Saturday, April 30, 2011

Keynes, money, tax the fat cats

Keynes, in The General Theory of Employment, Interest and Money, published in 1936 was trying to improve on classical theories that said that depressions could not happen because supply creates its own demand causing the economy to always be in a state of general equilibrium. Obviously the great depression posed a serious challenge to the general equilibrium orthodoxy just as the 2008 crash poses a problem to the Reagan Clinton Bush financial deregulation which also used general equilibrium, free market justification. Keynes in the title of his book noted the importance of "interest and money" in the determination of employment -- exactly in opposition to Classical theory that said "money is a veil" and did not impact the level of employment. The classicals focused on real factors such as employment and production. History has shown that Keynes was right -- interest rates and the money supply are major factors in the operation of the economy.

Further, the same kinds of bubbles and wheeler-dealers that caused the roaring twenties and the crash of 1929 also caused the roaring 1980s, 1990s, and 2000s and caused the crash of 2008. Classical theorists were led by David Ricardo, a British Sephardic Jew who amassed a fortune in trading and finance, and bet against the French before the Battle of Waterloo, along with Rothschild.

It took 20 years of government intervention, fiscal and monetary stimulus to crawl out of the great depression and such may be required this time. General Eisenhower 1950s had a growing economy with a 91% tax rate on the fat cat bankers that caused the crash while now income taxes rates on the rich are only a third of that. Higher taxes could lower or eliminate the government deficit and reduce the money wasted on drugs, moonshine whiskey, junk food, gas-guzzlers, and excessively large houses constructed by illegals on valuable farmland in bankrupt states.

I think all derivatives should be traded on open exchanges such as the Chicago Mercantile Exchange so that they can be accounted for, regulated and taxed. They are now just cash cows for bankers while contributing little or nothing to the economy. The Classicals were right that real activity is more important than the financials. But financials can come back and bite you if not properly regulated and taxed. Financials have gotten way out of hand -- USA needs to get back to the real fundamentals and some of the approaches that worked in the 30s 40s 50s may help today.

Friday, April 8, 2011

Health insurance versus credit cards

Health insurance is a misnomer -- in the USA it is more of a payment system than insurance. Why not turn it over to the banks as a credit payment system: Give everybody a credit card and any medical charges get automatically deducted from their paychecks like the social security and medicare deductions? Banks can get 30 cents from each use of the credit card and 1% per month interest on the unpaid balance. Limit payments to half of the patients income so they do not starve to death. This system would get rid of the insurance companies and so much paperwork and thus reduce the cost of health care.

Wednesday, April 6, 2011

A rigged game: too big to fail

The game is rigged and is no longer free market competition in the USA. Elites have taken over big companies and big government so that now major institutions work in tandem to defeat more talented upstarts and more ethical rivals. Elites from birth have more advantages and opportunities. Elites go to élite schools and colleges to network, marry, and conspire to keep their wealth in a few hands for generation after generation. TV and radio teach the sheeple and ditto-heads to recite mantras and sing songs about glorious god, country, freedom, and the free market while being herded to extermination in the barrios, Iraq, Afghan, hospitals, McDonald's, Burger King... Wide is the gate that leads to destruction. Elites are using the new technology to further enrich themselves and monitor and keep the sheeple out of positions of power in business and government. The rich are getting richer and the poor are getting poorer.

So the free market is actually a roaring untamed river going where it will go. The river's course is the final product of a myriad of natural forces. The course of the river would be the most efficient final outcome of the interaction of natural forces. The problem with viewing the free market model as one of maximum efficiency is that it assumes that all market participants at all times make the most efficient decisions. Like any game of mathematical probability the House (government) must set rules to assure any party from having undue influence. This in theory would maximize the revenues needed for a state to maintain obligations and functions for citizens. The problem is when the house is taken over by "The too big to fails" and weighted dice are allowed for some players.

The Protestant Calvinistic mindset is embedded in the sometimes unrealistic "free market" theories taught in the more advanced modern economies. Adam Smith wrote the Wealth of Nations 1776 in Scotland, the main center of Calvinism at the time, during a period of rapid economic growth. The "invisible hand" of Adam Smith is the price separating hyperplane of economic general equilibrium theory made more rigorous by Walras, Debreu, Pareto, Edgeworth,... Natural resources limit the feasible set to a blob centered at the origin. Insatiable human wants is a second blob centered at infinity. The price separating hyperplane passes through the point of tangency of the two blobs at, say, (1,1,1,1,...1). The prices are the slopes of the hyperplane, the amount of one good that must be given up to buy a unit of another good. God is the separating hyperplane revealed in the prices that coordinate the activities of all the people in the world. Of course, the model is rather unrealistic -- most versions have no government, no money, no large companies, just a lot of little companies and entrepreneurs ("atomic agents") bartering in free markets under "pure competition" -- no monopolies, etc.