Although the past week did not seem to show a fair amount of important trading or direction, I think that it was a relevant week nevertheless. Monetary authorities and government have made it very clear, if there ever were any hesitations, that at least in the US the accommodating policies will stay in place for as long as needed. In addition to this, over the weekend, a major hurdle to the collectivization of the US health care infrastructure was removed.
The natural winning choice here seems to be gold. However, over the long term, it doesn't seem right to me. Call it a hunch. Indeed, the world is struggling to come up with a reserve asset, on the prospect that the USD may fail to work as one. But, does anyone doubt for a moment that liquidity will eventually be drained out of the market? To be honest, I do. The issue is that what we call liquidity today, may only be so at a diminished value tomorrow. Let's see...
Everything may seem a challenge these days, but Keynes foresaw decades ago the dilemma we currently have in front of us. We, at "A View from the Trenches", also suggested this approach, in our letter of April 28th (www.sibileau.com/martin/2009/04/28 "A Keynesian Perspective"). In April, I quoted Chapter 13 of the General Theory, writing that:
"...Keynes says something rather ominous: "…if employment increases, prices will rise in a degree partly governed by the shapes of the physical supply functions, and partly by the liability of the wage-unit to rise in terms of money…". Essentially, the final rise in prices that we may expect will depend on how we address productivity issues today (i.e. physical supply functions...) and how our current politicians reshape the labour market today (i.e. contract negotiations with unions, etc. that determine the liability of the wage-unit to rise in terms of money).
The final sentence is perhaps the most relevant. Keynes wrote that "…when output has increased and prices have risen, the effect of this on liquidity-preference will be to increase the quantity of money necessary to maintain a given rate of interest…". This strongly suggests that an exit strategy by the Fed may be counterproductive. Inflation may be high enough for us to need today's increase in the quantity of money, to maintain the rate of interest at the end of this experiment"
The discussion above is more relevant after the events of last week. Strategists worldwide are writing research on how to hedge against upcoming inflation, the initial consequences in the credit markets (spread tightening in 2010 will continue) and the evolution of the global monetary system as the US may be too focused in trying to orchestrate a joint exit program with China only. Thus the degree of productivity increases (= strength of the recovery), which we check every quarter, as earnings are released, becomes critical. Unemployment, which so many an analyst sees as a burden for growth in consumption is, in my view and following Keynes' comments, a plus. With a 10%+ unemployment rate (i.e. the liability of the wage-unit to rise in terms of money), prices will rise slower than otherwise. Thus, is there a role for gold? Unfortunately, even as this commodity will certainly continue to rise, unless something more fundamental takes place, gold has limited chances of becoming a true reserve asset. But this does not mean, at all, that gold's chances to outperform in the near term are compromised.
Lastly, as I read the news last week, it seemed to me that we were closing on many questions that we had had since the beginning of the year. Will the Treasury be able to place its debt? Will the Fed indicate a path on rates? Will the US have a collective social health care system? Will there be enough demand for corporate credit? Will we see a clear inflationary reading in the Consumer Price Index? Will we see a clear trend in the reduction of unemployment claims?"
Thus, on this note, I think a comment about Method can be suggested. Thomas Bayes (London, 1701-1761) became posthumously famous thanks to his paper titled "An essay toward solving a problem in the Doctrine of Chances", published in the Royal Society's Philosophical Transactions, in 1764. Bayes had elaborated conditional probability, to be able to answer this question: "How can we infer underlying probability from observation"? (refer L. Mlodinow's "The Drunkard's Walk", Ch. 6").
It is very tempting, as questions become certainty, to infer what will happen in 2010. In the past weeks, I have read a lot of economic and financial research that is nothing else than inferences made on conditional probability (i.e. if the Fed leaves rates unchanged in 2010, what are the chances that investing in corporate credit outperforms investing in equity or gold?) But here's the trick: In conditional probability, once you identify and quantify your sample space, you have to prune it, to adjust it for the conditions you already know. Can we do this in a global multi-currency world, where the unemployment rate that is assumed to delay consumption growth is not in the country that produces most of the goods sold worlwide? I think the answer is negative. But it is also negative because money is non-neutral, which means that it affects assets prices at different stages in an inflationary process and in different degrees. Therefore, I believe that we are not even able to work with a specific sample space, let alone prune it.
The comments expressed in this website and daily letters are my own personal opinions only and do not necessarily reflect the positions or opinions of my employer or its affiliates. All comments are based upon my current knowledge and my own personal experiences. You should conduct independent research to verify the validity of any statements made in this website before basing any decisions upon those statements. In addition, any views or opinions expressed by visitors to this website are theirs and do not necessarily reflect mine. My comments provide general information only. Neither the information nor any opinion expressed constitutes a solicitation, an offer or an invitation to make an offer, to buy or sell any securities or other financial instrument or any derivative related to such securities or instruments (e.g., options, futures, warrants, and contracts for differences). My comments are not intended to provide personal investment advice and they do not take into account the specific investment objectives, financial situation and the particular needs of any specific person.
Por Robert M. Thornton. (Publicado el 23 de noviembre de
2009)
Traducido del inglés. El artículo original se encuentra
aquí: http://mises.org/daily/3875.
[The Freeman. 1972]
Estos libros se publicaron por primera vez hace casi
cuarenta años cuando Laura Ingalls Wilder estaba en sus sesenta. La décimo
octava edición en tela se publicó en 1970 y ahora tenemos la primera edición en
rústica. Laura (no consigo llamarla Sra. Wilder) escribió el primer libro de la
serie sin plan de continuarla, pero la respuesta entusiasta de los jóvenes
lectores le impulsó a seguir hasta que las historias llegaron al mimento de su
matrimonio con Almanzo Wilder, el 23 de agosto de 1885, ¡ocho volúmenes de una
mujer que cuando era niña le dijo a su papá que nunca podría escribir un
libro!
