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A note on the value and validity of investors

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Thirty years after Communism collapsed in ignominy, it is again fashionable to bash capitalism and the investor classes. The tone of that rhetoric is sufficiently scapegoating to justify a pause here at UD to make a few notes on a case in point.

Accordingly, from the “Further” thread:

KF, 232: >>the following are further interesting for the moment:

>>recovery was bought by a program of tax-breaks, limited for the less well-off but open-ended for billionaires and big corporations.>>

0: Let me add some balancing context, on tax burdens in the US, c 2016:

In 2016, 140.9 million taxpayers reported earning $10.2 trillion in adjusted gross income and paid $1.4 trillion in individual income taxes.
The share of reported income earned by the top 1 percent of taxpayers fell slightly to 19.7 percent in 2016. Their share of federal individual income taxes fell slightly, to 37.3 percent.
In 2016, the top 50 percent of all taxpayers paid 97 percent of all individual income taxes, while the bottom 50 percent paid the remaining 3 percent.
The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent).
The top 1 percent of taxpayers paid a 26.9 percent individual income tax rate, which is more than seven times higher than taxpayers in the bottom 50 percent (3.7 percent). [Also cf. here on changes a year later and context back to 1980. And yes, there are state and local taxes, controlled at those levels, not the level of the federation. Those, too, need to be addressed in the context that tax burdens can cumulatively and incrementally — frogs in a gradually heated pot style — pass the point where they choke off growth; in key part through disincentivising risky investment. Where, too, we must never forget riskiness, which implies that what succeeds must pay for what failed, or net, wealth is destroyed not built up. Further, capital assets have to be replaced as they wear out; there is a level of investment necessary just to keep going at the same level much less move to new technologies etc. There is also a problem of multiple taxation on in effect the same process of earning and creating wealth, leading to excessively complex and burdensome corporate tax frameworks. The complexity then adds implicit burdens required to manage the process, for individuals and firms. The existence of a tax preparer industry is itself a sign. And more.]

. . . Given this “progressive” structure, any incentivisation of investment by tax burden relief will naturally be biased towards those who pay the lion’s share of taxes. And, there may be very good reason to do so.

1: Who are the investors in an economy? Those with investable funds hoping for a net present value that is positive.

2: Thus, we see collective and individual investors: mutual fund pools, tax [and tax funded] pools, individuals and artificial persons [i.e. corporations and the like].

3: Any investment led scheme towards growth will reflect that savings are postponed consumption, and that money is transferable across time through rent on its use [i.e. rates of interest].

4: So, in a reasonably free economy with highly distributed planning, hoped for gains across time constrained by insight into possibilities, risks and uncertainties will guide investment flows. (Let me add:

5: Where, there is a correlation between risk and return: to get higher hoped for return rates one must undertake higher risks and subject oneself to growing uncertainty. (Uncertainty, here, is used in the sense, where we do not know enough to provide a credible scale and distribution of risks across outcomes.)

6: In this context, a major investment pool in any reasonably sophisticated economy is pension fund pools of one form or another. (I here mainly exclude legalised Ponzi/Pyramid schemes such as the US Social Security system has been.)

7: So, if one has any retirement savings, direct or indirect s/he is a part of the investment side of the economy. Cumulatively, that pool is big enough to shape economies.

8: Where, consistent innovation, growth, economic structural change and development come from investment-fed initiatives.

9: I trust, this helps to balance the class warfare rhetoric that casts investors as greedy, rapacious, vulture-like villains. Greed is real, investment and risk that feed the wellsprings of a brighter tomorrow are also real.

>> The windfall for the wealthy was supposed to be invested in new plant, new equipment and new jobs>>

10: In other words, you implicitly understand the validity of the Laffer curve and beyond it the Armey-Rahn principle that there is a lower than tax revenue maximising plateau or point, where long term growth is maximised.

11: Further, you recognise that significant investment goes into operations and production, which yields returns that go back to investors and to labour.

12: However, there is more: investment in financial instruments has two effects in a world with fast moving financial markets, it feeds both operations and financial markets. Thus, multipliers.

13: Of course that is fairly short term, longer term the technical coefficients in the economy are changing . . . precisely because of innovation.

>>and, to be fair, some of it has been. >>

14: As was pointed out, investment is partitioned out and cycles of investment converge on a cumulative effect captured by various multipliers.

>>But an awful lot more has been spent, as predicted, on stock buy-backs>>

15: A way to pay back investors in a world of multiple taxation on the same income, a distortion imposed by politics and in part through class warfare.

