Let’s assume for a moment that Keynes was correct in the 1930s that increases in aggregate demand by government do indeed increase GDP. This is actually not something most economists, including many from the Chicago and Austrian schools of thought challenge. It’s hard to deny that once a variable in the GDP equation is increase it would in turn increase GDP. Obviously GDP is measured as private consumption + gross investment + government spending + (exports – imports;) So of course if you increase the variable that is government spending then GDP increases. That’s not what I’m saying “let’s assume;” Let’s assume that government spending increases general welfare with employment (though I feel the assumption is factually incorrect) and can fill in the hole of slacking private investment. The premise of this relies on an increase in aggregate demand by government, which makes up for the lack of private investment; this does not require that the multiplier be more than 1 (meaning you’d spend more money than you’d receive back in general welfare.)

Assuming that, let’s also run with facts that we have; currently U.S. employment from manufacturing is ~7% vs ~30% during the Great Depression. Let’s also note that many economies in the Far East rest their economic strength solely on exports and thus artificially devalue their currencies, and give their domestic companies export subsidies to lower the cost of goods to the U.S. and other trading partners. Likewise, let’s concede that current U.S. trade balance for June 2010 was $-49.9 Billion, where exports decreased from $150 Billion from $152 Billion (May 2010); while Imports increased to $200.3 in June from 194.4 Billion in May. For goods, the deficit was $62.0 billion in June, up from $54.3 billion in May. For services, the surplus was $12.1 billion in June, down from $12.4 billion in May. Notice anything strange about these numbers? Though the services sector was in decline, the deficit for goods on the U.S. balance of trade increased. Similar diversions have occurred in spite of the economic stimulus package. How is that possible?

I hypothesize (though I can’t show any hard numbers) that the stimulus which relied on increases in aggregate demand for “goods” rather than “services” leaked out of the U.S. economy at a rate much higher than what was seen during The Great Depression, and we can see this in our trade deficit. If we review the equation for the GDP equation we note that the number also includes (exports-imports) which in a quarter at the rate of -49.9 Billion a month ends up around ~$250 Billion. At the rate of $8 Billion in deficit increases per month in a given quarter that is ~$32 Billion, or roughly 8%. Given this hypothesis, the multiplier would be impacted negatively, by ~1% (assuming it was a multiplier of 1). That’s not a big number, but if you consider that the average multiplier from government spending is from .50 to .80, it is actually a more substantial percentage of the multiplier itself; and more around 9%; So ~9% of the actual multiplier was diminished, as a result of it leaking from foreign outflows. This is all, non-technical, and a roundabout method mostly doing small calculations, but the multiplier could theoretically fall from .50 to .45. You have to consider that the stimulus package contained $200 Billion in tax cuts which according to Keynesians would be horded by consumers instead of spent, then you have an even bleaker picture of government spending’s impact on aggregate demand and domestic GDP.

So what caused the economy’s rebound if not government spending? I think Friedman’s pluck theory answers that question. Generally recoveries are proportional to their declines, the Federal Reserve inserted trillions into the financial sector through loans, and businesses had to replenish their inventories…I hardly see any room in the [brief?] recovery to point at government spending as a large player.

Basically what I’m saying is that the U.S. economy has so evolved away from manufacturing of goods, that it’s hard to justify trying to increase aggregate demand with government spending. Keynes could have been right (though I say he wasn’t) that spending could increase welfare, but I don’t think that the modern economy in the U.S. supports this notion, and I think the numbers agree with me. This is obviously what Krugman would call “wonkish,” but I believe that the numbers are highly suspect…and it’s interesting that the trade deficit numbers increased even though the heights of the U.S. dollar index….all of this to me screams, “this isn’t working.” Arnold Kling wrote a similar argument in November of 2009, and I even stole one of his graphs.

The most important function that markets serve is the allocation of resources, but it isn’t very often that we are taught that prices are a feedback of market demands which allow for this process to occur. The price system is an intrinsically important part of the market structure, in the same way that our nervous system is an essential part of the human body. If you share this view, then the market is in many ways a natural occurrence through the interaction of human beings, in the same way that there are relationships within nature which require the cooperation of smaller agents to form larger eco-systems. The problem that economists such as Friedman, Hayek, and Mises have pointed out is that the distortion of this system presents a problem of distorting the feedback process and thus gives producers the incorrect information hampering their ability to properly allocate resources.