Laura nació en 1867 y vivió noventa años, la mayor parte de
ellos con su marido en su granja cerca de Mansfield, Missouri. Su hija, Rose Wilder
Lane, que murió en 1968, es bien conocida entre los liberales como autora de The
Discovery of Freedom [El descubrimiento de la libertad], un
libro que inspiró The Mainspring of Human Progress [El motivo
principal del progreso humano], de Henry Grady Weaver. Rose mostró su recia
estirpe de pionera cuando con 78 años fue enviada a Vietnam como corresponsal.
¿Qué hace tan buenos y entretenidos estos libros de “La casa
de la pradera”? Primero, sacan al lector de su propio mundo y le llevan a
distintos lugares y tiempos pasados, a la vida de los pioneros de las praderas
en los años 1870 y 1880. Lo que emociona aquí es leer acerca del lechero o el
tendero del barrio. Segundo, hacen que el lector reflexivo agradecido por los
beneficios de que disfrutamos hoy en Estados Unidos. Laura escribe sobre las
diversiones de su niñez en la pradera y los buenos ratos con su familia, pero
no idealiza sus experiencias. La vida era entonces dura en un territorio
agreste.
Había estómagos vacíos cuando las cosechas se destruían por
fuego, sequías, plagas de langosta o tormentas. La enfermedad podía significar
la muerte porque doctores y medicinas eran escasos en la frontera. Todos,
excepto los muy viejos y muy jóvenes tenían que trabajar. Los placeres eran
sencillos, no había radios ni automóviles o televisores. Había poco dinero, así
que los regalos de Navidad para los niños podían ser un penique y una barra de
caramelo. Había momentos felices y terribles, cada uno era parte de la vida.
Tercero, y más importante, estos libros pueden ayudarnos a
recuperar el espíritu de los peregrinos, los patriotas y pioneros que fundaron
esta nación y la hicieron grande. Parte de ese espíritu es el gusto por la
independencia y un sentido de la responsabilidad individual.
La familia de Laura no espera que nadie cuide de ellos. Se
preocupan de sí mismos y saben que tener libertad significa la libertad de
fracasar o de tener éxito. Otra parte de este gran espíritu es no quejarse de
su fortuna o de no obtener la “parte justa” de los bienes del mundo. Otro es el
sentido de comunidad donde se consigue mucho voluntariamente, todos tratando de
ayudar siempre que tengan tiempo, talento y dinero.
En respuesta a preguntas sobre ella y sus libros, Laura
escribió:
“Los libros de La casa de la
pradera son historias de hace mucho tiempo. Nuestro actual modo de vivir y
nuestras escuelas son muy diferentes: muchas cosas han hecho que la vida y el
aprendizaje sean más fáciles. Pero las cosas reales no han cambiado. Sigue
siendo mejor ser honrado y sincero, aprovechar al máximo lo que tenemos, ser
felices con placeres sencillos y ser alegres y tener coraje cuando las cosas
van mal. Las grandes mejoras en la vida se han producido porque cada
estadounidense ha sido siempre libre de buscar su felicidad y mientras los
estadounidenses sean libres continuarán haciendo nuestro país aún más
maravilloso”.
No es fácil para los niños de hoy en día aprender estas
verdades, pero mientras se lean estos libros las lecciones no se perderán.
-------------------------------------------------
Robert Thornton fue un empresario de Kentucky y crítico de
libros para The Freeman durante muchos años.
Esta crítica apareció originalmente en The Freeman, 1972, Vol.
22, pp. 62-63.
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
Friedrich Hayek
The economic programs and policies currently in place are truly
astounding. I don’t think I have ever seen a more harmful economic
environment for the country. While some of these programs started with
Bush, the Obama Administration has advanced them to insane levels.
Logic, economics, common sense and history must be defied to believe a
recovery is possible in this environment. The nation’s standard of
living will be substantially lowered unless changes in policies are
forthcoming.
To understand why this economy cannot recover under these policies,
it is necessary to differentiate between the macroeconomic and
microeconomic approach. Arguably, macroeconomics is not economics, but
that topic cannot be fully explored today.
Macroeconomics deals with aggregates, statistics and mathematical
models. Macroeconomics purports to describe and explain the behavior
Continue reading Why Obamanomics Will Not Improve The Economy
“By one measure, the government already plays an outsize role in our so-called free-market economy—and it has little to do with the recession. Economist Gary Shilling has calculated that 58 percent of the population
is dependent on the government for “major parts of their income”
including teachers, soldiers, bureaucrats, and other government
employees; welfare and Social Security recipients; government pensioners; public housing
beneficiaries; and people who work for government contractors. By 2018,
Shilling estimates, an astounding 67 percent of Americans could be
dependent on the government for their livelihood. The implications
aren’t comforting.”
The shocking quote above is from an article by Rick Newman.
“We stand on the brink of a financial challenge of unprecedented
magnitude in the history of this state,” he added. “This is a historic
moment. We’re going to have to make historic decisions.”
This language could have come from the most of the leaders of state
and/or local governments in this country. This quote comes from
Governor David Patterson of NY state. The story is detailed in a NY
Times article here.
What is going on in NY is going on in California and other
governments around the country. The blunt fact is that governments at
all levels are going to have to shrink. Government may be the last
bubble of this economic cycle. It has grown faster than the general
economy for multiple decades. It has done so in both good and bad
times. It has raised taxes on its citizens when times
Continue reading Political Turnaround Specialists Needed
Stocks are off about 80% from their peak, at least as measured in ounces of gold.
This chart shows the Dow priced in ounces of gold. Currently, it takes just under 10 ounces of gold to “buy” the Dow. Over time, this ratio has ranged from 1 to over 40. Some investors use this relationship to determine the relative attractiveness of stocks versus gold.
