A Good Stimulus Analogy

Here is a good analogy regarding the recently passed economic stimulus:

Shortly after class, an economics student approaches his economics professor and says, "I don't understand this stimulus bill. Can you explain it to me?"

The professor replied, "I don't have anytime to explain it at my office, but if you come over to my house on Saturday and help me with my weekend project, I'll be glad to explain it to you." The student agreed.

At the agreed-upon time, the student showed up at the professor's house. The professor stated that the weekend project involved his backyard pool.

They both went out back to the pool, and the professor handed the student a bucket. Demonstrating with his own bucket, the professor said, "First, go over to the deep end, and fill your bucket with as much water as you can." The student did as he was instructed.
The professor then continued, "Follow me over to the shallow end, and then dump all the water from your bucket into it." The student was naturally confused, but did as he was told.

The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool. The confused student asked, "Excuse me, but why are we doing this?"

The professor matter-of-factly stated that he was trying to make the shallow end much deeper.

The student didn't think the economics professor was serious, but figured that he would find out the real story soon enough. However, after the 6th trip between the shallow end and the deep end, the student began to become worried that his economics professor had gone mad. The student finally replied, "All we're doing is wasting valuable time and effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before, so all you'll really have accomplished is the destruction of what could have been truly productive action!"

The professor put down his bucket and replied with a smile, "Congratulations, and welcome to socialism. You now understand the stimulus bill."

This analogy demonstrates one method in which wealth can be destroyed. Given that we have a finite lifespan and can only do so much during our lifetime, any moment we do not create wealth is a moment in which wealth that could have been created will now never come into existence. The time that it takes for the stimulus to collect and distribute the money will be potential wealth that is lost forever.

But this is not the only method in which wealth is destroyed. To be clear, wealth is created when one creates a product/service that is worth more than what had to be paid in the costs of production. If it takes $90 to create a piece of technology that is valued at $120 on the market, then $30 of wealth is created per unit*. In the same vein, wealth is destroyed if time is wasted by creating a product/service that is equal to the cost of production (again the issue of time) or is worth less than the cost of production. So if money is taken away from Skillful Joe and given to Average Joe, wealth is not only destroyed in the actual transfer but also by Average Joe, who cannot seem to make a decent profit. Worst yet, if money is taken away from Skillful Joe and Average Joe (Skillful Joe is always taxed) and then given to Below-Average Joe, then wealth is destroyed at an even faster rate because BA Joe is always going bankrupt and throwing money into a black hole.

This list is not exhaustive, but it does illustrate how taxation is harmful, no matter what the intention.

One way that the stimulus will destroy wealth in its own special is by creating economic distortions that may deceive all the Joes into throwing his money into a profit venture that is really a false boom. The distribution of money (in cases where money is printed and put into the economy or when one area is taxed for the benefit of another) can sometimes lead to, at first, a concentration of money in one area of the economy. The concentration of what appears to be “profits” may deceive some people into thinking that that particular area is very profitable and then engage in it when in reality no new value has been created. Once the money has been fully absorbed into the economy people will see their profitable venture was in truth not profitable at all, and the saturation of competitors, products, and services drives the value way down.

Numbers do not lie, but the people manipulating them do.

*This assumes a sound monetary policy, which in that case one can properly measure value in monetary terms. Since the U.S. does not follow a sound policy, I would recommend measuring value in terms of purchasing power, i.e., how many goods and services one afford.

Objectivist Roundup

The latest Objectivist Roundup has been posted over at Making Progress.

For those that do not know, this is what is known as a "Blog Carnival." The purpose of such is to gather links to the best blog posts or so of authors that share an interest or theme. In this case, the Roundups gather together posts from authors that are supporters of the philosophy known as Objectivism.

If you have enjoyed my posts then perhaps you might enjoy some of these articles.

Socratic Questions about the Israel-Gaza Conflict

One of the worst things anyone could do in a debate is to allow an opponent to get away with asserting context-less "self-evidencies" in their position; that would be allowing them to win by default with little chance of appeal. This error of debate has been especially prevalent during the brief war between Israel and Gaza, where some moral evaluations of the situation were given as self-evident and thus pitting the world against Israel from the start. To counter this problem we must employ the Socratic method of questioning, i.e., the method questioning that makes the person reduce his or her positions into underlying premises that support them and those premises into further premises and so on, until one finds he has hit the bottom. But we will not resort to reduction to such a depth; after all, the Socratic method got Socrates killed. We must use such a method sparingly lest our opponents refuse to converse with us.

