The Importance of Psychology in Economics: JSP – April 1, 2016

So I’ve taken this blog in a little bit of a different direction. For all the fellow fans of the Jason Stapleton show, I’m still listening and I’m still going to point out where he deviates from the Austrian School. It doesn’t mean he isn’t worth listening to, he is probably the best source for news from a libertarian perspective.

At one point, about 30 minutes into Friday’s program, he begins discussing the great depression, and I think he got it all right. There would have merely been a panic as there was in 1819 were it not for the Smoot-Hawley Tariff, and the various other interventions that Jason discusses.

A few minutes into this talk, he brings up a very interesting question; one about psychology and how it has an influence, about what information we receive, how we receive it, and how that makes a difference in what decisions we make.

Jason talks about how the Federal Reserve tries to keep the markets calm and chooses every word very carefully so as not to spook the markets and that Ben Bernanke was giving positive outlooks right up until a week before the housing crash of 2008.

Besides this, he brings up a very interesting question about what Bernanke knew back in 2008. Did he know the markets were going to collapse and keep it quiet? Or, was he caught off guard?  I believe he was caught off guard. I don’t think he even realized we were in trouble until we were well into the recession.  But, that’s a question that we’ll have to try to get into later.

Back to the psychology of things, I think Jason does have sort of a point. If you are an Austrian you’re probably familiar with the master builder analogy. The entrepreneurs in a market are like a master builder, working on building a house, and the master builder believes he has X number of building materials and he is just a buzz of activity building away. Then he realizes he only has X-250 building materials, and he is going to be unable to acquire anymore.  So now, he stops building and panic ensues.  Some have modified this analogy so that the builder is drunk.   Jason gets this, except he doesn’t use the analogy of a builder, but a wounded soldier on the battlefield feeling the distorting effect of morphine. Not nearly as good. The wounded soldier isn’t producing, he isn’t dealing with limited resources, he is just lying there with injuries. Though he isn’t feeling pain that he really should be feeling so he thinks he is okay when he isn’t okay at all. The master builder is producing just like the economy. But, the entrepreneurs in the economy are being deceived by the artificially low interest rates created by fractional reserve banking and the expansionary monetary policies of the federal reserve.

Now, if we suppose that the master builder is drunk, or otherwise has his senses impaired, I think that Jason’s statement has some merit. The builder believes what he is told and keeps building in his drunken state (and yes, you can build things while drunk). But, as soon as he is told the resources are not as plentiful as he thought they were, he panics.

He is intoxicated, as it were, and can’t make out what supplies he actually has through his beer goggles, but is happy to just keep building. He is relying on the interest rates, and what information the Federal Reserve tells him to determine how much material he has to build with.

So, yes, what the people down at the fed say has an impact, but it isn’t because of psychological factors, it’s because, thanks to the actions of the Federal Reserve, the economy is wearing beer goggles and can’t see for itself and is thus dependent on what the fed says about how the economy is doing.

If, for instance, we didn’t have a Federal Reserve people wouldn’t be relying on a financial guru, but would instead look to market indicators, principally the interest rates to determine where the markets are going. Instead, because we don’t have that, the market is relying on every word that comes from the Federal Reserve Chairman.

So, it isn’t a matter of psychological factors, but simply trying to see through the distortions created by manipulations of the interest rate.

Here is an article exerted from Human Action that gives a great explanation.

And, there are two good Tom Woods episodes that discuss the boom-bust:
Episode 118 and Episode 419

Oh Canadian Banks! March 24th, 2016

All right, so Jason has been as right as rain all week long, but I think there may have been a bit of anti-Canadian bias at play when he discussed what is going on up there at the end of his episode on the 24th. The fact that I am writing about this, or any of his other segments for that matter, does not mean that I think Jason is altogether incompetent. It only means that I hold a different point of view, representing a different school of thought, which I think is worth being heard.

That being said, if you want to be on the same page with me you can tune in at about the 49-minute mark . The source he cited was zero-hedge.

What is at issue is that instead of the taxpayers bailing out banks in the event that they become insolvent, the depositors of the bank will bail out the bank; if I understand correctly, up to 25% of the amount of deposited money with that bank. In exchange, the depositor will receive shares of the bank, which he will presumably be able to sell on the open market at a later date and therefore recoup his money.

Now there is no doubt that this is crooked and deplorable. Jason and I agree on that; however, I think it is important to not just look at where we are, but to keep in mind where we have been. From my perspective, this change in the banking system moves the needle in the direction of liberty, and let me tell you why.

If a bank gets into a bad situation and they get bailed out by the government, the bailout encourages risky behavior. Banks can engage in risky lending to maximize profits, and if all goes bad then the government bails them out and the depositor is in no way affected. Banks win, taxpayers lose, and depositors are oblivious.

