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Friday, July 17, 2009

Common False Economic Axioms

I noticed that this author on included me on his "List of Favorite Blogs". It would have been a bigger honor if the list were shorter! According to Google Analytics, it still generated some traffic for me. I liked his comment:

FSK's Guide to Reality gives contrarian in-depth information on issues we all consider indisputable axioms of capital markets. His posts will make you thinking.
Most people can't tell the difference between "These are my axioms/assumptions!" and "These are my conclusions!" Most people just believe what they've been brainwashed to believe. They accept their brainwashing as universal truth. Then, they get offended when you question their axioms.

It takes a strong Math background to understand the difference between "These are my axioms!" and "These are my conclusions!" For example, it's easy to take as an axiom "Stealing is wrong (when individuals do it)." That naturally leads to "Stealing is wrong (when groups do it)." and "Taxation is theft!" If you believe "Stealing is not wrong (when individuals do it).", then when incentive is there for anyone to work and produce things? The actual implementation of taxes is "A handful of people use the threat of violence to steal from everyone, and then keep the profits. Government provides the illusion of legitimacy to this theft. The vast majority don't resist the theft, making the scam profitable. The fact that the vast majority don't resist theft doesn't make it morally acceptable."

Most people are conditioned to think with binary logic, where every statement is universally true or false. This is a problem when you have false beliefs, because then you are caught in an inescapable trap if you're wrong. A better tactic is "Bayesian Reasoning", where you assign a truth value between 0 and 1 to every statement. (but never exactly 0 or 1!)

I'm pretty sure of most of my key beliefs. I'm not absolutely sure, but I write as if I'm absolutely sure to avoid confusion. I don't preface each statement with "I'm more than 99% sure ...", because that isn't the way people normally write.

When you have many false beliefs that you're absolutely sure of, this becomes a serious problem. It's hard to question all your false beliefs simultaneously. The nature of the Matrix means that people have many interlocked false beliefs. Once you understand "Taxation is theft!", then that requires most of your assumptions of economics and politics to also be altered.