16: Trace onward. Investor x_i has cash from a buyback. What does s/he do? Consume some, save some, invest some. Even putting under a mattress is saving at 0% interest as a way to hold against uncertainty. If that sum is big enough because of a bad general situation, you get a crash into depression. (That’s one reason why policies that create bubbles are ill advised.)

17: Let’s say, x_i buys a luxury yacht. That rewards investment in making same, paying workmen with relevant skills (such as using an adze to shape wood), and feeding into the economy, going into the multiplier.

18: Let’s say, some goes to the bank, some to a mutual investment retirement support fund, some to buying stocks and bonds, maybe even those for the holding company that owns the boat builders. The bank invests onward to make money to pay interest and cover its costs and expectations of its investors. The mutual investment is much the same. The financial markets are much the same.

19: Now, suppose, there was a punitive luxury tax imposed on such yachts. The market will dry up or shift to where labour of adequate quality is cheaper and has advantages through trade deals. Bye bye luxury yacht industry and well paid blue collar jobs, clerical and managerial jobs, thus a multiplier working in reverse. (And this did happen in the US some decades ago.)

20: Now, suppose a new govt reverses the policy and tries to get back such jobs. Maybe we see some effect but after a time the intuitive skills and productive teams will have been lost.

21: So, we need a stable, growth oriented policy consensus rooted in sound understanding. Exactly what is being undermined.

22: To make it more complex, some overseas investment is also needed in a global world, and peaceful trade and development are a lot cheaper than fighting major wars. But we have a world in which aggressive ideologies are a fact of life and the need to defend the global sea trade routes is also a fact of life.

>> to further inflate the worth of the already wealthy. >>

23: See above, investment is in hope of profit, but in a reasonably functional economy investment feeds innovation, growth, employment and development.

>>And the other predictable effect is that the already-terrifying national debt is being ratcheted up even higher.>>

24: This is not a necessary consequence, the root issue is that entrenched government spending has outstripped reasonable growth potential. That entrenching is largely ideological.

25: So, the issue is fiscal and monetary sanity, understanding that though necessary, government intervention in a macroeconomy is tickling a moody dragon’s tail.>>

I trust, we can rebalance discussion. END

F/N: Regarding the irrelevance of the usual political/policy spectrum — and illustrating how Stalin’s trick of labelling the National Socialist German Labour Party [proper name of the NAZI party] as right wing. A US Professor has tweeted on how she (and many others of similar ilk) perceive the US political spectrum:

A commenter aptly noted: “. . . Consider who the farthest-left commonly acknowledged figures are: Mao, Stalin, etc. “Mao and Stain are the [left wing] equivalent of Jeb Bush and Mitch McConnell.” That’s the quality of insight here.” Another said: ” This is what meant by “the Overton Window shifting left”. When a socialist is considered a centrist then no wonder Stalinism is considered “moderate” and half the country are considered “Nazis”. “

Overton Window:

And of course, as was suggested: add in, “far right = nazi.”

The polarisation and hostility on the left/progressivist end of the spectrum suddenly snaps into lurid focus. (And notice the clever colour reversal, where suddenly red is the colour of the far right. A glance at relevant flags will show that it is normally the colour of communism.)

Instead, I suggest a different spectrum model I put on the table here at UD some years back:

U/d b for clarity, nb Nil

In this model, state power, lawfulness and type of leadership come together to allow us to analyse a pattern of political systems from autocratic, arbitrary and absolute power to utter anarchy in a state of nature. Constitutional, representative, tamed democracy is in the middle. Limited Government power under law, with leadership committed to democratic freedom under just law with a regular audit of government by general election. However, such is inherently unstable and must be stabilised through social-cultural forces.

I have come to believe that recognition that there is a built in law responsible, rational, morally governed freedom is central. A law testified to by conscience but rooted in the source of reality, which — to resolve the IS-OUGHT gap — must be inherently good and utterly wise. That law includes inescapable, known first duties of reason: to truth, to right reason, to sound conscience, to fairness and justice, etc.

As Aquinas has been summarised:

Let me add thoughts by Cicero:

>>—Marcus [in de Legibus, introductory remarks,. C1 BC, being Cicero himself]: . . . the subject of our present discussion . . . comprehends the universal principles of equity and law. In such a discussion therefore on the great moral law of nature, the practice of the civil law can occupy but an insignificant and subordinate station. For according to our idea, we shall have to explain the true nature of moral justice, which is congenial and correspondent [36]with the true nature of man.