Others believe that measuring things in gold is a better reflection of inflation than deflating nominal prices by the CPI index. Unfortunately, both methods have deficiencies. Using gold as the deflator, investors who held stock since the 1920s would have lost money, at least in terms of gold. While this might seem unlikely, remember that the value of the dollar today is only worth about 4 cents when compared to
Continue reading Stocks Down About 80% from Peak
My recent post on the US Hyperinflation Coming ties in nicely with the note provided below by Chris Coyne. He quotes Beaulier and Boettke who argue (along with Adam Smith) that facing up to our debt problems now is the proper course. In effect, they argue for the Zimbabwe solution now as opposed to waiting until things get much worse. However they are economists and not seated politicians. It is highly unlikely that such an approach will be taken, given the spineless, whining wimps that pass for legislators. Certainly not before the end becomes obvious to the mass citizenry. Until then, the pols will use smoke and mirrors to claim that all is well. When the obvious becomes so obvious, inflation will be well along, probably having an insurmountable lead over what the Fed will then be able
Continue reading Hyperinflation Redux
There is little doubt in my mind that we are heading for a train wreck. The timing and catalyst that trigger this reaction are much more difficult to determine. The potential catalysts are many, any one of which would trigger the wreck. A dollar crisis or a Treasury fund-raising crisis (likely to appear simultaneously) are probable. Or, it could come via an unexpected, virulent outbreak of inflation from all the dry tinder the Fed has injected into the system. Just the opposite of that, a deflationary collapse, could occur although I think this scenario less likely. (It is likely that the real economy will continue to decline, however, perhaps even violently.)
Or, it could come, once again, from the financial sector. Banks and other financial institutions are nowhere near healthy. The housing crisis hasn’t ended and bank collateral against mortgages continues to deflate. We do not know how bad this
Continue reading Train Wreck on the Way
WHY THE FALLING DOLLAR IS HARMFUL There are several reasons for foreign investors to stop buying Federal Government debt. One is merely the diversification motive. They already hold too many denominated assets. Second is the risk of default which grows along with our deficit. Third is the lack of returns or actual losses they incur as a result of the depreciation of the dollar.
The third effect is clearly illustrated in the chart below. It shows what what Americans earned (actually lost) with the 10-yr Treasury Bond (shown in red) versus what Europeans (shown in blue) lost.
Source: StockCharts.com
The disparity in returns (a loss of about 3% for US investors and a lost of about 18% for European investors) results solely from the deteriorating value of the dollar. This differential developed over just 8 months, which is indicative of the rapid decline in the dollar. For US investors, investing overseas this
Continue reading Falling Dollar, Foolish Foreigners and Blanche Du Bois
The (usually) transparent process of inter-bank lending works so well that most of the time we don't even think about it. This process has largely weaned the public away from physical paper money. Note that most money (about 90%) now exists only as entries on bank ledgers, backed by loans (debt). Also, note that possessing physical paper dollars is like having equity in the economic output of the United States of America, and has no credit risk associated to it. Physical paper money is not anyone's liability.
Bank deposit money, on the other hand, does have credit risk associated to it. That risk consists of the liability of the bank in which the deposit resides. Strangely enough, most of the time the credit risk of bank deposit money is lower than the theft and physical-loss risk of physical paper money.
That is why we use bank deposit money more than physical money. Through this (normally) transparent process of inter-bank lending, the banking system acts like a huge clearinghouse (essentially a giant ledger) which clears payments between its customers without the physical transfer of cash, and keeps track of who has how much money. Most money in the world economy is not physical (paper cash or gold) but logical (ledger entries).
To summarize: physical paper money is equity. Bank deposit money is backed by debt (actually that's not 100% true--reserves at the federal reserve system are also equity, essentially an electronic version of physical paper cash).
That difference -- that physical paper money = equity in the nation's economy, and that a bank deposit = debt (a bank obligation) causes great confusion.
We have become very comfortable with bank deposit money, without thinking much about the credit risk we are taking. Bank failures, when they happen, create confusion and chaos because the vast majority of businesses and individuals use checking accounts for convenience (they can write checks rather than handling physical paper cash) and they don't really think much about the credit risk that is normally associated with keeping their money (their most liquid capital) in a bank in a checking account. In fact, in most cases users of checking accounts do not want to take a credit risk. But in the current banking system there are no alternatives.
Is There a Better Way?
Consider the banking industry's contribution to society. The banking industry provides three major services to the public:
- It provides a "safe" place to hold the public's most liquid assets (cash).
- It acts like a giant clearinghouse (settling checks without physical paper cash transfer).
- It is a source of loan money (banks evaluate the credit worthiness of borrowers). Think of "credit worthiness evaluation" as a service to society. If bankers do a poor job at evaluating credit worthiness they will end up mis-allocating economic resources.
What I am asserting is that it is possible to have a banking system where a customer would get benefits 1 and 2 described above without taking a credit risk, if banks gave people a choice between a regular account and a special "100% reserve account."
These special accounts, which are not available to the public today, would have no credit risk. The money in such accounts would not be lendable. There would still be fraud risk, of course. A bank desperate for cash might be tempted to "dip" into the reserves allocated to their 100% reserve accounts. Of course we would make such "dipping" illegal. The 100% accounts would be the electronic equivalent of storing physical paper bills in a safe deposit box at the bank. The total reserves of a bank would be "safely electronically stored" at a central bank (much like reserves at the FED).
I know that Misesians and libertarians don't like central banks and are very suspicious of them. But I wanted to write this blog and start a discussion. It seems to me that electronic version of physical paper cash (i.e., digital cash) is the next natural step. Much like airline tickets are now mostly issued as e-tickets and not as negotiable paper tickets. By its nature "digital cash" would have to be stored on some central bank on a computer hard-disk (i.e, an electronic ledger) and it would also contain the owner's identifying information (i.e., the bank account number). Such "digitial cash" would NOT be debt money (as are bank deposits today) but would be "equity" money (like physical paper cash). Ofcourse we could go a step further and back-up the "digital cash" with gold reserves in the vault (but I am NOT proposing that we do this). I am trying to understand the Misesian and libertrarian distaste for a central bank. By the way I want a central bank as a safe repository of electronic money only and nothing more. I don't think a central bank should try to influence interest rates or lend money like the current FED.
