I meant to post this several days ago. I’m sorry that I didn’t. This one focuses on using Obamacare as its example, and I’m posting it without looking at it further. Keep in mind my addendum to the previous entry in this series–these were written as I was still fleshing out my ideas on anarchy and free market principles. Basically, I know more now than I did then, about how economy works and how it is merely the result of humans acting, hence why Mises called his magnum opus “Human Action.”
I did fix the links, though. And just wanted to say… “Ah. The days before I had a consistent policy for using bold and italics, and occasionally went a bit overboard on emphasis… Good times. ;)”
Before we get too deeply into this, we must first discuss a few very basic [I promise: they’re basic] economic principles regarding Supply and Demand, because the Affordable Care Act (colloquially, Obamacare) relies on your ignorance regarding basic economic laws. If the masses understood these basic economic principles, the Affordable Care Act would have no chance of reaching the American People, because it can be demonstrated in just a few minutes that sound and proven economic principles predict with certainty that Obamacare will be a complete failure. It has no chance of success, because, in order to succeed, Obamacare requires that these basic, sound, and proven economic principles be wrong–and they’ve been known for a very long time to be right.
These four basic laws are:
- If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
- If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
- If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price.
- If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.
I truly hope you understand these 4 principles, because there isn’t much I can do to explain them. They’re self-explanatory, and it’s very difficult to explain things that are self-explanatory. If the demand for health care increases (i.e., more people want to go to the doctor) and the supply of health care remains the same (i.e., there aren’t any new doctors added to the health care system), then a shortage occurs and prices rise. If there are 100 people who want to go see 10 doctors at $100 per visit, then if we increase those 100 people to 150 people (increasing demand) but leave only 10 doctors in the system, then there are still only 10 doctors to go around the increased number of people. Instead of 100 people using 10 doctors, there are now 150 people using 10 doctors. So what will happen as a result of this increase in the Demand? If supply does not increase, then Doctors will raise their prices. This is because higher prices lower demand, another foundational principle of economics. There may be 150 people wanting to see a doctor if they only have to pay $100, but if they have to pay $200 to see a doctor, some portion of those 150 will decide they don’t want to see a doctor–Demand will, therefore, lower.
If, however, no new doctors are added to the system (supply does not increase) and doctors cannot raise prices to offset the increased demand, then a severe shortage occurs, because there is now a Price Ceiling in place, and Price Ceilings always create Shortages and invoke the rationing of the good in question. When during World War 2, the Government fixed the price of Gasoline, gas station owners could not raise their prices and had to consider selling gasoline at prices lower than what the Market demanded because of the increased Demand and the decreased Supply. Since the same amount of people still wanted gasoline but the supply of gasoline had lowered, the only free market course was to raise prices, but the Government made doing that illegal. People continued buying gas, since higher prices didn’t decrease demand, and there were shortages as a result of the Price Ceiling (“You can’t raise the price beyond X!”).
Now–I know what you’re thinking. “What the fuck, I/E? Your blog is supposed to be accessible!” But I promise that the graph isn’t as complicated as it initially looks. First, there is the blue curve–S. Obviously, that’s the Supply line. There are two red lines–D1 and D2. These are the Demand curves. We’re assuming in this graph that the Demand for the good increases. Let’s use Pringles as an examples. For whatever reason, the Supply of Pringles cannot increase except on the Supply line. It cannot increase as a result of increased Demand; there cannot be a shift in aggregate Supply (sorry about that; the term was unavoidable). So the Pringles factory can only produce a number of Pringles that falls on the Supply line; the Supply line cannot move.
Now we’re going to look at Demand1–many people want Pringles. But, suddenly and because of a new hot flavor of Pringles chips, the Demand for Pringles increases (adding a new flavor does not increase the Supply of Pringles, because in order to make the new flavor, they had to decrease the amount they were making of other flavors).
Look back to the graph at P1 and Q1. At x amount of Demand, as demonstrated by D1, the Price of Pringles will be lower and the Quantity sold by the Pringles company will be higher (because Demand is higher and because Supply can only increase along the curve–adding new factories would shift the curve, and that isn’t a possibility at the moment). This makes sense. Demand increases, so Pringles sells more chips and they also raise their prices. We’d all expect this to be the case.
And when we increase the Demand by moving to D2, the Supply increases according to the Supply curve. Note that these are not straight lines. They are curves, which means that the Supply will never increase exactly in proportion to the increased Demand. Supply will always, because of the arcs, decrease less than would correspond to the increase in Demand. If these were straight lines, then if Demand increased, Supply would increase by an amount exactly in proportion to the increase in Demand. But economics never deals with straight lines, because straight lines require that conditions be perfect, that the amount of unutilized resources simply pop into existence the moment they are needed and back out of existence when they are not. This is never the case in the real world (one of the main flaws of Keynesian economics is that it, more often than not, requires absolutely perfect market conditions that are never reflected in the real world). The Supply increases on a curve because, if 50 people can produce 5000 cans of pringles, it doesn’t necessarily mean that 60 people will produce 6,000 cans of Pringles–it is far more likely that increasing the labor force to 60 will only increase the “cans of pringles” by 800 or so. As size grows, previous levels of efficiency become harder to maintain and it becomes impossible to get the same Input>Output yields.
