Goin' Bananas with Statistics

I'm playing around with IMF statistics because I was more or less inspired by a Washington Post article I read today about domestic sugar producers, protectionism, and sweeteners. Anyway, this chart displays the average price of Chiquita, Del Monte, and Dole bananas traded via the US Gulf (I'm not too familiar with the specifics of the trade contracts) on a monthly basis over the past year. In July of this year, one metric ton of bananas (2,205 lbs) traded for $828.73. That's $.38 per lb of bananas, and I believe the final retail price of bananas at Wal-Mart in Jacksonville, Florida is around $.55 per lb.

In other news, I have an elementary understanding of Microsoft Excel.

A Word on "Multipliers"

Every Principles of Macro student will undoubtedly come across the Keynesian multiplier. This doctrine claims that an initial dollar spent, for investment purposes or by the government, is followed by a domino-effect of spending of ever-smaller portions of that same dollar. For example, if I buy a box of Mike and Ikes for $1, Raul the candy man will turn around and spend $.90 of that on a McBurger, and Ronald McDonald will turn around and spend, say, $.81 on a donut, and then Krispy Kreme turns around and buys a milk dudd for $.73, etc., etc. You see, my dollar goes a long way in "stimulating the economy," right? Wrong.

For the agog and masochistic reader, I refer you to Reisman, Capitalism, 690-691. But it's pretty simple without the intellectual explanation, and I think I can handle it:

Consider that Ronald McDonald received $.90 for a McBurger, and instantly spent $.81 on a donut. Ronald is left with $.09 to do something with. It is likely, and let us assume, that he pays his workers and repairs some equipment and whatnot with that $.09. So Ronald has a donut and paid some wages. Great, eh?

The problem with the Keynesian Multiplier Doctrine, however, is that it is so bold as to say that if we spent a greater portion of every dollar we receive on consumable items, instead of saving and investing that money, this would somehow stimulate growth and prosperity in the economy. So let us assume that Ronald spent $.81 on a donut, and $.07 on a gumball. That leaves him with only $.02 to pay wages to his workers, and repair equipment and expand. And Krispy Kreme will do the same, and on, and on, and on. Tell me, how on earth are we better off in this situation? If we spend greater amounts of our dollar on consumer goods, as opposed to productively spending it on workers and equipment, and saving and investing, who is materially better off? All that has happened here is that profits have increased, the end. As for business expansion, which leads to higher real wages for everybody in the economy, this doesn't happen.

And it is this simple. Mainstream economists extol consumer spending because it makes GDP look good, but in reality, high amounts of consumer spending means low amounts of productive spending. If, over time, businessmen spend all they make on consumer goods and neglect to repair their equipment and just maintain their existences, they will ultimately eat themselves out of house and home. It doesn't do me any good if nobody will hire me, either!

Let's walk away with two lessons here:

(1) That which is consumed must first be produced. If we spent 99% of every dollar on consumer goods, there would be no money left for productive expenditures on capital- and time-intensive goods; we would reduce ourselves to barbarism. Yea, GDP would look spectacular for a very few years, but that's the extent of it.

(2) Saving and investing in productive resources is the only route to material wealth and higher real wages. Consumer spending merely implies the purchase of what has been produced; only productive spending, through investment and non-consumer good purchases, will lead to business expansion and a greater amount of "stuff" for everybody.

Arguing Against Absurdity

Don Boudreaux, over at Cafe Hayek, argues that those

"who argue that, because only a small percentage of the stimulus funds have actually been spent so far, the stimulus plan cannot be credited with whatever economic buoyancy we’ve seen lately,"

do so invalidly. He goes on,

"I believe that this argument is incorrect. A good Keynesian can (and should) point out that the very expectation that such massive government expenditures will happen goes a long way toward relieving the economically depressing anxiety of consumers, employers, and investors. That the spending hasn’t actually happened yet is less significant than the expectation that it will happen."

I argued in this same blog,

"... this presuppose[s] that consumers, employers, and investors are a) knowledgable about where the stimulus money will go and how deeply it will affect their own interests, and b) confident that it will be spent effectively[.]

Considering how fast the $787 billion, 1588-page 'stimulus' bill was rushed through congress, I think (a) is impossible. I doubt the authors of the bill have such knowledge.

I would say that (b) is a stretch, too, even if consumers, employers, and investors aren't well-versed in political economy, and don't realize the utter inefficiences that pervade bureaucratic management. That is, unless they KNOW that they will be directly subsidized in some way, (b) doesn't hold much water. Consider that the Cash-for-Clunkers could have had no effect whatsoever on purchases. I'm not saying that particular program was effective in the long run, but it undeniably bolstered sales while it was in effect, thus exacting the supposed end it was supposed to. Notice Democrats are calling it a 'success.'

The "expectations" argument gives too much credence to the power of government spending. I don't see that it is there, and thus I would be willing to say that you could use the argument that the stimulus plan has been ineffective, unless (a) and (b) could be proved."

Just because the premise (the stimulus plan) is Keynesian, doesn't mean the burden of proof is put on dissenters. Rather, the opposite. If Keynesians claim truth, they must be able to explain the ins-and-outs of their policy prescriptions and how they work.

The Results Are In

But calling Cash for Clunkers "dumb" is a severe understatement. Cato's litany of items just scrapes the surface, too.

Mises on Mandatory Schooling; Kind of.