Using this method has multiple benefits. By making explicit your opponent’s premises you may be able to convince people witnessing the debate (whether it be online or verbal) that your position is correct, even if you should happen to fail to convince your opponent. If your opponent is dishonest, then you may undercut his confidence in his position and perhaps prevent him from spreading his ideas around. Or if your opponent is honest, he may realize that his position is not sufficiently supported or is without merit and will examine himself. And so on. You will not know until you try.

The way this essay is formatted is that we will start by introducing a question that needs to be asked about the Israel-Gaza conflict but has been left to implicit defaults, and then dissect it. In the first paragraph underneath the question I will state the popular opinion and then in the following paragraphs explain what is wrong with it.

Now, let us boil down sloppy thinking into essentials.

* * * * *

1.) Should a killer or an army be acquitted of aggression just because of its lack of competence?

Before a war starts we of course have a reason it was initiated. The reason Israel decided to go to war with Gaza is because the army of Gaza had been firing missiles into Israel for several months in an attempt to kill civilians. After months of a disobeyed cease-fire, Israel took action. But the public thinks that its actions were excessive and not justified by what aggression had occurred, that Israel should not be taking out cannons to combat butter knives.

The big error here is that such people have dispensed with moral principles and are trying to judge the appropriateness of a course of action according to what already has happened instead of what may happen. Since, the popular opinion states, the missile attacks have been almost futile there is no need for action. But this ignores two things: to let any type of evil army to continue to exist is to allow the possibility for them to grow stronger, and no army bent on victory is going to quit until the odds are excessively in or against their favor. The former point shows that judging armies only by what they have done is an extremely dangerous and ignorant route. Just because Hamas today is attacking with "poorly" made missiles offers no assurance that they will not drop bombs tomorrow or launch nuclear weapons in the coming years. To wait until such a situation arises is to wait until it is too late. The latter point tells us that to win a war is to destroy the opponent's will to fight. So long as either side sees a chance of getting ahead of its opponent will neither side back down. This is why America won WWII: Japan had to pay the price of having two cities leveled in exchange for its bombing of Peal Harbor; an arm and a leg were given for an eye.

2.) Do perpetrators of evil have rights?

Except for the perpetrators themselves, rarely anybody disputes that the actions of some countries in the Middle East are evil. There are plenty of articles listing the brutality of the civilians and government, including everything from sulfuric acid attacks on women to stonings as par cultural norm. But with Israel, however, it is of opinion (and rationalism) that it has cast the first stone by taking land from Palestinians and therefore has brought upon itself the attacks and widespread hatred.

Again the public has dropped principles in favor of a concrete mentality; only this time we have the absurd problem where a person has two different opinions on one subject because of scale. To give an example, it is rarely argued against that a robber or a murderer deserves to be punished and lose their rights because they have violated other’s rights. If, however, we change the scale so that we are dealing with an entire country of robbers and murderers, the same people that would agree with the previous statement of justice may now conclude to the contrary that this country does have rights. But again, it is only a difference in number we are dealing with; we have the same subject with two opposing opinions. In a group these persons see not a collection of individuals, but a new, unique entity.

The fact is that anyone or anything that does not observe rights cannot have rights, and this subsumes both cases where a person may be actively violating rights and cases where a person may not have conceived of rights. To assert the opposite is to make the concept of rights useless. What is the use of saying there are property rights if people are allowed to steal without penalty? How can one say there is a right to life if a murderer may take lives while retaining his own? In order for rights to be observable and respected by other people there must be penalties for not respecting them. A robber gets time taken from him by being incarcerated; a murderer compensates with his life.

In the case of Israel and Palestinians, the Palestinians did not have a moral right to that land since they did not observe rights; therefore Israel was morally justified in its establishment.

3.) Who is responsible for the killing of innocents in war?

This is by far the biggest issue in the Gaza war and by far the most lazily treated by the public. The popular answer merely consists of “It is morally wrong to kill innocents in war” without further digging. We shall give this one a lengthy treatment, for not only is it the worst misconception but also the most damning one for Israel.