This is why economics often deals with Marginal increases and Marginal decreases. It is the observation that, if 50 people make 5000 cans of Pringles, then it isn’t true that 60 people will make 6000 cans of Pringles; it’s true that 60 people will make between 5000 and 6000 cans of Pringles, and the number they actually make will fall in the upper range of averages. If, however, we double the workforce it also doesn’t mean that 100 people will make 10000 cans of Pringles; in fact, because increasing Input doesn’t decrease Output proportionally, we would predict that doubling the Input (via doubling the workforce, which isn’t exactly “doubling Input,” but let’s keep it simple) won’t necessarily double the Output; we’d expect 100 people to make about 8000 cans of Pringles if 50 people make 5000 cans.
Has this gotten too complicated? I’m worried that it has.
Back to the graph. So we find that even if we can increase Supply along its curve (by introducing more workers to the Pringles factory), it won’t raise in an amount exactly in proportion to the increase in Demand. If Demand doubles from 5000 people wanting Pringles to 10000 people wanting Pringles, if 50 workers produce 5000 cans of Pringles and we know that doubling the input to 100 workers will not yield 10000 cans of Pringles, then we know that to offset the increase in Demand, we must do more than double the Input. If 50 workers make 5000 cans and 100 workers will make about 800 cans, then we’ll actually need to roughly triple the workforce to 150 people to produce those 10000 cans.
Suddenly Pringles is paying three times the amount they were to meet a Demand which has only doubled. If Pringles pays each worker $10 an hour, then they were paying out $500 to an hour to meet Demand1. But when Demand doubles to D2, Pringles will need roughly three times the number of workers (actually, between 2x and 3x, but we’re using 3x because anything over 2x becomes a loss) and will need to pay out $1500 an hour to make a Supply which equals Demand2. But Demand2 doesn’t earn them enough money to meet the increased expenses of tripling production to meet an increased Demand–for obvious reasons. If Pringles has to suddenly pay 3 times the amount of money they were paying before but they’re only earning 2 times the amount of money they were before, then Pringles is suddenly losing money.
So it’s not only impossible, along given Supply curves (without the Supply line itself moving, which we’ll look at in a moment), for Pringles to meet an increase in Demand, it’s also not even economically viable. Pringles would lose money if they attempted to please everyone by meeting the increased Demand by a corresponding increase in Supply. Instead, the Free Market would have the price per can of Pringles rise, the Supply of Pringles increase somewhat, and the quantity of Pringles sold to increase. But because of the increased Price, Demand will actually go back down, as many people don’t want to try the new flavor of Pringles badly enough to pay $3 per can when the old price was $2.25.
That’s the best I can do in explaining this. I hope you grasp it.
An Increase In Supply
Calm down. It’s the same thing as the previous graph with the difference that there are now two Supply lines. Here we are assuming that Pringles isn’t restricted to its current amount of “resources” (which we exempted the labor force from in the previous example, allowing that Pringles could still hire more workers to satisfy moving along the Supply curve–there must be some resource which is currently underutilized in order for anything to move along a given Supply line); we are asserting that Pringles can do whatever it takes to increase its supply, which is, I hope you’ll see, a much more accurate reflection of the real world. Pringles can hire new people, invest in new production technologies, open more factories, and do all sorts of creative things to meet an increase in Demand. In short, in the real world, Pringles isn’t restricted to a given Supply line; they can move the line. And, moreover, because we’re allowing that the Supply line can be moved, you’ll notice that we are now using straight lines. We’re assuming that Pringles won’t run out of potatoes, land on which to build new factories, or workers to be hired. These assumptions may or may not be accurate, but we’re going to assume that all resources Pringles would need currently exist and are plentiful but underutilized.
Let’s imagine that Demand increases from D1 to D. Let’s also assume that Pringles can rise to the challenge presented by this increased Demand and do whatever is necessary to meet it. You’ll see that the old level of Demand (D1) meets the old Supply (S) at a Price lower than P and at a Quantity lower than Q. This means that, with the old Demand, people aren’t buying as many Pringles (which makes sense, as the Demand is lower) and that the price of a can of Pringles is also lower (which also makes sense, as people don’t want them as badly). When we increase the Demand and keep Supply the same, we move to using the D line but we still use the S line; we do not use S1. This means that the price per can of Pringles will go up and the number of cans of Pringles sold will go up.
In order to meet the increased Demand, though, Pringles would move its Supply from S to S1–since doing so would increase the amount of money they were making (meeting a Demand yields money, after all). When S changes to S1 and D stays as high as it was (having already moved from D1 to D), the quantity of cans sold becomes an amount almost exactly in proportion to the quantity of cans sold at the old price, the old supply, and the old Demand. You’ll notice, however, that Q1 passes just slightly to the left of the nexus of D1 and S; the price per can is just slightly higher than an exact proportion to the nexus of S and D1 and the number of cans sold is just slightly lower than an exact proportion to the nexus of S and D1. This is why we don’t have to curve lines when we can freely move Supply and Demand; it happens naturally. Just as, in our previous example, doubling the workforce won’t necessary double the number of cans produced, so will moving the Supply line to account for the increased Demand not necessarily result in a price that is exactly in proportion to the old Supply and Demand. Maybe a can is now $.35 per ounce while originally it was $.32 per ounce.
