One of my pet-peeves regarding the way people think today is this whole subjectivity bullshit I hear. It's an abandonment of absolutism and adoption of any principles of any kind. At the first sign of trouble, it's anything goes.
What I'd like to start off with is how reality works and where people get the idea of subjectivity.
The way reality works is in absolute and universal terms. The law of gravity applies to everyone. The color red is always the same frequency on a spectrometer. I can go on and on but you get it. The problem is people misunderstand reality and human experience. Human experience is at the individual level and takes into account the natural variance in our species. In more specific terms, if we say that all humans are 98% genetically identical and it is in the remaining 2% in which we vary from each other, then we can say that it is in that remaining 2% where the natural variance occurs among humans. I am also asserting that in that 2% is where our experiences also vary.
Some people are able to smoke a pack a day and never get lung cancer. Some people can eat foods high in saturated fat and are resistant to developing high cholesterol. How does this happen? Who knows. But it's important to note that while the smoker's experience is different than someone who also smoked a pack a day but developed cancer, that doesn't provide any evidence that somehow reality is subjective. What is overlooked there is genetic variance between the person who doesn't develop lung cancer and the person who does develop it. Reality is still working objectively and universally. What we don't know yet is what is it about the genetic makeup of the non-cancerous smoker that creates a set of laws for reality to play out so no cancer develops.
Once we start framing reality and experience in this fashion, we can now see how different people start filtering on what is true and false using only personal experience. So with the non-cancerous smoker, it becomes too easy to conclude that the statement, 'Smoking causes lung cancer' is false because they are obviously an exception and discard this 'absolute' and 'universal' statement and therefore reject that framework as well. But as explained before, the statement isn't absolute. Perhaps it could be established that there is a 98% chance of developing lung cancer if you are a chronic smoker. There is an unaccounted 2% that represents other variables that are not known at this point that represent the population that break the correlation.
This is how reality works. There is no perfect knowledge. We can only perform studies, control variables and try to establish approximate relationships. Some relationships are stronger than others. There are probabilities and then as humans, we assess the risk and accept or assume them. Would we really want it any other way? Life would be boring if we knew all the risks.
So in the context of different levels of chance, we can then frame reality as a set of 'IF...THEN...ELSE' statements. Pardon my computer alliteration here. But it's true. You can say 'IF you smoke on a regular basis, THEN you will develop lung cancer.' It's given that it's not a 100% certainty because who knows....you could be the few who have the genetic makeup that prevents lung cancer but that is up to the individual to make that assessment, assumption of the risk and the resulting action based on that information.
So you can start framing reality as a series of 'IF...THEN...ELSE' statements based on the scientific method, you can then start establishing 'right' and 'wrong' actions. However, it is critical to point out that 'right' and 'wrong' are conditional. Let me explain this with an example:
If you don't want to develop lung cancer, then it is wrong to smoke cigarettes on a regular basis.
Note that the 'rightness' or 'wrongness' of cigarette smoking isn't absolute. It's conditional on whether you assume the risk that lung cancer is in your future or not. This is another aspect of reality that many relativists confuse. They conflate 'rightness' and 'wrongness' in the context of cause and effect with morality. We are using 'rightness' and 'wrongness' as it applies to actions being congruent with a desired outcome. It is 'wrong' to not exercise and eat right if your desired effect is to lose weight and be physically fit. Physical fitness and being a certain weight isn't a moral issue. It is a value.
Wanting things for oneself are values. Being educated, having wealth and being healthy are all human values that have established methodologies. There are processes that have a high correlation with those outcomes but do not come without their exceptions as well. You can also be a genius Bill Gates, drop out of college and start a company and be a billionaire philanthropist. Could that be you? Maybe...but what are your chances? But I'm digressing.
The achievement of values is what drives each of us at the individual level to act. But that should not be confused with morality. Values are the motivator. But the reinforcing factor that keeps us motivated is the fact that the actor experiences the effect of their actions. And herein lies the concept of morality.