For the sake of analogy, let us suppose that we interfere with an internal eco-system. Suppose we take a pain killer, then we stick our hand on a stove. The pain killer may dull the pain just enough to prevent us from moving our hand in a timely manner and now we have significant nerve damage along with severe burns. Though the burn did not hurt as much as it would have, our body received faulty feedback and ended up having a significantly larger amount of damage despite the information that our brain was receiving that says otherwise. That is a small and perhaps poor analogy of price systems. Price systems are the “nerves” of the economy in many senses, and if we put in price ceilings which prevent pain of high prices, the allocation of resources cannot properly be achieved.

Under systems such as socialism or communism, we find that if prices are centrally planned, there are significant distortions in prices and thus we find large disparities between resources that are given and resources that are desired. Under an economy that is entirely centrally planned, how do we know which is more rare, gold or copper? Under the market system the prices serve as the function which communicate to market agents that gold is indeed more rare than copper. How do we know this is the case? Simply put, gold costs more. The system is still far more complex than that, because you also have to considering the wants and needs of market agents. Once you realize that this series of computations occur naturally through market forces it becomes easier to see the shortfalls of centrally planned systems.

A retort to this could be that the brain is a central planner, except it’s really not. The brain adjusts to information that it receives through its nervous system. You don’t consciously try to breathe or blink, it occurs naturally through information that stems from the nerves in your body. The information is fed to different parts of your brain which you have no idea even occur, the brain itself is very much spontaneous and runs off of a market-esque system. It’s this insight into nature that have led some economists such as the Physiocrats to treat the economy as a human body that can be cured with things such as bloodletting.

Friedman, who based this idea off of Hayek’s “The Use of Knowledge in Society”, proposed that prices serve 3 functions:

1. They transmit a very wide range of information. They transmit information about the availability of goods today versus tomorrow though futures markets, and so on.
2. They serve as an incentive for people to adopt the least costly methods of production and to use available resources for the most highly valued uses.
3. They serve their second function, so that they may perform their third function, which is to determine who gets what and how much – the distribution of income.

Friedman notes that the distribution of income is quite often a major source of dissatisfaction within an economy, and this occurs no matter what the system may be; be-it a command economy or a market economy. From Friedman’s essay “Market Mechanism and Central Planning:”

I am reminded of a remark made by Alvin Johnson many years ago when he was conducting a study of incomes in difference occupations. He found that physicians complained that lawyers were getting more than physicians, and lawyers complained that physicians were getting paid more than lawyers…[the same occurrence occurred between carpenters and plumbers]…Johnsons finally concluded that life was an underpaid occupation.

A legitimate argument isn’t that prices are an improper transmission of information, but that we also have social “costs,” which are not reflected in the price system. I believe this is generally where some free-market economists start to diverge from each other, into total laissez-faire and positive economics. The idea of positive economics is basically to say that we can have social programs so long as they are dictated by markets, while more laissez-faire economists believe that there is a delicate eco-system which should not be tampered with because even small “static” in the information could cause improper resource allocation.

Some people in government have seen the price system as so powerful that they believe that they can raise “dirty” energy prices with legislation such as “cap and trade,” to give the market the signal that it needs to develop alternatives. Likewise the Federal Reserve lowers interest rates in order to find a delicate balance between inflation and unemployment. The problem with both of these is that in the case of cap and trade it leads us away from Friedman’s 2^nd function of prices. In the case of the Federal Reserve the rate of interest can affect the nominal rates of prices and distort entire eco-systems such as the housing market. It is for this reason that while there is a strong disagreement between The Chicago School and Austrian Schools of economics both acknowledge the distortion of prices by the Federal Reserve. They both have difference solutions, in the Friedman case the K% rule allows the money supply to expand with the rate of population and GDP in order to maintain a price stability that allows information to be transmitted since prices are stable in real terms. The Austrian view is that the market sets the supply of money and that too is an important market function. To which is right? I’m not sure, but I would put the argument that much like the body needs blood you don’t want your blood level to decline or rise too rapidly…or to become too thin (velocity?)

