CDLXXI – Addendum, Contra LARPing

This article follows my previous article, posted this morning.

“But Scoot,” the reader may ask. “I get mocking mechanical quantum-hammers and electromagnetic bumble-puppy. But combine harvesters are a GOOD invention. Surely you can’t suggest that going back to some Amish Ideal is somehow a good thing. LARPing as a dirt-farmer from the middle-ages is regressive and just because something is regressive doesn’t mean it is good.“

Correct! I am not suggestion a reversion back to an idyllic time before technology. That would be stupid. But if we adopted my ideals with a magic snap of the finger tomorrow, technological innovation would slow down to what would feel like a halt.

The point that I’m making is that that is ok. We have combine harvesters. How can we stretch them? Can we magnify the effect of one harvester by also deploying a dozen humans to harvest a 20-acre field? Can we use the combine harvester in an innovative way that no one has thought of before? What if we had to make do with what we had? What if we couldn’t go out and buy things? What if we couldn’t satisfy our every desire at the push of a button?

We would have to solve problems. Not everyone has the capacity to solve problems–which is why we would need to live in a community. So I could go and say “I’ve got a vinyard of grapes that needs harvesting and anyone who works for me gets a penny.”

The innovation that would come from a time of technological stagnation would be a good thing. Stretch innovation, not change innovation. Depth, not “progress”.

The question becomes a different one. In a stable society where technological innovation grinds to a slow halt–how do we, as a society, identify those geniuses who have the means and ability to invent new things? Is it patronage? Academics? Honestly, I think patronage is closer to the mark. If Edison can convince the Duke of Weyand that the lightbulb is a cool new thing, then the Duke of Weyand can facilitate the deployment of lightbulbs and electricity. Not invest, for profit–invest for the custodial good of his subjects. The profit comes from an increased quality of life. Good motive, not profit motive.

AMDG

CDLXX – Poor Mans Capitalism

One of the things that Capitalism does well is Entrepreneurship. Entrepreneurship is deploying resources to solve problems. Resources include money; problems include anything someone in a vacuum wants and is willing to pay for.

The rapid, frenetic pace of innovation is driven by this entrepreneurship, which is an emergent property of our capitalist system. New technologies, new tools, new processes, new systems.

These things are what we use to tell ourselves we are making “progress”. I use a mechanical quantum-hammer instead of Grand-dads old mallet. I have progressed. I play electromagnetic bumble-puppy instead of golf. I have progressed.

Let me use a less snarky example. A combine harvester. We can harvest 10 acres in an hour with a massive combine harvester! We have progressed.

But technology, tools, etc–these are not the only, nor the best, markers for innovation.

I have been writing against Corporatism recently, and grasping in the dark for a good argument against capitalism. My counterpoint looks rather like “distributism”. Scootland is based on a system of Guilds and Coops. What would this do to innovation?? Think about our technologies! Take away that capitalist, entrepreneurial engine, we get stagnation, regression.

Not so!

Have you ever been dirt poor? Over the last year I’ve come close. I’ve gotten to know some people who have been poorer than that. I’ve also gotten to know some people who have, out of necessity, found unique ways to squeeze their budget. There’s a flavor of innovation that does not involve building a better mouse-trap. Poverty creates a new kind of innovation–stretch innovation. How can I catch two mice with the same trap? How can I feed a family of six with what resources I have? How can I put clothes on their backs? People every day are finding ways to stretch what little they have, and from what I have seen people are getting GOOD at it.

That’s the kind of innovation we would get in a ‘distributive’ economy based on Guilds and Coops instead of Corporations. We probably wouldn’t get a new mechanical quantum-hammer every year, but we would get the most out of the hammers we do have. We wouldn’t get combine harvesters, but we would figure out how to harvest 10 acres in less than an hour with man-power alone.

This isn’t a virtuous idea because it is regressive, but rather it is an idea I like because it stretches what we already have. The reason the quality of everything we buy is going down is because corporations are relying on us buying a new one if there’s the slightest superficial defect in it. But stretching what we have is a different kind of innovation. Washing Machines lasted 50 years in the 50’s because the economy required stretching resources, and buying a washing machine every 10 years was wasteful. Washing machines last 10 years in the 2020’s because no corporation is going to sacrifice their quarterly profits by building a washing machine that lasts longer than 10 years.

