Thursday, October 13, 2011

Paul Krugman's Obfuscation About Adam Smith

Stuart K. Hayashi

This particular blog post by Per-Olof Samuelsson alerted me to something quite troubling. Nobel Prize-winning economist Paul Krugman quotes from Adam Smith's The Wealth of Nations to give his readers the impression that Smith is advancing a viewpoint that accords with Krugman's when, in fact, it does not.

In his usual snide tone, Krugman states,
One line I’ve been seeing in various places, including comments here, is the claim that the real way to deal with Wall Street is laissez-faire economics: no more bailouts! On this view, policy makers should raise their right hand in the air, place their left hand on a copy of Atlas Shrugged, and swear in the name of A is A that they will never again step in to rescue failing banks. And all will be well with the world. 
He then says, "First of all, bank regulation is important even in the absence of bailouts. Don’t trust me, trust Adam Smith. Scotland invented modern banking; it also invented modern banking crises; and Smith, having witnessed such a crisis, favored bank regulations..."

As evidence, Krugman quotes this passage from The Wealth of Nations:
Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed. 
From such a quotation, we are led to believe that Smith is making a concession to Krugman's big-government view: to the mercantilist outlook that would eventually develop into Keynesian economics. However, when you read the Wealth of Nation paragraphs around the passage Krugman quoted, you find that the passage is part of a much larger argument that Smith is making. And that argument is actually contrary to Krugman's Keynesian intrusionism. Adam Smith was arguing in favor of a gold standard, wherein all paper money is backed by a hard metal.  The "regulations" Smith was urging were restrictions against the issuance of paper money that is not backed in any way by gold.

However, in the Keynesian economics that Krugman advocates, the federal government has rules in place that require that the quantity of monetary units in circulation can always increase by government fiat. The "stimulus" fiscal policies that Krugman espouses definitely preclude a gold standard.

The passage of Wealth of Nations that Krugman quoted was from Book 2, Chapter 2, Paragraph 93. In the very next paragraph, Smith talks about  this.
A paper money consisting in bank notes, issued by people of undoubted credit, payable upon demand without any condition, and in fact always readily paid as soon as presented, is, in every respect, equal in value to gold and silver money; since gold and silver money can at any time be had for it. Whatever is either bought or sold for such paper, must necessarily be bought or sold as cheap as it could have been for gold and silver.
Then in Paragraph 96, Smith continues,
It would be otherwise, indeed, with a paper money consisting in promissory notes, of which the immediate payment depended, in any respect, either upon the good will of those who issued them; or upon a condition which the holder of the notes might not always have it in his power to fulfil; or of which the payment was not exigible till after a certain number of years, and which in the mean time bore no interest. Such a paper money would, no doubt, fall more or less below the value of gold and silver, according as the difficulty or uncertainty of obtaining immediate payment was supposed to be greater or less; or according to the greater or less distance of time at which payment was exigible.
The "regulations" Smith was advocating were laws forbidding the arbitrary increase in the quantity of monetary units and laws upholding the gold standard.  Yet the ability of the government on increase the quantity of monetary units -- and the preclusion of the gold standard -- is essential to the Keynesian economics that Krugman sides with. And yet Krugman quotes Smith to imply that Smith is making concessions to a viewpoint more aligned with Keynesian governmental interference than with laissez-faireist hard-line gold-standard advocates like Ron Paul and, well, Per-Olof Samuelsson. You can see the Wealth of Nation paragraphs in question yourself over here in Book 2, Chapter 2. You can find the paragraphs in question (93-96) using the search words "payment was exigible".

Monday, October 10, 2011

Orwellian, Self-Contradictory Language from the New York Times

  Stuart K. Hayashi
The New York Times reports, "In a grim sign of the enduring nature of the economic slump, household income declined more in the two years after the recession ended [in June 2009] than it did during the recession itself, new research has found."

Um, if household income only worsened since June 2009, don't you think this indicates the recession didn't end
in June 2009? The Times is saying that the economy is worse in a period of supposed economic recovery than during the recession.