This problem of information through prices is unfortunately missed by many modern “conservatives” in the mainstream, and thus they start to lose the moral argument for free markets. Hayek stated that this problem of information and distortion of price systems was the ultimate debunk of socialism, period. I can’t help agree with his observation, but unfortunately I believe that the “static” in the economic arguments often prevent this argument from being a forefront of the moral argument for free markets. Perhaps the problem of information extends into the political world…which is all the better to keep its hands off of more important information eco-systems.

Example of price distortion:

I guess the mosque issue is important; I guess a better way to put that would be, I guess the mosque stirs up emotions but really isn’t that important. The controversy seemingly can be solved with just a single sentence:

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.”

Unfortunately, it’s not –that- simple; I mean the 2nd and 4th Amendments are pretty straight forward and are often used in arguments, but people ignore them. We can express our views and religion in many ways that is almost endless, but the question is what is appropriate? I asked Glenn Greenwald on twitter if his stance for freedom of speech and expression extends to other amendments. I did so by asking a simple question such as “do we have the right to cull gun ownership in areas where crime has occurred? (after all what’s the difference between culling one Amendment over another?)” and “would it be ok to build a gun store across the street from columbine?” Unfortunately he never addressed those questions, but instead asked me a question of “is it ok to stop a church from being built across the street from an abortion clinic or near Oklahoma City’s bombing site (the last one doesn’t make any sense)?” I wanted and should have replied, “no, but you or your cohorts probably would.” Instead I insisted that was unrelated to my argument, and I was merely pointing out his double standard…for which he asked me the question again. At that point I gave up on trying to convince someone who is more bullheaded than myself. The 1st Amendment argument helps to create a pedestal for defenders, but I’m not so sure that’s the argument that people have been using against it; some are making a stink because Glenn Beck wants to hold a rally near where MLK did a speech and on 8/28 because it’s on “hallowed ground”…how is this any different? It’s not, as Greta Van Susteren of all people points out.

Remember…the Muslims in NYC have a First Amendment right to build a mosque but most Americans don’t want it…and you have to ask the wisdom of the Muslims to push the issue. Just because you have the right to do something does not mean you should. My view? No mosque at ground zero and Glenn should move his event.

It does not help heal the country on so many fronts if we poke a stick in eyes.

The issue I have with the mosque doesn’t really involve the mosque, but people who support the mosque having double standards. Most people protesting the mosque aren’t arguing on the validity of the 1^st Amendment, in that no one (excluding Newt Gingrich) has suggested the government censor or not allow them to build there. The thing is, this happens all the time under the guise of social agendas. Land is confiscated, cities have zoning laws. Since we are arguing on the basis of location, I believe all avenues should be opened; because after all this is about property rights and freedom of religion. Yet, the simple fact is that you could never have an ammunition store across the street from a high school, you could never have a strip club across the street from a church; remember the “ground zero cross,” Trump’s American Flag? Those were just small examples, that just so happened to land on the front page. We (as a society) selectively censor people’s speech and property rights, and it’s not until we agree with someone’s position that we defend their rights; we call this censorship “societal norms.” But that’s not how the Constitution works, the simple fact is that the people supporting the mosque (in most instances) are just as hypocritical about 1^st Amendment rights as people like Newt Gingrich.

Unfortunately, this angle will never be explored, because both sides are so caught up in their own world view that they both deny their own hypocrisy. To me the people have every right to build the mosque, but that doesn’t mean it’s a good idea. Just like I should have the right to build an ammo store across the street from Columbine, but that’s not a good idea. I think the whole idea boils down to what you think is considerate, if where you draw the lines of society norms.

In other news, Greg Gutfeld from Fox News Red Eye, says he’s going to build a gay bar beside the mosque (which really isn’t so much a mosque as a community center for Muslims.) I support his endeavor, because he has the right to do so, it’s not a good idea because it will likely offend people…but I think that is the moral question that Gutfeld is trying to raise…and one that almost everyone has ignored. In a world, and a political world that lives on political correctness, it’s interesting to see the sides reversed.

Quick Update:

The argument of “hallowed ground” I guess doesn’t apply if you’re defending the “hallowed ground?” Newt? Anyone? An anti-mosque rally on 9/11 ? Really?