Just to recap, the axioms I dispute are:
  1. Having a central bank helps manage the economy! The reality is that a central bank is an immoral price-fixing cartel. The Compound Interest Paradox is a further defect in fiat debt-based money. A central bank credit monopoly and a free market are opposite concepts.
  2. Business cycles occur naturally in a free market! The reality is that a corrupt monetary system and the Compound Interest Paradox cause business cycles.
  3. The USA has a fair monetary system and banking system! The reality is that the USA has a completely corrupt monetary system. The rules of the monetary system guarantee that, each year, a certain percentage of all productive work is paid as profit/tribute to the banksters.
  4. The Federal Reserve should be shielded from the short-term manipulation of politicians! The reality is that financial industry insiders may loot and pillage, without any accountability at all. The corrupt US monetary system allows the banksters to maximize their short-term profits, while ruining the long-term value of productive work. The US monetary system is extremely complicated. Most politicians, even Ron Paul, don't understand the completely corrupt nature of the US monetary system. The banksters spend lots of money lobbying; this will guarantee that reform never occurs. When you have the ability to print and spend new money, it's very easy to bribe/lobby politicians!
  5. Greedy people are evil! Government is needed to restrain them! The reality is that greed and looking out for your own self-interest are acceptable, provided you don't use violence to impose your will on others. In a true free market, it isn't immoral for a pizza store owner to be greedy and maximize his profits. In a free market, being greedy maximizes global efficiency. It becomes evil if the pizza store owner lobbies the government for a law declaring his competitors illegal, or for regulations that increase the cost for smaller, new competitors. The most greedy people seize control of the government, using State power to protect themselves from negative consequences for their theft.
  6. Government is needed to protect individuals from thieves! The reality is that government itself is a massive criminal conspiracy. People don't see it that way, because they've been brainwashed to believe that a monopolistic government is necessary for a stable society. The biggest thieves gain control of the government. The biggest parasites are able to steal with the apparatus of the State, because the victims have been brainwashed to believe the legitimacy of the theft.
  7. The Black-Scholes Formula is Wrong! I get a lot of hate comments for that post series. The fallacy is the "risk-neutral valuation" assumption, that stocks have an equal expected return to the risk-free interest rate. First, if stocks and money market accounts have the same expected return, then why would anyone buy stocks? Second, the Federal Reserve credit monopoly keeps real interest rates negative, which means that stocks should outperform bonds, yet underperform true inflation. Third, when a bank or hedge fund borrows money to buy stock, they don't borrow from someone else; they borrow brand new money into existence and buy stocks. This causes the arbitrage argument "People would borrow to buy stocks!" to fail. Even if you choose to hedge, using the wrong value for "expected gain" affects the option price; via calculus, an infinitesimal error at each step leads to real errors when you integrate. Regrettably, I couldn't use this knowledge to profit myself; the fallacy was that I underestimated the size and severity of the recession/depression. If I use leverage, I suffer unacceptably huge losses during the bust, because I'm not "too big to fail".
  8. The stock market provides a positive inflation-adjusted return! The reality is that gold has severely outperformed the stock market over the past 10 years. For me, "Gold is money!" is a matter of definition. A gold investment should have an inflation-adjusted return of 0%. The fact that stocks have underperformed gold means that stocks underperform true inflation. A pro-State troll says "If you bought gold at the peak in the 1980s, you would have been better off with the stock market." A comparison going back further than 10 years is invalid, because gold ownership was illegal from 1933-1975, and in the 80s and 90s central banks were selling off their gold reserves to keep the price down. The rate of looting and pillaging is increasing, which further lowers stock market returns. Discovering that a stock investment does not keep pace with inflation was like discovering that Santa Claus doesn't exist. There is massive propaganda on the Communism Channel and elsewhere saying "Stock investing is smart. People who buy gold and take physical delivery are idiots."
  9. The USA has a free market economy. The reality is that the USA is a nearly perfect implementation of Communism. Income taxes, property taxes, a central bank credit monopoly, government regulation of industry, a mainstream media information monopoly, and mandatory public schooling are all key components of Communism. Government and free markets are opposite ideas.
  10. The CPI is a fair and unbiased measure of inflation. The reality is that the CPI severely understates true inflation. I use M2, reconstructed M3, or the price of gold as better measures of inflation. There is a political incentive for the CPI to be much less than true inflation. The CPI is quoted and allows communists/comedians to say that inflation is less than it actually is. Certain payments, such as Social Security, are indexed to inflation. By having the CPI be too low, these payments are reduced.
  11. The US economy is growing! The reality is that US GDP is shrinking at an alarming rate, if you adjust for inflation correctly.
  12. The US economy is dependent on continuous growth to survive! The reality is that, due to the Compound Interest Paradox, continuous money supply inflation is needed to keep the monetary system scam running. Biased inflation measures like the CPI cause money supply inflation to be misreported as economic growth.
  13. Banks provide a useful service to society as a whole! Bankers are brilliant risk-takers! The reality is that the financial industry is purely parasitic. I have a more detailed post draft on that subject. The banksters earn economic rent from their perk of printing and spending brand new money. The banksters can borrow at the Fed Funds Rate, while other people must pay a higher cost to borrow or cannot borrow at all. If I went to a bank and asked for $1M to invest in my blogging business ideas, then the banker would laugh at me. If a CEO of a large corporation borrows $1B+, that's usually easy to arrange. The income tax prevents people from boycotting the Federal Reserve. People are dependent directly or indirectly on the banksters, so they can get slave points so they can get permission from the IRS to work. When the banksters misjudge risk, they always qualify for an indirect bailout (via a Fed Funds Rate cut) or a direct bailout (TARP program; another such bailout occurred in the 80s S&L crisis. The bailouts of GM/AIG/Bear Stearns/FRE/FNM were really bailouts for their creditors.)