Under this new system, depositors have a newfound interest in where their money is. All of a sudden, they are interested in the solvency of the bank where their money is deposited. If they feel that Saskatchewan National Bank is headed down hill, they can take out their money and deposit it elsewhere. That is not good for the bank!  Consequently, the banks have an interest in remaining solvent, as they are in perpetual need of depositors.

Do you think if 25% of the money in your account at Saskatchewan Bank is confiscated, that you will keep the remaining 75% there? Of course not!  Additionally, the bank will lose new depositors.

While it is not my ideal model, it nonetheless creates some accountability within the system, and that is a great improvement!

Of course, I am not in favor of the bill in general, with all its emphasis upon “investments in infrastructure”. Still, I am excited about the banking aspect that Jason highlighted. Again, it is a huge improvement!

If you are interested in learning more about banking, and particularly the pitfalls of fractional reserve banking, I would recommend reading “The Mystery of Banking” by Murray N. Rothbard.

There is also a short article on FRB that I think could be very helpful here, and maybe a better one by Gary North here.

Unfortunately, I do not think “The Mystery of Banking” is available on audio book, but it is a pretty easy read given the subject matter. I remember my pulse actually quickened when I first read it. Do yourself a favor and pick up a copy!

Options: Voting, Violence, and the Third Way… and Fourth Way.

So, here’s another post that is somewhat related to the Jason Stapleton Show.

It seems like the last couple days he has hit on a particular point over and over again, mainly the necessity of being involved in the political process, because the only alternative to affecting change through the political process is, so Jason tells us, the attempt to affect change through violent means.

Jason still believes we can restore the republic and go back to the constitution. He admits it’s going to be hard, but this in an understatement. I’d love it if I were wrong, but as far as I can see, not only will we not have a free society in our lifetime, but we will continue to become less free for the foreseeable future despite our best efforts. We’re never going to get a libertarian president, much less a libertarian majority in congress. Yes, I understand if we had 10 libertarians in the senate, with 45 republicans and 45 democrats, that they would wield a huge amount of power. But, they still wouldn’t be able to pass their own spending bills, bring soldiers home, abolish the Fed or the IRS, or even get a good justice on the supreme Court.   So what’s the point? And how far out are we looking? 25 years, 35 years, 50 years?

With all the variables at play how can you even try to plan that far out?
Facts are facts; we’re not going to get there through the federal level. At best, it’s a game of limiting the damage, but at the same time, the more presidents we have like Obama the more incentive there will be, and the more likely it will be for the states to resist the federal usurpation of power.  This doesn’t mean I’m hoping for the whole thing to fall apart.

Jason has talked a little bit about one of the options besides voting. Violence. And, he and I are in agreement there. But, I think there are some other options.

One option is sort of a midway point. It involves voting, but the aim isn’t to affect change at the national level, but rather to nullify federal legislation and ultimately secede, state by state.

Another option, a bit less desirable, would be mass noncompliance. As I’ve written elsewhere, in line with the thought of Etienne De La Boetie, if people didn’t obey the rulers, they wouldn’t be rulers.

In practice for this to work, the state has to get really stupid and pass lots of super ridiculous rules before the masses grow bold enough to ignore the state. Usually a great degree of corruption is necessary, and this is more or less the case in Argentina, as far as I understand it. The people don’t pay attention to the regulations, and the cops don’t try to enforce them so long as you don’t get on their bad side.

It’s either that or if the ideas of anarcho-capitalism could take hold, if people began to recognize the state for what it is, then we could skip all the bad laws and the political corruption, and go straight to ignoring the state.

If there were a million anarcho-capitalists in the country, we could, and would, stop paying income tax, just for instance.

Of course, in both scenarios, there is the danger of isolated enforcement. Let’s say you’re dating a pretty girl that happens to be a cop’s sister and he decides he doesn’t like you. Then he could enforce some bad law, bribe the judge if necessary and off to jail you go…. This is also how it sometimes works out in Argentina.

In either case, through mass noncompliance or secession, people will somehow have to stop having respect and reverence for the federal government. Not the politicians, but the offices themselves; for the very structure of the Washington machine.  Rrealistically, while we might praise the ideals put forth in the constitution, or at least the bill of rights, the fact is that if the constitution were so great, we wouldn’t be where we are at.

Once people stop respecting the federal government, revering senators, and honoring presidents, and the offices, that’s when we’ll have our chance.


