Self-Refuting Economic Conservatism

Money is debt, an IOU. Money is created primarily in two ways (1) government creates it by spending it into existence or (2) banks create it through the credit market by lending it into existence. Government and the central bank have four main monetary policy tools for regulating the supply of money: (1) government spending [expand money supply], (2) taxation [contract money supply], (3) adjust CRR, affecting how much money is lent into existence by changing how much banks are allowed to lend, (4) adjust interest rates, affecting how much money is lent into existence by creating an incentive/disincentive to taking out loans.

Money ought to be a stable medium of exchange and a store of value. It ought not to fluctuate in value very much. The value of a dollar is 1 out of the total money supply, where the total money supply equals the total monetized wealth of the nation (usually measured in GDP). If the money supply stays the same, the value of the dollar will fluctuate with any change in GDP. If the economy is growing and the money supply does not expand, you will have deflation. Money will become more scarce, people won’t be able to buy up all the products on the market, and you’ll end up with a recession. If the economy shrinks and GDP decreases, while money supply remains constant, inflation will occur and the dollar will lose some of its value. If GDP grows and the monetary authorities increase the money supply exactly in proportion to the expansion, then the increase in supply will merely keep the value exactly the same. If GDP goes down, then the monetary authorities would need to contract the money supply to keep the dollar’s value at the same level. They can do this by raising interest rates, raising the required CRR, by increasing taxes, or through any combination of the three.

Towards A Comprehensive Business Cycle Theory

This post is by no means going to be comprehensive. I am certainly not up to the task of developing a comprehensive theory of the business cycle. That task must be left up to someone else. I just want to point out some of what is right about various theories of the business cycle and how many existing business cycle theories are actually complementary. Recessions do not have a single cause. There are many different factors at play. Various thinkers have focused on various aspects of booms and busts but no one has really zoomed out and taken an aerial photo of the whole thing. I believe that we need to integrate the insights of various economic theorists into one single comprehensive business cycle theory.

Here is a brief outline of some of what I think various economists have gotten right:

Nuclear Energy and the Green New Deal

As many of you know, the Green New Deal (which I fervently support and never shut up about, even though we're still not sure exactly what it is) has come under fire for allegedly excluding nuclear energy. The original proposal for a GND committee did exclude nuclear by specifying 100% renewable energy, but the current GND resolution says 100% clean, renewable, and net emissions neutral energy, which does allow for nuclear (and CCS, which we'll talk about in a bit). However, Ocasio-Cortez herself opposes nuclear energy, and has come under a lot of fire as a result.

To understand why, we need to understand how the electrical system works. You can think of the electrical system as being made up of two curves: the supply curve and the demand curve. (These are different from the supply and demand curves in microeconomics.) These curves show the amount of energy produced and consumed at each moment of the day. Our demand for electricity is low during the night, rises during the morning, falls some during the afternoon, rises sharply in the evening as people get home from work, and then falls off during the night.

The Changing Face of Liberalism

With the 20th century, a new liberalism was becoming prominent. Classical liberals had held that the proper role of government is to protect individual liberty, but they did not support any particular form of government. The new liberals of the 20th century agreed with the classical liberals on the raison d'être or purpose of government, but they also added to this the notion that representative democracy was the form of governance most suited to achieving this goal. Classical liberalism had only stated that maximizing liberty ought to be the purpose of civil society, whereas this new liberalism went further and asserted that democracy is the form of government most suited to pursuing that purpose. The new liberalism promoted liberal democracy as the proper form and function of government. Its proponents believed that democracy and the market economy belong together. They advocated liberalism AND democracy; that's what distinguishes modern liberalisms from classical liberalism.

Social Democracy & Liberal Democracy

We are starting to see social democrats grow in popularity. Individuals like Bernie Sanders, Beto O’Rourke, Alexandria Ocasio-Cortez, and Ilhan Omar have become extremely popular. For the most part, their views and policies align with those of many of America’s Founding Fathers, insofar as they advocate progressive taxation and government taking a role in social welfare. While they admire Nordic Model social democracy, they especially look to Franklin Delano Roosevelt’s New Deal as an example of what social democracy ought to look like in America, which means that they depart from European social democrats on things like corporate income taxes (American social democrats usually support high corporate income taxes, whereas European social democrats tend to oppose corporate income tax altogether).

Some of these individuals—Sanders and Ocasio-Cortez in particular—have described themselves as “socialists.” Ignorant conservatives have used this label as grounds for mocking and deriding them. In reality, these new social democrats are just classical republicans, in the tradition of the American Founding Fathers. Previously, I wrote a couple essays about the political and economic ideas of Thomas Jefferson and Thomas Paine. In those essays, I discussed how Jefferson was a critic of wage slavery and wealth inequality, how both Jefferson and Paine opposed what we call "capitalism" today, and how they both advocated progressive taxation as a means of ensuring a more egalitarian distribution of wealth. I also talked about how the Founding Fathers supported a robust welfare state. Even John Adams, the most conservative of the Founding Fathers, supported an early plan for single-payer socialized medicine. The bottom line is that the precedent for everything that these new social democrats are advocating comes more from the American Founding Fathers than from Karl Marx.

In the End, the Machines Will Win

It is easy to promote the idea of an "Internet of Things" with artificial intelligence as a great business opportunity. But we need to look seriously at the problems that can arise. The Internet of Things will be heavily funded by the military. The objective of this IoT will be to kill humans.

Yes, there are serious industrial accidents, such as when Amazon's robot set off bear repellant that put workers in hospital. Which is bad, but of course we believe that we can improve the programming and control to remove such errors.

But what if the robot is deliberately designed to kill? Such as drones with assault rifles or machine pistols attached? Well, as long as they remain under human control, right?