This is where is becomes evident that these “self-evidencies” are being asserted outside of context. Yes, it is true that killing innocents is wrong in war, but one must distinguish between the person(s) who physically carries out the killing and the person(s) that is responsible for it. Because of this failure to distinguish, people automatically assume that the responsibility of killing lies with the person who physically does it. In truth, the responsibility lays with those that have caused the situation to arise and force a person to act in such way. If Gaza had not been aggressing against its own citizens and against Israel then Israel would not have had to go on the offensive as it did, so therefore the government of Gaza is to be blamed for the casualties of innocents. To clarify our thinking for the future, do not equate killing with the notion of being automatically responsible for it, but do equate being responsible for murder as the same thing (in a moral sense) as having done the physical killing itself. To rephrase using these terms, Israel has killed civilians but the government Gaza is responsible for it in the same fashion as if its agents had done it.

But the public’s mistaken conception has done much more harm than merely misplacing responsibility; it has undermined Israel’s efforts and empowered the Hamas army. What the public failed to perceive is that some ideologies, evil ideologies nonetheless, maintain that the end being pursued is of such moral status that it becomes morally acceptable to use any means to acquire that end. As the familiar saying goes: “The end justifies the means.” Since both the majority of the United States and Israel accept the notion that the killing of innocents in war is wrong (in the context-dropping sense), Hamas is empowered by being able to exploit this ethical tenet. And so then we have the case where Hamas soldiers dress in civilian clothes, use children as helicopter spotters, and hide in civilian buildings. Israel was put in a damned-if-you-do-damned-if-you-don’t situation, for if they restrained themselves towards “civilians” Hamas got the upper-hand, and if they did not restrain themselves then Hamas would use the casualties as propaganda. Hamas succeeded in creating a situation where it was seemingly impossible to act morally.

Not only that, but this ethical tenet offers a deadly distraction. Consider this philosophical hypothetical:

Let us assume you are driving a trolley car. After a while on the trip, you come to three people tied to the track. You can save them by pulling a lever and changing track, but if you do that then you will set the trolley on course to where one person is tied. What should you do and why?

Nowhere in this hypothetical is there even so much as a passing mention of the person who is tying people to tracks. All the focus, and perhaps even blame, is directed at the poor soul driving the trolley, while the villain is forgotten. It works exactly in the same way in the Gaza war. By accepting that any direct killing of innocents in war is wrong, everyone has focused on how many civilians Israel has harmed while ignoring the people who put them in that situation, so Israel is blamed while Hamas is forgotten. To prevent such from happening again, we must always first ask as to why the situation has arisen to begin with instead of examining how the people have acted in it.

* * * * *

All of these questions which have been lacking serious debate have served to seriously harm Israel by retracting its efforts and eventually causing it to lose the war (explanation below). The confusion of how to gauge immorality and competence has allowed the Hamas army to grow with temporary impunity. The confusion of rights has lead to the belief that the aggression against Israel is justifiable and “understandable". The confusion of responsibility has made Israel reduce its efforts while allowing Hamas to intensify its own.

Israel withdrawing from Gaza was not ending the war in a stalemate, but in total loss. As I have written before, life is what makes the pursuit of values possible and must therefore be the standard of value, i.e., of morality. To be absolutely good is to be fit for existence; to be absolutely evil is to be dead. Evil brings nothing but destruction to itself and whatever it touches, so it has everything to gain from good. But good has nothing to gain from evil except loss. Hamas, in this case, has won an absolute victory in this war and will be encouraged to continue its aggression. Whether Israel will win its next wars (which are inevitable) or not all depends on whether or not we win the war of intellect here in America.

Me Time on Valentine's

Today is St. Valentine's Day. I myself am particularly indifferent to it except for the pleasure of the sight of all the candy boxes and seeing the color pink on women, but for some this can be a spectacularly miserable holiday. Its misery has gone so far as to be a classic stereotype, but let it be known that each single person's misery towards the lack of romance is their fault. Not their fault along the lines of being undesirable or having bad luck or whatnot, but their fault along the lines of accepting the notion that being in a relationship is necessary to one's happiness. This could not be further from the truth.

The underlying issue to the problem is the chosen standard of happiness, that is, what people choose to base their happiness on. In principle, there are two types of this kind of standard: either one's standard is based on something within one's control or it is not. If the base of one's happiness is not in one's control, then the obvious problem one will run into is that what will be achieved will not be happiness; rather the best-case scenario will be that one will achieve occasional periods of good moods that can be stopped at any time. This is the problem miserable single people face on Valentine's. Implicitly, or (less commonly) explicitly, such people have placed their standard of happiness, at least some of it, on other people. But one cannot arrange people as one arranges furniture. It does not matter how sexually attractive a person is on the outside or inside (considering people paying attention to personal traits), one simply does not have the power to guarantee a satisfying personal relationship at any given time, which is what leads to the discontent of single people reminded of their relationship status on Valentine's.