Poor Man’s Capitalism is the capitalism of finding economies where none present themselves. Of finding ways to get 6 servings of rice out of one. Christ didn’t use profitable interest to sell bread and fish to the 5,000. Christ stretched what little they had. And all were filled–and they had more left over than when they started.

We don’t lose anything as a society by sacrificing a new plastic iPhone every year. That’s not progress. Real progress is being able to say “My granddad fed a family of 6 with one cup of rice–and I have kept that skill alive today.” THAT’s progress.

AMDG

CDXLV – Banking In Scootland

Or, The Ideal Finance System

Following my previous post, there were some excellent comments by David the Barbarian and NLR which both served to further diagnose what is wrong with the current financial system and gave me some interesting thoughts as to how to structure the ideal banking system.

Scootland is obviously my little Utopia where everything works perfectly and nothing goes wrong whatsoever and all consequences are anticipated.

Before we get too deep into banking specifically, lets revisit what we’ve already written about corporations and similar structures in Scootland. See this article on Things Going Wrong.

It is not a given that Scootland requires corporate structures. There is an incentive built into the social structure of Scootland that would promote Guilds and Coops. Guilds are organized by profession, and help ensure quality and consistency among members. They function kind of like professional certifications, but give opportunities for training. There is no limit on the number of guilds per industry, so it would be competition that helps control the guilds and ensure they promote quality and consistency. I am an accountant, I might be certified by the Scootland Accounting Guild, and have received my training from them. I might work for a firm which is affiliated with the Scootland Accounting Guild and has to get recertified every so often that it is performing up to code. A rival guild may try to surpass the Scootland Accounting Guild in quality or price, and have different firms associated with that guild. The guild would serve to train, certify, and share methods and resources. Guilds would compete nationally, as well, helping to provide more controls on the power of the Guilds.

Cooperatives are the other resource. Cooperatives exist to support industries locally and to facilitate the distribution of local goods. A good example is a blacksmithing Coop–it would serve to supply all the member blacksmiths with iron and tools, which perhaps are sourced from mining coops or others in the same region. If there was an Accounting Coop, it would distribute visors and calculators to member accounting firms. Cooperatives as a rule would be confined geographically, but would not be bound to support specific, competitive guilds.

Corporations then would fill the gaps not satisfied by Guilds or Coops. Corporations would receive a Charter directly from the Sovereign, and must be owned by a citizen of Scootland. That citizen is the person who is held accountable for the deeds of the Corporate Charter while it is in operation. The King will not look for employees if a report reaches his ears of misdeeds, but will look for the Charter holder. So the Charter holder has an incentive to ensure the Corporation is behaving responsibly. The Charter would outline a specific business activity, for a specific purpose, and a specific customer who needs what the Corporation seeks to provide.

All This Being Said…

All this being said, what role do Banks fill in society? To try to unplug from modern conceptions of banks, lets go back to the renaissance era. I think it was the Medici family who established something that looked like a modern bank. They created a system that allowed for your money to be accessed in different cities. If you were from Naples and wanted to visit Venice, you would make a deposit at the Medici Bank and they would give you a notarized certificate, so when you travel to Venice and visit a Medici Bank, they would honor the certificate and give you your deposit. This is the first function of a Bank–to access your money across Geography.

The second function of a bank we discussed in the previous article–it’s a low risk investment which earns some amount of income in the form of interest over time. In the renaissance era, there was probably not much of that. I think the original Medici banks were bank-rolled by the Medici families personal wealth, and perhaps they made money more from fees to participate in the bank than from the deposits themselves.

The third function of a bank is that of financier. People go to banks to get help paying for big things. The Medici family was famous for patronizing the arts, and modern banks help pay for real estate and other property or assets.

Can these functions be served by something other than a traditional bank?

The geographic function could be filled by a guild, because the guild transcends geography. A Banking Guild might allow you to make a deposit and access that deposit in any Guild ATM or bank. Perhaps a percentage fee for each deposit, so there is an incentive to put a lot in at once; and no fee to withdraw because it’s your own money so you are just paying for the service provided by the Guild.

