All posts by Amber

On ‘Demand Side’ Economics

With tax day around the corner, I am offering “On Demand Side Economics” for free! In it, I seek to explain free market and Austrian economics as clear as possible and why Keynes was wrong. I ask the Tea Party to consider a return to the gold standard as a platform of theirs. Only available until April 19. Please share!

On ‘Demand Side’ Economics: Why Spending Cannot Improve an Economy but Freedom Can

Keynes gets the problem of economics completely backwards. The problem of economics is unlimited demand with limited supply. The implicit argument of Keynes is that the problem of economics is limited demand with unlimited supply.

When you trade an apple for an orange, which one of you is on the “demand” side and which one of you is on the “supply” side? You are both at the same time.

Monetary deflation happens in the same way that a balloon deflates: it can only deflate after first being inflated. “Deflation” is not a legitimate ill and is only secondary to the primary ill of inflation.

I will concede that turning on the money spigot is indeed “stimulus.” But it is a short-lived one that results in a worse crash. Stimulus money can be compared to drinking an energy drink for energy instead of eating a well-balanced diet.

Wealth of Nations Book Report

My latest! There is even a quote from Battlestar Galactica in it!

Wealth of Nations Book Report

The amount of information that Adam Smith integrates in this book demonstrates an enormous intellect at work. He combines knowledge of geography, history, industry, and, of course, economics. The term “laissez-faire capitalist” had not been invented yet, but he refers to the ideal government as being one “in a perfect state of liberty.”

The idea that public debt is acceptable “as long as we owe it to ourselves,” is the same as saying that it is OK that your brother-in-law owes you money because it is “all in the family.”

“I have never known much good done by those who affected to trade for the public good.” — Adam Smith

Rational Love

In celebration of Valentine’s Day, I am offering Rational Love, an article in Objectivist Sexuality: An Outline for Happily Ever After for free. It will be available until February 15, 2011. This article gives a defense of love being based in rationality not blindness. It discusses the epistemological and moral roots of love.

 To receive the statement “I love you” from a person is not free. Quite contrary, it demands the highest price: the price of being a morally achieved individual. This piece is meant to present the Objectivist version of love, which is rational love.

Rational love is a love based on fact with man’s mind serving as the appraiser. The object of affection is brazenly open and clear in front of one’s eyes. Love is not blind, but rather one is highly conscious of who and what their lover is.

How much you pay in taxes versus how much you get

It’s that time of year: Time to do your taxes. In doing mine, and guessing what my husband I owe, I wanted to compare it to the government services I receive and to ask myself if I felt what I was giving is what I was getting.

The first thing that I thought of is that it is hard to put a price on the security provided to us by our U.S. military. My instant reaction was that the service is priceless. But then I thought of a way to put a price tag on it.

To get an estimate of how much security is worth, I took a look at our federal budget for 2010.

The total budget is $3.5 trillion. If we take only things as they pertain to security, the list is this for a total of $834 billion

$663.70 billion Department of Defense (including Overseas Contingency Operations)
$52.50 billion Department of Veterans Affairs
$51.70 billion Department of State and Other International Programs
$42.70 billion Department of Homeland Security
$23.90 billion Department of Justice

There are slightly over 300 million people in the United States. Only 63% of them are between the ages of 18-65, making for about 193 million.

If you take how much security costs and divide it by how many people there are, that total is $4,300.

This is arguably how much it costs per person for security. If married, that amount is $8,600 per couple.

How does the cost for this stack up against what you owe?

It’s still the economy. New chart showing Presidential Approval Rating to Dollar Worth

The last chart I posted comparing Presidential approval ratings to the dollar worth could have been done better. Unfortunately, the dollar lost so much value that the years from 1980 just look like a flat line. A human eye cannot pick up any differences.

Therefore, I put a new chart together. In this chart, I re-adjust the dollar to be worth $1 every time a new President took office. Therefore, for each President the dollar can be considered to be “[Original inauguration year] dollars.” So, for instance, under Reagan, the dollar’s worth is “1981 dollars,” as President Reagan was inaugurated in 1981. If the President won 2 terms, I did not re-adjust the dollar again. Both the dollar value and the Presidential approval rating was taken in December of each respective year. I measure the worth of the dollar by using the price of gold as compared to the original year.

I chose the timeline I did because the U.S. went off the gold standard in 1973. Thus, before 1973, the dollar, being pegged to gold, never fluctuated in price. In the years leading up to the removal of the gold standard, the government devalued the dollar.

Below is the new chart:

This chart is much more intuitive to the human eye. Click on it to see a bigger chart.

I did this to test a theory of mine: that although the dollar is not a standard campaign issue, if the dollar is weak, the economy will be depressed, and thus the Presidential approval rating will be low. People may not say “We want a strong dollar,” but it is one of the key factors in a strong, stable economy. What I would propose to each President of the United State is this: Be interested in a strong dollar. Your constituents may not be calling you to demand it, but it IS in your interest to keep it strong.

It’s pretty clear that as the dollar increases in value, the President’s approval rating also increases and vice versa. It is most obvious during Bush II years where the dollar was in free fall and so was his ratings. As the dollar generally creeped up during the Clinton years, so did his popularity. As the dollar plummeted during the Nixon and Carter years, so did their approval ratings. The Ford years produce a perfectly symmetrical check symbol.

Certainly these two variables do not follow perfectly. There are many other factors that can influence Presidential approval. The most striking is during Bush I years. The dollar went up but his popularity went down. Again, we can clearly see Watergate (1972), the unpopular agenda of the first 2 years of the Clinton Presidency, and 9/11 having an effect on Presidential approval rating.