Such accounts would have no credit risk (like physical paper cash) but would have the benefit of being used in electronic transactions and be accessible by personal checks. Of course, a 100% reserve account would not earn interest but would most likely have monthly maintenance fees associated to it (similar to a safe deposit box; it would also be very much like the reserve accounts that banks have with the Fed).
Such accounts, if widely used, would lessen the impact of bank failures on the economy in terms of a contraction of the money supply, chaos and confusion--but would not completely eliminate them.
Lending involves business risks (credit risks). If a customer were to choose a non-100% reserve account then he would be subject to losing his money. This would force the public to do some homework before handing money over to a bank (in essence, customers would need to consider banks' credit ratings, quality of management, etc.).
Of course, in this type of setup, a non-100% reserve account would probably have to pay a higher interest rate than the fractional reserve accounts do today. In fact if the public had a choice of 100% reserve accounts, there would be no need to impose legal reserve requirements on non-100% reserve accounts. There would be a clear separation between accounts that have a credit risk and accounts that don't. The accounts with credit risk would need to set their interest rates high enough to attract depositors.
If our banking system were set up this way, we would avoid huge systemic risks in the future, since a major part of the money supply would likely be sitting in non-lendable accounts. Many enterprises probably should not take any credit risk with their liquid capital (utility companies, municipalities, states, hospitals, etc.). In any insolvency or bankruptcy the 100% reserve accounts would receive priority, and unless the bank was fraudulently “using” these reserves the deposit owners of such accounts would never lose their money. If an electronic deposit account with no credit risk were available, then any individual or business choosing not to use such an account would be subject to losing their at-risk deposit. If such an alternative were available, then the depositor who chose the lendable money account would be warned that he or she could lose money if the bank became insolvent.
Once this choice is given to the public, the banks can then be allowed to fail without severely impacting the payment system which is needed to conduct day-to-day commerce. The only job of the FDIC would then be to insure smooth transfer of 100% reserve accounts to another bank.
I will go a step further and state that the availability of such accounts (non-lendable, 100% reserve accounts) should be mandated by Congress through force of law. Each business and individual should be able to choose whether they want to take a credit risk or not.
Highly recommend The King Canute Economy: Governments’ Futile Attempt to Stem the Tide to understand what is happening in our country and around the world. “In the legend of King Canute on the sea shore, it is popularly represented that King Canute was so arrogant that he actually sought to hold back the tides. However, King Canute was actually demonstrating that, for all his power, there were some forces which he could not overcome. As we contemplate the actions of governments around the world, it is possible to wonder whether they have ever heard King Canute’s story.”
Monty Pelerin at www.economicnoise.com
Here is a short essay I wrote for my American Government Class on Corporate Welfare. I hope to further explore and expand on the ideas presented in the future. I always appreciate suggested sources and helpful comments. Enjoy!
Corporations are firms or companies (private, publicly traded, for profit, and/or non-profit) that agree to be regulated by certain rules, corporate law, that regulates the relationships and interactions of corporate management, shareholders/owners, employees, creditors and the government. Companies agree to these rules because they provided limited liabilities to all actual persons who are a part of the corporation by creating an artificial “person hood” status for the corporation and limiting the liabilities to that entity. The government also uses its state power to protect, from competition through tariffs and regulation, and subsidize these entities. In return, the government is able to manipulate the economy through few points, they can regulate the significantly fewer large corporations easier than they could coordinate and regulate different stores on every corner, and they will be working with voluntary and cooperative participants who want the continued benefits of state power. Understanding “corporate welfare” is a bit more complex since no one wants to claim to support such measures but nearly all political parties and platforms do in some form or another. In fact, the entire concept of the “corporation” is a form of corporate welfare, or redistributing wealth or interfering in the market on behalf of companies or firms. Support for corporate welfare is never described as such but almost the entire political class does support it in its more overt forms or it's more subtle indirect forms. Libertarians, on the other hand, oppose all forms of corporate welfare when they are not being negligent or inconsistent with their principles.
The left supports several types of corporate welfare. The recent “Kelo” case involving eminent domain gave private lands to corporate interests and was decided by liberal judges. Also, many of the regulations that are supposedly done to restrict corporate actions are supported by the corporations themselves because it makes it more difficult for new competitors to enter the market. Roderick T. Long in an essay written for the Cato Institute, “Corporations versus the Market” wrote that , “the ability of colossal firms to exploit economies of scale is also limited in a free market...unless the state enables them to socialize these costs by immunizing them from competition- e.g., by imposing fees, licensure requirements, capitalisation requirements, and other regulatory burdens that disproportionately impact newer, poorer entrants as opposed to richer, more established firms.” (1)
The right also supports several types of corporate welfare, but they may be more dangerous since they shroud their policies in the cloak of the free market. For example, they advocate tax breaks for certain businesses or industries but “when a firm is exempted from taxes to which its competitors are subject, it becomes the beneficiary of state coercion directed against others, and to that extent owes its success to government intervention rather than market forces.” (1) The right's use of privatization is often of a similar nature. In free market terminology privatization would be the removal of government and its influence from an industry but the right often uses it to mean a transfer of monopoly status over an industry to some contracted firm or corporation. Thus the monopoly status is maintained and the governments involvement and influence is still present.