The problem with banking as an investment is that it incentivizes the kind of risky behavior that caused problems for SVB and other banks. They need a way to earn money other than investing other peoples money. I think introducing fees helps solve that problem. Then perhaps they could pay a dividend to depositors from the profits of their fees, proportional to the deposits held. That means you could earn back your fee if you keep your deposit with the Guild for a long time.

So the final function would be financier. What if Banks got out of the financing game? Let the people do that–if you want a mortgage, go to the person who owns the property and negotiate terms. Really the only reason our current mortgage system works now is because people are moving entire sums of money. I paid $200,000 on this house, so I want to sell it sight-unseen and buy another house using the $200,000 I put on this house.

Maybe it doesn’t work like that in Scootland. When you sell a house, you negotiate terms and the buyer gives you a deposit and you get a “rent” from them until it’s paid.

I guess that’s where the bank comes in–if it’s a person then you get defacto Land Lords and all kinds of abuses. Selling it to the bank first allows there to be an intermediary.

Again–the Banking Guild could do this but not with depositors funds, it would have to be with their own separate reserve. They would function as facilitator and not the direct debt holder. This helps keep the relationship between people, as mediated through the Guild.

This is all very rough, I submit this idea for comment and critique.

AMDG

CDXLIV – Judgmental About Tucker

Or, A Grumpy Ramble About The Banks

In keeping with an unintentional theme of increasingly misanthropic screeds against television and media personalities, I have another report to share of things I saw on the gym TV that just didn’t make sense to me.

The funny thing is, my new state is a little more red than my old state of beloved memory, Virginia. So instead of CNN, and MSNBC dominating the televisions, it is a little more Fox News, a little more BBC. Not that BBC is biased the way Fox News is biased but international broadcasts present American news with a little more clarity.

So in the evening it was time for Tucker Carlson to address sweaty news junkies. I couldn’t hear anything my boy Tuck was saying but I could tell the broadcast was about the recent bank-run and the governments response. I am an accountant by trade and interested in matters financial, as long time readers will know, so I my curiosity was piqued by this whole affair. I have a sense of what is wrong with the banking industry, but what did Tucker have to say about it?

Tucker Carlson took this opportunity to decry the source of these ailments: Diversity and Inclusion standards in the financial industry. Instead of a meritocracy we’ve become a adjectiveocracy. Tucker took us back to 2008 and the bail-outs and the Diversity and Inclusion requirements imposed on the financial industry, and traces the origins of this crisis to that crisis.

Here’s the thing–Tucker Carlson might even be right. He probably has a valid point that selecting for people of different arbitrary qualities rather than people with competence and skill degrades the quality of our financial machine.

But that’s not THE problem here. That is A problem. It might even be a significant problem. But it’s not THE problem.

This is where I digress from yappin’ about Tuck and start talking about the financial industry. If you want to read more about Tuck, skip ahead. I’ll put a flag to let you know you’ve arrived.

Banking Bonanza

Here is how for-profit banks work. You deposit a sum of money into your account, along with a bunch of other people. The bank now has a big sum of money to play with. Here is the balance the Bank must strike: How much money does it need to have on hand to supply people with their regular cash needs? Let me amend that–what is the minimum cash balance required to keep on hand to keep the people supplied? There are different answers to the question. Let’s say it’s 10%.

Then what does the bank do with the 90% remaining? It HAS to invest it. It invests in loans–personal, automotive, mortgage loans that almost every bank offers. These are easy, but returns depend on the interest rate which is governed by the Fed. These returns pay salaries, pay interest to depositors, and overall grease the wheels of running a bank. When interest rates are low, everyone wants loans because they are affordable and often a better investment than savings. When interest rates are high, people start having trouble with their loans because they can no longer afford the interest rate. Some loans default, some loans settle, some (few) loans continue to be paid back reliably by belt-tightening citizens with money to spare. If a majority of the banks income is in loans, when interest rates go up the at-risk loan profile of the bank changes dramatically, and a bank can go from solvent to insolvent very quickly.

Another investment for banks is things like the stock market. The stock market is inherently volatile and offers some returns. The returns you can get from the stock market come in two forms: Selling an investment that has matured in value–i.e., you bought the stock low and you can sell it high; or, dividends from long term investments. Dividends are secure and predictable, “buy-low-sell-high” is not really predictable and relies more on horse-sense than science.