But increasing this network, this "Internet of Things", will have their own expert systems, their own artificial intelligence, incorporated into the "thing", or, in this case the weapon. Such as in South Korea where they are building an AI expert systems into robots. Killer AI robots.

Thomas Paine's Political & Economic Vision

Thomas Jefferson and Thomas Paine, in my estimation, are the most interesting of the American Founding Fathers. In a previous post, I discussed Thomas Jefferson's Political and Economic Vision. Now I want to discuss Thomas Paine's political and economic vision.

The Form of Government

Thomas Paine, like Jefferson, was a republican. This means that he regarded the purpose of government as securing the public good by maximizing individual liberty. In my post on The Genealogy of Liberty, I explained that the republican tradition―in contrast to the liberal tradition―defined liberty as the absence of domination. The goal of government, as far as republicans were concerned, is to minimize the domination of man over man. You may notice a striking similarity here to Noam Chomsky's definition of anarchism. I have previously noted that the most popular strain of classical anarchism is actually republican in nature. Anarchism, however, entails the firm conviction that the abolition of centralized government is necessary for maximizing human liberty, whereas a republican may or may not agree with that conviction.

"What is called a republic, is not any particular form of government. It is wholly characteristical of the purport, matter, or object for which government ought to be instituted, and on which it is to be employed, RES-PUBLICA, the public affairs, or the public good.... It is a word of a good original, referring to what ought to be the character and business of government; and in this sense it is naturally opposed to the word monarchy, which has a base original signification. It means arbitrary power in an individual person; in the exercise of which, himself, and not the res-publica is the object.
"Every government that does not act on the principle of a Republic, or in other words, that does not make the res-publica its whole and sole object, is not a good government. Republican government is no other than government established and conducted for the interest of the public, as well individually as collectively. It is not necessarily connected with any particular form, but it most naturally associates with the representative form, as being best calculated to secure the end for which a nation is at the expense of supporting it."―Thomas Paine, Rights of Man, Part 2, Chapter 3 [in Paine: Collected Writings, Common Sense, The Crisis, Rights of Man, The Age of Reason, Pamphlets, Articles, & Letters]

Wildfires and Mutual Aid

Keeping track of every moment of breaking news is a fool’s game. Even if one could somehow notice every highlight-event, we could never contextualize them all. The last few years - to say nothing of the last few decades - have contained so many new lows, so many record-breaking shames, that things like natural disasters are just shrugged at. We don’t know what to make of them anymore.

Oh, I guess Puerto Rico had a hurricane.

We don’t even act like it’s true. We just assume that the system will take care of itself, that 'this is what we pay taxes for.' We certainly don't think about our safety or what it will mean for the future that some new atrocity has taken place. We don’t change our habits, and within a few days, or even hours, it’s old news.

Oh, I guess there was another mass shooting today.

Still, it’s a testament to the force of American High Weirdness that an entire town of almost thirty-thousand people has been entirely erased from the map, in the richest state in the richest country in the world, and Americans just roll right on.

Oh, I guess Paradise burned down.

Thomas Jefferson's Political and Economic Vision

Thomas Jefferson’s Ward Republic Model

Thomas Jefferson did not see the American system as the best possible system. In his original draft of The Declaration of Independence, Jefferson had blamed the British monarch for allowing the institution of slavery to exist:

“[The present king of Great Britain] has waged cruel war against human nature itself, violating its most sacred rights of life and liberty in the persons of a distant people who never offended him, captivating & carrying them into slavery in another hemisphere…”—Thomas Jefferson, The Declaration of Independence [in Jefferson: Autobiography, Notes on the State of Virginia, Public and Private Papers, Addresses, Letters

While Jefferson was no abolitionist saint—owning slaves himself and having many other failings—he did recognize the injustice of the institution of slavery and desired its abolition. The failure to abolish slavery was one of America's biggest faults.

The American system, enshrined in the current Constitution, was a mess of compromises with the institution of slavery. In order to get the pro-slavery lot on board with the Constitution, the Founding Fathers had to make a series of compromises, giving us the Electoral College, the Senate, the three-fifths clause, and the Executive Branch—all extremely anti-democratic and anti-republican measures. These compromises were mostly made to ensure that the institution of slavery could not be democratically abolished. We ended up not with a true republic, as Thomas Paine and Thomas Jefferson had hoped for, but rather with a mixed-government as envisioned by John Adams. The original constitution, The Articles of Confederation, was a much better one, but it had to be scrapped in order to compromise with fascists and racists because the Founding Fathers knew that the colonies could not successfully stand up to Britain unless they were all united in their opposition to the crown.

Libertarian Social Democracy & Geo-Distributism

What if neoliberalism and socialism are both flawed ideologies? The neoliberal critique of marxism is pretty solid. Hayek and Mises did a good job of demonstrating that central planning is problematic, yet Marx's critique of capitalism is irrefutable. In the debates between capitalism and socialism—between neoliberalism and marxism—both sides have succeeded in demonstrating that the position of their opponents is problematic and that the system their opponents advocate is highly undesirable. What this dialectic demonstrates is that these two systems—capitalism and socialism—are both undesirable.

Third Ways: Beyond Capitalism & Socialism

This suggests that perhaps there is some "third way" alternative between capitalism and socialism. Perhaps neoliberalism and socialism aren't the only options available. In fact, there are other alternatives outside of this false capitalism/socialism (or neoliberalism/marxism) dichotomy. There are, of course, several "third way" approaches, like distributism, georgism, social democracy, and the "small is beautiful" movement. These “third way" approaches are all distinct from one another, but they aren't necessarily mutually exclusive. It is possible to be both a distributist and a georgist. It is also possible to be a distributist and/or georgist and a social democrat.


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