From: Dan Fabulich (daniel.fabulich@yale.edu)
Date: Thu Sep 03 1998 - 22:37:17 MDT
J. Maxwell Legg wrote:
>> This is an argument against fiat money, not money in general. A gold
>> standard, for example, would not have this problem, and unless you're
>> attempting to tell me that gold I extract out of a mine I own is a debt to
>> somebody else, that pretty much solves that problem.
>Gold is no longer a money standard and the Australian minister who wrote the
>"billions for Bankers" article hadn't reached the conclusion that I have that
>money can be replaced by a better neural net. Brutal Capitalism's police,
secret
>societies, drug dealers, gun runners, prostitutes, gamblers, loan sharks,
and the
>like, are the main ones standing to benefit from a continuation of money use.
>They will be the loosers in an era of open information systems when their
money
>is no longer tolerated.
We'll see, won't we?
>
>> And this is simply preposterous. Do you just make this stuff up as you go
>> along?
>>
>> Funding the prison system doesn't help the government make money. This is
>> a bizarre idea and I don't know where you got it from.
>>
>>
>
>Try here. I ripped the following from an ADBUSTER'S website at:
>
>http://www.adbusters.org/Articles/voodoo.html
>But there's a glaring flaw in the expansionist argument. They haven't come up
>with an accurate way of measuring the economic growth they keep talking
about.
>Their chief measure of growth is the Gross Domestic Product (GDP) and it is
>seriously flawed.
This is wrong. The nominal GDP is a measure of growth, but it is not the
only one, or even the most important. Economists look at nominal GDP, the
price level (which is usually inflating) and investment. We can get a good
idea as to how good the economy is doing by looking at people's spending
power, GDP/price level. Alternately, we can see how sustainable our
economy is by looking at how much people are investing, and by observing
the price of futures.
>Consider:
>
>When the Exxon Valdez spilled its load of oil into the Gulf of Alaska -- a
dark
>moment in recent American history -- America's GDP went up. (A lot of
money was
>spent on the cleanup, media coverage, ecological testing, legal fees,
etc.) When
>the Gulf War broke out, America's GDP went up again. Money changed hands. The
>country became “healthier.” Indeed, every time there's a car accident or a
newly
>diagnosed cancer patient, whenever personal or societal catastrophies
occur, the
>GDP goes up and the economy.”
America's GDP is affected by a lot of factors. Do you have any evidence
that any of the above is true?
>Consider:
>
>Walking, biking and mass transit contribute less to the GDP than using an
>automobile. Trains contribute less than airplanes; an extra blanket or
sweater
>less than raising the thermostat; one-child families less than six-child
>families; eating legumes less than eating beef; starting a vegetable
garden less
>than buying at the supermarket; staying home to raise your daughter less than
>getting a part-time job at Wendy's.
Here you make the mistake that other economists make of confusing current
GDP for economic efficiency. Fortunately, responsible economists don't
make this mistake.
Let's look at some of these examples. Walking vs. driving, for example.
For economists, if people want to drive then they're better off when
they're able to drive. Now let's suppose that you're trying to choose
between walking or driving when you can afford both. Well, if you choose
to drive, you consume more. This increases current GDP through
consumption: it increases demand for cars slightly, increasing the standard
of living for those who make cars, etc.
But what happens when you choose to save your money and walk? Do you just
bury that wealth in a hole where it never comes out again? Obviously not.
If you have the money, you will either save it so you can consume something
else (maybe you're saving up for a new air conditioner instead! ;) ) or you
will simply save it in the bank, where it will earn interest. This is not
an economic bad, because when the bank's got it, the bank will INVEST it,
and investment leads to economic growth through the creation of new
capital. An economy which one day decided it would completely cease
investing and just spend all of its money today would have an amazing GDP
this quarter, but would find themselves in the deepest poverty in the
coming years, as machinery broke down, homelessness occurred, demand
slumped, etc.
In other words, walking instead of biking doesn't hurt the economy one bit,
because you're USING that money to consume something else or paying someone
else (in this case, the bank,) to invest it. Either way it's an economic
good for neoclassical economists.
Anyway, I presume that this was meant to answer my question as to how
spending money on prisons makes money for the government. Of course, it
doesn't. Government spending today has a crowding out effect, causing
investment to decrease. And though government spending does increase GDP
and thus tax revenues, it does not pay for itself, nor do neoclassical
economists believe that it does. Reagan thought that it would; he was
obviously wrong.
>(Indeed, the GDP fails to assign any value at
>all to unpaid or volunteer work. Work done by tens of millions of North
Americans
>simply does not show up on the radar. It's as if the work -- and the
workers --
>don't exist.)
In volunteer work, money doesn't change hands. It's often unofficial. In
fact, almost everything that's done voluntarily is unofficial. Economists
couldn't even begin to measure the extent of volunteer work even if they
wanted to. They can measure charity donations, however, and one thing we
do notice is that, like all other forms of consumption, it increases as
spending power rises.
>GDP measures the “goods” but not the “bads.” That's why ecological economists
>have developed their own measures of economic welfare. The three graphs on
this
>page show the GDPs of the US, UK and Germany all heading merrily upward
from 1955
>through the 1980s. However, a more accurate measure of economic progress, the
>ISEW (Index of Sustainable Economic Welfare) developed by Herman Daly and
John
>Cobb in 1990, tells a very different story. When some of the “bads,” such as
>pollution, depletion of non-renewable resources and car exhaust-related
health
>costs are factored in, a radically different picture of the economy
emerges. The
>US, German and UK economies all show no improvement in economic welfare
since the
>1970s. In fact, economic welfare levels off and starts falling
dramatically in
>each country.
Of course it does. When you get to choose how much a bad is worth, you can
make the graph look like anything you want it to.
Here's why the arguments from sustainability are wrong: Suppose we were
about to run out of something important. Well, in that case, the price
would certainly rise, as demand for it would remain constant while supply
shriveled. You'd be able to make a killing off of this by buying some of
that resource now, saving it, and then selling it at a huge profit later on.
Today we have another system which simplifies matters: instead of buying
today, you can buy a future contract. You can make an agreement with
somebody who owns some of the valuable resource that they will sell it to
you at a specified price some number of years from now. If the market
thinks the price of the good will go down in the future or remain constant,
you can offer a future contract at only a little bit higher than what they
think it is and still make a killing. They'll buy it because they think
they'll be able to sell it to you above its market value; you'll buy it
because you know that you'll be buying it for way less than market value.
It's like gambling, only it relies on real observable data to get its price
level. And, as I keep emphasizing, there's a huge incentive to find out
precisely what the future price level will be.
You don't even have to wait until we run out of the resource to make money.
As soon as people figure out what's going on and that resource depletion
is imminent, the market will revalue the future price of your resource: you
can then just sell the futures you bought to others and make a killing
*today*.
By buying futures today, environmental groups would no longer have to rely
on charity to fund their goals. They would make so much money off of their
profits that they'd easily afford to make the changes in the political
system they have so long desired.
They do not. No one has. The future price of natural resources remains
low, despite the fact there there is a huge financial incentive to get this
value exactly right. If the environmentalists insist that the financial
types are missing something important, then they should put their money
where their mouths are and buy futures.
They don't, so I don't believe them.
-TODAY IS A GOOD DAY TO LIVE-
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