Another investment for banks is things like bonds, treasuries, currency speculation, real estate speculation, things like that. Bonds and treasuries are more stable, because they are from the government or other companies; speculation is unstable because it is by definition speculative.

Another thing that for-profit banks do that absolutely boggles my mind is that they go public. This is what I think the biggest problem is.

A for-profit bank will sell shares on the stock market, and wait for their stock to mature so they can get juicy cash from public investments. If the economy is bad, the stock market falls, and it has the opposite effect. Suddenly your equity-generating dynamo starts loosing money and going public suddenly seems like a very bad idea.

Let’s think about this for a moment. What exactly are you investing in? Look at my series on Rai Stones for an in-depth discussion of this. Equity of a company should represent the thing they have that no one else has. When you buy an ownership share of a company, you aren’t just buying a paper instrument, you are buying a part of the whole business. If you are a widget manufacturer, you make widgets. If you are an accounting firm, you sell accounting services. What do banks manufacture? What do they sell? How do banks make money?

Banks make money by investing other peoples money in variously risky financial instruments. So buying a share of stock is buying into the investment of other peoples money so that you can get a cut of the profit earned from the investment of other peoples money. A bank that has a good stock price means that it has a lot of other peoples money or it is earning a lot of income on it’s investments of other peoples money.

When interest rates go up, it becomes harder for a publicly traded bank to make money on its investments of other peoples money, and it’s stock price goes down because it can’t make money the way it used to.

That’s the model we are working with here. So what exactly happened?

Silicon Valley Bank invested in long term bonds. The way bonds work is you pay a big sum up front and earn an income over time, depending on the interest rate. The bonds are optimized for a certain interest rate, so when rates change, bonds can stop being useful as an investment. SVB was stuck with a lot of bonds and interest rates had gone up a lot, so the question SVB had was–do we hold on to the investments and hope the interest rates go back to where they were, or do we sell them as they are and eat a loss and raise capital through another way?

Put another way–do we keep the reduced income because we have sunk so much into it, or do we scrape back what cash we can and try to do better investments? SVB made a logical decision to sell the investments at a magnificent loss and announced to investors that they needed to come up with cash. This scared the investors who questioned the solvency of the bank, who sold their investments which aggravated SVB’s cash needs, and created a death spiral. Not only this, but depositors came a-knocking to withdraw their deposits–the lump sum which SVB was investing in the first place, and so could not provide. A run on the bank precipitated, where depositors wanted all their money out and the bank could not provide it.

Note what is going on here: All of these errors precede government intervention. SVB made a bad investment and had to eat dirt because the economy is a dynamic and changing environment. The bad investment panicked the stock holders because it is a publicly traded bank–error compounds error. The panic led to depositors panicking and trying to take THEIR money out–error compounds error compounds error.

All of this was wrong and broken before we even get to the point of government regulation. The governments response was bad and doesn’t help solve any of these problems. But do you see how there are plenty of problems with how things are set up before we even get to that point?

Talkin’ ‘Bout Tuck Again

Tucker Carlson missed the mark on this specific issue. Diversity and Inclusion is not even the worst thing about our grossly dilapidated financial industry. He picked that topic because it was politically expedient and would get people fired up. But it completely misses the point of what is wrong with the banking industry and with our government.

Other banks are struggling and may fail because of the structural problems with how they operate as banks, and not because regulators recently appointed are of a diverse background. The government response one might suggest even has incentivized failures so that they can maximize recoverable capital while the getting is good.

AMDG

CDXLIII – The Bread Standard

When you water your brain good thoughts grow, that is why people have shower thoughts. Such is the inception of the subject of this post: The Bread Standard.

The root of the thought was this: I recalled my introductory accounting classes where the question of “what is money” was brushed aside in favor of “how is money used”–the answer being ‘as the means of exchange’. What money is, is very important because it reveals the philosophical underpinnings of the economy. Zippy famously tried to answer this question by saying that money is tax vouchers. I disagree, and as an alternative I suggested that money is a unit of the delegated authority of the sovereign.