I don’t have a lot of regular readers, but I do have some…so some might be wondering why no posts in nearly a month? I have 4 reasons:

1. I took some time off to research for some upcoming articles
2. I created or updated 3 new websites (Cover of the Week, Virtual Blend, Yellowcard Forums); I’ve also been messing with stuff I didn’t realize existed such as Cufon, which you can see in action at Cover of the Week.
3. I’m going to New York in a week to attend FEE and I’ve been getting ready
4. I’m lazy.

So take the edge off and listen to some of the covers that I will be posting weekly on “Cover of the Week.“

According to the Washington Post, the answer to that question is a resounding “yes.”

The intent of the memorial is to publicly honor the courage of those who died in the line of duty, but it also conceals a deeper story about government in the post-9/11 era: Eight of the 22 were not CIA officers at all. They were private contractors.

To ensure that the country’s most sensitive duties are carried out only by people loyal above all to the nation’s interest, federal rules say contractors may not perform what are called “inherently government functions.” But they do, all the time and in every intelligence and counterterrorism agency, according to a two-year investigation by The Washington Post.

What started as a temporary fix in response to the terrorist attacks has turned into a dependency that calls into question whether the federal workforce includes too many people obligated to shareholders rather than the public interest — and whether the government is still in control of its most sensitive activities. In interviews last week, both Defense Secretary Robert M. Gates and CIA Director Leon Panetta said they agreed with such concerns.

Check out their charts, they show the expansive nature of the National Security structure. Somewhat related, I was recently watching a documentary on the growth of the intelligence community before this was published; internet traffic is being monitored from secret rooms in some of the nation’s top telecoms.

Liberal outlet the Daily Kos  today announced that it was filing a law suit against Research 2000.

I have just published a report by three statistics wizards showing, quite convincingly, that the weekly Research 2000 State of the Nation poll we ran the past year and a half was likely bunk.

Since the moment Mark Grebner, Michael Weissman, and Jonathan Weissman approached me, I took their concerns seriously and cooperated fully with their investigation. I also offered to run the results on Daily Kos provided that they 1) fully documented each claim in detail, 2) got that documentation peer reviewed by disinterested third parties, and 3) gave Research 2000 an opportunity to respond. By the end of last week, they had accomplished the first two items on that list. I held publication of the report until today, because I didn’t want to partake in a cliche Friday Bad News Dump. This is serious business, and I wasn’t going to bury it over a weekend.

We contracted with Research 2000 to conduct polling and to provide us with the results of their surveys. Based on the report of the statisticians, it’s clear that we did not get what we paid for. We were defrauded by Research 2000, and while we don’t know if some or all of the data was fabricated or manipulated beyond recognition, we know we can’t trust it. Meanwhile, Research 2000 has refused to offer any explanation. Early in this process, I asked for and they offered to provide us with their raw data for independent analysis — which could potentially exculpate them. That was two weeks ago, and despite repeated promises to provide us that data, Research 2000 ultimately refused to do so. At one point, they claimed they couldn’t deliver them because their computers were down and they had to work out of a Kinkos office. Research 2000 was delivered a copy of the report early Monday morning, and though they quickly responded and promised a full response, once again the authors of the report heard nothing more.

It was apparent from most poll results that something was amiss, but what you likely won’t hear from all media outlets is that the infamous poll showing that the “right wing” was full of “wing nuts” also goes by the way side. If you’ll note, the poll which is quite often cited by liberals was conducted by Research 2000. Read more…

In response to this

It comes at an opportune time, ahead of the looming elections, in which our political philosophies and principals are put to the test through practice. One such test involves the mosque slated to be built in the region; and while supporting other’s rights to express their distaste with the project, I do not support their views of not allowing other’s similar rights.

The opinion which struck me as the most odd in this debate, was purported Tea Party leader Lou Ann Zelenik’s claims that, “Until the American Muslim community…condemn(s) those who want to destroy our civilization…we are not obligated to open our society to any of them.” Coming from the conservative libertarian viewpoint, I found this statement and those that accompany it, to be hypocritical at best. If such a political movement or a purported leader of it, which prides itself on the Constitution, openly threatens the Constitutional rights of fellow citizens, I am quite concerned as to how this person could be trusted with the powers to act on such threats.