The same article continues, "The finding helps explain why Americans’ attitudes toward the economy, the country’s direction and its political leaders have continued to sour even as the economy has been growing."

Um, don't you think that if the trend since June 2009 has been for the economy to worsen, that indicates the economy has not been growing?

The New York Times reporter's verbiage is like something out of 1984 or Alice in Wonderland

Sunday, February 01, 2009

My One Complaint About 'Atlas Shrugged,' 2009

Stuart K. Hayashi

Writing this is an annual tradition for me, as February 2, 2009, marks 104 years to the day of Ayn Rand's birth. Of course, American culture associates the date of February 2 with yet another tradition. It is said that, on this day, if a politician crawls out of his hole and sees his shadow, then we will have sixty more years of federal farm subsidies.

A crusty old man once said to me, "I find Ayn Rand's writings v-e-r-y l-o-n-g - w-i-n-d-e-d."

I beg to differ with his assessment. On second thought, I don't even beg; his assessment is plain wrong. When I read a 1985 paperback edition of Atlas Shrugged, I enjoyed every syllable on each of its 1,084 pages. (Previously, I mistakenly said that this edition was 1,087 pages.) The prose sparked vivid images that made me feel as if I were gazing upon an exquisite painting.

Unfortunately, it all went by too quickly. Almost every other novel I read was much longer, or, at least, that's how it felt.

I was so enthralled by the grandeur of Atlas that I was quite sad to finish it. It was as if I were a small child again, and summer was coming to an end, and I was parting with a dear friend and playmate whom I would not be able to see again for the rest of the year.

And so I have only one complaint about Atlas Shrugged:

It was too short. :'-)

Saturday, February 02, 2008

My One Complaint About 'Atlas Shrugged,' 2008

Stuart K. Hayashi

Writing a post like this has become an annual ritual for me, so it's about time I do it again.

February 2, 2008, marks 103 years to the day of Ayn Rand's birth. The day of the month is of particular importance in American culture because, every February 2, if a politician comes out and sees his shadow, we will have sixty more years of the welfare state.

As for Miss Rand's magnum opus, I enjoyed every syllable on each of the 1,087 pages of the paperback edition I read. The prose sparked vivid images that made me feel as if I were gazing upon an exquisite painting.

I was so enthralled by the grandeur of it all that I was quite sad to see it eventually come to an end.

And so I have only one complaint about Atlas Shrugged:

It was too short.


Thursday, November 08, 2007


Stuart K. Hayashi

Lately, I have been watching the burgeoning Objectivist community on YouTube...

Recently, Objectivist "Qtronman" has made an Objectivist video lampooning YouTube's most notorious "Creation Science" promoter, "VenomFangX," and exposing the illogic of his video "Proof God Is Real."

You can see Qtronman's video, "God, Time, Space and a Chocolate Bar" below.

Friday, September 28, 2007

The SuperFerry

Pablo Wegesend

I have so busy this past month, that only I'm able to blog about the biggest controversy in Hawaii --- The SuperFerry.

The SuperFerry is a group of boats that transports people between the different islands of Hawaii. This is something that should've done a long time ago. That way, we're not over-reliant on airplanes to visit the other islands.

However, some on Kauai don't want any visitors! They're angry that the SuperFerry will give Oahu residents another way to (gasp) visit their island. They want Kauai to be same way it was when they were growing up! (Nevermind that NO PLACE IN THE WORLD hasn't experienced change in the last 20 years)

These anti-SuperFerry fanatics believe that their utopia island would be ruined by Oahu people who would clog their highways, shopping centers, and commit crime, etc, etc, etc.

These anti-SuperFerry were so pissed off about it, that when the SuperFerry made it's 1st attempt to travel from Oahu to Kauai, some came on their surfboards to block the SuperFerry, they yelled threats, and vandalized cars!

Let's call those punks what they are --- Nostalgia Fascists! They're so set on keeping their island 100% the same as was in the past, that they'll use violent tactics against any change, no matter how minor!

If that's how they're gonna be, this is how we ought to deal with them

1) No Kauai Nostalgia Fascist would be allowed recieve non-Kauai assistance if their homes were damage by hurricanes, tsunamis, etc.