Furthermore, this irrational standard leads to the disregardance of an essential component of happiness: self-love. If one does not love oneself, then a love of other people is impossible. This arises for two reasons:

1. Nobody can escape or be parted from their *self*; so if there is an absence of self-love then one is always around in the presence of a person one dislikes. Such people cannot bear the thought of being alone for any reason.
2. Self-love is a corollary of self-esteem, the psychological attribute of the individual confident in his abilities. Such individuals feel that they are worthy of pursuing and achieving values, so without self-esteem one will not believe one is worthy of having values and people will become an escape from an unpleasant reality, not an affirmation of a pleasant one.

To quickly summarize, not only does one need a rational standard of happiness to be able to form a consistent sense of life, but also one needs to attain a degree of *self sufficient* happiness before pursuing the additional value of people at all.

Of course, then double questions pop up: how does a rational standard of happiness translate into practice and how does one go about establishing self-love? The answer to both is the pursuing and achieving of goals. To repeat, a rational standard of happiness and self-love are logically connected and can be established in the same way at the same time. You do not like that you spend most of your morning oversleeping? Start setting a bedtime and a wakeup time, and move the alarm clock to the furthest part of the room; you will like yourself all the better and be happier. You do not like that you are ignorant? Start a study routine or form a mental habit of focusing on trying to understand what one deals with; you will like yourself all the better and be happier. And so on. The point is to identify attributes you admire as being a part of your vision of the ideal person and then work to integrate them into your own habits. After a time, one will have created a self that one can admire and love, and thereafter only the maintenance of the desired attributes will be necessary. That is when one can start pursuing people as values, to offer spice, not subsistence.

If all single people fully understood the necessities of happiness the stereotypical gloom of Valentine’s Day would disintegrate and much less often would a person’s sense of life risk being destroyed by something as simple as an unsuccessful relationship. We would also have many more people who would be able to enjoy their alone time more often, as they will always be around a loved one. In short, everyone would be much better off and happier. So remember: love yourself before all else.

Pushing Paper Around

John Tomlinson has written an excellent article regarding the economic stimulus package. To sum it up, a good portion of the economic stimulus has nothing to do with stimulating the economy and most of it will not be spent until between 2010 and 2019, when the recession is either healed or over with.

I would also like to add that regardless of its purpose any economic "stimulus" that the government proposes is destined to fail and will only make things worse. The government *cannot* create wealth, it can only destroy it, due to its current method of funding, taxation, and its two methods (direct and indirect). Direct taxation is direct confiscation of the money of private citizens, which is the most explicit form. Indirect taxation, however, is much more secretive (perhaps even to politicians ignorant of economics) as no physical object is being taken, but rather its value. This is done by printing money. Since we have a fiat monetary system (money that is not backed up by any valuable commodity), the value of each unit of money is prone to changing according to the total number of units. When the government prints money it has confiscated the value of the monetary wealth of private citizens and the ignorant never even notice it.

This is why the stimulus will fail: when an excess of money is printed the prices go up to accommodate the new cash, which leaves the economy right in the same position as before. But it is during the transition when people are benefited and hurt by new money. For example, say that the government prints money for an economic stimulus so that persons X may have a higher "purchasing power." When they receive the money they start immediately spending it at their desired stores to get more goods and services than they did before, and to deal with this increase of demand the stores increase their prices. But persons Y did not receive any of this money and now they have to deal with higher prices; they can buy less goods and services than before. Persons X, in this situation, was only able to benefit at the expense of persons Y. Of course, on the total, everything balances out and nothing has been lost or gained.

If we are lucky that is possibly all we will have to deal with, but given how people depend on the government we may see corollary actions. To go back to persons X and persons Y, let us assume that persons Y is outraged with the "unfair" price increases and then demands that the government set price ceilings so that businesses only take their fair share. What happens then? Given the artificial purchasing power now belonging to both person X and Y, the demand for the given products and services will succeed the available supply, leading to a shortage. Worst yet, given the limitations on profits, the particular businesses either will not have enough capital to continue business (and will go bankrupt) or do not have any incentive to replenish their resources, which leads to scarcity. Wanting to get a bigger share of goods and services, persons Y has foolishly created a situation where there are fewer goods and services.

The ball rolls on however! What if, in an attempt to remedy the problem, the government makes the particular businesses' resources forcibly cheaper? Now we have scarcity in increasing circles that not only harm the standard of living for persons X and Y, but also for A, B, C, Z and so on. What started out as a temporary imbalance of purchasing power between groups has turned into a full-blown depression.