It’s not just Mrs. Zelenik’s views though; upon further examination it has been an uproar among, what appears to be, a majority of residence. But lest I remind these individuals, that this right which has been afforded to them to show their outrage, also affords those in the Islamic faith the right to express their religious views without government abridging it. As Thomas Jefferson once said, “Religious institutions that use government power in support of themselves and force their views on persons of other faiths, or of no faith, undermine all our civil rights.”

This is not a country of one religion or one creed, if it were we would not be free. All liberty is individual; it is not of collective ideals, but of individual ones. Those of the Islamic faith are not asking that you or I convert to Islam, but in many cases, the Christian view is being forced upon them with government as its sword. You would be hard fit to find even two Christians of which agree upon every issue, nor two Republicans, nor two Democrats. If we pick at the seams of our free society through our collective ideas we will do nothing but undermine, not only the rights of others, but of ourselves. As Jesus once said, those who live by the sword will die by the sword; and in this case, many threaten the rights to both expression and of property as they wield the power to do so; a power which may not always be there.

In short, wearing the flag does not make you a patriot any more than wearing the cross makes you a Christian, nor does flogging others for their unconstitutional acts, while threatening the violation of others’ rights make you a Constitutionalist. I believe that people of all views in the matter, should take a step back and ask themselves if they are swimming with the stream or standing steadfast with the principals that they tout in their own name.

If I’ve learned anything from the Wizard of Oz it’s that tin men have no hearts and straw men have no brains; so it comes as no surprise that brain dead people throw around terms such “straw man argument.” It’s a cop out to actually having a discussion, and in many ways is just creating a “straw man” by falsely presenting someone’s argument as misconstruing what you said. This isn’t to say that straw men arguments don’t crop up, only that every time I’ve been accuse of a “straw man argument,” I was the victim of being grouped with a group of people who I generally disagree with. You see this all the time, Republicans say you’re an “Obamanite” if you so much as take up for anything he does; the opposite is true you are called a “Paul-ite” if you take up for Ron Paul, a “Tea Bagger” if you take up for the “Tea Party” and a racist if you take up for Rand Paul. After these claims are made and you try to have an argument, about half way through you are accuse of a “straw man argument.” Wait a minute buster, what was that you just said? Did you just use a “straw man” 30 minutes ago and I ignored it? You can’t have a discussion without sometimes misconstruing someone’s beliefs on occasion, but likewise getting a fact or two wrong is completely different than grouping people together with a belief, so that you can let your mind at ease and ignore what the other person is saying. I’m just going to start throwing out the term “Representativeness heuristic” so that these people have to go look it up and I can go find a match.

Anyhow here’s a song about Cognitive bias:

This is a poem first published in 1705 from “The Fable of the Bees or Public Vices, Publick Benefits,” by Bernard Mandeville; it connects well with the the latter (in time frame) two of the past three posts about what makes the world go ’round.

The Grumbling Hive: or, Knaves turn’d Honest.
A Spacious Hive well stockt with Bees,
That liv’d in Luxury and Ease;
And yet as fam’d for Laws and Arms,
As yielding large and early Swarms;
Was counted the great Nursery
Of Sciences and Industry.
No Bees had better Government,
More Fickleness, or less Content:
They were not Slaves to Tyranny,
Nor rul’d by wild Democracy;
But Kings, that could not wrong, because
Their Power was circumscrib’d by Laws.
T h e s e Insects liv’d like Men, and all
Our Actions they perform’d in small:
They did whatever’s done in Town,
And what belongs to Sword or Gown:
Tho’ th’ Artful Works, by nimble Slight
Of minute Limbs, ’scap’d Human Sight;
Yet we’ve no Engines, Labourers,
Ships, Castles, Arms, Artificers,
Craft, Science, Shop, or Instrument,
But they had an Equivalent:
Which, since their Language is unknown,
Must be call’d, as we do our own.
As grant, that among other Things,
They wanted Dice, yet they had Kings;
And those had Guards; from whence we may
Justly conclude, they had some Play;
Unless a Regiment be shewn
Of Soldiers, that make use of none.
Va s t Numbers throng’d the fruitful Hive;
Yet those vast Numbers made ’em thrive;
Millions endeavouring to supply
Each other’s Lust and Vanity;
While other Millions were employ’d,
To see their Handy-works destroy’d;
They furnish’d half the Universe;
Yet had more Work than Labourers.
Some with vast Stocks, and little Pains,
Jump’d into Business of great Gains;
And some were damn’d to Sythes and Spades,
And all those hard laborious Trades;
Where willing Wretches daily sweat,
And wear out Strength and Limbs to eat: Read more…