[–> Note, how justice and our built in nature as a morally governed class of creatures are highlighted; thus framing the natural law frame: recognising built-in law that we do not create nor can we repeal, which then frames a sound understanding of justice. Without such an anchor, law inevitably reduces to the sort of ruthless, nihilistic might- and- manipulation- make- “right,”- “truth,”- “knowledge,”- “law”- and- “justice”- etc power struggle and chaos Plato warned against in The Laws Bk X.]

We shall have to examine those principles of legislation by which all political states should be governed. And last of all, shall we have to speak of those laws and customs which are framed for the use and convenience of particular peoples, which regulate the civic and municipal affairs of the citizens, and which are known by the title of civil laws. Quintus [his real-life brother]. —You take a noble view of the subject, my brother, and go to the fountain–head of moral truth, in order to throw light on the whole science of jurisprudence: while those who confine their legal studies to the civil law too often grow less familiar with the arts of justice than with those of litigation. Marcus. —Your observation, my Quintus, is not quite correct. It is not so much the science of law that produces litigation, as the ignorance of it, (potius ignoratio juris litigiosa est quam scientia) . . . . With respect to the true principle of justice, many learned men have maintained that it springs from Law. I hardly know if their opinion be not correct, at least, according to their own definition; for “Law (say they) is the highest reason, implanted in nature, which prescribes those things which ought to be done, and forbids the contrary.” This, they think, is apparent from the converse of the proposition; because this same reason, when it [37]is confirmed and established in men’s minds, is the law of all their actions. They therefore conceive that the voice of conscience is a law, that moral prudence is a law, whose operation is to urge us to good actions, and restrain us from evil ones. They think, too, that the Greek name for law (NOMOS), which is derived from NEMO, to distribute, implies the very nature of the thing, that is, to give every man his due. [–> this implies a definition of justice as the due balance of rights, freedoms and responsibilities] For my part, I imagine that the moral essence of law is better expressed by its Latin name, (lex), which conveys the idea of selection or discrimination. According to the Greeks, therefore, the name of law implies an equitable distribution of goods: according to the Romans, an equitable discrimination between good and evil. The true definition of law should, however, include both these characteristics. And this being granted as an almost self–evident proposition, the origin of justice is to be sought in the divine law of eternal and immutable morality. This indeed is the true energy of nature, the very soul and essence of wisdom, the test of virtue and vice. >>

With that in mind, we may now use our recognition of the warped nature of how the commonly perceived political spectrum too often operates — “I” [the progressive] am the happy medium, those to my right are nazis or nazi influenced — to understand the sort of rhetoric being responded to in this main post.

I trust, we will seek a sounder, saner view on politics, policy and economics. Where, unsound politics and policy lead to bad economic thinking and disaster.

23 Replies to “A note on the value and validity of investors

  1. 1
    kairosfocus says:

    A note on the value and validity of investors

  2. 2
    Axel says:

    I think you may be guilty of Macco’s Rozar, KF. But then I find most of your posts technified way, way, way beyond my capacity to understand them. And the diagrams kind of punch-lines. To take the rise out of me even more playfully ! But I’m sure you know better than to take my criticism on this score to heart, KF!

  3. 3
    kairosfocus says:

    Axel, sorry; this topic has unavoidable technical elements. I do note, the Hayek triangle, PPF and loanable funds approach is maybe the best Macro 001 I have found. Laffer et al have points on tax rates that need to be heard also. I think you will see that there is a polarisation problem that requires some balancing. KF

  4. 4
    jstanley01 says:

    Thank you for the technical discussion, KF. Much appreciated. In a season when politicos talk pie-in-the-sky as if there were no such thing as the PPF, it’s nice to be reminded that there’s a real world out there that must be dealt with in sound fashion.

    I recently ran across a data point that, to me at least, is quite telling as the 2020 presidential election cycle swings into full gear. When, once again, the American electorate is being served up socialist drivel — about “the wealth gap,” along with accusations that “the rich don’t pay their fair share,” and featuring the demonization of “billionaires” who are alleged to be looting the country — this go-round being spouted most vociferously by Democrat con artists Bernie Sanders and Elizabeth Warren.

    According to Forbes, the total net worth of the richest 400 Americans in 2019 was, “a record-breaking $2.96 trillion, up 2.2% from 2018.” To put that number in perspective, the U.S. National Debt stands presently at $23.4 trillion and rising. Which means that if “we” liquidated every last one of “them,” the proceeds would retire less than 13% of the republic’s liabilities. And which also means that, with ongoing trillion-dollar deficits, we’d be back in the same soup within 3 years.