When an actor experiences the effects of their actions, that is what I've always defined as 'property rights.' It is a self-evident truth. If a person is thirsty, and values the removal of thirst, then drinking water achieves that value. Once the person engages in the action of drinking water, that person experiences the achievement of that value (the removal of thirst). The person has 'rights' to those effects. It should also be obvious that such relationships of those effects being owned is universal and not relative.
The concept of property rights is something I've discussed extensively in earlier posts. It is also naturally accepted that if an individual produces something that achieves some personal value, like growing food from the ground, property rights extends to those crops. A farmer's crops are the effects of the farmer's actions of growing the crops.
Property rights are 'naturally accepted' because if we assume that the effects of one's actions does not belong to them, we are then saying it is acceptable to steal. If we establish this as a universal rule then society cannot come into being because no one would bother saving. The division of labor would completely disappear and everyone would live moment-to-moment eating hand to mouth. Anyone who would start planning for the future and 'hoard' food, risks having that supply raided since property rights are not respected.
Once property rights are respected universally, everyone benefits. Therefore, respecting property rights is an absolute good. We rise out of living hand-to-mouth and build a society and an economy. Everyone benefits. Individuals can still choose to live hand-to-mouth in this context. But the idea is no one's situation get any worse by respecting property rights.
Morality is not about values in and of themselves. It is about why satisfying those values is important.
Sunday, August 11, 2013
Tuesday, August 6, 2013
The business cycle applied to politics...
Had to post again...I felt compelled to after having another discussion about a stateless society and hearing the same nonsense in response.
What I'm referring to is the typical debate tactics:
Me: We should have a stateless society; meaning a society without a government. People should be free as long as they respect property rights (don't hurt anyone and don't steal).
My debater: Then we'd have chaos and everyone would killing each other.
This is the typical response. Chaos.
There's two things wrong with this response.
1. In response to the rule that 'killing and stealing is morally wrong', they immediately break those rules to invalidate the rules. It would be analogous to respond to a statement like 'People shouldn't smoke because it causes cancer' with 'That statement cannot be adopted because if it was true, people would start smoking." This is a purely emotional response with absolutely no intellectual merit whatsoever.
2. The second thing that is wrong with this response is the fact that people draw upon some sort of experience or story in the news where governments have collapsed and the aftermath of chaos is somehow associated with the 'absence of government.' This is how most people frame the term 'anarchy.' There's a problem with how this word is framed and ultimately defined.
Many libertarians from the Goldwater-Republicans to the minarchists tend to build this kind of defense to the idea of anarchy. I find that very interesting because many of these people understand the Austrian Business Cycle Theory. They know the bust is not the result of the failures of capitalism but the failures of socialism. It is the result of distorting the free market in the first place.
Similarly, the chaos the inevitably ensues after a government is toppled or collapses is not the result of anarchy. It is the result of the preceding government existing - usually some sort of totalitarianism. The size of government has grown so big and so many people have grown dependent on it that once it is taken away suddenly, there is an acute reaction.
The effects are very similar to a drug addict who has grown a tolerance and keeps upping the dosage. Is it not untrue to point out that taking drugs is not the right thing to do if you want to be healthy? If the drug addict suddenly stops taking drugs and experiences extreme withdrawal symptoms, does that invalidate the maxim of not taking drugs? If he says, 'See??? See what happens when you stop taking drugs?' Is this a valid argument? Is the cessation of drugs responsible for the withdrawal symptoms or the drugs themselves responsible?
Just like the economic busts are not the result of capitalism, the resulting chaos is not the result of anarchy.
What I'm referring to is the typical debate tactics:
Me: We should have a stateless society; meaning a society without a government. People should be free as long as they respect property rights (don't hurt anyone and don't steal).
My debater: Then we'd have chaos and everyone would killing each other.
This is the typical response. Chaos.
There's two things wrong with this response.