What follows from this is that I wanted to think of a simple analogy or otherwise how to explain my model of currency to a child, or someone uninterested in finance. I began by suggesting the starting point is that the Sovereign is responsible for providing all the needs for his subjects, but because that is impractical he issues vouchers redeemable for some unit of value. Issuing a token that says “One Dollar” on it doesn’t mean much in a vacuum, this is why proponents of the gold standard try to substitute Gold. It makes the logic go something like this: This slip of paper that says “one dollar” is tradeable for one ounce (lets say) of Gold. So now you are not trading “dollars” but you are trading gold by proxy. But what the Sovereign is really concerned about is the necessities of his subjects, so what if he made the slip of paper that says “one dollar” tradable for one loaf of bread?

The great thing about a Bread standard is that it lines up with the idea of “purchasing power parity“, which compares world currencies by comparing how many local bucks it costs to buy some standard commodity–bread being a common comparison. If it costs $5USD to buy a loaf of bread in America, and it costs ₱500PHP to buy a loaf of bread in the Philippines, then $5=₱500, and a ‘colloquial’ exchange rate can be reasoned. If we had a Bread Standard, then 1 Bread Buck would always buy one loaf of bread, so that would make comparing bread bucks to other countries relatively simple.

Within a country like, for example, Scootland, Bread Bucks could be valid stand-ins for bartering with loaves of bread. If you need a wagon, if you need a mule, if you need a car, if you need gas–how much current or future bread would it be worth to you to trade for it?

This calculation makes the economy begin to make a lot more sense. It explicitly refers to the Sovereign providing necessities for subjects, it expresses what the basic necessity of the subjects is (bread) and it facilitates trade so that you aren’t just trading hypothetical “Scootbux”–how do you value that?–but you are trading the authority to buy for yourself one loaf of bread.

I don’t know that I have succeeding in creating a simple explanation, but I really like the idea of a Bread standard.

What follows is just a fun (for me) breakdown of Bread based currency:

฿1 Sovereign, colloquially known as a Loafer
߿1 Tenth, colloquially known as a Slice
10߿ make ฿1, or 10 Slices to the Loaf
2߿ are known colloquially as a Sammy

AMDG

CCCLXIX – Economic Weather Forecasting

I just read a headline that reads “Economist puts recession risk at 80%” and mentally appended: “partly sunny through the weekend, with highs in the mid 60’s…”.

There are two errors, as I see it, with this kind of economic forecasting.

First, it treats the Economy like some unpredictable force of nature. Second, it is not designed to educate the public, but instead spooks them. Imagine if a weather forecaster said there was an 80% chance of a “Spooky Doom-storm” and all it did was rain?

Before I get too ahead of myself, let me back up.

The first error is in treating the economy like an unpredictable force of nature. The economy is not a force of nature and it is predictable on the macro-scale just not on the micro-scale. Inflation is a predictable outcome of the COVID stimulus and other MMT behaviors of our government. How inflation will affect people–micro-scale stuff–is hard to predict, but it was foreseeable that inflation would occur. Recession is a predictable outcome of the anti-inflationary measures being undertaken right now by government. They are intentionally trying to slow down the economy to rein in inflation, and that is a good thing. Given the irrational stimulus (free money for everyone!) we are behaving rationally with respect to its consequences (interest rate hikes, inflation).

This gets at the second error, that claiming there’s an 80% chance of recession. The recession is both logical, unavoidable, and good. People sometimes get the mistaken impression that recessions are always bad–they are certainly always unpleasant but in our present case it is healthy because it will course-correct our economy, so it’s not all bad. The headline itself seems to me to be designed to scare people. “The Spooky Doom-storm is a-comin!” says the economist. But really the spooky doom-storm is a few days of wind and rain and it will relieve the drought and moderate the forest fires.

An ounce of prevention would have been worth a pound of cure, but seeing as we didn’t undertake any prevention, it looks like we have to put up with the pounds of cure. That sucks–but isn’t the end of the world.

Part of the problem with how the Government responds to economic activity is it looks at the 2008 credit crisis as a sequence of bad headlines that will really harm their election prospects. So they manage to the bad headlines and make bumbling errors like Quantitative Easing and bailouts and innumerable other economic policy failures.

Just some quick thoughts.

AMDG

(m) – Property Taxes “AHA!” Moment

The income floor of a household (or, the minimum rent for a tenant) is mortgage + property taxes. You can get away without having utilities, even though life wouldn’t be very comfortable; but you would get kicked out of the house if you don’t pay your mortgage and I am sure they would come after you if you didn’t pay your property taxes.