In short, buying a can of Pringles won’t be “as good a deal” as it was before the increased Demand and Supply; it will be a slightly worse deal. And what would happen if we shifted the Supply from S to S1 while staying on the old Demand of D1? What would happen if Pringles suddenly opened new factories, hired new workers, used a new production technology, or some other method of “moving the Supply line” but they did this of their own accord and without any change in Demand?
We’re now looking at S1 and D, but we’re also assuming that D won’t move along its line, that no matter what happens, the Demand for Pringles won’t change at all. We’re not assuming that more people can be made to Demand Pringles (through marketing, word of mouth, and advertising), and we’re not assuming that people can be made to Demand Pringles more than they already do (also something that would be accomplished through marketing, word of mouth, and advertising). Instead, we’re assuming that a certain number of people want Pringles a specific level of “badly” and that nothing is going to change that. D meets S at this location, where the Supply corresponds to the Demand. But Pringles has suddenly increased the supply without regard to Demand. What happens? We have to move the Demand line to account for this, and we’d have to shift it to the left, so we’re now looking at a line not on the graph. Demand hasn’t changed, but the Supply has, so we must shift the Demand line to the left. We can use D1 for this.
As you can see, Pringles fucked up majorly. In order to sell the increased Supply, the price must be lowered substantially. Basically we have to shift the Demand line to the left. Don’t think of D1 as a change in Demand; think of it as the Demand staying the same but its proportion to the Supply changing. If Demand is 50 and Supply is 100, then the ratio is 1:2. If Demand stays at 50 but Supply changes to 150, then the ratio is 1:3. Demand hasn’t changed, but its relation to Supply has. That is why we must move the line to the left. This is also why we must move the Supply line, as done above, when Demand increases–the ratio between Demand and Supply has changed.
OMG, I’m So Bored
Sorry. I don’t know–I find this topic interesting. I’ve noticed that it’s a tendency of people to become bored with a topic when they do not understand the topic. I’ve noticed that when people become bored with Physics discussions, it’s usually because the conversation has become too advanced or too technical for their grasp; I’ve noticed that when people become bored with Economics discussions, it’s usually because the conversation has become too advanced or too technical for their grasp. If this stuff bores you, I recommend you either taking a few Economics classes at your local college or reading a few books on the subject. And if what you find bores you, start smaller and simpler. Don’t discard the subject entirely; it’s interesting enough to have fascinated numerous people to the point where they devote their entire lives to the subject. There must, then, be something interesting about it.
What the Fuck Does This Have To Do With Obamacare?
In some ways, Obamacare has no impact on Supply and Demand. Obamacare won’t suddenly make anyone want to go to the doctor and it won’t suddenly increase the number of doctors in the system. It will, however, increase Demand for health care because it is making health care a viable option for some 30,000,000 people. We dealt with much smaller numbers above, but it doesn’t matter. What happens when you increase Demand by 30,000,000 but don’t change Supply to account for the increased Demand? That’s right: prices rise. If, again, we have 100 people wanting to go to the doctor now and we have only 10 doctors, then the ratio is 10:1. If we increase it to 150 people wanting to go to the doctor without adding even ONE new doctor to the system, then we have changed the ratio to 15:1. And then prices must rise.
Increasing the amount of people wanting to go to the doctor by thirty million without adding even one doctor to a system that already is known to have too few doctors will only raise the cost of health care and will only decrease the health care’s quality. I never mentioned quality above because “the quality of Pringles” isn’t really an issue; Pringles are mass-produced. Health care is not. Quality can vary wildly from one doctor to the next, and if you increase the Demand without increasing the Supply, it is impossible for any doctor to maintain the Quality they were able to maintain with the old Supply:Demand ratio. Price is not the only thing impacted by an increase in Demand without an increase in Supply. For all services (this is also true of many goods, particularly those that aren’t mass produced), an increase in Demand without an increase in Supply will result in higher prices and lower quality.
All of Duck Dynasty’s duck calls are made by hand. Let’s consider for a moment that they cannot hire new employees to reflect that we can’t simply manufacture new doctors. We can’t. The best we can do is motivate people to become medical doctors, but that is an eight year investment, resulting in an eight year lag between a rise in Demand and a corresponding rise in Supply, and that is if we somehow managed to entice people into becoming medical doctors (which we can’t and won’t do). So we have to assume that they cannot simply bring in new people to meet an increase in Demand (for Duck Dynasty, perhaps there aren’t any more bearded rednecks to hire).
Basically, we cannot increase the Supply of health care. We can’t. Doctors are already known to be overworked and stretched too thin–hence people waiting in Emergency rooms for hours at a time. …Actually, we can increase the raw Supply of health care, but we can only do this by drastically lowering the Quality of healthcare received. We can only increase the Supply of health care by changing doctors from 5 minute visits which charge you $120 to 2 minute visits that charge you $180. We can only increase the Supply of health care, without adding new doctors, but having hospitals and general practices behave exactly as the DMV: draw a number, “NEXT!”
