Wednesday, November 29, 2017

The Futurist And The Monetary Veil

     I had some difficulty naming this piece. The title occurred to me while I was searching for the central idea illuminated by this incredibly stupid proposal. It’s the key question of all economics:

What is wealth?

     If you’ve never given that any thought, take a moment over it right now.

     I consider professional “futurists” – i.e., persons who propose to advise your government or organization on how to “prepare for what’s coming” – to be among the biggest con artists practicing today. The reason is simple: They offer no guarantees. They get paid regardless of the accuracy of their predictions or the practical effects of their recommendations. They don’t give refunds.

     That having been said, there is much value in attempting to forecast developments in important aspects of the economy, sociodynamics, demographics, and so forth. However, the value does not arise from a high probability of success. Rather, by their regular, dramatic inaccuracy such forecasts reveal how little the “experts” really know, and how smug they can be despite their appalling ignorance.

     Of course, many an “expert” has an axe to grind, as well, but that’s a subject for a later screed.

     So, Gentle Reader: have you given a few CPU cycles to my question about the nature of wealth? It’s an important one; getting it wrong has enabled economic charlatans to make a nice living out of your tax dollars. To perpetuate their racket, they routinely shout down and vilify those who dare to pull the curtain away from their fraud. A lot like the “global warming / climate change” gangsters, really.

     Have your answer to the question and your current bank balance available for the next segment.

     Whatever your income might be, you’d probably like it to be higher. Most people would. But why? What would more dollars (or pounds, or euros, or whatever wastepaper unit measures your income) do for you?

     Generically, the answers fall into the following categories:

  • Present-time consumption (a.k.a. “standard of living”);
  • Reduction of stress over the future (a.k.a. “financial security”).

     (A brief digression: I’ve palmed a card on you. If you detected it, keep your chortles down. The probability that you’re a member of the class to whom my little game actually matters is very low. All the same, I’d appreciate it if you’d refrain from alarming the other readers. We’ll get back to it toward the end of this diatribe. Promise!)

     Your dollar income is only significant for what it can buy today, and for what you hope it will be able to buy in the future. Apart from that, it’s meaningless. The same can be said for your savings, your investment account, and the contents of your little boy’s piggy bank.

     Wealth doesn’t inhere in monetary incomes or balances. It’s about real goods and services you could purchase with those dollars: goods and services that you need or want, or expect to need or want in the future. Your true income is properly measured not in dollars but in what it will procure for you, whether today or tomorrow.

     What I’ve just done is to finger the monetary veil: the curtain behind which all valid and accurate economic thought must peek. In a moment, I’ll pull it back. But first, it’s time for more coffee.

     Virtually every American understands the effect of inflation: it renders goods and services more expensive in monetary terms. Therefore, if Smith’s income is rising more slowly than the rate of inflation, inflation sets him back: he is becoming poorer despite the “increase in his income.”

     One of Robert A. Heinlein’s more fanciful stories, Beyond This Horizon, was written during his “socialist years.” He wasn’t yet awake to the frauds being perpetrated on First Worlders in the name of “a better future.” In that novel, he postulates a Utopian future in which everyone receives a monthly monetary “dividend” from the state: an amount calculated according to a quasi-Keynesian understanding of the “net reinvestment.” This technique, intended to “stabilize” the currency unit, effectively makes it unnecessary for people to work.

     Despite the previous sentence, Heinlein’s novel assumes that people would go on working and producing anyway – and that their output of goods and services would increase over time.

     Utter insanity! In the real world, at least. When people’s incentive to work and produce is lowered, production declines. We’ve had so many demonstrations of this that it should be unnecessary for me to cite one. But even that isn’t the whole story. Inflation – governmental expansion of the money supply – also causes people to dissipate their monetary balances, on the grounds that “they’ll be worth less if I wait.” And inflation is the one and only tool with which a government can create a “universal basic income.”

     Inflation as an “economic management tool” is premised on the monetary veil: the notion that we can “print ourselves rich.” But creating money does nothing to increase the supply of available goods and services. Indeed, it makes what’s available more expensive: “more dollars chasing the same amount of goods and services.” The exact method by which governments inject newly created money into the economy merely determines which goods and services will experience price increases first. (In the United States, the prices of capital goods – the things corporations that sell to the federal government need to make their products – are usually first to be affected.)

     For those interested in exploring this subject, I can recommend two excellent books as starting points:

     Both are written for the intelligent layman. Now let’s get back to that “universal basic income” nonsense.