The price of gold goes up when fiat money is created. It is a result of the “printing presses” of the Federal Reserve, which, in our modern age, does not even need presses, just new electronic balances. Contrary to popular belief, this does not “stimulate” the economy. It does “stimulate” in that some businesses will start to boom, but they will soon bust later, leaving a huge wake. We’ve seen it with the dot-com crash and now the housing crash. Flooding the markets with fake money is like drinking an energy drink rather than eating a healthy, well-balanced diet. I have written a more expanded article on this topic, On Demand Side Economics: Why Spending Cannot Improve the Economy but Freedom Can.

Someone, please, rush this chart to Obama. Given his psychosis be the constant object of affection of adoring fans, he is surely desperate for high approval ratings. Someone show him that this is how to do it.

Why every President should be interested in a strong dollar

Click on image to see larger graph.

This is something I’ve been toying around with. It is based on the hypothesis that the Presidential approval rating will following how strong the dollar is. It thus compares the Presidential approval rating to the worth of the dollar. The worth of the dollar is an inverse of the price of gold.

I put horizontal lines at 40% and 60% approval ratings. In general, the country is about 40% liberal, 40% conservative, and 20% independent. At any time, a President should have at least 40% approval. If not, it means they have lost their own base. If they are higher than 60%, it means they have won over some of the other side’s base.

I am very much aware that other factors influence the Presidential approval rating. In this chart, we can clearly see Watergate, the unpopular agenda of the first 2 years of the Clinton Presidency, and 9/11 having an effect on Presidential approval rating. However, barring these major events, it seems generally true that if the dollar plummets, so does a President’s popularity and if the dollar stays stable, the approval rating is more likely to be high.

A strong dollar is at once both a cause and indicator of a good economy. Thus, this chart more proves that a good economy is the reason for a President’ popularity. In the words of President Clinton, “It’s the economy, stupid.” However, a good economy is not a mysterious creation. It is a result of free markets, low regulation, and sound banking. A strong dollar is the solid foundation on which a good economy is built.

The dollar clearly plummets from 1969 until 1974. The US went off the gold standard in 1973. Leading up to this, the U.S. government decreased how much gold would be given for each dollar. President Nixon was impeached in 1973. While the Watergate scandal certainly had a lot to do with his unpopularity, so did a bad economy.

Next, Ford completed Nixon’s term. There is a slight upswing in the price of gold, and his popularity increases as well.

The next major plummet of the dollar is during the Carter years. There is a straight decline during these years. These years were also marked by “stagflation.” This economic downturn did contribute to Carter losing re-election.

During the Reagan, Bush Sr., and Clinton years, the dollar stayed relatively stable. These are years recorded as undeniable economic prosperity. Of course, in the 1980s it was called “Greed” and in the 1990s it was called “Prosperity.” People were generally happy with the economy, thus happy with their President. George Bush Sr. did fail re-election but many attribute this to his broken promises, an uncharismatic personality, and the Ross Perot factor. Also, he was running against Clinton–who made the economy his platform. Clinton went out of his way to show that he would guard against too much public debt and keep the economy prosperous. By running on this platform, I believe, he was able to attain, really, extremely impressive ratings.

George Bush Jr.’s high popularity in 2001 and even in a few years after it was clearly attributed to the attacks on 9/11. However, after this, his popularity declined almost in perfect sync with the value of the dollar.

If you notice, the only 3 times that the  approval ratings fall below 40% is during the Nixon, Carter, and Bush years–all times when the value had either a sharp decline or a steady but long one.

Now enter hope and change. Due to his newness and historical election, Barack Obama enjoyed high approval ratings. However, that he has paid no attention to the economy, job creation, and yes, the value of the dollar, he is fast slipping into George Bush Jr.-like popularity decline.

So what can a President do, i.e., how does one create a strong dollar? It is simple: don’t create fiat money. A previous post of mine shows how the creation of fiat money, from the Federal Reserve, has driven up the price of gold and thus driven down the value of the dollar.

The bottom line is this: Presidents need to wise up to the importance of a good economy, and, thus, the importance of a strong dollar. While bailouts and government programs may be politically popular among certain special interest groups, they mean almost certain doom for their Presidency in the long run. This “stimulus” money is in fact completely ruinous to an economy. Prudence, savings, and industriousness are still, believe it or not, the path to prosperity–not hyper-consumerism, easy lending, and debt.

If Obama wants to turn around his Presidency (which I don’t think he does), he is going to have to start speaking the language of how to create a good economy, and, more importantly, getting tangible results. A stronger dollar, higher employment rates, and higher returns on stocks are the tangible results. He is going to have to look at what Clinton did, who, after the 1994 Republican influx, reformed welfare. We don’t need more government programs we need A LOT LESS. In short, Obama needs to listen to the Tea Party–the allegedly racist, non mainstream ogres he so hates.

In a way, I love my country for so clearly rejecting the welfare handouts promised by the Democrats and so clearly demanding a return to sensible government. But in another way I am mad as hell that they elected them in the first place. Americans WANT a good economy and will so clearly vote out anyone who fails to deliver it to them. But it is as if they have no idea how to pick the correct candidate who will deliver a good economy. It is NOT mysterious. Free markets and limited spending will create a healthy economy. By definition, Democrat economic policies, which in the past several decades have been socialist, will NOT.

Anyone who has voted to elect these socialists in, for whatever reason, bears some guilt. To not put the economy as the most important factor in any election is to take your eye off the ball. It is focusing on the decoration of your house instead of the foundation. If both candidates are equally good (or bad) on the economy, then it is appropriate to look at other issues. But, if not, then it is morally reprehensible to vote in anyone who will destroy the very source of our livelihood. The only other issue to override the economy is the defense of the nation.

I am very much looking forward to Nov 2 and I hope, maybe, Washington starts listening!