Anyway, so let’s say that someone suddenly wants the Duck Dynasty guys to multiply their orders by ten. This actually happened in one episode, and they responded by enlisting the help of the community. They increased their Supply to correspond to the new Demand by bringing in help. But let’s assume that this isn’t possible, since, after all, we can’t simply “bring in help” to increase the Supply of healthcare–the best we can do is entice people to become medical doctors which will, obviously take 8 to 10 years to yield any results (and by then Demand will have increased even more, since Populations are always growing, though this also theoretically increases the Supply at a given ratio… but since we’re in the process of fucking up that ratio with Obamacare by increasing Demand and not changing Supply, this whole parenthetical statement is irrelevant).
So what do the Duck Dynasty guys do if they need to increase their production 1000% and they can’t bring in any help to do that? What happens when the amount of productive resources (labor) they have stays the same but Demand increases by a factor of 10? They can’t simply speed up their conveyor belts (though they tried this in the episode, and it worked until they reverted to their Kindergartener mindsets… I swear to god one of them got in a canoe on the conveyor belt and fully intended to ride it off the edge–he almost certainly would have broken something if the CEO hadn’t come back there and stopped them). They can work faster and harder, but can they work faster and harder enough? Probably not. To assume that they can increase production by a factor of 10 is to assume that they are majorly underutilized, and if they were that inefficient, then the Free Market would have put them out of business long ago. It should be noted that the demand for duck calls, the handmade products, did not increase by a factor of 10; the random shit like t-shirts, mugs, and stuff did–the mass produced items had their Demand increased by a factor of 10; I don’t think the demand for duck calls changed at all… In fact, I’m not convinced that they sell very many duck calls at all. They don’t seem to earn much money from their actual duck call business; they make most of their money from the show and from related merchandise like t-shirts. Just go to Wal-Mart sometime. Duck Dynasty is the new Angry Birds.
Anyway, if they do have to increase their production of handmade duck calls by a factor of 10 and they can’t bring in any outside help to do that, what happens? They work much faster to try to meet the increased Demand. Unless they were horrendously inefficient and underutilized in the first place (which they are, but not in a way that their productivity isn’t 10% of what it could be–I would wager it’s more like 30% of what it could be). To assume that they are underutilized to a degree of 10% is to make an absolutely ridiculous assumption; show or not, the free market would have crushed that level of inefficiency long before they ever became millionaires. The Free Market, which achieves its ends through competition, abhors inefficiency.
To suddenly make 10 times the amount of handmade products which they were previously making, the quality on the products would have to decrease. They wouldn’t have time to carefully test each one. They wouldn’t have time to carefully craft each one. They’d work at a break-neck pace and quality would suffer as a result. Do any task. Now attempt to do that same task ten times in the same amount of time it took you to do it once. Yeah.
The only way to increase a supply to meet an increased demand without bringing in new resources is to raise prices and lower quality. Snap your fingers 60 times in one minute. Now snap your fingers 600 times in one minute. Were you able to do it? How “good” were your snaps when you attempted to snap your fingers 10 times as fast as you were before? If you had to snap only 60 times in one minute, then you could produce nice, loud, and ringing snaps, one per second. But if you had to do ten times that, you’d have to snap your fingers 10 times per second. If you somehow managed to do that, by the time you were 30 seconds in, you’d be exhausted. Economic principles are not difficult to understand.
Many people try to make them out to be very complicated and difficult to grasp, but this is intellectual dishonesty; these people want to deliberately mislead you and keep you ignorant so that you don’t realize that what they’re proposing is absolute nonsense.
And, believe it or not, snapping is a good demonstration of the economic principles we’re discussing. We have a Demand for snaps, and I want 60 of them by the end of a full minute. So you Supply those 60 finger snaps, and generally give me good quality snaps of your fingers.* But if Demand increases… A factor of 10 is a bit unreal. Let’s increase it only by a factor of 3. Snap your fingers 180 times in a minute. Demand has increased to 180 and you, without bringing in any outside help (someone to snap with you, adding to your total to “give me”), are trying to increase the Supply to meet that increased Demand. If you manage to do it, the quality of your snaps will still be substantially lower than the quality of your slower, more careful snaps.
And it’s HEALTH CARE of which we’re lowing the quality. We’re not lowering the quality of duck calls or someone’s snaps of their fingers. We’re lowering the quality of health care at a time when the quality of health care is already abominable. What good will it do these 30,000,000 to be given health care when the quality of that health care has decreased to the point of barely being useful? Already we wait for hours in Emergency rooms. Already we wait for an hour in the lobby of a doctor’s office, then an hour in a room alone, then we have about 5 minutes with the doctor–who writes us a prescription for some combination of: painkillers, barbituates, and antiobiotics–and then we leave, having paid the doctor roughly $100 for that “service.”
Increasing the number of people going to the doctor will only increase the time we spend waiting in the lobby, increase the time we spend waiting in a room alone, decrease the amount of time we spend with the doctor, and increase the amount of money we have to pay to experience the whole bizarre process.
Yeah, But… Those 30,000,000 People NEED Health Care, I/E. We Can’t Let Them…
No, we can’t let them go without health care. We can’t let them die of diseases that could have been prevented because they couldn’t afford a doctor visit to receive the vaccine. We can’t let them die of chronic illnesses that could have been curbed if the illness had been discovered sooner. But how is increasing waiting times, decreasing the amount of time with the doctor, and raising the prices for virtually everyone else (and raising insurance costs–my sister’s health insurance cost more than DOUBLED because of Obamacare…) going to help?