     As I stated above, inflation is the only tool with which a government can create a “universal basic income.” The money must come from somewhere. There are only two possible sources:

  • Increased taxation;
  • Inflation.

     Increases in taxation are all too likely to provoke resistance, whether overt – the removal of those who voted for them from office – or covert – increased effort put to the avoidance of taxes. Inflation is the preferred method. So the government, to fund the appalling amount of money required by a UBI, will simply create it, Mugabe-style.

     As the new money filters through the economy, the prices of all goods and services will rise in proportion to the percentage of increase. People will be angry about the shrinking purchasing power of their incomes. Government flacksters will attempt to blame the increases on “corporate greed.” Some persons will be fooled, perhaps enough to keep the executives and lawmakers who contrived the inflation in their cushy offices. At any rate, they consider it a “better bet” than increased taxation, which can only be ascribed to them.

     This is not theory. It always happens. It was an important aspect of the rises of Napoleon, Hitler, and Mao Tse-tung, and of the fall of Jimmy Carter.

     And owing to the UBI, which disincentivises productive work, it will be worse than if the government merely dropped the new money from airplanes.

     I could go on, but I think I’ve made my point: More money does not mean more wealth. When it’s the result of a government giveaway, as in the case of UBI, it means less wealth. It can also mean social disorder, as we saw in post-Revolution France, Weimar Germany, postwar China, post- Peronist Argentina, and many other places. But to grasp that causal series, we must pull back the monetary veil – the one thing the futurist, whatever his political alignment may be, does not want you to do.

     Futurists who exhort governments to enact programs such as a UBI, like all con artists, depend upon you not seeing past that veil. But then, prestidigitation has always relied upon misdirection: “Look at the pretty lady, not at the magician’s hands!” Be smarter than that.

     To close, the “palmed card” I mentioned earlier in this essay is this: some persons, who operate productive enterprises, might use an increase in their incomes to invest in their businesses and (hopefully) make them more productive. But such persons are few. More, investing one’s own income harms no long as it came from the results of one’s work and not from the pseudo-benevolence of the Omnipotent State.

     Food for thought.


Kauf Buch said...

As far as *I'm* concerned,
this whole "Universal Basic Income"
is the CARROT
for the STICK of SLAVERY.
(*not* a criticism of your evaluation, just throwing out my 2 bits)

Luring the masses into taking "free money"
(the gov't already has its "Free Sh!t Army" with EBT cards, etc etc)
is EASY.

Then, once ensnared a la "The Pig Trap",
remind those Idiocracy University Graduates
that, should they disobey, mis-speak or even have a thought-crime,
THEIR MONEY GOES *poof!*...and now,
they have NO RECOURSE, NO OTHER SOURCE for their "life blood."

But it's too late and doesn't if their firearms had been confiscated.
And so, it finally dawns on them how royally ska-roowed they are.

El Monty said...

Greetings Mr. Porretto.

I am reminded of something Jerry Pournelle wrote in his Imperial Stars series.

To paraphrase: We have a council of economic advisors. Very educated men who are constantly wrong. We'd do better to have a council of astrologers who read the intestines of animals because we'd be less likely to take them seriously.

It seems to me that the inflation in our country is not just monetary.

The value of our money is being inflated away.
The value a a high school diploma has been inflated away.
The value of (many) college degrees is in the process of being inflated away.
The value of U.S. citizenship is being inflated away.

How can we start to turn the tide?

Stewart said...

I've been following this notion of a UBI for a couple of years, and my basically libertarian economic brain rejects the entire notion as evil slavery.

But, my science fiction brain still ponders what the future may bring. You state, accurately, that reduced incentive to produce, lowers production. But, imagine a (not too distant) future in which virtually all labor is performed by robots. To put it simply, in that scenario, who cares if production declines? In such a world, perhaps only 20% (or maybe as little as 5%) of people still have meaningful work to do.

How does an economy work under those circumstances? How do you incentivize the 20%, while keeping the remaining 80% from causing too much trouble? How do you prevent the 20% from growing tyrannical, if not downright genocidal? You clearly, under those circumstances, cannot have anything like a functional "democracy", which would turn out worse that even today.

The progressive-types look at such a prospect, and see a pleasant but ridiculous Star Trek future. I look at it and see more of a Blade Runner future. Given the choice, I would almost rather see a Canticle for Leibowitz future.

Francis W. Porretto said...

Stewart: I would expect more of an Isaac Asimov The Naked Sun future. Specifically, the Solarian version.