The right and left both justify the more overt types of corporate welfare that they end up supporting, such as TARP and the bailouts of the auto and financial industry, as necessary evils. However, necessary evil is a contradiction as if something is necessary than it must be good and not evil. Here we can apply one of Ayn Rand's famous quotes “Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong.” (2) In this case, either the bailouts were necessary and good, having a positive effect, while the principle that labeled them evil must be ill founded or the principle that makes such bailouts evil is correct and they were not in fact necessary. The contradiction should force us to check the two premises “necessary” and “evil” and see which one is wrong.
Libertarians, and the position I support, holds that all corporate welfare is wrong. The current “conflation” of corporatism and capitalism is especially dangerous since it rallies and multiplies the opponents of free markets who somehow see them tied to pro-corporate policies and also allows statist policies to be sold under the mantle of the free market. The current failures of “capitalism” and the “free market” are really only failures of the current system which is often labeled capitalism but is only one step away from socialism. In socialism, the state owns industry but in our current system, often labeled capitalism, the states of privatized profits and socialized costs in exchange for regulation and influencing willing participants and created corporatism which should not be confused with real capitalism or free markets.
1. http://www.cato-unbound.org/2008/11/10/roderick-long/corporations-versus-the-market-or-whip-conflation-now/
2. http://www.brainyquote.com/quotes/authors/a/ayn_rand.html/ The quote is also found in her novel, “Atlas Shrugged.”
Another good article I read while doing my research, but did not have room to include in my post was:
http://97.74.65.51/readArticle.aspx?ARTID=22594/ An article in FrontPageMag.com
Originally posted on http://damienmanier.com
Why is it that illicit black market
activities always seem so full of violence, even if violence itself
is not one of the goods or services provided in that market? Let us
take the example of drugs. Those drugs that are legal, such as
paracetamol, antihistamines, etc., can be bought either over the
counter, or with a simple prescription. At no point in the
transaction between my chemist and myself does violence occur. Nor is
there any violence involved in the manufacture or supply of
pharmaceuticals. Is it then the nature of illegal drugs that makes
business surrounding them violent, or is it their status as illegal?
This question can be answered using
simple economic theory. When a State decrees an economic good
illegal, it does not suddenly stop being traded and consumed. Why is
that? In explaining the nature of a good, Carl Menger outlines four
requirements that must be fulfilled for a thing to have
goods-character: a human need; properties that enable the thing in
question to satisfy such a need; knowledge of this causal connection;
and sufficient command over the thing to direct it towards the
satisfaction of said need. You will notice that no where does the
factor of legality come into play.
The legal status of a good does however
send signals to market actors about the risk involved. Most people
will automatically cease consumption and trade of a good deemed
illegal. These can be broken down into roughly three categories.
Those that are risk aversive personality types; those who have a low
time preference; and those with a highly developed link between state laws
and their perception of morality.
Thus we are left with people who do not
fear the State's power, people who are willing to take risks, people who, perhaps, are confident in their ability to violently resist the
State's own violence. In this set of people, very few will enter
black markets just for thrill-seeking purposes. Most will enter
because of greed and the possibility of high profits that comes from
restriction of supply in the market. It would seem that from the very
beginning, a very restricted and specific set of people will
participate in black markets.
Moreover, black markets fail to have
many of the characteristics common to white markets. The State's
monopoly on justice and simultaneous prohibition of certain goods,
makes arbitration through State courts for inside disputes
impossible. Thus a demand for the arbitrating function of many crime
organisations arise, which, because of the violence-prone set of
people that participate in it, will itself display a harsh and
violent form of dispute resolution.
The need to stay secretive about their
operations will also create incentives for criminal organisations to
take on a form which is perhaps in some ways economically
inefficient, sacrificing productivity for security. “Blood is bad
for business”, the saying goes; but at the same time these black
market “firms” become resilient, which is why when one cut's off
the hydras' head, another immediately grows in its place. This is to
be the perennial outcome if countless billions of taxpayers' money
continues to be spent hacking away at the branches, and not the
roots, of this artificial evil.
The biggest irony of them all is that
the harder the government tries to eradicate black markets, the more
it will fuel them. With every new restriction and regulation the
government puts up; and with every greater effort it takes to enforce
its regulations, the government raises the risk, and hence the profit
associated with participation in a black market. To further
complicate this problem, as profits in black markets soar, greater
incentives arise for the corruption of the police itself. The results
of such “noble” experiments could have been painlessly predicted
using simple economics, and stupid policies would not have had the
chance to create breeding grounds for organised crime for decades to
come. One could perhaps excuse regulators' failure to use aprioristic
reasoning in this respect, but the failure to see the empirical
connection between drug regulations as a rehash of the prohibition
era alcohol restrictions is indeed grave.
Ignoring the moral aspect of this
argument, which concerns whether people have the right to do what
they will to their own bodies; has anybody in the
government done a proper cost-benefit analysis of breeding black
markets in society? Proponents of prohibition argue that if, for example, drug markets were legalized, everybody would become a drug addict. But besides lack of any empirical proof of this whatsoever, what of the consequences of blacklisting these products in
the first place?
H. L. Mencken was an American original. Gibbons Burke described him thusly:
“The most prominent newspaperman, book reviewer, and political
commentator of his day, Henry Louis Mencken was a libertarian before
the word came into usage. His prose is as clear as an azure sky, and
his rhetoric as deadly as a rifle shot. Frequent targets of his lance
were Franklin Roosevelt and New Deal politics, Comstocks,
hygenists, “uplifters”, social reformers of any stripe, boobs &
quacks, and the insatiable American appetite for nonsense and gaudy
sham. But his life was not defined by negativity. He was positively
enthusiastic about to the writings of Twain and Conrad, the music of
Brahms, Beethoven and Bach, and the victuals offered up by Chesapeake Bay.”
Mencken was amongst the most quotable individuals to grace this planet. A sampling of how he viewed government is offered below.
If a politician found he had cannibals among his constituents, he would promise them missionaries for dinner.
Every election is a sort of advance auction sale of stolen goods.
A good politician is quite as unthinkable as an honest burglar.