Those ingrates took advantage of all the help Oahu residents gave when their island was ruined by Hurricane Iniki in 1992. Many Oahu carpenters (my dad included) helped in renovating homes, airports, businesses, etc in Kauai after Hurricane Iniki. Those Nostalgia Fascists ought to be ashamed of themselves!

2) No Kauai Nostalgia Fascist would be allowed to visit anywhere outside Kauai!

Any of them want to visit Las Vegas? (most popular tourist destination for Hawaii residents)TOO BAD!

Any of them want to watch their young relatives on Kauai high school teams playing a game on Oahu? TOO BAD!

Any of them want to visit a long-time friend who moved to Maui? TOO BAD!

Any of them want to visit the volcanoes on the Big Island? TOO BAD!

Any of them have a curiosity of what it's like in foreign lands? TOO BAD! That's what they get for being rude to those who were curious of what it's like on Kauai!


Meanwhile, some said the SuperFerry would help disabled people visit other islands, and give high school sports team a cheaper way to travel to the other islands to play in tournaments!

These people are the onese most hurt by those Nostalgia Fascists!

Sunday, September 02, 2007

'Consuming Hypocrisy'

This is a video starring and written by Rhys Southan. The music is done by Eliza Wren Payne, who briefly speaks in the film.

It originally appeared online on FreedomAds.Org in the year 2000.

Friday, February 02, 2007

My One Complaint About 'Atlas Shrugged,' 2007

Stuart K. Hayashi

I first posted a version of this piece on February 2, 2005. Re-posting it every year has become an annual tradition for me. --S.H.

February 2, 2007, marks 102 years to the day of Ayn Rand's birth. That day of the month is of particular importance in American culture because, every February 2, if a politician crawls out of his hole and sees his shadow, we will have 60 more years of the welfare state.

As for Miss Rand's magnum opus, I enjoyed every syllable on each of the 1,087 pages of the paperback edition I read. The prose sparked vivid images that made me feel as if I were gazing upon an exquisite painting.

I was so enthralled by the grandeur of it all that I was quite sad to see it eventually come to an end.

And so I have only one complaint about Atlas Shrugged:

It was too short.

Tuesday, October 17, 2006

The Coase Theorem Can Guard Against Any Adverse Effects of Global Warming

Stuart K. Hayashi

This originally appeared in Tali Satele's Critique of American Samoa's Government on Tuesday, October 17, 2006.

Shikha Dalmia has written many brilliant essays on subjects like illegal immigration, India's economic liberalization, and private financing of education in India.

Recently, I came across an intriguing piece she wrote about whether private property rights and market forces could alleviate any harm that global warming may impose in the next one hundred years.

I believe Coase theorem, devised by University of Chicago economist Ronald Coase, has important implications for addressing the extent to which carbon dioxide emissions from heavy industry may contribute to the harmful effects of global warming. That is to say that market economics and private property could be the most important tools to correct adverse effects of global climate change, if only so many government regulations did not stand in their way.

Three of the biggest problems that anthropogenic global warming will supposedly exacerbate are:

1. The spread of tropical diseases like malaria

2. Lands that were once arable no longer will be

3. Rising sea levels

Let us assume, for argument's sake, that the fossil-fuel emissions from the coal and oil industry really do worsen theese problems.

What should be done if an increase in average global temperature, which the coal and oil industries supposedly helped cause, causes malaria vectors to advance?

First, if malaria finds its way into the United States, then limited DDT use should be legalized. Fighting malarial mosquitoes in the U.S. would not lead to Americans spraying large clouds of malaria all over as was done in the 1950s. Malarial mosquitoes will stay away from a house if its walls are sprayed with DDT once every six months.

But the federal government has banned it in America.

Furthermore, if dangerous epidemics spread themselves throughout the U.S., then private communities should be able to find their own safeguards over whom is allowed to set foot on its grounds. Just as the state government of Hawaii has methods of inspecting visitor luggage to prevent "invasive species" from entering the Hawaiian ecosystem, private communities should be able to inspect newcomers or visitors for disease before entry.