1. In response to the rule that 'killing and stealing is morally wrong', they immediately break those rules to invalidate the rules. It would be analogous to respond to a statement like 'People shouldn't smoke because it causes cancer' with 'That statement cannot be adopted because if it was true, people would start smoking." This is a purely emotional response with absolutely no intellectual merit whatsoever.
2. The second thing that is wrong with this response is the fact that people draw upon some sort of experience or story in the news where governments have collapsed and the aftermath of chaos is somehow associated with the 'absence of government.' This is how most people frame the term 'anarchy.' There's a problem with how this word is framed and ultimately defined.
Many libertarians from the Goldwater-Republicans to the minarchists tend to build this kind of defense to the idea of anarchy. I find that very interesting because many of these people understand the Austrian Business Cycle Theory. They know the bust is not the result of the failures of capitalism but the failures of socialism. It is the result of distorting the free market in the first place.
Similarly, the chaos the inevitably ensues after a government is toppled or collapses is not the result of anarchy. It is the result of the preceding government existing - usually some sort of totalitarianism. The size of government has grown so big and so many people have grown dependent on it that once it is taken away suddenly, there is an acute reaction.
The effects are very similar to a drug addict who has grown a tolerance and keeps upping the dosage. Is it not untrue to point out that taking drugs is not the right thing to do if you want to be healthy? If the drug addict suddenly stops taking drugs and experiences extreme withdrawal symptoms, does that invalidate the maxim of not taking drugs? If he says, 'See??? See what happens when you stop taking drugs?' Is this a valid argument? Is the cessation of drugs responsible for the withdrawal symptoms or the drugs themselves responsible?
Just like the economic busts are not the result of capitalism, the resulting chaos is not the result of anarchy.
Saturday, August 3, 2013
Money as debt myth...
I know it's been a while since I last blogged. I've been busy with trying to meet some deadlines for work and dealing with management who don't know how to do their jobs. But I digress.
Recently, I've seen another one of those videos posted by someone who says we're all slaves to the economic system because we have a debt-based money system. Even these 'Zeitgeisters' make a similar conclusion. Unfortunately, these arguments start off with correct premises but they fall prey to these economic fallacies by applying way too simplistic logic that isn't true.
So let's start off with where they are correct:
1. Money starts off as a commodity to facilitate indirect exchange over barter, which is direct exchange.
2. Gold and silver emerge as the best commodities to facilitate indirect exchange and become the premiere 'money.
3. People turned to goldsmiths to keep their gold safe in their vaults and in exchange, would hand out paper receipts in order to return the gold back to its rightful owner. (Anyone with a computer science background - I like to draw the analogy that paper receipts are like pointers and the actual gold is the physical memory location on a computer).
4. The goldsmiths, as the first known bankers, realized people started to use and accept the paper receipts as money and that people seldom used the receipts for redemption for gold.
5. The goldsmiths took the practice of simply storing gold for receipts a step further by printing up more receipts for gold than they could redeem. It is important to note at this point that two conditions must be met for this to take place. One - the people whose gold is being held by the goldsmith implicitly trust the goldsmith to keep their gold safe. Two - the goldsmith has faith that the people have faith in him because if he felt a "run on his bank" could happen at anytime - he can't get away with printing more receipts.
6. The goldsmith gets wealthy because there is confidence in the gold receipts. The goldsmith can now loan out the paper and collect interest on which society now has to pay down.
So the above basically describes the 'Fractional-Reserve' monetary system. The expansion of the money supply (the gold receipts) exceeds the bank's ability to redeem the receipts for the base (the actual gold). The paper money is now loaned out with interest and society has to pay down the principle plus the interest.
This is where the 'Money as Debt' people get it wrong. They say that since paper money is created out of thin air and then lent out, where does the money to pay the interest come from? That too must be created out of thin air. So they conclude that creates a never ending cycle of more debt and more interest to which we are forever slaves to. This is an economic fallacy.