The emphasis laid by sociologists upon mass phenomena and their idolization of the common man are an offshoot of the myth that all men are biologically equal. Whatever differences exist between individuals are caused, it is maintained, by postnatal circumstances. If all people equally enjoyed the benefits of a good education, such differences would never appear. The supporters of this doctrine are at a loss to explain the differences among graduates of the same school and the fact that many who are self-taught far excel the doctors, masters, and bachelors of the most renowned universities. They fail to see that education cannot convey to pupils more than the knowledge of their teachers. Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement but conservatories of tradition and unvarying modes of thought. The mark of the creative mind is that it defies a part of what it has learned or, at least, adds something new to it. One utterly misconstrues the feats of the pioneer in reducing them to the instruction he got from his teachers. No matter how efficient school training may be, it would only produce stagnation, orthodoxy, and rigid pedantry if there were no uncommon men pushing forward beyond the wisdom of their tutors.

-Mises, Theory and History

Truth Asunder

Amazing how the Associated Press is the end-all, be-all for facts and palpable reality. Without the AP, I probably would never have learned algebra or how to open a beer. Calvin Woodward, an AP writer, magnate and merchant in certitude and verifiable truths, claims that many of the fears that Americans have over a public option or outright single-payer system in healthcare are "harsh, but not based on facts." Calvin explains that "Washington is not working on "death panels" or nationalization of health care," and that most respondents in a particular survey fret over taxpayer-funded abortions and the government having the power to decide when treatment should stop for old people, among other fears.

Without exploding the story line-by-line, I'm sure Calvin has it all wrong from the get go. His premise is severely flawed. He merely substitutes Washington's intent for actual circumstance. That is, if it ain't outlined in the bill, it ain't gonna happen, and all fears to the contrary are superfluous and moronic. I know this because of the nature of what a "public option" is, whether it is an outright takeover of the industry or just a single "competitor." What we have now is a price system that rations service according to how consumers value their dollars relative to health service. There are competing ends for dollars, like luxury and food, and thus consumers allocate their dollars accordingly. This is how the rationing goes, as any price system in any good operates.

Now, some consumers have more dollars than others, but this inequality is inherent in the very nature of man and is ineluctable. Trying to escape reality with a "public option" only shifts the burden, but does not eliminate it. Instead of a price system that rations the limited supply of medical services, allocation will be left to whoever is in charge of making the rules at the time. When there is no monetary constraint on medical demand, and with the supply of medical services relatively fixed, the only possible way to give service is to pick people, and this choosing will likely be based on age, lifestyle, productivity in society, etc. If Calvin can name some other way to hand out the doc's time, then that's fine, too. It won't change the fact that it is another way of rationing service, whichever way you look at it.

With that said, fears about "death panels" and pulling the plug on Grandma are not unwarranted. If I as the bureaucrat in charge only have (X) number of prescriptions available and I have (X +1) number of people demanding such prescriptions, I have no choice but to choose who doesn't get a prescription. I as the head bureaucrat can make my choice based on political favor, patient productivity (young people vs. old people), moral judgments, etc., etc. This is exactly what Sarah Palin meant by "death panels," specifically, a board of bureaucrats will have to decide which group of peoples or particular individuals do not get a share of the limited supply of medical services. The truth is harsh, but reality usually is. This is not a lie, but instead a logical deduction based on the fact that in reality, needs are unlimited, but means are not. If I sat upon a panel, it would only make sense for me to exclude the least productive members of society from healthcare if it meant that otherwise children and healthy taxpayers were to be sacrificed.

As for the government being simply a "competitor" in the healthcare field, Thomas Sowell said it best: "When there is a partnership between an ant and an elephant, who do you suppose makes the decisions?" Because competing firms must cooperate even in the dog-eat-dog world of business, this statement completely applies. Saying that the government option is a form of competition is like giving steroids and flippers to Michael Phelps and calling it "fair" as far as French, German, and English swimmers are concerned.

Their Modus Operandi

Headline: AP reported late Wednesday morning that

"... Chase Card Services, a unit JPMorgan Chase $ Co., said Wednesday it will now offer a rewards card designed for wealthy customers.

The new card, called Chase Sapphire, is designed for the top-earning 15 percent of U.S. households. It offers travel services, access to round-the-clock customer service and a rewards program."

The entire story, which can be found here, is a stunning 72 words. I found it on the front page of Yahoo. You might ask why I find this relevant; I ask why the Associated Press finds this relevant. This is not directly related to any contemporary event, nor can the majority of folks in America be concerned with it because most people are not relatively wealthy.

But we know why AP headlines such a story. It is how the news media operates, how they get a rise out of "the proletariat." This story is a paragon of the wealth envy that pervades the general public. There is no doubt in my mind that this story serves to piss people off. Consider that SafeLink Wireless, a program that was created by the government to provide discounted or free telephone service to income-eligible consumers, has been available for tens of months now and has yet to receive front page coverage, though such press would undoubtedly make indignant tax-paying citizens. But because SafeLink is for poorer individuals, there's no fun in making a ruckus out of it, lest ye be known as uncompassionate and a capitalist pig.

Wealth envy is painstakingly obvious when it comes to America's democratic processes. It is why the 'rich' are soaked with most of the public debt in this country, year over year. Our founders knew of wealth envy, hence why originally states were allowed to discriminate voters based on property holdings; it was a system that sought guidance by the most productive of citizens, contrary to what your history teacher might have told you back in the eighth grade. But today, wealth is taboo, in a country where the poor are exalted and the word 'rich' is a pejorative.

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasure. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship."

-Alexander Tyler