Glibertarians.com 2017 Archive

Category: Finance

  • Understanding Money

    New car, caviar, four star daydream, think I'll buy me a football team.
    It’s a gas

    There are a lot of people who do not understand money. This is unfortunate since it is the cause of much grief.

    The most important thing to know about money is that it has no intrinsic value. You can’t eat it, wear it, or build a house out of it. You can use it to make a fire, but people don’t usually do that unless very, very stupid people get in charge of the government. More on that later.

    Many things have been used for money, but those things all had certain features in common. To be useful, money must be durable, portable, divisible, recognizable, and most importantly, scarce.

    The reason things like gold and silver have been used as money around the world and throughout history is because they have all the above features. Recently, shoplifters have been stealing brand name laundry detergent to use as money – for the same reasons given above.

    Many people very stupidly think that since money can be exchanged for goods and services, creating money will somehow conjure more goods and services into existence. What actually happens is that price of everything goes up. This is called “inflation” and has been a problem for nearly every currency in history. The British pound, for example, is the world’s oldest continuously used currency, and it has lost about 99% of its value since 1751. You’d need 200 pounds today to buy the same amount that 1 pound did in 1751. The US dollar is even worse. It has lost about 97% of its value since 1913, the year the Federal Reserve banking system was created. The dollar lost about 2/3 of its value since 1971, the year the US officially went off the gold standard.

    The second most important thing to realize about money is that is a symbol. It is both a symbol of desire and a way of measuring it. For the only way to measure how much someone wants something is to ask what they are willing to trade for it. Money is what makes this trade possible.

    Prices are the way we measure desire. They are critical information about how much a good or service is worth and how much demand there is for it. Many very stupid people think that the government can somehow raise or lower prices by decree. The only result of such decrees is economic chaos. In countries like Venezuela and Zimbabwe, socialist governments attempting to help the poor set low prices for food and fuel. However, since they set them too low, those goods are in short supply and what goods do exist are only available on the black market for much higher prices. In Venezuela, many people earn a living by standing in line to buy goods for the official price just so they can sell it on the black market for a higher price.

    51st Emperor of The Roman Empire

    This is not the first time this has happened, 1700 years ago, a Roman emperor named Diocletian didn’t have enough money to pay for everything. He ordered the mint to decrease the amount of silver in each coin so he could buy more. It worked initially, but then prices rose because it did not take long for people to figure out the coins were worth less than before. So Diocletian then decreed that it was illegal for merchants to raise prices. One historian at the time wrote that Diocletian might as well have commanded the winds not to blow.

    Just like today, the inflation was blamed on everything except the government. Diocletian blamed speculators, money lenders, and foreigners for the inflation. Sound familiar?

    Inflation can only come from a government creating more money, and there are numerous examples of this.

    So why then does a trained economist like Paul Krugman think that minting trillion dollar coins would be a good idea? My only answer is that someone who knows economics but not history will invariably be dumber than a person who has studied neither. This is probably why Krugman also thinks the US economy could be jump-started by a fake alien invasion.

  • Hong Kong, Libertarian Style

    When upon returning from a vacation to visit my wife’s family in the Far East a friend of mine asked me what I saw in Hong Kong. I replied, “A shit load of Chinese people”, and assumed the matter was settled.

    However, that friend then clarified that he was referring to what I witnessed about government and society from a libertarian perspective. Unfortunately for you, dear reader, that answer is much longer, and not nearly as pithy.

    Economics 101

    Ask any educated person about the economy of Hong Kong, and one of the things they are likely to bring up is the fabled commitment to laissez-faire capitalism, with a minimal social safety net. Your gallant author first encountered this when exchanging money at the airport. The HK notes came from multiple different banks. The Hong Kong Monetary Authority has a legal arrangement with three different banks to issue their own notes, all of which are accepted as legal tender for government purposes. The HKMA also prints its own notes, which help to keep the system balanced. Banks are leery of overprinting in part due to their contract with the HKMA, and in part because if they were to do so, the government-issued currency might begin to drive their own out of circulation.

    Both personal and corporate income taxes are exceptionally low, and there is no automatic withholding.

    Interestingly, I saw very few police officers. There mostly seemed to be private security everywhere. There were entire days with not a single cop to be found. The ones I did see were mostly on motorcycles, or driving large Mercedes paddy-wagons.