It isn’t, and this is tragic because there are better solutions. There are much better solutions.
Yes, I believe that individuals should have the right to seek health care.
No, I do not believe that we have the right to force individuals to seek health care (except in the case of child abuse and negligence).
No, I do not believe that we have the right to force doctors to lose money by not charging enough or by making them treat people who can’t pay.
Yes, I’m aware of the Hippocratic Oath and the tendency of Doctors before the existence of Medicare and Medicaid to give discounted treatment to the poor and to volunteer their time at free medical clinics.** Before State-run health insurance schemes, almost every doctor gave discounts or free treatment to the poor and elderly–just like most corporations have a 10% Senior Citizen’s discount even though the Government isn’t forcing them to…
Yes, I worry that it’s only a matter of time before corporations mentioned above are being forced to give 10% discounts to Senior Citizens. It may very well come to pass that the Government steps in and forces businesses to do this. A generation or two later, everyone will have completely forgotten that this law isn’t necessary and that most corporations gave a 10% discount long before the Government stepped in and forced them to do it.
No, I don’t think that the Affordable Care Act is going to do any good to help a system that is already primed to collapse, and this blog demonstrates the unimpeachable economic principles for me thinking this. If you want to demonstrate that the Affordable Care Act can be successful to any degree, then you must demonstrate how we can increase Demand without increasing Supply and Prices and lowering Quality. This, however, cannot be demonstrated because it’s absurd in the highest degree. It’s impossible and it flies in the face of everything we know about economics.
The State is relying on the ignorance of the masses regarding basic economics. If the masses knew anything about the basic laws of Supply and Demand, then the masses would understand that Obamacare has no chance of succeeding in “helping” the health care crisis in our nation. The first 4 principles found at the start of this blog demonstrate unequivocally that the Affordable Care Act cannot work. It literally cannot. Not “will not.” CAN not. It is an economical impossibility. And this is obvious. If we were taught Economics in high school, then the Affordable Care Act would have had no chance of being passed.*^ Actually, a lot of things would be and wouldn’t be if we had been properly taught Economics in high school instead of four years of grammar and English classes. Fuck, man. Once you start the First Grade, you’ll have an English class every year until you graduate high school. Considering how infrequently most people write, this is obnoxious, especially since we could spend that time with BETTER and more important subjects. English III and English IV should have been electives, and a full-year Economics class and a full-year Newtonian Physics class should have replaced them. If you don’t have the English language down by the time you’re passing the 10th grade, then two more years of the same subject is NOT going to help you.
We wouldn’t allow the EPA unilateral power, and we wouldn’t allow it or any other government or pseudo-government organization to be filled with non-elected officials. We wouldn’t allow a fiat currency. We wouldn’t allow the government to give us worthless sheets of paper, tell us they’re valuable, and then systematically steal all our money via inflation and the devaluation of the currency. We would require that Congress do as the Constitution commands:
The Congress shall have power… [t]o coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures… [emphasis added]
Nowhere in the Constitution is Congress given the power to delegate its powers and responsibilities to other organizations. The Constitution does not give Congress the power to give a coalition of privately owned banks the right to make our money. And this is common sense. Just think about it. If your wife gives you permission to have sex with her, you can’t delegate that privelege to someone else. You can’t say, “Well, you gave me permission to have sex with you, but… I’m going to let Bob here do that.” Things just don’t work that way. Your wife would divorce you if you tried some shit like that. And we’re the wife, giving Congress the permission to have sex with us–and Congress said, “Well, you gave us permission, but we’re going to let someone else do it.” “Um, no,” the wife would say. “I didn’t consent to that.” Neither did we consent to allow Congress to delegate its powers to non-elected organizations, especially not the power to make our money, which necessarily controls our entire economy.
Plus, the Constitution gives Congress the power to “coin” money. We are not arguing semantics here. Congress was not given the power to print money, and “printing money” is not the same as “coining money.” The Founders would never have consented to allowing Congress to print money, because the dangers and problems of paper money have been known for thousands of years. Every nation that has used paper currency has experienced hyperinflation, has overextended its reserves, and has promptly collapsed. There has never been an exception to this. Nations that existed for centuries using gold and silver coins of specific weights collapsed shortly after switching to a fiat (paper) currency. Worse still, though many Americans do not know it, we are NOT on a gold standard. The Dollar is NOT backed by gold or silver. It is JUST a sheet of paper. It has no value external to how much of it is in circulation and whether anyone will accept it as payment.
The reason Congress had the power to regulate the value of coins and fix the standards of weights? To prevent people from making coins that are of a lower purity and to prevent people from clipping off small portions of coins to stretch them further (although, to some extent, this would be an acceptable and legitimate practice, as long as one didn’t try to pass off a “clipped coin” as an unclipped coin). Congress had the responsibility of making gold and silver coins for us to use and fixing (and making it known) the value of those coins by “fluffing” the coins out with less-precious metals. We would end up with a $1 coin not because we had a tiny little coin of gold but because we’d have a tiny amount of (real) gold covering a nickel-based coin. How much gold a $1 coin contained would be fixed and, if the coin was valued as a “5 gram gold coin” rather than being valued as a “$1 gold coin,” then inflation would be impossible. After all, 5 grams is always 5 grams.