    The billionaires in this country are exactly as culpable for the demise of its middle class as the Kulaks were responsible for Stalin’s famine in the 1930’s. Not that this data point, or any amount of evidence, could convince this country’s leftist to forsake their politics of envy. In my experience, we are dealing with people who overestimate their ability to solve problems and discount their failures in a fashion so delusional that no reasonable argument exists that could wake them out of their fantasy-world stupor.

    Because, like you as a Christian well know, envy is not a deadly sin for no reason.

  5. 5
    kairosfocus says:

    JS, my concern is what people think they know as it is being hyped, but do not.What we do not know but imagine, can be deadly. KF

    PS: The Production Possibilities Frontier is of course a sustainable level, one can temporarily exceed it but something breaks and the snap back can plunge into serious depression. I find a survey here http://csinvesting.org/wp-cont.....rrison.pdf Roger Garrison’s Time and Money is a key reference.

  6. 6
    Seversky says:

    Verse

    1 Timothy 6:10 King James Version (KJV)

    10 For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.

  7. 7
    Jim Thibodeau says:

    @Seversky: a few days ago Trump spiritual adviser Paula White told her followers they needed to send her as much money as they could, even if it means not paying the electric bill. Thieving con artists.

    [–> While I am not sure that asking people to in effect tithe their annual income to a media ministry is generally advisable, and even if that is done, it would be better to do so month by month [even, laying aside ahead of time, bit by bit as Paul suggested to his churches to support a gift to the Jerusalem mother church], I am not going to condone blanket smears of people as thieving con artists. That, arguably is defamatory, and relevant jurisdictions go far beyond the US with its loose libel and slander laws. I strike out and add a comment now, to note as a warning. KF]

  8. 8
    Truthfreedom says:

    Verse

    1 Timothy 6:10 King James Version (KJV)

    @6 Seversky

    10 For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.

    Blame evolution, because religion is the result of human brains, and human brains have been shaped by evolution. 🙂
    Oh. But you can not coherently blame ‘evolution’, since it is an abstract concept.
    Quite a conundrum.

    Naturalism, who is going to rescue you?

  9. 9
    kairosfocus says:

    Sev, yes, the passage speaks to how money-lust is ONE [better rendering] root of all manner of evils, i.e. one of the seven deadly sins . . . greed. Where, another like unto it is envy, and another is lying, including slander which serves to justify envy in the minds of the envious in this context. And yes, there have been many who have wandered from the faith thereby, and it is a particular temptation of those who long to be or to remain rich [these are in the immediate context]. It is countered by deliberately cultivating sound generosity and outreach. That has little or nothing to do with the significance of investment and the importance of sound stewardship of funds used for savings and investment at individual and corporate or even governmental and institutional levels — think endowments for unis and other not for profits. Both and, not either or; the point of balance is the true opposite to all extremes. Where, investment is a key input to innovation and transformation, thus development and a brighter tomorrow. For us all. Noting, that the lesson of the past 100+ years, has been, that for all its challenges, an economy largely planned locally in firms and households coupled through sound markets under just law is for all its challenges, the best approach to sustained innovation and development. And BTW, it is my intention onward, to address solar system colonisation, which for cause, I believe is our long term hope for building a better world across this century. A key first step to this, is the development of an open source driven industrial civilisation 2.0, which crucially depends on a healthy for profit sector. Things like Linux, the Internet and other technological developments point to a way forward. KF

  10. 10
    kairosfocus says:

    PS: Part of why I am going to follow up on the answer to the population bomb narrative, is that this seems to be an enabling dominant narrative that drives a sense of crisis which then appears to justify things that would not otherwise seem reasonable. No, we are not cornered by a population bomb and linked resource exhaustion or utter despoliation of our environment leading to malthusian collapse. Just as technological transformation allowed us to break out of Malthus’ dystopian nightmare across C19 and 20, it will allow us to have responsible hope in C21.

  11. 11
    Ed George says:

    There is nothing wrong with capitalism. But there is certainly something wrong with unregulated capitalism. The US, the poster child of unbridled capitalism, has had thousands of bank failures in the last hundred years. Canada, a more “socialist” country, has had one.

  12. 12
    kairosfocus says:

    EG, the US does not have unregulated or unbridled capitalism, just its regulatory balance and cluster of competitive advantages are different from those of Canada and Europe. Indeed, Canada and Europe can do a lot of what they do because the US is doing what it is doing — there is a lot of complementarity there. That holds economically and geostrategically. Guarding the sea lanes and choke points is a big issue still, one that formerly the Royal Navy addressed . . . and there is no Royal Navy worth discussing to take up the slack were the US to do a geostrategic retreat like the one the Royal Navy carried out since it pulled forces home to counterweight the Kaiser c 1908 on. And no, no-one else has put in the investment to mount anything comparable. However, that is tangential to the issues in the OP. Those are concerned with rebalancing an unwarranted hostility and failure to recognise basic legitimacy of investment tied to fairly high economic freedom. KF

  13. 13
    Ed George says:

    KF

    Canada and Europe can do a lot of what they do because the US is doing what it is doing — there is a lot of complementarity there.