    The permitting process for businesses also appears remarkably cavalier, from an American perspective. Across the street from the apartment we stayed in, what was an empty storefront turned into, by the time we left, an open and fully functional retail store. I mentioned this to our host, and asked him about the process he went through when opening his own business. He replied that the entire effort amounts to one afternoon of paperwork, which took him about four hours to complete. Essentially, the government wants to know, 1) who you are, 2) what you’re selling, 3) who your co-owners and investors are, and 4) where to find you in case someone files a claim or complaint of some sort. Safety inspections and permitting of the sort we as Americans are used to is largely handled through the landlord-tenant contractual relationship. Please note that there are a bevy of laws governing worker safety, permissible employment conditions, etc., it’s just that the government seems more interested in investigating breeches of these laws and awarding compensation/assessing penalties after a violation has occurred, and less interested in preemptive inspections and permitting.

    Landlords have a great deal of both responsibility and power due to the hands-off nature of local government, and the extreme lack of space. The latter ensures that prices remain high for their room, and the former means a lack of heaving zoning regulation. While I did notice some areas being more industrial than others, by and large there doesn’t appear to be much top-down instruction on what can be built where. Apartment blocks and stores are not only side-by-side everywhere, but are usually found in the same building. Many of the blocks had stores ranging from small general shops and restaurants to full-sized supermarkets taking up their bottom few stories.

    Libertarian Problems

    More worryingly from a libertarian perspective, is the government’s attempt to mitigate the land shortage with massive housing subsidies. I was told by our host that half of the apartment dwellers in Hong Kong have to get some sort of subsidy from the government to afford their apartments. This seems to be the largest government intervention in the marketplace.

    There is a minimum wage law, but it was passed for the first time in 2010, and remains relatively low, at the rough equivalent of  $4.19 USD/hr.

    Taxis are heavily regulated. The color of the taxi determines which part of the city and region it is allowed to operate in. My trip was in 2012, and so predated widespread use of ride-sharing platforms. I would be interested to see how that has changed the landscape. Despite the odd geographic restrictions, the taxies were all extremely cheap by American standards.

    There are increasingly strident pollution controls. This is another item that I asked about specifically, and was informed that up through the 80s, pollution was getting out of hand, and they began to pass laws on emissions and dumping waste into the bay. Our host seemed pleased about it, and told me that the city is a much better place to live now that there is not nearly as much smog and the water isn’t full of trash.

    They also have a combination public/private health care system. Individuals largely purchase catastrophic insurance, and use cash for most smaller medical purchases. There are several designated hospitals heavily subsidized by the government who take in and treat the public for a minimal, token payment.

    Drugs are still strictly illegal, and cigarettes have half their pack taken up with big health warnings and pictures of lung cancer. On the upside, you can walk down the street drinking beer, and as long as you aren’t drunk, it isn’t an issue. I was flabbergasted to find this out, because I hadn’t seen anyone doing it, and immediately purchased a beer so I could walk around drinking it. People still looked at me askance, as apparently it’s considered somewhat uncouth to drink in outside like that, instead of keeping it in the bar.

    All in all, I was greatly concerned to hear that even a government and populace that embrace the minarchist concept could not bring themselves to embrace a free market in medical care or housing, still viewing both as “essential services” that must be provided to people whether they can afford it or not, and that no free market solution was found to the pollution issue.

    In Closing…

    While there are many fun stories, your intrepid author will leave you with two amusing anecdotes.

    First, there are, at my best guess, one hundred billion 7-11s and Circle Ks in Hong Kong. Really, you can’t throw a rock without hitting at least two of them. They seem to not compete with themselves due to population density. However, everyone refers to the Circle K as the “O-K store”. I tried telling a few people that it is actually Circle K, but most don’t know the word “circle”, however they do recognize “OK” in English.

    Finally, their beer is awful. It’s nothing but an endless procession of weak light lagers and pilsners. While in the 7-11 at the base of my apartment block, I was scanning the beer cooler when suddenly I saw a type of Guinness that I had never seen before, called Foreign Extra Stout. My face lit up, and when I turned to take the beer to the cashier, I noticed her sniggering. I knew already that this cashier spoke fairly good English, so I asked her why she had laughed at me. She explained that she was just watching my head scanning the rows of beer, waiting for me to find that one, which she knew I would purchase. Apparently the Chinaman has an inveterate hatred of bold flavors and dark beers, and won’t touch the Guinness, but they keep one stack of them for the white people who come in. I told her I was proud to live up to this particular stereotype!