“Housing inequality” is the idea that houses are not available for the poorest. That is because property taxes represent an ever increasing waterline. Even a fixed rate mortgage can be outpaced by assessed value property taxes, since property taxes only go up, because our administrators view it as a bag of infinite money.

If you want to see housing costs go down overnight, and you want to see more creative solutions to “housing inequality”, then abolish the assessed-value property tax.

(Yes, there would be other consequences and other effects, it’s a complicated topic. Don’t craft policy based on a blogger’s quick-take. Fortunately I don’t think any policy-makers read this blog.)

AMDG

CCCLVIII – Zippy on Property Taxes and Currency

I was reading Zippy again, here comes trouble. I stumbled upon some comments of his in the wild on other sites and just really admire the clarity and force of his arguments. Now that I grok his points, his arguments are very frustrating to witness. He is saying things very clearly and it is literally only the blindfolds of his interlocutors that prevent them from understanding him. He was extremely patient at answering respectful questions and extremely diligent at ending the conversation the second it turned south.

So, one thing led to another and I end up at this article by Zippy that touches on Property Taxes and all my old gears started spooling up again.

This article is going to be a stab at restating Zippy’s argument in a way that I can understand so that when I try to fit my ideas of currency into it, I am speaking from an intelligible place.

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“Usury is rent charged for something which does not actually exist. Thus usury is unjust: it is (…) a something-for-nothing taking from the borrower.”

“The value imputed for the property tax rests on the mere potentiality of selling the property for its assessed value. There isn’t any actual sale for actual dollars; there is merely a potential sale which does not in fact occur.”

“If it is intrinsically unjust to charge rent for something which doesn’t actually exist, it is also intrinsically unjust to tax what does not actually exist.”

These are the key premises according to Zippy.

There are some assumptions:

• Currency as tax vouchers
  • This is the best explanation of the tax vouchers thesis I’ve seen from him so far: Currency has value as a means of exchange because it can be used to pay taxes.
    • I don’t agree with this because it feels tautological. I will revisit it in a subsequent post if I don’t touch on it here.
• Property taxes are a tax on the potential sale.
  • I think there is an argument to be made that property tax is rent for use of sovereign land, and the assessed value is just a macguffin for calculating that. Zippy’s approach might be realist in that sense but I think it accidentally uses the wrong part of the transaction as the fulcrum for realist analysis.

Lets start digging into this with our ideas.

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Currency and Taxation Revisited

I don’t like the tax vouchers idea because it is tautological. Currency has value because the sovereign accepts it as payment of taxes. It reduces the function of the sovereign to that of a tax administrator, and it presumes that currency is freely in circulation and the sovereign could accept empty cans of cola in payment but it chooses to accept greenbacks.

Currency is more complicated than that because only the sovereign can issue it, the medium of the currency itself doesn’t have to have any value whatsoever, and the exchange rate for real property changes based on the amount in circulation. Note that the issuance, valuation, and exchange of currency has nothing to do with taxation. Taxation is a separate function of the sovereign, and by no means the only function of the sovereign.

Taxation is a lawful function of the sovereign, and takes the form of a levy of property kind of like the draft is a levy of personnel. The specific mechanism of taxation can be just or unjust, but in principle taxation is allowed to the sovereign.

The easiest to understand and most just form of taxation is a direct levy. The sovereign says “I need One Billion scootbucks for some public good” and sends the bill down the chain such that every citizen of Scootland gets their portion of the billion scootbuck levy.

Progressive taxation changes the amount of the levy for each person based on their accumulated property. A person with more property has to pay a higher levy. A person with less property has to pay a lower levy.

Sales taxes are intelligible because they are a standing levy on economic activity. If taxation is “returning to Caesar that which is Caesar” then it is analogous to “pouring one out” for the boys–sacrificing the first part of a drink or a meal in homage to God or ones friends of fond memory. Sales tax is saying the first part of your economic activity should be to give a token to the Sovereign and the rest is barter between willing parties. Sales taxes are inherently progressive because people with more property have more means for transacting and so naturally transact more and pay more as a proportion of their income to the sovereign.