Let me explain how it's a fallacy-
Today, money IS created out of thin air, which is the very definition of inflation.
When the new money is then lent out with interest, the debt is wiped out by paying off the principal plus the interest. You need money to pay off that interest.
What is not correct is that there isn't enough money to pay off that interest. What these 'Zeitgeisters' and other 'Money as Debt' advocates are doing is aggregating all the interest for all loans and assuming they mature at the same time. What they're forgetting is bullet point 4 and 5 above, but in reverse. If the banks required redemption on all their loans plus interest at the same time, that is, in effect, putting a run on the paper money that is out in circulation. The money to pay the interest wouldn't exist and if at that point, the banks decided to print more money and pay themselves, it would be game over. All confidence would be lost since they'd be screwing themselves by paying themselves with depreciated paper money, but also screwing the rest of society with depreciated paper money.
The point is - the lynchpin that allows fractional-reserve banking to work is the fact that not everyone is redeeming paper money for real money at the same time. This allows the expansion of paper money through the loaning of paper money to work. Conversely, not everyone is borrowing money from the banks at the same time, even if there was no fractional reserve banking.
What these people don't realize is their logic would have to apply to a 100% reserve banking system as well. In a fixed money supply system, how would there be enough money to not only pay back the principal as well as the interest? Their fallacy also extends into not understanding what money really is and the concept of deflation. I will use an example.
Suppose I'm on an island with you and we find twenty one-dollar bills. We decide that we'll use that as our money supply for us to facilitate trade. I decide I'm going to lie on the beach all day and relax while you are busy fishing for food. I decide to pay you $2 a fish so I can eat and you agree. I start spending my money this way everyday to the point where you have all twenty dollars. So now I have no money and you have all the money.
Now suppose I wanted to borrow $10 from you. You agree to it but decide to loan me the money at 20% interest. So that means I have to pay you back $12. How can this happen? It's quite simple actually. Since I have $10, I can pay off the principle with the paper money. Then I have to go to fishing. Once I catch a fish, I can then sell the fish to you at the going rate of $2 a fish. Once you buy it from me, I have the $2 I owe for the interest. I then give back the $2 to extinguish my entire loan. As the banker, you extracted $2 of wealth out of this micro-economy in the form of fish.
The point is, many people confuse money for wealth. Money is exchanged for wealth. It doesn't matter if money is based on a gold standard or a fiat money, as long as it remains fixed. That is what matters. The productivity of the free market will create more wealth relative to the money and prices will generally fall. The problem is, banks, protected by the government, will keep expanding the money supply and thereby siphoning off society's productivity into their pockets.
Hopefully I explained why it's not a mathematical certainty that the money system has to collapse because principal + interest > principal. The reason why monetary systems collapse is because governments run the money supply and power corrupts - even the best of us. As I've explained before, the concept of government is built upon a logical contradiction. And for that reason, it is of logical certainty that these political and monetary systems on which it is all built upon must eventually unwind.
Recently, I've seen another one of those videos posted by someone who says we're all slaves to the economic system because we have a debt-based money system. Even these 'Zeitgeisters' make a similar conclusion. Unfortunately, these arguments start off with correct premises but they fall prey to these economic fallacies by applying way too simplistic logic that isn't true.
So let's start off with where they are correct:
1. Money starts off as a commodity to facilitate indirect exchange over barter, which is direct exchange.
2. Gold and silver emerge as the best commodities to facilitate indirect exchange and become the premiere 'money.
3. People turned to goldsmiths to keep their gold safe in their vaults and in exchange, would hand out paper receipts in order to return the gold back to its rightful owner. (Anyone with a computer science background - I like to draw the analogy that paper receipts are like pointers and the actual gold is the physical memory location on a computer).
4. The goldsmiths, as the first known bankers, realized people started to use and accept the paper receipts as money and that people seldom used the receipts for redemption for gold.
