Monday, February 11, 2013

An Obituary to Critical Thinking

[This article originally appeared on the blog on February 7, 2013]

I miss my friend Jacob, God bless his soul. Don’t worry, he’s not dead—though he might as well be. He is, what my brother would classify as “POW: Prisoner of Woman.” Jacob’s present state prevents him from engaging in the sort of activities that we used to take up before his captivity. And we’d do the sort of things that any twentysomething bachelors would do: we’d dig trenches, go skiing, listen to music, lift weights, make wine, hike, chase girls, drink beer, barbeque pizza, and so on. Just before Jacob got captured we were in the midst of developing an exercise system which utilized used pallets. It was to be a Tony Little sort of enterprise. It was to be called “SkidFit.”

When Jacob was free, so was his mind. And while outwardly engaging in the abovementioned activities, Jacob and I would stretch each other’s minds on all sorts of topics. I would bring something up, and Jake would find the cracks in the idea, which I would have to fill with a chain of logical reasoning; and the other way around. He was, and still is a very methodical thinker. There isn’t much that one can put past him. He’ll take his time and think things through—which annoys the living you-know-what out of people. Before Jacob became a Prisoner of Woman, he was becoming a tried and true Austro-libertarian. Before he started becoming an Austro-libertarian, Jake was a left-anarchist and a NDP supporter. Not because he was a commie, but because he finds the same faults with the corporativist system than any other student of the Austrian School of Economics does. He simply never got exposed to “Austrian” insights before I introduced them to him. Now, I didn’t turn Jacob into an “Austrian.” Chris Holacher did that with his talk on money creation and monetary policy at the April Toronto Mises Meet Up.

The topic of property rights would often come up in our conversations. Invariably we’d always conclude that property rights in Canada are treated rather schizophrenically. Say you own a piece of land. The government says that it is yours, therefore, you should pay annual tribute to the government. Say you wanted to build a house on this piece of land, the government says that you have to get permission from it to do it. Say you had a building on a piece of land you owned; the government says you can use it only in ways that it deems appropriate. Say your water-main broke. Even though it’s on your property, you can’t touch it on the grounds that the City owns the water supply and distribution system. The City has to send one of its employees to turn a screw and shut the water off. On the other hand, the city will not repair the part of the system it claims that is on your property. Once the water pipe has been repaired by the property owner, the City will not turn the screw back on, until it conducts an inspection on the work done on your property, and finds the work satisfactory. Jake and I would conclude that most of the masquerade is nothing more than an effort on the City’s behalf to provide employment in the spirit of the National Recovery Administration.

Anyway, I recall an occasion when, concluding a night of stimulating the local economy through beer destruction, Jake and I ended up at a pizza joint on the outskirts of St. Catharines’ downtown core. Despite claims to the contrary, I still maintain that Strombolli’s Pizza ranks in the top two pizza places in St. Catharines. Regardless, walking into Strombolli’s that fateful night the conversation had turned to necessitate my use of that all too common phrase:

“It’s not like the guy invented the wheel!”

“Who ever did?” said Jacob. And that’s when the proverbial light bulb went off in my head.

“You’re absolutely right, Moneybags! Nobody invented the wheel.” Too bad that most people aren’t as keen observers as is my friend Jacob.

You see, the “invention” of the wheel has been celebrated by men as one of the most significant events in the history of the human civilization. But, as I made the case here, that’s just baloney! The wheel by itself is useless: it’s the axle that makes it useful. I claim this to be my greatest contribution to human thought. It is my “Broken Window Fallacy.” Except, in the “Broken Window Fallacy” Bastiat talks about that which is not seen, as the point missed by people; in my “Wheel Fallacy” I point out that people miss that which stares them in the eye! Take for instance money printing and price inflation.

Over the past couple of years Argentina had become a poster child for government intervention and monetary inflation. Argentina has been a favorite of interventionist leaning “economists” like Keynesians and MMTers as a success story of monetary inflation gone amok. Time and time again these pundits pointed out to this South American country as an example where government can heavily interfere with the market, and print money to no end without any negative repercussions. Well, as it turns out the natural laws of economics could not be broken, despite all the well wishing done by Keynesians and their ideological brethren. The news that came as no surprise to “Austrian” observers is that the Argentinean government has moved toward price freezes to in order to “halt” inflation. AP reports:
Argentina announced a two-month price freeze on supermarket products Monday in an effort to break spiraling inflation.

The price freeze applies to every product in all of the nation’s largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies’ trade group, representing 70 percent of the Argentine market, reached the accord with Commerce Secretary Guillermo Moreno, the government’s news agency Telam reported.

The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.
This is as clear cut an admission of economic policy failure as a revaluation of the currency used to be under the gold standard. Redmond Weissenberger posted a detailed analysis of the Argentinean situation here, and there has been excellent coverage of the issue on Economic Policy Journal and other “Austrian” websites, so I will refrain from repeating too much of what has already been said by commentators more competent than myself. I simply want to point out the obvious here, the proverbial axle that makes the wheel useful, as it were, which is this graph:

According to this US Federal Reserve Economic Data graph, the Argentinean authorities increased the money supply to the tune of 30 times, give or take a little, over the past decade. Here is the reason for Argentina’s raging price inflation (it must be raging, otherwise price controls would not be necessary), yet, it is the reason no mainstream economic pundit is willing to point to as the culprit of its troubles. Here’s a graph of US monetary base for the last one hundred years or so:

Notice the take off in 2010, and the near tripling of the money supply there. Paul Krugman says again that there is nothing to worry about concerning monetary and price inflation in the US. Data on Canadian monetary base seems to be not as easy to come by; but consider this: the exchange rate between the US and Canadian currencies has been pretty much level since 2006. To me this suggests that Canadian authorities have been inflating at a similar pace to that of our southern neighbors. Now think back to prices of everyday products 10 years ago and where they are today. This is an overt goal of the BoC: 2% annual target inflation. Look at real estate prices, while you’re at it too, and look at the population growth in Canada.

While CBC Radio 1 celebrated the discontinuation of the Canadian one cent piece, all I could think about was Argentina’s price freeze. The death of the penny is Canada’s overt admission of its bankruptcy; yet, it is a fact celebrated in our* media as liberation from a pestering little piece of zinc. That made me think of the liberation of Iraq by US troops; it’s the same sort of “liberation.” It also made me think of the “Wheel Fallacy,” and the fact that very few people take the time to understand the origin and purpose of money, like my friend Jacob did.

*Some of the media is “ours” since we are taxed to fund them.

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