Income taxes are complicated, but it is similar to the Sales tax in that you are paying the first part of your economic activity to the sovereign. I receive a wage of SB100 and pay SB1 in homage to the sovereign so I take home SB99. Sales and Income taxes avoid the levy system and allow the sovereign to have a standing order of property from the people, in the form of default tokens received from economic activity.

This brings us to property taxes. Zippy’s thesis that property tax is a tax on a potential sale doesn’t make sense to me, because it’s not economic activity. It’s a tax on the property itself, as the name implies. As I suggest above, property tax could be construed as rent for use of a portion of the sovereign land. But if that were true, everyone’s property tax bill would be identical per unit of that land. What makes property taxes confusing is that they are based on the improved value of that land–improvements which the sovereign had no hand in other than to authorize via the delegated authority to acquire property that is currency. I would argue that the thing that makes property taxes unjust is the reliance on the improved value. It would be OK if property tax was merely a charge for use of property. This has negative economic consequences, sure, but at least if everyone had the same tax per acre then it would be intelligible and “equal”. Charging for the improved value penalizes improvements, and provides an economic disincentive. It is unjust the same way a progressive levy is unjust, because it penalizes people for the arbitrary reason of having property and not for the intelligible reason of using property.

Of course, the use of property does not automatically make a tax just, just that it does a better job of treating all subjects to the sovereign as equal in his paternal eyes. The benefit offered to the poor is taken away by the injustice done to the rich.

So, to quote the inimitable Zippy:

“Thoughts?”

AMDG

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EDIT:

AHA! I feel very affirmed, I followed some links to the previous article and ended up at the Orthosphere. Zippy says in a comment there:

Again, precisely what is at issue is if it is possible for the sovereign to commit theft against his subjects (whether he labels it a “tax” or not), and under precisely what conditions.

Someone might contend that it is not — that all ownership is merely delegation of sovereign authority rather than a distinct authority in its own right under the natural law. But playing games with labels (“tax”) and declaring taxation licit is just a pointless nominalist rhetorical gambit which attempts to avoid what is at issue rather than addressing it.

My theory of currency is derivative of this: Currency represents future property, so it is a stand in for ownership until the unit of currency can be traded for a unit of real property. The delegated authority follows. Zippy is aware of this logical conclusion but did not follow it through to the currency used to acquire property. I don’t know why.

I’ll count this as a win though, it is nice to see I am not treading any new ground just discovering old ground that is so well worn as to be unrecognizable!

CCCXXXIII – A Grumpy Ramble About Inflation

I have written about inflation before but that was more about how to think about it than what it is. I saw another headline that the Fed is considering a 1% interest rate hike and my thought was–what does that even mean? Why is that significant?

So here are some quick thoughts since I can’t muster the effort to write a complete essay. It’s my blog and I do what I want.

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• We know from the previous article and from perhaps basic education that inflation means there’s too much money floating around.
• The interest rate does two things:
  • Rewards savings by incentivizing keeping your cash still and for the love of God will you stop moving it around
  • Punishes borrowing by increasing the cost of borrowing, i.e. FOR THE LOVE OF GOD WOULD YOU STOP MOVING YOUR MONEY AROUND.
• We had a HUGE regime of money inputs in the form of Covid Stimulus and now again we have the war in Ukraine to finance so woohoo spend like the economy is imaginary
• We did not have a reciprocal regime of money outputs, so that’s what this tries to do. This is great news for savers and bad news for everyone else.
  • OH and by the way, because interest rates have been so low for the last decade or two, nobody is a saver. We as a society are up to our eyeballs in debt because we get better value for our dollar by borrowing than by keeping it still.
• That rushing sound in your ears is the economic dynamo grinding to a halt because shifting gears is very difficult.

Other signs of the times:

• Corporate Bankruptcy
  • When the cost of borrowing increases by some marginal rate then some marginal number of firms will become insolvent because they cannot afford their debt supply. Many firms are optimized for a low-interest-rate environment, only conservative, cash-rich firms can weather the storm because they have, well, cash.
    • Lookin’ at you, Apple
• Corporate Layoffs
  • Before bankruptcy, many firms will seek to restructure their cost profile and the easiest thing to do is cut staff. Staff are expensive and are huge liabilities. One person has probably a 2 or 3x salary multiplier in terms of financial impact on a company–not even counting experience and other value-adds. Their presence alone is a big expense and a big liability. Layoffs–clean up the books.
• Price Hikes
  • High prices are a natural consequence of a high inflation environment, and I’m only listing it last because it’s the most obvious.
  • Blaming any single one commodity on inflation is stupid. Gas Prices are not driving inflation, they are a consequence of it. Flooding the oil market with gas will help the gas prices go down but see my previous bullets about BANKRUPTCY and LAYOFFS to see what the gas companies will think about low gas prices in an inflationary environment.