This is why people advocate not just a return to the gold standard but a return to a commodity currency which has no arbitrary value attached to it. We advocate the use of gold and silver coins that are measured by the weight of the precious metal they contain, not some random value. We advocate using a coin that has 5 grams of gold, a coin that has 5 grams of silver, a coin that has 10 grams of gold, a coin that has 10 grams of silver, a coin that has 50 grams of gold, and so on… And the amount of grams of silver it would take to equal 5 grams of gold would be decided explicitly by the Free Market, not by Congress (as any attempt to fix this price manually would be price fixing and wouldn’t ever work–just like Congress’s attempts to fix the price of gasoline have never worked). If Congress set the exchange rate too high (requiring too much silver to get a certain amount of gold), then no one would ever want the silver coins because we wouldn’t consider them as valuable as gold coins. If Congress set the exchange rate too low (requiring not enough silver to get a certain amount of gold), then no one would want the gold coins because we wouldn’t consider them as valuable as the silver coins. Congress would have to hit the Goldilocks proportion perfectly, and since the amount of coins in the system would change constantly and could change drastically very quickly, the exchange rate would constantly be out of balance, making gold coins better one day and silver coins better the next and then gold coins much better the next… It wouldn’t be consistent and people would hate it. That’s why only the Free Market can do these things. People will automatically set an exchange rate that automatically corresponds to real-world conditions, and Congressional attempts to manually set an exchange rate would always be lower or higher than the one the People would set according to the Free Market, resulting in the imbalance and silliness I described.
But by using coins that are fixed as weights that demonstrate the purity of the coin, we don’t have to worry much about inflation. A five gram gold coin will always be a 5 gram gold coin and a 100 gram gold coin will always be a 100 gram gold coin. The only way that inflation could happen using commodity currencies is for the amount of that metal to actually increase, and there’s a limited quantity of gold and silver in the world. We would reach a point where inflation could no longer happen. And ALL economists have stopped spouting the nonsense that “Some inflation is good.” That argument has been thoroughly shredded and debunked, and if I remember correctly, that’s why Friedrich Hayek, the incredible successor to Mises, won the Nobel Prize in 1974.
Inflation is bad because if you insert more money into any given economy, it makes all the money in circulation worth less than it was before. If there are $1000 in circulation in a town and we suddenly put $1000 more into circulation, then every single dollar is worth half of what it was before; each dollar will only buy half of what it bought before. If a loaf of bread cost 25 cents before the inflation, then it will cost 50 cents after the inflation. This means that people who have retired and who have no way of gaining more money just had half of all their money stolen by inflation. This is the main reason the elderly in the U.S. are suffering so much: many of them have had to get jobs in order to bring in money because a portion of the money that had in their retirement account was stolen by inflation. I’ll never forget the first time I saw a 70ish year old woman working at a Wendy’s. FOR SHAME, AMERICA.
Do something about this. We’ve forced the elderly to come out of retirement and get low-paying, degrading, and humiliating jobs to cover the losses they incurred by monetary inflation and by the shenanigans which caused that inflation. We should be ashamed of ourselves. People who don’t have an income are those who are most affected by the effects of Inflation. That’s the elderly, America. When we debase the currency, we are hurting our grandparents and great grandparents more than we’re hurting anyone else. We should be thoroughly ashamed of ourselves for allowing this to happen.
Protect our elderly. And we can protect them by allowing them to accrue money that can’t be devalued and stolen by inflation. If you want to talk about supporting Medicare and Social Security to “help the old people,” then you should recognize that the single best thing we could do for the retired and for the nearly retired–and for everyone, really, since everyone is going to retire on money they saved up eventually–is use a currency that cannot be inflated to cover up the shenanigans of giant corporations. The bailouts hurt Gran-Gran the most. Gran-Gran had to get a job because of the bailouts. Shame on you. Fucking shame on you.
Obamacare and Economic Growth
Okay, I went really far off topic. But my point in all of this is that we cannot legislate our way into a growing economy. So often during Romney’s campaign I heard people say, “I agree with Romney. What we need to do is grow the economy.” And they had no idea what in the hell they were talking about. In general, they were discussing “growing the economy” as a way to negate the harmful effects of inflation, but the only way they could “grow the economy” would be with subsidies, grants, bailouts, and other attempts to pour resources into the system by pouring more money into the system.
There are only two ways to “grow an economy.” One can do nothing and let the Free Market and competition create wealth. Or one can give out subsidies, grants, bailouts, and other things in attempt to “jumpstart” the vehicle. But the vehicle broke down because of all the subsidies, grants, bailouts, and other things that we poured into it. Inflation caused the Recession; inflation was at the root of the housing bubble and is collapse, at the root of the derivatives market, and at the root of the toxic asset bubbles. Because the Fed held the interest rates on their loans (and loans from one bank to another) so low, it created the illusion that wealth was plentiful and no one minded loaning out money; in fact, loaning out money was a positive thing for banks. Because of the Fractional Reserve System, every time a bank loans money, 90% of that is created out of thin air. This causes inflation.