  14. Taxes are a necessary cost of modern life! The reality is that taxation is theft. All taxes are ultimately backed by violence; otherwise, people would merely ignore them. The vast majority pay taxes without resisting; this makes it practical to use violence to crack down on freedom-seekers. The vast majority pay taxes without resisting, so they don't notice that taxes are backed by violence. You only see the gun pointed at you when you decide to stop paying tribute/taxes.
  15. There are certain "public goods" that only government can provide efficiently. This is entirely propaganda. This excuse is used to justify most State monopolies.
  16. If you have multiple competing police forces, then there will be chaos! This is entirely propaganda. Monopolistic State police leads to chaos, because of the "Who polices the policemen?" problem. An "internal affairs" division is merely a fnord designed to provide the illusion of accountability when a policeman is accused of doing something wrong. If I'm unsatisfied with the price or quality of State police, I don't have the option of firing them and buying from a competitor. If government insiders make and enforce stupid laws, then their is no recourse due to their monopoly. Multiple competing police businesses won't let small disputes escalate to war, because they don't want to lose customers. Government insiders allow small disputes to escalate to war, because their slaves can't seek protection from other sources!
  17. Anarchy is chaos! The reality is that the State is chaos and a free market is order. Government is chaos because evildoers are protected from the negative consequences of their misconduct. For example, if a policeman inappropriately shoots you, then he is usually immune from negative consequences for his misconduct, unless it's truly egregious. The CEOs at GM/FRE/FNM/Bear Stearns/AIG/Lehman are immune from negative consequences for the money they stole/lost and the huge bonuses they paid themselves during the economic boom. A free market is order, because people will figure out what needs to be done and do it. Government restriction of the market prevents people from doing what they think is right. For example, minimum wage laws and income tax laws make it illegal to hire a homeless person in exchange for food and a place to sleep and a few dollars.
  18. Police and soldiers defend our freedom! The reality is that police and soldiers are terrorists. "Support our soldiers and police!" is an evil fnord that is repeated as often as possible. If it were so obviously true, then the lie would not need to be repeated so often. Police and soldiers blindly obey orders to kidnap, assault, or kill complete strangers. They are the violence arm of the State. People don't pay taxes because they fear an IRS bureaucrat sitting at a computer. People pay taxes because they fear the police that will come to kidnap/kill them or steal their stuff, if the IRS agent orders them to. If police didn't blindly obey the orders of judges and politicians, then their crazy laws would have no substance. Most people don't realize "Police are terrorists!", because police crack down on freedom-seekers one at a time, instead of all at once. A pro-State troll says "Soldiers and police defend your freedom! They risk their lives for you! You should be grateful!" My response is that I'm perfectly willing to pay the fair market price for security and defense. I object to being forced at gunpoint to pay for a monopoly provider of security. A policeman uses violence to force people to pay his salary, making him a criminal. Monopolistic State police always provide defense at a cost much greater than it would be in a true free market. In the present, I pay 50% of my income directly in tribute to the State, and a greater cost via indirect hidden taxes. More than 50% of everything I produce is a steep price to pay for security and defense.
  19. Limited liability incorporation is a necessary perk for doing business. The reality is that limited liability incorporation gives management a free put option to declare bankruptcy, cheating creditors and dodging responsibility. Limited liability incorporation combined with State-regulated unsound fractional reserve banking led to most of the "banking crises" before the creation of the Federal Reserve; limited liability incorporation gave bank owners a free put option to declare bankruptcy and cheat depositors. Limited liability incorporation encourages executives to take unreasonable risks when they're losing money and cover up problems. Limited liability incorporation encourages the separation of ownership and control. The CEO of a large corporation isn't the owner, which encourages him to loot and pillage its resources. Limited liability incorporation does not protect small business owners, who typically have most/all their wealth invested in their business.
  20. Large corporations are a natural free market occurrence! The reality is that large corporations receive massive direct and indirect State subsidies. Limited liability incorporation is a State subsidy for executives at large corporations, because it lets them dodge responsibility when they make bad decisions. Large corporations receive State subsidies in the form of negative real interest rates. Executives at a large corporation can borrow at 6%-8% while inflation is 20%+; they then use this money to buy out smaller competitors. A small business owner must borrow at a higher rate, or cannot borrow at all. Large corporations receive State subsidies in the form of regulations; the cost of regulations compliance costs small businesses a larger percentage of revenue than large businesses.
  21. Large factories and assembly lines are the model of efficiency. The reality is that large factories dominate because they can effectively lobby the State for favors. A small manufacturer (1-5 people) with the right tools and techniques can outperform an large factory. People don't try this, because of State restriction of the market. State brainwashing centers (schools) don't teach small-scale manufacturing techniques, although some people are making progress reinventing these tactics. (I'm not absolutely sure of this one, but I'm pretty sure. It is necessary to conduct an experiment with practical agorism to prove it.)
  22. CEOs and bankers must be brilliant businessmen, because otherwise they wouldn't get paid so much! The reality is that CEOs and bankers are collecting economic rent, due to State restriction of the market. A CEO is not chosen by a free market process, but rather by crony/nepotism capitalism. Even though large corporations are incredibly inefficient, they are shielded from competition by the State. Even though I'm a really skilled worker, it's very hard for me to start a new business that competes with an established corporation. (If I had a job as a writer for the NY Times, it'd be very easy for me to spread my message while earning a living. Via blogging, I'm only making a couple of dollars a month. Even though I'm a better writer than 99%+ of those writing for mainstream media corporations, it's very hard for me to earn a living from it, due to State restriction of the market. A writer for a large corporation does not have the freedom to write about whatever he chooses. There is rampant censorship. Most writers adopt an attitude of self-censorship, so explicit censorship is rarely needed. The NY Times receives State subsidies, and uses this subsidy to impose a culture of censorship.)