But Scoot, Inflation is Bad! How do we get rid of it? Can’t things go back to the way they were?

Inflation is healthy–just like exposure to germs is healthy as a kid. Its a natural part of the economic balancing act our government is trying to accomplish, and inflation SUCKS but it’s how we reap what we sow.

If we were smart we would eat dirt for a few months and get through it quickly. Trying to pull a Sullenberger with the economy is probably going to cause more damage. We never fixed the deep structural problems in our economy from the last time around so there’s a lot of deeply entrenched problems that we are going to have to deal with.

By my (experiential) understanding of human behavior and my (Smithfield Hams™ Pig Ignorant) understanding of economics, if we let go of the reins a bit prices will peak in a few months, a few companies will go out of business, but the economy will be allowed to re-adjust itself to a high interest rate environment.

The important next step is that we stay there for a while and maybe, you know, stop giving money away for free.

But money is imaginary so, who cares, right?

AMDG

CCCXXV – Makin’ That Bread

One of my favorite economic concepts is “Purchasing Power Parity”, which essentially converts currency into commonly purchased necessities, and compares how much of it you can get.

Bread is my favorite indicator for this concept. Everyone needs bread–or something like it. Not every culture uses bread as ubiquitously as the USA does, but it is still a basic food product and easy to compare.

The basic premise is this: Exchange rates are kind of like comparisons of economies as a whole. […] I will use the Philippines for this example. The current exchange rate is $1 USD = ₱54.79 Philippine pesos (PHP). It’s hard to say exactly what this means, I like to think of it as the US Economy is 54 times larger than the Philippine economy. This makes general sense–if the PHP were 1:1 with the USD, it would mean our economies were identical.

But does this translation scale? If I need to buy a car for $16,000, would the same car in the Philippines cost 54 times as much in pesos? If my job gets me a salary of $50,000, would the same job in the Philippines earn me 54 times as much in pesos?

We all know intuitively that this translation doesn’t work. Demand for products is different, technical capacity is different, culture is different–you can’t just change the denomination of the currency and assume everything works out the same.

That’s why we look at Purchasing Power Parity. How much does it cost to feed your family the bare necessities? Then we can say those prices are equivalent.

Google tells me that a loaf of bread costs $2.50, and in the Philippines a loaf of bread costs ₱56.61. That’s a little better exchange rate than $1 to ₱54. This lets us think of the economy in terms of loaves of bread. Instead of a car costing me $16,000, we can say I have to spend the equivalent of 6,400 loaves of bread. 6,400 loaves of bread in the Philippines is ₱362,304, so if our economies are balanced the same way, a car would cost that much. If it costs more, then the Philippine economy is more expensive than the US economy; if it costs less then the Philippine economy is cheaper than the US economy. Same calculation goes for the US relative the Philippines.

If we were to combine a few groceries and get some estimate for what an average, minimalist, nutritionally balanced meal was in each country, we could start measuring incomes in “number of meals”. We can assume 3 meals a day, so 21 meals per week, with only 5 days of working, so over 5 days we need to earn enough for that day plus a little extra for the days off–the minimum wage needs to pay 4.2 meals per day (21 meals earned over 5 days). If the salary is less than 4.2 meals per working day, then that would be something akin to poverty–you have to skip meals or work multiple jobs. If the salary is more than 4.2 meals per working day, that is something akin to wealth.

This is only considering the work of one person. A man who must provide for a stay-at-home mother and two children has to provide 21 x 4 meals per week, and earn 16.8 meals per working day. Again–anything less than this benchmark is poverty, because meals have to be skipped or multiple jobs worked. Anything more than that is food security. You will note I am not assigning dollar values, because I cannot estimate the average cost of those meals without doing more detailed research.

This has opened a lot of interesting ideas that I am not prepared to get into yet, so I will leave off here. More to come on this!

AMDG