Obviously, lots of hullabaloo about Kennedy recently because of the fiftieth anniversary. There’s one thing that’s always puzzled me. Conservatives love the line “ask not what your country can do for you, ask what you can do for your country.” I don’t want to get into whether Kennedy was a good or bad president or whether he was a conservative or a “liberal.” I just want to point out that both questions are fundamentally collectivist. What can you do for the country is actually indicative of a later stage of progressivism that what can the country do for you. If it had been me, the line would have been “ask not what your country can do for you, ask what you can do for you.”
Most of the ground I will cover here I have been over already on this blog but I want to revisit the issue just to point out that it is playing out exactly the way I have predicted and to point out a few important points that some people may be missing about Obamacare. I wrote this post over three years ago explaining how this bill was meant to destroy the private insurance market. It deals with the specifics in more detail.
As most people know, a lot of people are losing their plans and experiencing dramatic rate increases in spite of the President’s numerous emphatic promises that this would not happen. The line from the administration now is that these plans are being cancelled because they are substandard plans which don’t offer all of the coverage that people need. Leaving aside the fact that the President never once promised that if you like your plan you can keep your plan as long as the government considers it adequate, this is still a complete lie.
It is true that plans are being cancelled because they don’t meet the minimum requirements set forth in the bill. But these requirements are not in there to protect you from substandard insurance plans. They are there because the point of the bill is to transfer wealth from the healthy to the unhealthy. The way this is done is by forcing everyone to buy certain coverage even if they don’t need it and forcing them to all pay (more or less) the same price. In this way the insurance companies lose money on the sick people but make it up by charging the healthy extra. This wouldn’t be possible in a free market because companies would compete over the healthy people. This is why insurance companies support the law, it creates a price-fixing cartel by which they can extract money from their customers without having to worry about that pesky competition.
In light of this it looks like there aren’t going to be enough healthy people signing up to be the cash-cows in this system. This seems to be engendering a sense of comfort among many conservatives who think that Obamacare will collapse without these people supporting it. This is a gross misunderstanding. If you believe that, when healthy people don’t sign up and insurance companies start losing money, the government will wake up and say “hey, maybe our attempt to take over and micromanage the health insurance industry was misguided, I guess we better just let the free market handle it” you haven’t been paying attention for the last hundred years.
It won’t be Obamacare that collapses. There is no provision in the bill saying that if it doesn’t work, it will go away. It will be the insurance companies that collapse. And this is exactly what progressives want because then they will simply say that the evil private insurance companies failed us and the government has to, reluctantly, move in and take over the whole industry. But don’t worry this means everyone will get all the healthcare they “need” and it will be cheap and easy and provided by pixies and unicorns with breath that smells like sunshine.
Reason.com recently did a very short piece about the AMC show Breaking Bad of which I am a fan. One commenter said he (or she) was expecting something longer and as it turns out this is a subject I have put a lot of thought into so I figured I would step into the gap.
Part of what I liked about Breaking Bad was that it was secretly (perhaps unintentionally) a lesson about property rights. When you really get down to it, on a fundamental level there is only one thing we need government to do. All governments do this thing in some way and any entity that does this can be considered a government. This is the establishment and enforcement of property rights. Read more…
In the previous two posts I tried to explain how currency, credit and banking come about organically in a free-market economy. This post deals with the expansion of credit in such an economy. This should help one better understand the relationship between the quantity of credit in circulation, velocity, and interest rates. Next, I will delve into the role banks would naturally play in this process.
When the butcher and the baker use credit to trade, it is important that they sell as much as they buy. It is not necessary that they issue notes less than or equal to the amount of gold they have on hand. (Recall that we can have credit without having money at all.) The logic behind this is fairly simple. If the butcher issues 100 oz. worth of gold-notes but only has 50 oz. of gold, it is possible that these notes could come back to him for gold and he would have a problem. But if he is also producing meat worth 50 oz. of gold, he can sell the meat to cover the difference. If he produces 100 oz. worth of meat he can issue 150 oz. of notes and if he produces 1000 oz. of meat, he can issue 1050 oz. worth of notes before he has a problem. This, of course, assumes that he is always able to sell his goods at a certain market price. If this is not the case, he could run into trouble but I will deal with this possibility in more detail later on. Read more…
Here is the next installment dealing with credit and banking. The next installment will go into the expansion of credit by banks in more detail.
A primitive credit model
Credit is a fundamentally different economic phenomenon from money, though they are often confused or conflated. The two, of course, are intimately related but in theory, there is no reason that either one could not exist without the other. Indeed there is some debate over which developed first. The answer to this question is of no importance to the issues discussed here. I have already laid out a story to explain the emergence of money from a barter economy without credit. To understand credit, I will first develop the institution of credit in a barter economy with no money. Then I will put money and credit together.
Consider a very small town where everyone knows everyone else and assume that they all generally trust each other to keep to their word. In this town there is a butcher, a baker and a candlestick maker. The butcher regularly buys bread from the baker and the baker regularly buys meat from the butcher. One way that they could conduct this trade is to trade bread and meat directly. The drawbacks to this method are well understood, most important is the fact that they would have to continuously trade quantities of equal value.
As an alternative to barter, they could each hold some amount of some other good such as gold or silver and trade this for bread and meat. In this way if there were a trade surplus between them, it would be reflected in a balance of payments in gold or silver from one to the other. If, for instance, the baker wanted to purchase meat of greater value than the bread that the butcher wanted to purchase, he could pay the excess in silver coins. The butcher could then use those coins to buy other things from other people. Meanwhile the baker would have to get the extra coins by selling bread to other people.
In this way some quantity of money can circulate in an economy and act as a store of value and a medium of exchange. People accumulate money as a result of delivering more goods than they collect from others. Money such as precious metals works well for this purpose because it holds its value well. This is mainly due to its durable nature and the fact that the supply in the long run is limited by nature (highly inelastic).
It is possible though to carry on trade without this type of “hard” money. Imagine the same butcher and baker but with no gold or silver nor any other good suitable to use as a store of value and medium of exchange. When the baker wants to buy meat, he can simply promise to deliver some number of loaves of bread at some point in the future that the butcher may find suitable. He may write ten notes that say “I, the baker, owe you, the butcher, one loaf of bread to be delivered at any time upon presenting this note” and bearing his signature. These notes would then represent a contract which could be enforced by the courts. Read more…
Have been out of the game for a while but I think I made a breakthrough. I want to work up to it though by developing the paradigm that I am working in from the beginning. This will take a few posts. This one will describe the organic rise of commodity money in the context of a free-market economy and explain the function of real interest rates, nominal interest rates, and the rate of “inflation” (change in the value of money). I can’t stress enough that this is a hypothetical free-market economy with no central banking. This economy would be different in several ways from most modern economies. Much of the confusion about monetary issues comes from not fully understanding these differences. From this starting point, I will try to work my way up to an economy with a central bank and fiat money and contrast the two. The next post will be a primitive model of credit. That will be followed by a model of banking.