Inflation is a Tax

I had a discussion on facebook about inflation and whether or not it is a tax. I said it was. I suppose that technically one could say it is not. Let us hear from an expert in monetary policy. No Ron Paul is not the expert I have in mind. The expert is at the end of this short clip. 

The Ant and the Grasshopper

I shamless stole this from WendyMcelroy.com. 

OLD VERSION:
The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter.

The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away. Come winter, the ant is warm and well fed. The grasshopper has no food or shelter, so he dies out in the cold.

MODERN VERSION:
The ant works hard in the withering heat and the rain all summer long, building his house and laying up supplies for the winter.

The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away. Come winter, the shivering grasshopper calls a press conference and demands to know why the ant should be allowed to be warm and well fed while he is cold and starving.

CBS, NBC , PBS, CNN, and ABC show up to provide pictures of the shivering grasshopper next to a video of the ant in his comfortable home with a table filled with food. America is stunned by the sharp contrast.

How can this be, that in a country of such wealth, this poor grasshopper is allowed to suffer so? Kermit the Frog appears on Oprah with the grasshopper and everybody cries when they sing, 'It's Not Easy Being Green... ACORN stages a demonstration in front of the ant's house where the news stations film the group singing, We shall overcome. Then Rev. Jeremiah Wright has the group kneel down to pray for the grasshopper's sake.

President Obama condemns the ant and blames President Bush, President Reagan, Christopher Columbus, and the Pope for the grasshopper's plight. Nancy Pelosi & Harry Reid exclaim in an interview with Larry King that the ant has gotten rich off the back of the grasshopper, and both call for an immediate tax hike on the ant to make him pay his fair share.

Finally, the EEOC drafts the Economic Equity & Anti-Grasshopper Act retroactive to the beginning of the summer. The ant is fined for failing to hire a proportionate number of green bugs and, having nothing left to pay his retroactive taxes, his home is confiscated by the Government Green Czar and given to the grasshopper.

The story ends as we see the grasshopper and his free-loading friends finishing up the last bits of the ant's food while the government house he is in, which, as you recall, just happens to be the ant's old house, crumbles around them because the grasshopper doesn't maintain it. The ant has disappeared in the snow, never to be seen again.

The grasshopper is found dead in a drug related incident, and the house, now abandoned, is taken over by a gang of spiders who terrorize and ramshackle, the once prosperous and peaceful, neighborhood.

I've sent this to you because I believe that you are an ant!

Declining Value of the Dollar

The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

 Care to make a guess about who said this? 

Broken Windows Fallacy

Modern Economic theory is based on a well-known fallacy, the broken window fallacy. Here is how its originator  Frédéric Bastiat in his 1850 essay Ce qu'on voit et ce qu'on ne voit pas (That Which Is Seen and That Which Is Unseen) describes it:

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

In other words chaos and loss looks good, if you ignore the “opportunity cost.”  This is common in a lot of the defense expense around the military. We must build the F-22 fighter to defeat the Soviet menace, never mind that there is no Soviet menace, never mind that there are alternatives that are cheaper. This increases our defense costs. It is the jobs that the F-22 brings that trumps everything. But if the money for the fighter was not taxed from taxpayers they would have money to spend on other things. That would produce more jobs than the fighter production would. 

It actually does not matter if there is actually a threat. It is good to waste money to prepare for space aliens! Then all our problems would be solved! Sometimes you cannot make this stuff up. 

Yes, you too can prepare for the next alien invasion or the next zombie apocalypse, and at the same time end our economic crises. Yes, according to modern economic theory you are ahead if you hire one person to dig a hole, and hire another to fill it in! Jobs! Jobs! Jobs! What is ignored is what the money would have done if it remained in the private sector: Production that would produce jobs that last. I think that Snoop Dog needs a Nobel Prize for his contribution to music in his video, "I Want To Make You Sweat." That makes about as much sense as Krugman and Obama's prizes. 

I bet you did not know that taxing people to produce welfare benefits will magically produce more jobs than the tax removes. It is magical! 

I have no objection to this spending, I would say that it is a necessary part of our society, but this is a COST for the society, not an asset. 

Is it any wonder that we are in a crisis with a genius like this advising Obama?

Maybe Gary Oldman has a future in the Obama administration.

Bush’s Legs

Earlier in the week Elena and I walked to the store to buy "Bush's legs." This blog post is my thoughts as we walked. 

The "tragedy of the commons," as it is often called, is what happens when no one owns something—it is misused. This was evident everywhere as we began our walk. Since no one owns the outside of the buildings at my mother-in-law's apartment, they are in disrepair. The inside of these apartments can be quite nice, such as the one where my wife's childhood friend Natalie lives. My mother-in-law's apartment is better than most, as we help her financially. But it wouldn’t be, if she had to do it herself, on her pension of $200 a month. You can thus imagine that the average apartment needs work on the inside too. 

There is almost no landscaping. If there was an apartment association, no one would pay the dues. But what seems troubling is the moss that grows on the building at the entrance. Sunlight does not always reach the bottom level between the buildings. We are thinking the dampness is causing our daughter Stacy to cough. 

There is some public art work—plastic bottles cut to resemble flowers, and an old tire cut up to represent a bird. Whole tires are laid on the ground as planters, but nothing was planted in them. This sounds worse than it looks. 

We walked by the place I mentioned in my first blog post about my trip, a trash dump. What the authorities did was brilliant. Rather than fight the people, they put in dumpsters. This is a great improvement, although they do not empty them often enough. 

The grocery store itself was not as clean as an American would like. They were cleaning it while we were there. Often this would be done before opening, but not here in Russia. The mix of products is different than I am used to. A lot more alcohol and candy—and a lot less fruits and vegetables. 

The fruit would not pass muster in an American store. It was bug marred. But this got me to thinking. Which is better: the American approach to fruits and vegetables—picking the fruit before it is ripe, hauling it 1,000s of miles, and spraying the heck out of it to achieve that pristine look? Or is the Russian approach better—the food is grown locally in season and not sprayed with large amounts of pesticides? Intellectually I would say the Russia approach is better. But my eyes, corrupted by Babylonian marketing, prefers the pristine, fake, and artificial. 

Things are more expensive here than one would expect with the low wage rates. One reason is that there are twice as many employees as one would expect. (I have seen ice cream stands with two employees.) Another reason is that we add the sales tax at the point of sale, taking into consideration the prices. In Russia, with the Value Added Tax (VAT) system the taxes are baked into the sale price. 

Russian stores also tend to buy things in smaller quantities. Capital for inventory is at a premium. This must raise their costs considerably. You see a lot of vegetable stands as you drive through Murom. One lady I saw was selling her potatoes herself. (At least it looked that way.) They were great looking potatoes that would have fetched a premium in America for baking. 

Bush's legs looked good so we bought some. This is a Russian slang expression for the fact that much of the dark meat chicken in Russia is imported from America. We American's have a mania for white meat. So it makes sense to ship dark meat to other countries who do not care about this like we do. This started during the first Bush presidency, thus the nick name Bush's Legs. 

Walking home carrying a load was not something I was used to. This got me to thinking about transportation in Russia which I will talk about soon.