  23. Some businesses are so important that they're "too big to fail". The reality is that bailouts further distort the market. The reality is that "too big to fail" usually means "too politically connected to fail". The biggest advantage of large corporations over small businesses is that they can efficiently lobby the State for favors. If I control a $200k/year business, then it isn't practical for me to spend money on lobbyists. If I control a $1B/year business, then it's practical for me to spend $50M/year on lobbying in exchange for $1B/year of favors from the government. Once you're in a position where you're receiving a massive State subsidy, you can always profitably lobby to block reform. When a large corporation receives a bailout, the cost is paid by all small businesses that don't qualify for a bailout. Bailouts squeeze small businesses out of the market.
  24. Intellectual property is a valid form of property. The reality is that intellectual property rights are not enforceable in a true free market. Patents don't reward small inventors. Patents are used by large corporations to quash competition. Suppose I start a business, and find out later that someone else patented what I'm doing. Why should someone else's patent, which I never heard about, restrict what I can do? Copyright law is also nonsense. With computers and the Internet, the cost of copying is zero. Copyright can only be enforced by spying on what everyone is doing all the time. If people believe that content is valuable, then they will voluntarily pay for it.
  25. Regulations are needed to ensure consumer safety. The reality is that regulations discourage competition and subsidize large corporations. Suppose a large corporation sells 1M units and a small business sells 1000 units. Suppose that the cost of regulation compliance is $10M. The large corporation has a regulatory cost of $10 per unit, but the small business has a cost of $10,000 per unit. The regulation makes the small business impractical. As another example, licensing requirements for taxis prevent people from working part-time as a taxi driver to earn extra money. Licensing requirements for selling food prevent people from cooking part-time to earn extra money. Government licensing requirements impose a barrier to entry, making it hard to bootstrap a new business. Government licensing requirements make it hard to experiment with different small business ideas.
  26. Government licensing requirements for doctors/lawyers/etc. are beneficial. The reality is that licensing requirements restrict supply and drive up prices. The main reason that health care is expensive is that there's a conspiracy between the AMA and government to restrict the supply of doctors. Mainstream discussions of the health care problem never mention the damaging effect of licensing requirements. State licensing requirements for lawyers makes legal advice expensive and deny people access to the legal system. Suppose you were arrested for possession of marijuana, and wanted to hire me to represent you. That's illegal, because I don't have a State lawyer license. I would present a better defense than most lawyers, because I would make a "jury nullification" argument. Suppose I spend 4 years and $200k+ getting a State lawyer license. If I tried to present a "jury nullification" argument in court, then the judge would find me in contempt and strip me of my law license. I would lose my investment of 4 years and $200k+. Government licensing requirements for lawyers don't just raise the prices of legal advice. A lawyer who doesn't follow official propaganda will lose his law license and his career. This makes a State-licensed lawyer a government employee first, and representing his client second.
  27. Public schooling is beneficial. The reality is that public schools are brainwashing/indoctrination centers. Even a subject like Math is abusively taught, because people are taught binary logic instead of Bayesian Reasoning. "Grading on a curve" causes all but the most talented students to get frustrated with Math. "Grading on a curve" also causes the less intelligent students to resent the smarter students. You don't see free market schools, because people are already forced to pay for public schools via taxes. The education industry is heavily regulated, so most private schools follow the model set by public schools instead of truly innovating. A pro-State troll says "Without government, there would be no schools!" State schools are backed by taxes/violence, and people don't have the leftover resources to form better competing schools.
  28. Paper money is awesome! The free market discredited the gold standard. The reality is that government violence cause the gold standard to fail. When the Federal Reserve was created in 1913, the Federal Reserve was allowed to print more Federal Reserve Notes than there was physical gold in the USA treasury. When government insiders print more paper than they have physical gold, an eventual default is guaranteed. Politicians can never resist the temptation to print more paper than they have gold, guaranteeing an eventual default of any State-backed gold/silver monetary system. Paper money is evil because individuals lose their savings to inflation. Paper money makes it hard for a non-bankster to raise capital to start a business; your savings are stolen via inflation. The banksters can easily raise capital to start/buy businesses, because they're literally printing and spending brand new money. Paper money makes it hard to save cash in case of hard times; your savings are stolen via inflation.
  29. We need a flexible paper monetary system to meet the needs of business. A gold standard is too rigid. The reality is that inflation allows the parasites to steal from productive workers. The parasite class loves inflation, because they get to print and spend brand new money before everyone else. Inflation literally steals the money out of your pocket and out of your checking account. Via gold, individuals can protect their savings from theft. There is no printing press that will counterfeit gold. Gold and silver have done an excellent job of preserving their purchasing power over time.
I'm only addressing economic and political assumptions here. There are other important issues, such as "The 'chemical imbalance' theory of mental illness is nonsense." I tried to cover everything, but let me know if I left out something important!


fritz said...

Nice post FSK..!!!

I think you covered a lot of ground with this one. If I had read this list 5 years ago I would have thought you were full of crap. But now its all coming clear to me.

I think this list would do great good to the public at large. If it were circulated and read by the many instead of the few.

I would be interested in compiling ideas like this into a more condensed and laymen friendly list. And than put it into the hands of everyone I know with 10 copies. And have them pass it along to everyone they know and so on.

Good work FSK,,,keep it rocken!!!

The people will one day realize what is actually happening all around them. Because of the work you are doing and others like you.

Thank you.....Fritz

arbynadeau said...

Fantastic list, FSK. Number 17 & 18 are great. Thanks and keep it up.

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