The whole aim of practical politics is to keep the populace alarmed
(and hence clamorous to be led to safety) by menacing it with an
endless series of hobgoblins, all of them imaginary.
The worst government is often the most moral. One composed of cynics
is often very tolerant and humane. But when fanatics are on top there
is no limit to oppression.
Every decent man is ashamed of the government he lives under.
Democracy is the art and science of running the circus from the monkey cage.
I believe that all government is evil, and that trying to improve it is largely a waste of time.
No one in this world has ever lost money by underestimating the
intelligence of the great masses of the plain people. Nor has anyone
ever lost public office thereby.
The most dangerous man to any government is the man who is able to
think things out… without regard to the prevailing superstitions and
taboos. Almost inevitably he comes to the conclusion that the
government he lives under is dishonest, insane, intolerable.
The urge to save humanity is almost always a false front for the urge to rule.
To learn more about H. L. Mencken, I recommend the Gibbons Burke piece which is filled with many references and Murray Rothbard’s piece dealing with Mencken’s libertarianism.
Monty Pelerin's Site
Por Robert P. Murphy. (Publicado el 19 de noviembre de 2009)
Traducido del inglés. El artículo original se encuentra
aquí: http://mises.org/daily/3835.
Los economistas tenemos un reputación de ser secos y
aburridos. Por eso la escena
de Ben Stein en Ferris Bueller's Day Off funciona tan bien y por eso
este hombre es toda una novedad.
Dada nuestra lúgubre reputación, me alegra informar que las recientes defensas
de algunos economistas de la hipótesis de los mercados eficientes son para
echarse a reír. Fuera del Circo del Sol no podemos ver contorsiones como las de
estos economistas intentando defender su teoría ante su refutación o
trivialización.
Krugman lanza el ataque
La hipótesis de los mercados eficientes (EMH, por sus siglas
en inglés) aparece de muchas formas de distinta fuerza. Igual que con la
evolución, es difícil debatir el asunto porque la gente puede cambiar la
definición en medio de la discusión. En la evolución, ni siquiera un
evangelista de la televisión negaría que “los organismos evolucionan con el
tiempo”, mientras que por otro lado muchos biólogos reconocerían que Richard
Dawkins llega demasiado lejos cuando piensa que la teoría de la evolución
prueba por sí misma la no
existencia de Dios.
Lo mismo pasa en lo que refiere a la EMH. En su forma más
débil, simplemente significa que la información nueva tiende a incorporarse
rápidamente en los mercados de valores, significando que no puede haber ninguna
oportunidad evidente de arbitraje (pues alguien ya la habría explotado). Sin
embargo, los defensores más fanáticos de la EMH llegan casi a decir que las
burbujas financieras son literalmente imposibles.
La EMH se asocia a la Escuela económica de Chicago.
Comprensiblemente ha sido condenada después de la crisis financiera, especialmente
desde que los estatistas han hecho un gran trabajo echando la culpa a los
“mercados libres desregulados”. Krugman resume la opinión anti-EMH bastante
bien en
este popular artículo en la revista del New York Times. En respuesta
a Krugman y otros críticos neoclásicos, los defensores de la corriente
principal han abandonado su torre de marfil para repeler a los invasores.
Aunque los lectores austriacos simpaticen naturalmente con quien se pelee con
Paul Krugman, deberíamos tener cuidado al elegir nuestros aliados. En otro
lugar he
apuntado los importantes fallos (desde una perspectiva austriaca) en la
respuesta de John Cochrane a Krugman. En el resto de este artículo señalaré
algunas de las defensas más tontas ofrecidas por otros neoclásicos defensores
de la EMH.
Robert Lucas
En un largo y muy serio artículo, el premio Nobel Robert
Lucas defiende la corriente principal (y la EMH en particular) de las
oprobiosas acusaciones:
“Los macroeconomistas en
particular fueron caricaturizados como una generación perdida educada en el uso
de modelos matemáticos sin valor e incluso dañinos, una educación que les hacía
incapaces de proponer una política económica sensata. Pienso que esta
caricatura no tiene sentido y no tiene valñor al pensar acerca de las grandes
cuestiones: ¿Qué puede esperar razonablemente el público de especialistas en
estas áreas? y ¿les han servido bien en la crisis actual?”
“Una cosa que no vamos a tener,
ni ahora ni nunca, es una serie de modelos que predigan caídas repentinas en el
valor de los activos financieros, como las que siguieron a la quiebra de Lehman
Brothers en septiembre. No es nada nuevo. Se sabe desde hace más de 40 años y
es una de las principales implicaciones de la “hipótesis de los mercados
eficientes” (EMH) de Eugene Fama, que afirma que el precio de un activo
financiero refleja toda la información relevante y disponible para todos. Si un
economista tuviera un fórmula que pudiera predecir con seguridad las crisis,
por ejemplo, una semana antes, esa fórmula sería parte de la información
disponible para todos y los precios caerían una semana antes”.
Los argumentos de Lucas son los típicos de este debate.
Aporta una atractiva mezcla de afirmaciones y non sequitur para su
defensa. Primero, la propia EMH está bajo disputa, así que difícilmente
ayuda citar la EMH y sus implicaciones. (Es como si un cristiano citara la
Biblia a un ateo para probar la autoridad de la Escritura).
Ahora, ¿en qué sentido “se sabe desde hace más de 40 años”
que es imposible predecir caídas repentinas en valores de los activos? ¿No nos
advirtieron Mark Thornton y otros que
la burbuja inmobiliaria era demasiado buena para ser cierta varios años antes
de la crisis? ¿Qué mas podría hacer un austriaco cínico para refutar la EMH que
predecir que “el mercado” estaba completamente equivocado en lo que se refería
a precios de la vivienda, primas de riesgo, etc.? Los inversores que siguieron
las advertencias de Thornton y otros salieron de los mercados de valores, no
compraron casas para especular en 2005 y se las arreglaron para batir a otra
gente que se vio atrapada en la euforia del boom. Si eso no es “batir al
mercado”, ¿qué es?
