of it. MM seems to have become more fond of a Jacobite/military revolt or coup since then though.

any gov't that does not protect individual rights is morally an invalid choice and should be overthrown
Even if you had ABSOLUTE CERTAINTY (we should grant this for the sake of argument) that the result of overthrowing it will be its replacement by an EVEN WORSE one that doesn't respect rights?

Any gov't that recognizes such rights can be changed from within
No, see the Fnargl example. Unless you assume that the right to vote is such a right, which I don't think you do.

Exactly. A republic with constitutionally limited power is the best system.
That is precisely the idea that MM rejects. Limiting government with the Constitution failed abjectly. Why think it would work if tried again? He is against the entire notion of limited government.

As long as people fail to see the connection between politics and ethics and refuse to question their altruist/judeo-christian values, then we will continue to move toward statism.
Most of us mock communists for failing to understand how human nature ensured that people would be self-interested and render their economy unworkable (not to mention ensuring the worst rose to the top). Why do you expect human nature to change? And also, aren't you a bit Eurocentric here in placing so much blame on "judeo-christian" values? Most people in the world do not live in judeo-christian (leaving aside whether the term is useful) societies, and they tend to have even worse governments.

The redesign necessary is not at the level of politics but in ethics.
James Madison said if men were angels it would not be necessary to govern them or place limits on government. dmfdmf says if men are not angels we need to make them into them. Seeing as how people do not reason their way to ethics in the first place, but rather rationalize their gut feelings, I don't think you'll have much success. If you actually want to replace our ethics, I think you'll need to engage in some eugenics or neurosurgery.

February 7, 2009 at 9:13 PM  
Blogger G. M. Palmer said...

dmfdmf:

I was getting ready to say all of that, but TGGP beat me to it. That's what I get for traipsing around in lighthouses all day.

As long as people fail to see the connection between politics and ethics and refuse to question their altruist/judeo-christian values, then we will continue to move toward statism.

Palmer ended...
Better to redesign the whole thing, he says.

The redesign necessary is not at the level of politics but in ethics.


I will add this is a classic is/ought fallacy -- we can't change people. We're the same silly buggers ruled by Gilgamesh in the city of Ur. Ergo we need to engineer a system that works with people as they are, not as they ought to be (since the system of government is changeable).

February 7, 2009 at 9:28 PM  
Anonymous dmfdmf said...

Palmer wrote...
I was getting ready to say all of that, but TGGP beat me to it.

Please say it in your own words (succinctly, if you can) so we can discuss it. I stopped reading TGGP.

Palmer wrote...
I will add this is a classic is/ought fallacy --we can't change people.

Not sure what you mean by is/ought fallacy.

It is true that people, i.e. humans, have a specific identity and metaphysically that will never change. However, epistemologically humans can change their minds, i.e., their ideas -- and more specifically their ethical ideals. This is a crucial distinction and the principle behind freedom of speech, otherwise -- what's the point?

Palmer wrote...
We're the same silly buggers ruled by Gilgamesh in the city of Ur. Ergo we need to engineer a system that works with people as they are, not as they ought to be (since the system of government is changeable).

What is driving MM to advocate a corporate-fascist state is altruism which he believes is unchangeable, part of human nature. What he wants is an impossibility -- to design a civilization base on altruism. It can't be done. Altruism is incompatible with reason and humans need reason to survive and to create civilizations. All he will achieve is the destruction of civilization, perhaps that is what he wants.

The key fact is that ethics does not equal altruism. The alternative to altruism is egoism but people have to understand it and reject altruism.

February 7, 2009 at 10:57 PM  
Anonymous Anonymous said...

dmfdmf - arguing with TGGP is like punching a mattress. No matter how hard you hit, no matter what logic or evidence you use, it makes no impression. The only thing that happens is you get tired.

February 8, 2009 at 2:44 PM  
Blogger G. M. Palmer said...

dmfdmf:

Hume said we cannot be concerned with what "ought to be" -- we can only be concerned with what "is."

Objectivists can believe that humans ought not to be altruistic (by the way, this is one of the reasons Objectivists are so frequently dismissed -- it doesn't matter whether or not altruism is compatible with reason -- people are sometimes altruistic -- might as well ask them not to breed or act like herd animals), but believing that doesn't make humans non-altruistic.

It's a false (and therefore useless) belief, because it takes what might be or what should be and pretends that it is what is.

Mencius's political system (at least) is derived on understanding humans as they are, not as he wishes them to be.

Note, the is/ought fallacy is one of the biggest reasons MM's political utopia is flawed -- as he bases it upon a non-existent technology (cryptologically locked weapons).

February 9, 2009 at 5:28 AM  
Blogger Donlast said...