John Locke said What!? March 1, 2016

Wow! Impressive to see some citation of one of the great and foundational thinkers of Classical Liberal/ Libertarian thought.  This blog post draws nearly exclusively from Jason’s show on March 1st, so I’ll link to that show here.  Of course I’d encourage you to listen to the entire show as always, but the relevant part comes about 15 minutes in and peters out about 26 or 27 minutes into the program.

It is true that Locke gave argumentation for a state, not where Jason quoted. Let’s deal  with Locke first.

“Liberty is freedom from restraint and violence by others; and this can’t be had where there is no law. This freedom is not—as some say it is—a freedom for every man to do whatever he wants to do (for who could be free if every other man’s whims might dominate him?); rather, it is a freedom to dispose in any way he wants of his person, his actions, his possessions, and his whole property—not to be subject in any of this to the arbitrary will of anyone else but freely to follow his own will, all within whatever limits are set by the laws that he is under.”  (page 20 online pdf)

If I am free from restraint, and from violence by others, nor am I allowed to restrain or do violence to others, then what laws might be set over us? If it is a law not to steal, or kill, that’s fine, but… If it is a law to pay taxes under penalty of prison, and to show papers when leaving the country or else you can’t leave, isn’t this violence and restraint?

Locke laid out a lot of the groundwork for later thinkers, but I don’t think Locke was so oblivious to where his own thoughts would lead him. Strictly speaking, his treatise does support a state, but when you start to look between the lines and consider the context of his times, nearly 100 years before the American Colonies gained independence from Great Britain, a republican or democratic government was crazy enough. Locke didn’t want his writing burned? What if he had followed his thoughts out to their logical conclusion?

If I can’t aggress against others, they can’t aggress against me, and others cannot aggress against others, then how are taxes to be levied? How are regulations supposed to be imposed? How can morality be dictated? Who will force parents to feed their children?

Locke drops this question pretty quickly and Jason drops it even quicker, though he has no royal court that might put him in the tower for treasonous papers, or crazy clerics who would burn his books were he to get too far off the 3×5 card.

Jason paraphrases Locke, saying, “How do we enforce these laws? With force.”  YES! Very true.  Anarchists are not pacifists. We are just non-aggressors. The bad guy does the aggressing, and we meet that aggression with force to repel it, and to see justice done. This needs its own article, but it’s enough to say here that the first principle of justice, which is all but forgotten today, is to make the victim whole as much as possible.

Back to Jason and Locke. The Law, we need law… And Locke just articulated the natural law. It can be enforced by any and all able bodied men.

It is as if someone had realized that man needs to eat, and then asked, “Who will bake the bread?” “Can the baker bake without the consent of the fed?”   Of course we can all bake bread, at least a little bread, but there will be professionals in bread making just as there would be in enforcing the law. The market would see to it that any agency that is so unpopular would not survive indefinitely.

We can all agree that we have a (natural) Law that we live under and that we should all follow, but it is a non sequitur to draw from this fact the conclusion that only the king, the senate, the emperor, the high council, the sovereign- in other words the government should have a monopoly in determining exactly what the natural law consists of, determining who is guilty of violating the Law, and has a monopoly in apprehending law breakers and punishing them.

My whole deal with Locke is that he was a radical thinker for his own time, but that his times set a boundary line which he dared not cross. I can’t say this definitively, but his arguments for rights, for self-ownership, and for property are argued with such zeal and force and determination. The wimpy little arguments put up for the establishment of states is just not impressive at all, and they are given such little effort.  My bet is that John Locke today would be a Rothbardian in the same way Isaac Newton would be an Einsteinian.  For both men, their era and the advance of the field of their sciences only allowed them to go so far and no further.

Libertarian Candidates

I’ve been wanting to say something about message, and maybe I have, but I appreciate Perry being in the debate. Perry is the most radical of those on stage, the one who said he didn’t know if he could even take the oath of office. He’s the one that wants to dissolve the union and usher in the stateless society.  Jason is right, his views are too far out there for most people;  I hope he doesn’t get the nomination. But, it’s great that he’s running, because there are people that need to hear it. The person who would consider Johnson needs to hear Perry explain the fundamentals of a stateless society, so that he can be challenged.

Maybe I have this wrong or maybe I’m just in a different place than most people. I live in SW Oklahoma, not much happens outside of Football Season, and life just passes by.  Half the time I’m not trying to get a person to change their mind, I think they can do that well enough. I’m just trying to get the person to use his mind, to think, to explore new ideas and give those ideas a fair hearing.

Whether or not they do all that, they are definitely exposed to some new ideas from Perry.

I haven’t even picked up John Locke in 12 years or so, so that was a lot of fun. It seems I remember someone giving a talk about Locke, and how much more radical he was than what he let on. If I can I’ll look it up and put up a link to it when I find it.