Advirtamos que hay un defecto en el argumento de Lucas. Está
diciendo que si un economista pudiera predecir con seguridad una crisis en una
semana, todos los sabrían ahora y la crisis se produciría
inmediatamente. Aquí hay dos problemas. Primero, un economista puede prever con
precisión una crisis, pero de ello no se sigue que todos los demás sigan
automáticamente su ejemplo. En el mundo real, algunos economistas son alcistas
y otros bajistas en el mismo momento. Si no, ¿cómo se supone que se movería el
mercado?
El fan de la EMH probablemente diría: “¡Ajá! Eso prueba justamente
que la EMH tiene razón. No tenemos ninguna razón para sospechar que el mercado
subirá o bajará, porque el precio actual refleja todas las teorías e
informaciones disponibles”. Aun así, el mercado irá hacia arriba o
abajo, demostrando que al menos un pronosticador estaba equivocado. (Podría ser
que el otro simplemente haya tenido suerte, por lo que no podemos decir con
seguridad que su predicción fuera realmente correcta en general).
El segundo gran fallo en la pequeña y sencilla explicación
de Lucas es que asume que la fórmula para una crisis inminente debe ser muy
específica en el tiempo. ¿Pero qué pasa si alguien como Mark Thornton dice
“Esta situación es insostenible. Los precios de la vivienda no pueden seguir
aumentando a este ritmo”? Sigue siendo un predicción correcta. Es sin duda útil
para los inversores, especialmente si el pronosticador da un periodo amplio, dentro
del cual se producirá el cambio.
En esta situación en la que algunos pronosticadores hacen
predicciones cualitativas, la sencilla argumentación de Lucas se desbarata.
Estamos de vuelta en el mundo convencional, donde distintos pronosticadores
confían en diferentes teorías para hacer distintas recomendaciones. Los
inversores que escuchen las malas pierden dinero, mientras que los que sigan
las teorías más exactas lo ganan. Podemos “batir al mercado” si invertimos
basándonos en predicciones más apropiadas. ¿Es realmente tan raro ese concepto?
Lucas continúa su argumentación de que la EMH no es una mera
tautología, que las pruebas empíricas la apoyan:
“El Sr. Fama llegó a la EMH
mediante algunos ejemplos teóricos sencillos. Esta simplicidad fue criticada en
una reseña de The Economist, como si la EMH sólo se aplicara a esos
casos hipotéticos. Pero el Sr. Fama probó las predicciones de la EMH sobre el
comportamiento de los precios reales. Estas pruebas podrían haber resultado de
cualquier forma, pero resultaron muy favorablemente. Su trabajo empírico se
ejecutó desde el principio y cuidadosamente. Fue minuciosamente contestado por
un aluvión de críticas que sirvieron principalmente para confirmar la exactitud
de la hipótesis. A lo largo de años se han descubierto excepciones y
‘anomalías’ (incluso las desviaciones mínimas son interesantes si gestionamos
bastante dinero), pero a los efectos del análisis y la predicción
macroeconómica estas desviaciones son demasiado pequeñas como para tener
importancia” (énfasis añadido).
Espere un momento. Lucas acaba de debilitar
considerablemente su defensa. Antes dijo que batir al mercado era algo imposible,
más aún, una imposibilidad que se ha sabido durante 40 años. Aún así en su
explicación de las pruebas falsables, admite que hay desviaciones de la teoría.
Así que ahora tenemos al propio Lucas admitiendo que la EMH no funciona en
particulares microscópicos. Sigo manteniendo que falló espectacularmente en la
reciente burbuja inmobiliaria, así como en la anterior de las punto.com (de la
que avisaron muchos austriacos antes de que estallara). ¿Qué haría que Lucas
admitiera que la EMH no es verdadera?
Antes de continuar, citemos una perla más de Lucas:
“La reseña de The Economist
también citaba como ejemplo de del fracaso macroeconómico las simulaciones
“tranquilizadoras” que Frederic Mishkin, entonces gobernador de la Reserva
Federal, presentó en el verano de 2007. La acusación es que el modelo de
preedición FRB/US de la Fed no predijo los acontecimientos de septiembre de
2008. Aún así, las simulaciones no se presentaron para tranquilizar como si
no fuera a producirse una crisis, sino como un pronóstico de lo que podría
esperarse condicionado a que no se produjera una crisis. Hasta la quiebra
de Lehman Brothers la recesión era bastante típica de los modestos descensos
del periodo de posguerra. Había una recesión en marcha, precedida por la bajada
en la construcción de viviendas. El pronóstico del Sr. Mishkin era una
estimación razonable de lo que habría ocurrido si hubiera continuado el
declinar de la vivienda y fuera el único factor del decrecimiento económico.
También después de la quiebra de Lehman modelos muy similares al que usó el Sr.
Mishkin, combinados con nuevas información, produjeron lo que resultaron ser
estimaciones bastante precisas de las reducciones en el gasto privado que se
produjeron en los siguientes dos trimestres. Cuando Ben Bernanke, presidente
de la Fed, advirtió a Hank Paulson, entonces Secretario del Tesoro, acerca del
peligro que afrontaba Estados Unidos después de la quiebra de Lehman, sabía de
lo que estaba hablando.”
“El Sr. Mishkin reconoció la
posibilidad de una crisis financiera en 2007, por supuesto. También lo hizo el
Sr. Bernanke. Pero recomendar políticas monetarias preventivas a la escala de
las que se aplicaron posteriormente hubiera sido como girar repentinamente
fuera de la carretera por la posibilidad de que alguien virara bruscamente
hacia nuestro carril. Las única cosa realista y la mejor que puede hacerse en
este contexto es mantener los ojos abiertos y esperar lo mejor” (énfasis
añadido).
