Tuesday, June 08, 2010

New candidates for the dumbest people on the planet

Okay, candidate number one: Angela Merkel, PM of Germany. Says Ms. Merkel, excusing draconian budget cuts, “We can only spend what we receive in income.”

So why is Ms. Merkel a candidate for the dumbest person on the planet? *BECAUSE SHE THINKS MONEY IS THE SAME THING AS WEALTH!* It's not. As I've repeatedly pointed out, money is just pieces of toilet paper with pictures of dead people on it. It's what you *buy* with money that is wealth.

The wealth of a nation such as Germany isn't measured in terms of how many pieces of toilet paper or how many 0's and 1's sit in the central bank's computers. Rather, the wealth of a nation such as Germany is measured in terms of how much goods and services the economy is producing -- and capable of producing. I.e., it's what money can buy that has value, not the money itself, whose only value is the fact that for some reason people will give you real things for it, and whose only intrinsic value is for wiping your butt.

So: Germany is seeing reduced "income". But is it, really? Has the wealth of Germany decreased? Has Germany's ability to produce goods and services suddenly collapsed? NO! Germany is still as wealthy today as it was five years ago! The only problem is, a lot of that wealth is sitting on the sidelines at the moment, idle, and you can only tax things that are moving, not coal that's still in the mine because the factory isn't building widgets, or factory workers sitting idle because people aren't buying widgets, or store owners seeing empty shops for that reason. But the economy still has the same amount of wealth in it. It's just not moving around. It's the moving that turns wealth into income and thus makes it taxable. That, or fiscal policy.

Wait, wait... fiscal policy is a tax on wealth? *YES!* Running deficits paid for either by printing money or by selling government bonds on the open market is a way to reallocate resources in the economy from the private sector into the public sector just like taxes are a way to reallocate resources in the economy from the private sector into the public sector. So in actuality, fiscal policy and money printing activity is a tax -- it's just a tax on idle resources if there are idle resources in the economy. (If there are not idle resources in the economy, on the other hand, it is an tax upon all the other transactions in the economy through either higher interest rates or inflation, but we are nowhere near that scenario so I shall stop here).

Okay, so Ms. Merkel says she must cut because her nation's wealth has declined. But it hasn't, all that has happened is that the wealth stopped moving around and so her tax system can't see it at the moment, meaning it's quite valid to use fiscal policy to tax the idle wealth -- I mean, she'd tax it if it were moving, why not tax it while it's idle too? The fact that she confuses money with wealth and can't figure out that a deficit when there's idle resources is just a tax like any other tax (just one on idle resources) qualifies her as being one of the world's dumbest people. But only one of the world's dumbest people... because, of course, Mish exists. While Mish exists, Ms. Merkel is going to have some competition for that spot, yo!

-- Badtux the Economics Penguin

5 comments:

  1. Glad to see you taking a shot at Mish. He was the first econoblogger I got seriously into reading, back in late 2007 or thereabouts. I learned a lot from him at first, things like the Austrian concept of inflation -- I had never heard of that school of thought, and I was a subscriber to The Economist for more than a decade. Mish clued me into the nature of the deflationary collapse, the notion of "peak credit" and other things. The commenters on his blog used to have a lively, mostly civil and educational debate, too.

    But for the past year and a half or so, ever since he failed with his political activism campaign to rally the readers to fax and phone their legislators to stop TARP, he's gone right-wing screechy. No more economic analysis from him; just anti-union diatribes that are like something you'd see on Red State with an economic focus. As bad as Karl Denninger, another economic savant gone to the bitter side. And Mish's jackass righty commenters have overwhelmed the good ones.

    He and Denninger still have a following, but I've stopped learning from them and moved on. If I want right-wing economic thinking, which I still sometimes do, Zero Hedge is more instructive. For economic philosophy about where the world is headed, The Automatic Earth and Jesse's Cafe Americain enlarge my perspective, and the people behind them have souls as well. Mish's soul has shrivelled up from being boiled in bile.

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  2. Indeed, that's what frustrates me about the Austrians, they sometimes have interesting perspectives -- like inflation actually having the same effect upon an economy as a tax (since if you are a store owner it causes a "tax" between the time you sell an item, and the time you buy its replacement item to sell) -- and then fail to go anywhere with them. Or, rather, go to some other universe entirely where logic and reason fail because of preconceptions that simply don't apply to our universe.

    I'm not sure what happened to Mish. Like you say, he used to be readable, and I used to read his blog. But nowadays he seems to be in thrall to "conventional wisdom" and rejoice in gleefully bashing anybody who doesn't agree with "conventional wisdom". His hit piece on Krugman is an example of that. Krugman has his limits -- Krugman can't take you beyond the limits of what's explainable via Keynesian economics, by and large, and Keynesian economics only describes the behavior of economies under certain conditions -- but within the area where Keynesian economics applies (i.e., at the ZERO BOUNDS, where we are now, since Keynesian economics was designed to model economies at the zero bounds during the Great Depression), only an idiot would gleefully bash Krugman. Which makes Mish... what?

    - Badtux the Baffled Penguin

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  3. Point taken. But Merkel isn't really this stupid. What is the real reason she's imposing these cuts, and why are so many other govts soon to follow?

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  4. Let's party like it's 1929.

    Really.

    The whole world has gone Hoover.

    Which, come to think of it, sucks.

    WASF,
    JzB

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  5. Yup, and what was the result of all that Hooverism? Further depression & deflation. And war. And the Cold War.

    Of course I'm simplifying things just a *little* bit.

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