To refer back to the real economic stimulus, all the simple errors inherent in it can be recognized merely by spending a few days with an introduction to economics book, which means that these politicians know the stimulus is going to fail and are purposely pursuing it because they see the opportunity for a power grab. Let us retain this in our memories, so as to keep in mind the cause of all the bad things we have coming to us.

Banning Utility Shut Offs Allows Stealing

Recently it has been reported that a man in Michigan froze to death in his home; he had over $1000 in unpaid bills and to remedy the problem the problem the electric company installed a limiter that turns the thermostat down according to how great the unpaid amount is. It has been proposed (and enacted, if I heard correctly) that the electric company not be allowed to cut off power during the winter months, and in some areas this is already a law. What I am going to demonstrate is that this "solution" is both immoral and impractical, and that the electric company had a right to limit or cut off the Michigan man's power. Let us first focus on the practical side by applying the lessons we have learned from The Consequences of Not Facing Consequences.

Let us assume that in an area there is a law that prohibits electric companies from cutting off anybody's power during the winter months, regardless of reasons. What happens then is that the consequence of not paying one's power bills is seemingly removed; if you pay your bill then you may continue to consume electricity, and if you do not pay your bill you may still continue to consume electricity. The incentive to pay one's power bills is now removed, or at the very least reduced. Some people may start to use the money they would use for the bill for a rainy day fund instead, only paying when absolutely necessary. Others may be more irresponsible and use their money for unnecessary things or never intend to pay their bill, which is outright theft. How does this affect the electric company?

Now the electric company is in trouble! Their costumers are consuming their resources but they are not getting enough profits to either improve their resources or even so much as replenish them. If the problem is small scale and not so many people are ignoring their bill, then that means that price rates will increase for everyone and the responsible people who do pay their bills will be punished. If the problem is large scale and very many people are not paying their bill, then the company could go into total bankruptcy and then everyone using electricity from them will lose power and possibly freeze to death. A body that has no subsistence cannot hold life (in this case, a business without money cannot stay in business). But the latter scenario is worst-case and very unlikely. Before the company went bankrupt the government would step in again and either nationalize the company, which would put ignorant bureaucrats in charge of a specialized business, or would try to forcibly make its resources cheaper, which only spreads the scarcity and bankruptcy. In the case of the nationalization, the electric bills one thought one could get away with not paying are now being paid with one’s tax dollars; only now power may be rationed (limiters for everyone) or more prone to outages. In the former scenario where prices are merely increased, one could also run into the same problems. People have a tendency to regard a lower price that existed in the past as the more “normal” price than a higher one, even though prices are contextual, so a person may be upset that his bill went up “unfairly” and then demand that the government push prices down to more “acceptable” rates. Again the company curtails bankruptcy by not having capital and again the government steps in to nationalize the company or make its resources cheaper. Rarely ever does the government blame its policies for the problems, because for that the politicians would have to openly admit fault, so thus we get ourselves in a vicious circle of government intervention, failure, more government intervention, more failure.

As you can see, the government’s attempt to prevent anyone from freezing to death could very well leave *everyone* frozen to death, or at least a reduced quality of life. But not only is the proposed solution impractical, but also morally wrong.

Life is what makes the pursuit of values possible, so life must be the standard of value, i.e. of morality, to refer to when choosing values if life is what one wishes to keep. Whatever benefits life and makes one live longer is a moral good; whatever harms life and makes one live less is an anti-value. In a civilized society, one sustains one’s life by production and trade, which requires the use of money. When the government prohibits the electric company from cutting off power it is allowing for people to steal its resources, thus violating it property rights in two ways. The company takes monetary losses and the people employed there are less able to survive. In our worst-case scenario where the company goes bankrupt, the employees cannot buy their groceries and the electricity consumers cannot have their heat; both have lost. To protect the survival of one party the government has compromised the survival of both.

To bring back the focus on the news story presented, the electric company had full moral right to limit that man’s power consumption. Without paying his bill the man was not morally obtaining his power, and to prohibit the cutting off of power is to advocate stealing. Stealing, we know, is not healthy for anyone, even if one needs the object.

If we want to prevent another person from freezing to death we must learn to respect property rights and to let people face the consequences of their actions and decisions.

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On a related note, Kendall Justiniano has started a new blog that specializes in the discussion of economics and economics as related to current events. I recommend it, for so many blogs only brush by on economic principles and do not fully explain themselves, leaving its readers unsatisfied.