In a Fractional Reserve System, a bank only has to keep a certain percentage of its assets; it only has to have a certain percentage of assets to back up its debts. In the U.S. System, that percentage is only 10. Did you see the film, “It’s a Wonderful Life”? This is what allows runs to happen on banks. Banks loan out the money you give them, so when everyone panics and demands their money back, it is learned that the bank… doesn’t actually still have your money because they loaned it someone else. If a bank has had $2,000 deposited into it, then it can loan out $18,000. Obviously, the bank doesn’t have $18,000. It literally just creates it out of thin air the moment the money is loaned out. That is a fact which even the Federal Reserve admits. That’s what Fractional Reserve means; that a bank must hold a fraction of its assets in reserve. So after the bank loans out this $20,000 and keeps the $2,000 in its ledgers (because of withdrawals from accounts, the bank will occasionally have to borrow money to make up the difference and bring its reserve back up to 10%–the bank borrows this money from another bank, and that other bank–you guessed it–simply makes that money up out of thin air, too), one thing comes to mind. People have to pay back money they borrow. And they do. The bank has loaned out $18,000 and has kept $2,000 (occasionally borrowing from other banks, which are doing the very same thing), and now the people they loaned all that money to have paid it “back” to the bank. So the bank now has $20,000 (more, actually, because the bank also charged Interest on the loans). What can the bank then do with that $20,000? Keep it in reserve and loan out $180,000!
We’re literally paying banks “back” money that they didn’t loan us because the money did not exist until we paid it back. Banks have been sued over this–and the banks have lost the case. When the First Bank of Montgomery foreclosed on Jerome Daley’s home, he got a lawyer and sued the bank, saying that the contract he had with the bank required both parties to put up a legitimate form of property–Jerome would put up the house and the bank would put up the money. But Jerome alleged that the bank did not put up a legitimate form of property and that the bank didn’t put up anything at all–it just made up money out of thin air, said that it had that money, and gave Jerome this money that didn’t exist. And Jerome won the case. The judge decreed that the bank did not put up a legitimate form of property and that the bank did simply create the money out of thin air. Now, since this happened decades ago, there’s no doubt that the banks learned from the case and modified their contracts accordingly, to prevent anyone else from refusing to “pay back” money that they “borrowed.” So this almost certainly wouldn’t work today, and I wouldn’t recommend trying it. Especially since banks are much more powerful and entrenched than they were in Jerome’s day, and you’ll be hard-pressed to find a judge who will give you a fair ruling. You also won’t find a judge who will give you a fair ruling if you fight the IRS, even though the IRS requires you to give up your Fifth Amendment right, even though the IRS is illegal, even though the Sixteenth Amendment was never ratified, and even though there is no law on the books which requires anyone to pay taxes. These are all facts, and they will all be discarded by judges, so I don’t recommend not paying the IRS either… Though you shouldn’t, because it’s illegal and unconstitutional for them to make you give up your Fifth Amendment right and since the Sixteenth Amendment was never ratified, thus the Federal Government cannot levy any direct or unapportioned taxes like the Income Tax. But don’t try it. I’m not encouraging you to fight the system in this matter; I’m only saying that the system is cheating.
None of these things can cause real economic growth. They can cause the illusion of economic growth, and certainly some investments can yield pay-offs and rewards. If investment didn’t work, the stock exchange wouldn’t exist. But the Government has no right to steal from us to invest in this thing or that thing, especially since We the People won’t be given any pay-off or reward from the investment. But the Government isn’t supposed to be in the business of trying to make a profit… Moreover, all of these “investments” are paid with money that is created out of thin air and then repaid by the American People. The Government doesn’t make Dollars; the Government borrows money from the Federal Reserve Bank. Don’t let the name fool you; it’s no more part of the government than is Federal Express. The Federal Reserve Bank is a coalition and cartel run by twelve privately owned banks and receives no oversight from Congress, reports to Congress only a few times a year and isn’t accountable for anything, and has never been audited. The restrictions placed on Congress in examining the actions of the Federal Reserve are insane when you consider how powerful the dollar is and how much of an impact it has on our daily lives. In “End the Fed,” Ron Paul notes that the Federal Reserve Act of 1913 shows that:
Audits of the Federal Reserve Board and Federal Reserve Banks may not include:
Transactions for or with a foreign Central Bank [because we did pass a law a few years ago that allowed us to marginally audit the Fed, we learned that the Fed (short for “Federal Reserve Bank”) had been propping up the dictator of Libya], government of a foreign country [we also learned that the Fed was propping up numerous other dictatorial governments], or non-private international financing organization [such as the WTO and the World Bank];
Deliberations, decisions, or actions on monetary matters [which is 99% of what the Fed does…], including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations [basically, we can’t audit anything they actually do];
Transactions made under the direction of the Federal Open Market Committee; or a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1) — (3) of this subsection [basically we can’t wiretap them even if we get a warrant… The Fed’s privacy is better protected than the privacy of Americans].
So other than the minute pieces of information the Fed voluntarily gives at its Congressional reports, which is a very small part of the actual information, we generally have no fucking clue what the Fed is up to. We have given them full power over our currency, and then we relinquished any authority to keep tabs on them.