If an infectious disease made its way into a private community, then its property values would drastically decrease. If an epidemic spread throughout America, then the owners of private communities may see fit to perform check-ups upon people before they move into the new community.

Also, a purely consistent laissez-faire night watchman state would hold individuals liable for spreading dangerous diseases. If someone gives me a terrible disease, then the infector has damaged the private property that is my body, and I should be able to sue for compensatory damages. This would mean that, if Person X carried syphilis and had sex with Person Y without informing Person Y, Person Y should be able to sue Person X to make up for the costs that this imposed on Person Y.

If such a legal system were implemented, people would take more precautions to ensure that they do not infect others.

Now we can move on to the agriculture argument.

Global warming alarmists say that the changing climate will harm agriculture because lands that are currently arable will lose their arability over decades, while other lands will become arable when they previously weren't.

If that is the case, then the "creative destruction" of the market should be allowed to commence. Owners of farmland that is no longer arable will liquidate their holdings in that real estate, selling it off to investors who can find a more profitable use for it. Meanwhile, investments will be made into the newly-arable lands in other parts of the globe.

What is the impediment to this? Federal farm subsidies and price supports. If the federal government finds that an agribusiness's productivity is dropping as a result of global warming depriving the agribusiness's land of its arability, then it would not be surprising if the federal government used taxes to bail out the agribusiness. his will erase the investors' incentives to liquidate their holdings in farmlands that are no longer productive.

Finally, it is said that global warming will cause sea ld destroy the homes of people in coastal regions. Some scream that beachfront properties will be further devastated by an increasing frequency of Category 4 and 5 hurricanes.

If it is true that beachfront property is under such assault, then private insurance companies should be free to raise their rates so high that people will be discouraged from building homes so close to the shore. Furthermore, the fact that beachfront properties may be submerged within a 30 year period will cause beachfront real estate to decline in marketability, thus discouraging developers from continuing to erect properties that are too dangerously close to shore.

What would stop that from happening? The fact that the federal government implements a National Flood Insurance program that compensates people who imprudently build structures so close to shore that they are destroyed almost every single year. When these structures are destroyed, the National Flood Insurance program provides the property owners with the funds they need to re-build the structures . . . that will be destroyed once again. Without the government's financial crutch, these people would see that they only lose money from continually building too close to shore, and finally more further inland.

And, finally, there is the issue of liability for all of the property damage for which anthropogenic global warming is blamed.

Suppose that a group of attorneys call upon experts who scientifically prove that fossil fuel emissions from the coal industry and petroleum rock-oil industry contributed to global warming. And suppose that they could scientifically prove that it was these industries' carbon dioxide (CO2) emissions that caused the average temperature, since 2000, to increase by a margin that othewise would not have existed had only non-human natural factors been involved.

If it can be proved that it was this margin that caused so many people to be infected with tropical diseases, or to have depreciation in agricultural real estate and coastal real estate -- that, without all of these CO2 emissions, these tragedies otherwise would not have happened -- then all of the aggrieved parties can file a civil action lawsuit against the industries that have contributed to the Warming.

The more expensive the lawsuits are for these industries, the more these industries will have an incentive to find methods of providing energy without contributing so much to adverse global warming.

For example, there is something called "the gasification of coal." To "gasify coal" is to burn the coal so hot that it converts into a gas that can be transported through pipelines.

Gasified coal provides just as much energy as regular solid coal, but it emits much smaller quantities of carbon dioxide.

Yet the reason why businesses refrain from gasifying coal is that gasification is much costlier than emitting higher quantities of CO2.

However, if civil action lawsuits kept driving up the coal industry's costs, making the industry lose billions of dollars, then we may reach a point where it becomes cheaper for the coal industry to gasify its product -- thus reducing the number of big lawsuits -- than to continue harming people and paying out so much money in damages.

Here, a leftwing critic may respond that the big coal and oil industries would win every single lawsuit that middle-class victims filed against them, since Big Oil and Big Coal have so much more money at their disposal.

