Re: Teach the hungry (Was: Hollywood Economics)

Dan Fabulich (
Fri, 04 Sep 1998 00:37:17 -0400

J. Maxwell Legg wrote:
>> This is an argument against fiat money, not money in general. A gold
>> standard, for example, would not have this problem, and unless you're
>> attempting to tell me that gold I extract out of a mine I own is a debt to
>> somebody else, that pretty much solves that problem.

>Gold is no longer a money standard and the Australian minister who wrote the
>"billions for Bankers" article hadn't reached the conclusion that I have that
>money can be replaced by a better neural net. Brutal Capitalism's police,
>societies, drug dealers, gun runners, prostitutes, gamblers, loan sharks,
and the
>like, are the main ones standing to benefit from a continuation of money use.
>They will be the loosers in an era of open information systems when their
>is no longer tolerated.

We'll see, won't we?

>> And this is simply preposterous. Do you just make this stuff up as you go
>> along?
>> Funding the prison system doesn't help the government make money. This is
>> a bizarre idea and I don't know where you got it from.
>Try here. I ripped the following from an ADBUSTER'S website at:

>But there's a glaring flaw in the expansionist argument. They haven't come up
>with an accurate way of measuring the economic growth they keep talking
>Their chief measure of growth is the Gross Domestic Product (GDP) and it is
>seriously flawed.

This is wrong. The nominal GDP is a measure of growth, but it is not the only one, or even the most important. Economists look at nominal GDP, the price level (which is usually inflating) and investment. We can get a good idea as to how good the economy is doing by looking at people's spending power, GDP/price level. Alternately, we can see how sustainable our economy is by looking at how much people are investing, and by observing the price of futures.

>When the Exxon Valdez spilled its load of oil into the Gulf of Alaska -- a
>moment in recent American history -- America's GDP went up. (A lot of
money was
>spent on the cleanup, media coverage, ecological testing, legal fees,
etc.) When
>the Gulf War broke out, America's GDP went up again. Money changed hands. The
>country became “healthier.” Indeed, every time there's a car accident or a
>diagnosed cancer patient, whenever personal or societal catastrophies
occur, the
>GDP goes up and the economy.”

America's GDP is affected by a lot of factors. Do you have any evidence that any of the above is true?

>Walking, biking and mass transit contribute less to the GDP than using an
>automobile. Trains contribute less than airplanes; an extra blanket or
>less than raising the thermostat; one-child families less than six-child
>families; eating legumes less than eating beef; starting a vegetable
garden less
>than buying at the supermarket; staying home to raise your daughter less than
>getting a part-time job at Wendy's.

Here you make the mistake that other economists make of confusing current GDP for economic efficiency. Fortunately, responsible economists don't make this mistake.

Let's look at some of these examples. Walking vs. driving, for example. For economists, if people want to drive then they're better off when they're able to drive. Now let's suppose that you're trying to choose between walking or driving when you can afford both. Well, if you choose to drive, you consume more. This increases current GDP through consumption: it increases demand for cars slightly, increasing the standard of living for those who make cars, etc.

But what happens when you choose to save your money and walk? Do you just bury that wealth in a hole where it never comes out again? Obviously not. If you have the money, you will either save it so you can consume something else (maybe you're saving up for a new air conditioner instead! ;) ) or you will simply save it in the bank, where it will earn interest. This is not an economic bad, because when the bank's got it, the bank will INVEST it, and investment leads to economic growth through the creation of new capital. An economy which one day decided it would completely cease investing and just spend all of its money today would have an amazing GDP this quarter, but would find themselves in the deepest poverty in the coming years, as machinery broke down, homelessness occurred, demand slumped, etc.

In other words, walking instead of biking doesn't hurt the economy one bit, because you're USING that money to consume something else or paying someone else (in this case, the bank,) to invest it. Either way it's an economic good for neoclassical economists.

Anyway, I presume that this was meant to answer my question as to how spending money on prisons makes money for the government. Of course, it doesn't. Government spending today has a crowding out effect, causing investment to decrease. And though government spending does increase GDP and thus tax revenues, it does not pay for itself, nor do neoclassical economists believe that it does. Reagan thought that it would; he was obviously wrong.

>(Indeed, the GDP fails to assign any value at
>all to unpaid or volunteer work. Work done by tens of millions of North
>simply does not show up on the radar. It's as if the work -- and the
workers --
>don't exist.)

In volunteer work, money doesn't change hands. It's often unofficial. In fact, almost everything that's done voluntarily is unofficial. Economists couldn't even begin to measure the extent of volunteer work even if they wanted to. They can measure charity donations, however, and one thing we do notice is that, like all other forms of consumption, it increases as spending power rises.

>GDP measures the “goods” but not the “bads.” That's why ecological economists
>have developed their own measures of economic welfare. The three graphs on
>page show the GDPs of the US, UK and Germany all heading merrily upward
from 1955
>through the 1980s. However, a more accurate measure of economic progress, the
>ISEW (Index of Sustainable Economic Welfare) developed by Herman Daly and
>Cobb in 1990, tells a very different story. When some of the “bads,” such as
>pollution, depletion of non-renewable resources and car exhaust-related
>costs are factored in, a radically different picture of the economy
emerges. The
>US, German and UK economies all show no improvement in economic welfare
since the
>1970s. In fact, economic welfare levels off and starts falling
dramatically in
>each country.

Of course it does. When you get to choose how much a bad is worth, you can make the graph look like anything you want it to.

Here's why the arguments from sustainability are wrong: Suppose we were about to run out of something important. Well, in that case, the price would certainly rise, as demand for it would remain constant while supply shriveled. You'd be able to make a killing off of this by buying some of that resource now, saving it, and then selling it at a huge profit later on.

Today we have another system which simplifies matters: instead of buying today, you can buy a future contract. You can make an agreement with somebody who owns some of the valuable resource that they will sell it to you at a specified price some number of years from now. If the market thinks the price of the good will go down in the future or remain constant, you can offer a future contract at only a little bit higher than what they think it is and still make a killing. They'll buy it because they think they'll be able to sell it to you above its market value; you'll buy it because you know that you'll be buying it for way less than market value.

It's like gambling, only it relies on real observable data to get its price level. And, as I keep emphasizing, there's a huge incentive to find out precisely what the future price level will be.

You don't even have to wait until we run out of the resource to make money. As soon as people figure out what's going on and that resource depletion is imminent, the market will revalue the future price of your resource: you can then just sell the futures you bought to others and make a killing *today*.

By buying futures today, environmental groups would no longer have to rely on charity to fund their goals. They would make so much money off of their profits that they'd easily afford to make the changes in the political system they have so long desired.

They do not. No one has. The future price of natural resources remains low, despite the fact there there is a huge financial incentive to get this value exactly right. If the environmentalists insist that the financial types are missing something important, then they should put their money where their mouths are and buy futures.

They don't, so I don't believe them.