Money Is Not Wealth
Pouring more money into any economy will not create wealth. As I mentioned above, if a gallon of milk costs 25 cents when there is $1,000 in circulation, then putting a total of $2,000 in circulation will not create wealth–it will only devalue the existing $1,000 and make the lives harder of anyone who has retired or who has no income. It certainly won’t create wealth.
A currency is just a system of measurement. It’s critical to remember this. A currency is how we measure the value of our productivity and the value of our resources and products. That’s all it is. Changing the value of a dollar won’t create wealth, and this is all that pouring money into an economy does; it only changes the value of a dollar. If you’ve got a pile of wood, then no matter what you measure it with, you won’t ever have more or less wood. The measuring system which you use will have no impact on how much wood is actually there. You could use inches, centimeters, yards, or a system you make up–none of it will change the amount of wood in the pile. You can even increase the “value” of an inch by doubling an inch’s size–but that won’t change the amount of wood in the pile. You can decrease the “value” of an inch by halving an inch’s size–but that won’t change the amount of wood in the pile. Ultimately, people who think we can grow the economy with grants, subsidies, and bailouts believe that we can change the value of an inch and somehow get more or less wood. But the amount of wood never changes. The only way to change the amount of wood is to get rid of some of it or to add some more wood to it; changing your measurement system will not change the amount of wood.
And the way we change the amount of wood in the pile that is our economy is by letting competition take over. Competition creates wealth. Competition creates efficiency, skilled workers, incentives, creativity, problem-solving, and, ultimately, wealth. The only way to “grow the economy” is to allow competition to be enhanced. And how can we enhance competition in the United States economy? Simple: we get rid of the primary factors that are detrimental to competition: Government Regulations. We let the Free Market take over. If a company pollutes too much or offers bad service or any other thing, then, in a Free Market, people would stop using that company. If there was competition, they wouldn’t be forced to use that company and “voting with their wallet” could actually MEAN something. But as long as we’re limiting competition with government regulations, voting with a wallet has no real impact. We don’t need the Government to make Texaco stop polluting (I don’t know if Texaco has a problem polluting or not). Society and the Free Market can do that all by themselves by not using a company that pollutes excessively.
Take the power that you should, as an American Citizen, have. Don’t let the Government tell you that you are powerless or that you need them to have your power. No, man–fuck that. You, in a Free Market, would have the power to regulate companies and businesses. Naturally, the State doesn’t want you to have that power; they want to have that power. So you’ve been told all of your life that they’re the only ones who can do it, that we need them to have that power, and that we shouldn’t or can’t have that power. But the same power we’ve given the Government…? It came from us. It’s OUR power. We can not only use that power–we can use it more effectively than the Government ever could.
* This was originally “clapping,” but I changed it because it sounded really bad to say “generally give me good quality claps” with the Clap being an STD.
** It should be noted that we now generally force doctors to volunteer their time at free medical clinics. We wouldn’t allow this in any other industry. We wouldn’t allow the government to force I.T. companies to spend one weekend a month working on the networks of schools (I’m scared to say that, since the wrong politician may read that and decide that we should do it). We wouldn’t allow the government to force Wal-Mart cashiers to spend two days each month working at the DMV. As I’ve stated before, we have no authority or justification in forcing people to do what we think is right.
*^ Actually, I took Economics in the first semester of my Senior year. It was a one-semester class (I don’t remember what I took the second semester because I… didn’t go back, so I didn’t take anything the second semester of my senior year) and it taught me nothing. It didn’t teach anyone anything, because the guy who taught us Economics was one of the football coaches and he knew nothing about the subject. All he did was have us read passages then answer the questions. There no lectures, no creativity, and no attempt to foster understanding. Moreover, Economics was an elective; I took it only because I like learning things and always have. But it certainly wasn’t a requirement of the curriculum. It should be.
Because Obamacare is about to hit us (unless the GOP performs a miracle for the wrong reasons), I focused this blog on the law in question and also went into some basic economics, the Federal Reserve, and again into Free Market Principles. As you can see from the final paragraph, this ultimately comes back, as did the previous two blogs, to Individual Responsibility. We have the power to use the Free Market to regulate corporations and businesses. We’ve simply lent that power to Government. And they’ve bungled the job, crushing the Market, and creating numerous problems. It is high time we took that power back, because we’re the only ones who can use it effectively. All the Government can do is fuck things up more.
I meant initially to focus this blog on “What is Anarchy? How does it work?” But I decided that, before I get into that, I must first go back into the Free Market and the power which Individuals hold. YOU are more powerful than any Government could ever be. Accept that power. Do not hide from it.
If you want to know more about the Government, what we created it for, and what function it has in our Society, misidentification of the Self as the State, and a demolition of the notion that a “Society” actually even exists, then read Anarchocapitalism, A Review Of: Part the Second. If you’re curious about the Free Market, Representative Governments, the failures of Welfare, the counterproductive nature of Social Security, Medicare, and other programs, and how the Free Market and voluntary principles can handle all of these things more effective, then read Anarchocapitalism, A Review Of: Part the First. If this paragraph is the first time you’ve seen the word “anarchocapitalism,” then go to Part One and then come back here.
Hopefully, I will actually address the meaning of Anarchy in Part Four. But no promises. This stuff must be addressed incrementally. As always, if there is something in this blog that is not adequately explained or which you do not understand, please comment seeking clarification. I want this series to be easily understandable.