Dejemos aparte la divertida defensa de Mishkin y Bernanke por
parte de Lucas, que dice que son muy buenos prediciendo condiciones económicas,
excepto esos molestos desastres financieros. Más allá de esto, Lucas
simplemente está tratando de ocultar las cosas en el pasaje anterior: Casi
seguro que Ben Bernanke no expresó que tuviera ninguna noción de lo que
esperaba a la economía de EEUU. Véase esta increíble recopilación
de los constantes errores de Bernanke desde 2005 a 2007, donde en todas las
etapas fallaba en ver la tormenta que se avecinaba o predecía que el
problema acabaría pronto.
Vuelvo a preguntar al Sr. Lucas. ¿Qué tendría, en su
opinión, que haber dicho Bernanke para ser culpable de lo que le acusan
sus críticos? ¿Tendríamos que tener una grabación de Bernanke diciendo. “Estoy
seguro al 100% de que no habrá ninguna crisis financiera”? Parece que Lucas ha
puesto el listón realmente bajo para nuestro presidente de la Fed.
David K. Levine
En una carta
abierta a Paul Krugman, David Living utiliza la física como analogía para
defender a sus colegas de macroeconomía:
“El fracaso predictivo no es un
problema de la materia: es un problema de quienes están bajo la impresión de que
deberíamos ser capaces de predecir las crisis. ¿Se encuentra usted en este
grupo? ¿Se equivocan los físicos porque su teoría dice que no pueden predecir
dónde aterrizará un fotón lanzado a través de una hendidura suficientemente
estrecha? Los modelos económicos son como modelos de fotones a través de
hendiduras. Igual que esos modelos sólo predicen la distribución estadística de
los fotones, nuestros modelos sólo predicen la posibilidad de bajadas. Decir
que “la mayoría de los economistas fracasó en predecir la crisis” es
exactamente como decir que la mayoría de los físicos fracasó al predecir el
impacto del duodécimo protón que atravesó la hendidura”.
Quien esté familiarizado con la increíble precisión (y
confirmación experimental) de las predicciones de la física cuántica debería
advertir lo absurdo de la analogía de Levine. Es algo así como comparar una
prueba euclidea con un la exposición final de un abogado en un juicio criminal.
Una analogía más apropiada para Levine sería un grupo de físicos de partículas
invitándote a mirar su supercolisionador y después llamarte la semana que viene
para decirte que te han expuesto accidentalmente a una dosis letal de
rediación.
Jeremy Siegel
En un reciente
editorial del WSJ, Jeremy Siegel defiende el honor de la EMH. Como
cualquier fanático, se las arregla para transformar el vicio en virtud:
“La EMH, expuesta originalmente
por Eugene Fama en la Universidad de Chicago en los años 1960, afirma que los
precios de los valores reflejan toda la información conocida que afecte a su
valor. La hipótesis no afirma que el rpecio de mercado sea siempre correcto.
Por el contrario, implica que los precios en el mercado son mayoritariamente
erróneos, pero que en un momento concreto no es fácil decir si son muy altos o
muy bajos. El hecho de que los mejores y más brillantes de Wall Street hayan
cometido tantos errores demuestra lo difícil que es batir al mercado”
(énfasis añadido).
Hay que felicitar a Siegel por su golpe magistral. Durante
la burbuja, cuando los banqueros de inversiones ganaban bonus de varios
millones de dólares, el defensor de la EMH habría dicho: “Es una locura que un
inversor medio intente batir al mercado. Algunas de las mentes más brillantes
del mundo tienen enormes computadoras y un ejército de matemáticos a su
servicio, exprimiendo cualquier volumen de mal precio en el mercado. No intente
competir con esos expertos. Mejor ponga su dinero en un fondo indexado”.
Aún así, después de que muchos austriacos (y otros de
distintas escuelas de pensamiento) predijeron que el mercado explotaría y que
los inversores deberían tener efectivo, Siegel apunta a los monumentalmente
incompetentes banqueros de inversiones como prueba de la inteligencia del
“mercado”.
William Easterley
He dejado mi favorito para el final. Es conocido que la
Reina de Inglaterra se preguntó por qué ninguno de los economistas había visto
que venía la crisis. Aquí está lo que dijo
William Easterly como réplica:
“Los economistas hicieron algo
incluso mejor que predecir la crisis. Predijimos correctamente que no seríamos
capaces de predecirla. La parte más importante de la muy calumniada hipótesis
de los mercados eficientes (EMH) es que nadie puede batir al mercado de valores
sistemáticamente. Lo que implica que nadie puede predecir una crisis de los
mercados, porque si pudiera, obviamente batiría al mercado”.
¡Vamos, es divertidísimo!
Conclusión
La hipótesis de los mercados eficientes se expresa de formas
distintas. De hecho hay mucha literatura empírica, en la que Fama y otros
realizan pruebas falsables. Sin embargo, como espero haber demostrado con las
citas anteriores, en la práctica la hipótesis de los mercados eficientes es
realmente una tautología o una forma de ver el mundo.
No hay nada erróneo en usar marcos mentales a priori para
analizar la realidad económica: de hecho ésa es una de las características
definitorias de la praxeología de Mises.
Sin embargo, como demuestran las citas, muchos de los defensores de la EMH
piensan que están confirmando de forma independiente la EMH, cuando en realidad
sus lentes sencillamente fuerzan todas las evidencias de conformidad con sus
presupuestos.
---------------------------------------
Robert
Murphy, investigador adjunto del Mises Institute y miembro de la facultad de la
Universidad Mises, gestiona el blog Free Advice y es autor de The
Politically Incorrect Guide to Capitalism, Study
Guide to Man, Economy, and State with Power and Market, Human Action
Study Guide y The
Politically Incorrect Guide to the Great Depression and the New Deal.
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