5. The goldsmiths took the practice of simply storing gold for receipts a step further by printing up more receipts for gold than they could redeem. It is important to note at this point that two conditions must be met for this to take place. One - the people whose gold is being held by the goldsmith implicitly trust the goldsmith to keep their gold safe. Two - the goldsmith has faith that the people have faith in him because if he felt a "run on his bank" could happen at anytime - he can't get away with printing more receipts.
6. The goldsmith gets wealthy because there is confidence in the gold receipts. The goldsmith can now loan out the paper and collect interest on which society now has to pay down.
So the above basically describes the 'Fractional-Reserve' monetary system. The expansion of the money supply (the gold receipts) exceeds the bank's ability to redeem the receipts for the base (the actual gold). The paper money is now loaned out with interest and society has to pay down the principle plus the interest.
This is where the 'Money as Debt' people get it wrong. They say that since paper money is created out of thin air and then lent out, where does the money to pay the interest come from? That too must be created out of thin air. So they conclude that creates a never ending cycle of more debt and more interest to which we are forever slaves to. This is an economic fallacy.
Let me explain how it's a fallacy-
Today, money IS created out of thin air, which is the very definition of inflation.
When the new money is then lent out with interest, the debt is wiped out by paying off the principal plus the interest. You need money to pay off that interest.
What is not correct is that there isn't enough money to pay off that interest. What these 'Zeitgeisters' and other 'Money as Debt' advocates are doing is aggregating all the interest for all loans and assuming they mature at the same time. What they're forgetting is bullet point 4 and 5 above, but in reverse. If the banks required redemption on all their loans plus interest at the same time, that is, in effect, putting a run on the paper money that is out in circulation. The money to pay the interest wouldn't exist and if at that point, the banks decided to print more money and pay themselves, it would be game over. All confidence would be lost since they'd be screwing themselves by paying themselves with depreciated paper money, but also screwing the rest of society with depreciated paper money.
The point is - the lynchpin that allows fractional-reserve banking to work is the fact that not everyone is redeeming paper money for real money at the same time. This allows the expansion of paper money through the loaning of paper money to work. Conversely, not everyone is borrowing money from the banks at the same time, even if there was no fractional reserve banking.
What these people don't realize is their logic would have to apply to a 100% reserve banking system as well. In a fixed money supply system, how would there be enough money to not only pay back the principal as well as the interest? Their fallacy also extends into not understanding what money really is and the concept of deflation. I will use an example.
Suppose I'm on an island with you and we find twenty one-dollar bills. We decide that we'll use that as our money supply for us to facilitate trade. I decide I'm going to lie on the beach all day and relax while you are busy fishing for food. I decide to pay you $2 a fish so I can eat and you agree. I start spending my money this way everyday to the point where you have all twenty dollars. So now I have no money and you have all the money.
Now suppose I wanted to borrow $10 from you. You agree to it but decide to loan me the money at 20% interest. So that means I have to pay you back $12. How can this happen? It's quite simple actually. Since I have $10, I can pay off the principle with the paper money. Then I have to go to fishing. Once I catch a fish, I can then sell the fish to you at the going rate of $2 a fish. Once you buy it from me, I have the $2 I owe for the interest. I then give back the $2 to extinguish my entire loan. As the banker, you extracted $2 of wealth out of this micro-economy in the form of fish.
The point is, many people confuse money for wealth. Money is exchanged for wealth. It doesn't matter if money is based on a gold standard or a fiat money, as long as it remains fixed. That is what matters. The productivity of the free market will create more wealth relative to the money and prices will generally fall. The problem is, banks, protected by the government, will keep expanding the money supply and thereby siphoning off society's productivity into their pockets.
Hopefully I explained why it's not a mathematical certainty that the money system has to collapse because principal + interest > principal. The reason why monetary systems collapse is because governments run the money supply and power corrupts - even the best of us. As I've explained before, the concept of government is built upon a logical contradiction. And for that reason, it is of logical certainty that these political and monetary systems on which it is all built upon must eventually unwind.
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