A solution to that would be to legalize champterty -- the practice of allowing individuals to invest their money into lawsuits. If venture capitalists believe that some farmers and beachfront home owners have a strong scientific case against Big Coal -- but that these aggrieved parties are woefully outmatched by Big Coal in terms of capital -- then the venture capitalist can finance the plaintiffs' case under the agreement that he receive a percentage of the damages if they win.

Now, I am well aware that, as attorney Walter Olson frequently points out, a ridiculously litigious society can easily penalize businesses that have not done harm. This is because, even if the business defendant wins a tort case that was filed against it, that business still loses money by having to pay for the cost of its defense. Thus, I would recommend that the United States adopts the "loser pays" system of England and many other industrialized countries -- the loser of the lawsuit should pay the legal fees of the other side.

With such reforms in place, businesses can be secure from frivolous lawsuits even as tort law can be used to "internalize" the "externalities" of industry-contributed greenhouse warming.

As Julian Morris writes,

I have argued elsewhere (Morris, J., 2003: 'Climbing out of the Hole: Sunsets, Subjective Value, the Environment and English Common Law' [read the PDF of that here --S.H.] Fordham Environmental Law Journal, Vol XIV, No. 2, 343) that much more could be done to enable private parties to resolve environmental problems through the legal system. Most legal systems in principle enable the owners of private property to recover damages when that property (or the beneficial use of that property) is damaged by the actions of another, whether intentionally or unintentionally.

Morris observes that it would be difficult to compensate the victims of such problems in Third World countries for such harm, as what makes these nations poor is almost always their lack of rule of law. The long-term solution, of course, is for these countries to finally develop a system of rule of law in which the courts bother to enforce individual rights to life and private property rather than to ignore them or abrogate them.

In the meanwhile, if only the First World more consistently adopted the principles of a "night watchman state," it would more effectively utilize the institutions of private property and liability to ameliorate the level to which industry may add to the global warming problem.

Copyright © 2006 Stuart K. Hayashi. This piece may not be reproduced by any means without the author's expressed written permission.

Wednesday, August 09, 2006

Us vs. TheBus

Stuart K. Hayashi

This is a revised version of an op-ed I wrote that originally appeared in Hawaii Reporter on September 17, 2003.

Back in September 2003, Honolulu's residents were quite upset when the city's bus drivers went on strike.

Why was that such a big deal? Because Honolulu only has one bus company, the city government-owned Oahu Transit Services, Inc. (OTS), and, consequently, only one brand of city bus services, known simply as "TheBus" (a company doesn't need a fancy brand name for its service when it's the only game in town).

The strike would have been easier for people to cope with had the city had a competing bus service, say, "Better Bus," that tried to win the business of Honolulu's resdients by charging them for tickets than OTS does.

But it would be illegal for anyone to start a firm like "Better Bus" in Honolulu. One cannot start a private bus company to compete against the government's "TheBus," and, even if one could, TheBus's subsidies from the government would give it an unfair advantage.

This problem began in the 1940s. Back then, Honolulu had two major bus companies, with competition from transportation services using smaller vehicles called "jitney buses." Then the head of one of those major bus corporations, the late Harry Weinberg, convinced Hawaii's Public Utility Commission (PUC) that this cutthroat, dog-eat-dog competition was madness.

Invoking "the public good," Weinberg persuaded the PUC to grant his own organization, Hawaii Rapid Transit, Ltd. (HRT), a regulated monopoly through prohibiting any company from directly competing against it.

The PUC, which actually had the authority to make laws because the Legislature gave it that power, agreed. It forced jitneys off the street. (Tour bus companies like Robert's Hawaii never provided direct competition to TheBus; they only go to tourist destinations.)

Since HRT had no true competition, its service was terrible, and it treated its drivers shoddily (they had no competing bus service to defect to), causing strikes like the one we have now.

In 1971, Honolulu's then-Mayor Frank Fasi purchased HRT from Weinberg and converted it into today's government-owned corporation: OTS. The laws against competition remained.

Many people believed TheBus's tickets were cheaper than HRT's because the TheBus's were cheaper "up front" (i.e., "at the door"). They failed to notice that what really paid for TheBus's operations came out of their skyrocketing taxes. When factoring taxes into the price, TheBus's services were actually more expensive.

