Re: [WDDM] Economics and Change

[Joseph Hammer <parrhesiajoe(at)gmail.com>]

There are several problems with Binary economics, but chiefly, they disregard the role of interest as a primary coordinator of resources.

They say, "Print money from a central bank at zero interest to hand to people to invest." This sound good, but it is destructive to society. First, printing money does not increase the supply of goods available for the money to buy. The value of the new money is stolen from those who already have money in hand. The loss shows up as inflation... the dollar in your pocket buys less.

So, it's theft, but is it necessary? What does interest do?

Let's say we have one hundred widgets in our economy... widgets are useful... they can be used for just about anything... and they can be used to create more widgets. Some people can turn 10 widgets into 15 in a year... Some people can 10 widgets into 11. Others will turn 10 widgets into 5. Eek.

There are a hundred widgets this year. Who should be able to employ them? They MUST be distributed in some manner. If you had each of the 100 people a widget, you'll be lucky if you have just 100 widgets next year. To make sure the resources go to those who value them the most, they must be auctioned. Markets and interest perform this auctioning function. Let's say that the bank offers widgets at 30% interest. If all widgets are loaned at that rate, then AWESOME!!! That means that the total stock of widgets next year will be 130 or more. If we simply loan out widgets at 10%, speculators will buy the widgets and arbitrage them. In this case, the 20% goes to the person doing the arbitrage. This is BAD, because in a well functioning economy, those hundred widgets didn't belong to the bank... they belonged to thousands of different people, who simply put their widgets in the bank. The 30% is their interest payment.

IF the bank can print as many widget certificates as it wants (fiat currency, fractional reserve), the payment no longer goes to the citizens (the bank no longer relies primarily on them for certificates)... it goes to the bottom line of the central bank.

We want interest. In a natural maket, the interest rate matches the growth rate... they are really two sides of the same coin... like supply and demand. When interest is pushed lower, it either means that there are no investment opportunities or that the money supply is being intentionally devalued to bring about this effect. In our case, it is always the latter.

The Fed has pushed interest rates to near zero, and so the rate of growth in the country will naturally gravitate toward that percentage. Long periods of economic stagnation in industrialized countries are always market by periods of artifically low interest (ironically sold as a means to end a depression). Witness the shocking stall of Japan. They experienced a minor recession in the 1980's, and started printing money to lower interest rates to spur growth. They haven't really grown since. Yeah... over two decades of stagnation.

We now sit in a depression just as long as the great depression, and we continue along the same course.

Money must be tied to a commodity, which is a sticking point for many. Traditionally, this has been precious metals, but that is simply for practical reasons. Gold could be secured... even a land where property titles weren't worth squat, you could secret away some gold.

In today's economy, with ownership secure, we have other options. Anything can be used to collatoralize new currency... land, stocks, gold... ANYTHING that maintains its value. The money is simply title to property...

That said, the current balance of power is FUCKED. After much consideration, I would be okay with a ONE TIME redistribution of wealth, but only once. I also believe the people of a country are honorbound to default on any debts that were accrued dishonestly. We cannot saddle our children with debts that will consume 20%, 30% or more of their life to repay. People that bought government bonds knew what they were investing in. I only want to bother with those over ten million in net worth, however... and I don't want to take money from everyone... but if you shorted stocks on American Airlines on 9/10/2001... you're losing your fucking money.

THEN... free market. Truly free, with no restriction on competing currencies and no requirement to accept a particular currency. This is a lesson that has taken millions of lives to learn. Central banks always fund both sides of any war, including Hitler's charade. Stop them, and direct democracy will have a chance. Ignore them, or buy into their rhetoric, and you are an ignorant sheep, leading yourself and your friends confidently to slaughter.

This is a bit more than an answer to "What about binary economics", but the answer would be impotent without a dissection of the role of interest.

The theory is also hopelessly flawed in the long term. It assumes a desire to reach some sort of full employment, where each capable person owns and contributes to their own business. I'd like to get to about 10% employment... People would get as much education as they desire, and then they would work hard for five or ten years. Compound interest will keep them comfortable until old age. An efficient economy gives us this option... should we wish to sieze it.

Hayek talks about the "Road to Serfdom"... but we're screwed. Serfs worked WAY less than we do on average, and even with their short lives, they had more free time during their lives than we ever get. I tend to think of my time away from work as the "Stuff of life"... and we are worse off than medeival French peasants in that respect. Being an entrepreneur is hard work, and not everyone will want to travel such a path. We only need a small fraction of our people to be entrepreneurs. The rest of us should be capitalists.

Ask yourself what it means when people say we are a "Consumerist" society... or "Highly consumptive". This is caused by artifically low interest rates. If we divied up the resources to only those who could most effectively use them, the growth and interest rates would climb by MANY percentage points. When the interest rate is around 10%, people consume DRASTICALLY less and save/invest MUCH more. Personally, I would have put away half my income last year if that was a secure rate. I can get about 2% from the bank. Inflation is about 2%. There is no big advantage to not spending, so I spend. In the 1990's, when stocks were soaring, that's exactly what I did.

At around 10%, saving enough money for retirement is a breeze... You'd only have to put away 14% of your income for about 23 years to retire with the same yearly interest payment as your income.

Why choose 14%? That's how much you pay for Social Security in America... you pay it for 40 years, and then you get a fraction of your salary at the end. Those extra 17 years are waste and theft. Even at a modest 6% return, it still beats Social Security... earning your salary in interest in just 37 years.

Get rid of central banks, and you won't need Social Security any more... you will have independent seniors who are not beholden to the corrupt system... but you need interest.

Interest coordinates an economy. Setting an interest rate low always sets the growth rate low. We've got a LOT to do... We gotta terraform mars, get a mag-rail system going and feed all the starving people. All this is possible right now, but we need growth... not 1%, and that is all a central bank economy can offer.

On Mon, Jan 17, 2011 at 11:22 AM, <Joshua N Pritikin> wrote:

On Mon, Jan 17, 2011 at 11:19:08AM -0800, Joseph Hammer wrote:
> There are no serious contenders to the Austrian theory...

What about binary economics?

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=928752