I took ~45 hours of religious studies…which in short means I am not limited to economics. So here is an essay I wrote on the Centurion from the Gospels:

The Gospel means “good news”, which is derived from the Old English “god-spell” translated from Greek. Four Gospels were chosen to be placed in the New Testament, based on the idea of the four corners of the earth and the four winds. In these Gospels known as the Canonical Gospels, there are interestingly restless ideas that can be interpreted in a number of ways.

An interesting passage, Matthew 8:5-8:13 raises an interesting question. The question being, “why was Jesus not present during the healing of the Centurion’s servant.” In this passage Jesus states, “Go! It will be done just as you believed it would.” Never in the passage was Jesus ever in contact with the servant, but rather he talked specifically about faith. Although often times we see textual inconsistencies within the Gospels, the same trait is displayed in Luke 7:1-7:10. We see no presence of Jesus during the healing of the Centurion’s servant, but still we see the display of faith and healing as a result. This healing is uncharacteristic and unlike many of the other miracles and healings. Was this passage simply meant by relaying faith through Christ, or in having faith within and relaying it through God’s power?

Perhaps Jesus revealed something deeper than what the Gospels would have us believe. Perhaps there is a point in the human evolution of thought in which you must quite asking and start knowing, and believing. Assertions of your faith in living and feeling it surely are more powerful than mere requests to the divine. Possibly the story of the centurion gives us insight to our own faith and power of prayer, through mind, body and soul. Jesus says “Go your way; as you have believed, so be it done unto you”. The servant of the centurion was healed that very hour according to the Gospel of Luke.

Possibly Jesus was teaching us to lift our consciousness out of our narrow ways and onto a broader scale, in which what we need to be happy is already given. This appears to root back to Genesis 12:1, “Go Forth”, in Hebrew “Lech-Lecha” or “walk into yourself.” Even still we see more examples of this ideology of journey of Moses, as Moses leads the slaves of Israel out of Egypt. Egypt, also read as Mochin d’Katnut, or mind of narrowness; to travel out of this state is to travel to Mochin d’gadlut or a mind of spaciousness. Perhaps Jesus realized these ideas fully and tapped into the kingdom of heaven by doing so. The Bible translates God, or the lord rather, as the “ising”. Is it a matter of God being what he will be, through our own thoughts and prayers? God says to Moses, that “I will be, (what) I will be”, conceivably through this God is what we wish.

It is well known that the desire and belief of victory increases your chances to do so. Buddha been noted as to saying things similar to Jesus, such as:

“All that we are is the result of what we have thought. If a man speaks or acts with an evil thought, pain follows him. If a man speaks or acts with a pure thought, happiness follows him, like a shadow that never leaves him.”

Believing it is important to note the unity of multiple religions and philosophies, we begin to see a much broader picture. The idea of the outer, physical world being an effect and not as a cause lifts many more questions and ideas, or rather philosophies of living. Perhaps in saying these things both men had found the power of prayer and meditation, the freeing of the mind and soul. If what is needed is already provided, what is there to fear? Buddha proposes that through our doubts we create our own pains or failure.

“What we think, we become”; a quote of Buddha often mentioned by teachers, and preachers alike. In saying this Buddha implies what was fore mentioned in earlier texts. Buddha has many other quotes that progress this idea of unity with God through faith, the idea of men shaping their life with their own thoughts and prayers. The idea of pure thoughts is distributed throughout the teachings of Jesus and Buddha; one would think that the subject would be more widespread.

Jesus performed his miracles, and healings with the faith that what was needed was already provided. Perhaps we should learn from the Centurion and have faith; faith that our prayers have already been answered, ambitions, hopes and dreams already true. Perhaps if we think, act and live as Jesus taught, with such faith that we knew there was nothing to fear, we would grasp faith greater than our problems.