If TheBus were privatized and competition re-legalized, prospects would improve. Strikes would be less frequent because, if drivers were dissatisfied with pay at one company like TheBus, our hypothetical "Better Bus" could lure away TheBus's best drivers by offering superior compensation. And if drivers for one company did go on strike, at least you could catch a ride on the competitor's vehicles.

Plus, only people who actually ride buses would have to pay for their services, which is fairer than taxing non-riders (if poorer people cannot afford tickets, then private charity can help).

But what if competing bus firms made arrangements with one another to charge the same high price for tickets?

After all, many leftists often snidely remind us that even Adam Smith wrote in Book I, Chapter 10, Paragraph 82 of The Wealth of Nations,

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

Leftists' recitations of that Smith quotation are ridiculous on multiple levels. First, there is no reason why anyone -- free-market advocate or not -- should accept an assertion as truth just because Smith said.

Secondly, those who cite that Smith quotation take it out of context when they use it to imply that Smith advocated the existence of antitrust law. Such was the case when, following his quotation of Smith, the late journalist Robert M. Rees said that free-market proponents "must be thankful for the antitrust and other legislation that keeps laissez-faire capitalism under control."

Actually, in the sentence following the aforementioned quotation (still Bk. I, Ch. 10, Para. 82), Smith says that it would be immoral for the government to pass any laws forbidding businesses from colluding on prices.

Then, in subsequent sentences, Smith attributes the existence of monopolies and cartels primarily to government regulations forbidding competition -- not unlike the PUC regulations forbidding competition against OTS's TheBus in Honolulu.

Finally, contrary to political cliches like Mr. Rees's, collusion has been historically unprofitable in the long term insofar as capitalism has remain unrestrained. John D. Rockefeller, Sr.'s Standard Oil proves it.

Myth: "Unencumbered markets gave Rockefeller an exploitative monopoly until regulators stopped him."

Reality: In the years before Standard's government-imposed breakup in 1911, it already competed against eight gigantic oil-refining corporations and a total of 147 refining firms. Its 90 percent market share from 1880 dropped to 64 percent by 1907.

Standard actually drove prices down. When Standard incorporated in 1870, kerosene cost consumers 30 cents/gallon; it cost 6 cents/gallon by 1897. In 2005 A.D. dollars, that's a price reduction from $4.61/gallon in 1870 to $1.41/gallon in 1897.

Why do I mention Standard Oil? Because Rockefeller occasionally tried to fix prices with competing oil refiners, but, every time that happened, greed tempted some "co-conspiring" firm to "cheat" and undersell the "price-fixers," restarting competitive pricing. The same happened when the U.S. steel industry tried collusion in 1907.

And, if free-market competition were restored for Honolulu's bus industry and its members then attempted collusion, the same would likely occur.

Thus, it would be optimal to privatize TheBus and re-legalize direct competition -- with no government subsidies allowed.

That wouldn't strongly threaten jobs either; a private bus company could save money by hiring experienced bus drivers instead of paying for the training of new ones, so a private company would likely rehire the government bus drivers now on strike.

In the end, privatization would allow all of us -- bus drivers and passengers alike -- to triumphantly ride off into the sunset.

Related articles by Stuart K. Hayashi:

"Privatized Systems, Public Benefits"

"'Natural Monopoly,' or Your Economics Teacher Doesn't Know What He's Talking About"

Recommended links:

"It's Time to Rethink TheBus" by Cliff Slater, Reason Foundation representative

"Bring Back Bus Competition" by Cliff Slater

"Monopoly" by Dominick T. Armentano,Ph.D.

"The Ghost of John D. Rockefeller" by Thomas J. DiLorenzo, Ph.D.

"Antitrust's Greatest Hits" by David B. Kopel, Esq., and Joseph L. Bast

"Abolish Antitrust!" by Edwin A. Locke, Ph.D.

This essay is Copyright (C) 2003, 2006 Stuart K. Hayashi, and may not be reproduced in any form without his expressed written consent.