I have only just come to this website which is highly seductive and stimulating. However, this essay does make rather a meal of what we face. For the last ten years or more we have had an exuberant credit creation which pulled demand from the future and created a gross misallocation of scarce resources. The normal ratio of debt/GDP has gone haywire - 150% when it used to be 100% and under. The normal path of economies is not exuberant but slow steady. Why? Because the growth in real productivity and real incomes is slow and (hopefully) steady based on technique, technology and investment. To get back to that steady path the misallocation has to be corrected. There is no other way. The economy has to be reset with lower output. Don't be fooled by playing around with aggregates whether they be fiscal or money. The hard work is done at the micro level by firms and households reshaping their business and their lives. Because it is impossible to predict what new structure will emerge does not make it any less true. The process will be painful but then hard luck. A generation has held the reins that really did think the world and life was one grand candy store. And it still imagines it will be helped by new sod and condom stimulii.

February 9, 2009 at 3:21 PM  
Blogger TGGP said...

dmfdmf:
humans, have a specific identity
Quantum mechanics clears up a great many misconceptions people have about "identity".

the principle behind freedom of speech, otherwise -- what's the point?
You assume a teleological or "purposeful" basis for it. Some things (or everything, according to some, perhaps caricatured, versions of reductionist materialism) don't have a purpose. They just "are". Furthermore, out of all the possible purposes for freedom of speech, how do we know it's "to change our minds/ethical ideals"? Maybe it's because we LIKE it and demanded it from our politicians and refused to change our minds when told that's a poor reason!

What is driving MM to advocate a corporate-fascist state is altruism
I do have to hand it to you, not many people associate corporate-fascism with altruism! I do think there is something of a point there with regards to imperialism, as Tim Burke pointed out (can't find the link now). Personally I'm rather indifferent if other nations engage in imperialism but I don't want to pay taxes for it.

humans need reason to survive
I think humans can and have survived with roughly the reasoning levels of chimpanzees.


G. M. Palmer:
It's a false (and therefore useless) belief, because it takes what might be or what should be and pretends that it is what is.
Your point about is/ought is perfectly valid (surprised you had to actually mention Hume), but if Objectivists assumed reality was as they wished it to be, why would they be trying to change our disposition toward altruism? They'd have to believe people already agreed with them! On this subject though, Dain/Mupetblast (my new co-blogger) has a good post on how procedural utility makes paleolibertarianism more compatible with human nature.


Donlast:
The normal path of economies
According to Greg Clark, the normal path is no growth at all.

February 10, 2009 at 7:21 PM  
Anonymous Anonymous said...

keynes REALLY suggested burying currency in a mine??? wtf?

February 10, 2009 at 9:06 PM  
Blogger Aaron Davies said...

quoting hume to objectivists is about as useful as quoting marx: one of rand's main points was a refutation of the is/ought dichotomy. i don't pretend to be able to discuss her line of reasoning coherently, especially since it's nearly ten years since i last read it, but i found it at least plausible.

February 11, 2009 at 8:11 PM  
Blogger Aaron Davies said...

@tggp: please tell me you're being deliberately dense wrt shakespeare. you often have a serious forest/trees problem around here, but i've always found you at least reasonably intelligent.

February 11, 2009 at 8:12 PM  
Blogger TGGP said...

Aaron, are you referring to my personal opinion of the quality of his work, my questioning of his causal role in my own beliefs or his own originality, or something else?

February 11, 2009 at 9:33 PM  
Blogger Aaron Davies said...

"Shakespeare was such a cliched hack" is an old joke about someone who thinks Shakespeare constructed his plays out of common sayings (when the reality is that all those sayings are common because they are quotes from shakespeare).

in "end of a chain of transmission with a Shakespeare at the top", the "a" is vital--shakespeare is not meant literally.

i'm referring to anything you've said that assumes alrenous means "shakespeare" any way other than metaphorically. if you actually think that, you've completely missed his point.

February 12, 2009 at 5:44 PM  
Blogger TGGP said...

I missed the "a" before Shakespeare. Whoops.

February 12, 2009 at 6:08 PM  
Blogger River Cocytus said...

Cripes. What a fever swamp. By the way, I noticed a dig on philosophy here. Once philosophy was no longer a set of values revealed by living a particular way, but a discussion of pure concepts and metaphysics, it was automatically irrelevant.

We all live basically the same kind of lives; therefore if our ideas differ it is really only cosmetic or otherwise just a matter things that are important to our particular path.

The only proof of any of these things is to embody them.

MM can step up to the plate on this if he wants, as can anyone else. Otherwise, it amounts to a kind of amusement. Interesting, but.. meaningful? True?

It's the difference between Pythagoreans and Sophists.

February 13, 2009 at 9:27 AM  
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~「朵語‧,最一件事,就。好,你西中瀟灑獨行。

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March 7, 2009 at 5:43 AM  
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This comment has been removed by the author.

March 8, 2009 at 12:55 AM  

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