    So, how does letting thousands of banks fail, with the associated suffering of millions of US citizens, enable Canada to have a banking system that does not result in thousands of people lose their houses?

    I assume that you know that Canadian banks are privately owned, and are very profitable.

  14. 14
    Ed George says:

    KF

    Guarding the sea lanes and choke points is a big issue still, one that formerly the Royal Navy addressed …

    I wasn’t aware that US banks were protecting our sea lanes.

  15. 15
    Ed George says:

    KF

    And no, no-one else has put in the investment to mount anything comparable.

    How much have US banks invested in Global protection of sea lanes? My guess is…. zero.

  16. 16
    Jim Thibodeau says:

    Ed George: Canada’s banking system is regulated to work for everybody. The US banking system is regulated such that the rich take speculative bets and make fortunes when it works, and get a taxpayer bailout when it doesn’t. We have socialism for rich people’s mistakes, harsh capitalism for poor people.

    Savings and loans were deregulated by the government, and in less than a decade rich speculators required a taxpayer bailout. Mortgage backed securities were deregulated and in less than a decade rich speculators required a taxpayer bailout again. And yet, we still have idiots who think “Regulation Bad!”

  17. 17
    Ed George says:

    JT, sadly, too many view regulation as a slippery slope towards socialism and Communism.

    Even KF’s island benefits from the stability of Canadian banking. One of the two major commercial banks on Montserrat is RBC (Royal Bank of Canada). Other Canadian banks (BMO, TD, Scotia Bank and CIBC) have significant presence in the US, central and south America, and the Caribbean.

  18. 18
    kairosfocus says:

    EG [attn JT], You have set up and knocked over a strawman of your own imagination. The big five or six Canadian Banking Cartel relies for its ability to invest abroad on international stability. C 1850 – 1920, that stability came from the Royal Navy. Guess whose Navy now provides that stability. Guess which economy funds the innovations and undergirds the multiply trillion dollar scale investment involved? Including, by taxes paid by corporations [including financial corporations such as banks]. And on your underlying assertion of unregulated, unbridled capitalism — which is what I corrected by pointing out an obvious fact that is readily demonstrated [the US Economy, firms, institutions etc are regulated through copious laws, regulations with force of law, courts, tax authorities, regulatory bodies for stocks, bonds, banking etc, the twelve unified central banks forming the Federal Reserve etc], you simply refused to acknowledge your gross rhetorical exaggeration and error. Par for the course and telling. KF

    PS: You are out of date, RBC is in process of being bought out by native regional banks. That is a long, tangential story in itself.

    PPS: I add, guess where “too big to fail” comes from?

  19. 19
    kairosfocus says:

    F/N: Government dominance of an economy through regulation and laws is a known way to effect attempted centralised planning of and domination over an economy. Such pursues the fallacy pointed out by von Mises in the 1920’s, that there is then no objective basis for value, as value arises from those who want to buy, those who want to sell and what next best alternatives they are willing to forgo; that is, the true costs and values in an economy arise from opportunity costs. Where, the distribution of such opportunity costs balances, the uncontrollably large number of possible transactions and the rapidity of change render any centralised controller input-output-, storage- and processing- bound; leading to resort to attempted controls on aggregations that are in turn too coarse grained to effect relevant controls. Note the input output tables of the current US economy, approx 400 x 400 sectors as a matrix [~1.6 x 10^5 interactions already . . . ], and even that is as a result of huge aggregation of statistics. Further to this, many of the relevant markets are markets for innovation, which is even more hard to estimate. Pointing to the OP, the government to GDP ratio then is likely to grow beyond not only growth maximising to the point where not even taxes are maximised. Going further, the interventions in the economy will tend to destabilise it, bu using government interventions to push into unsustainable territory with a door opened to collapse by way of causing a contradiction in the value-added sectors, with consumption and investment out of balance leading to over investment and malinvestment. Much of the latter will come from government mandates or perverse incentives from such. It should be clear from the above and onward linked that there is a legitimate role for regulation and support of a sound legal system [not least so stable property rights can be protected] as well as for stabilising social initiatives, but the sort of attitudes and ideologies on the table as we can see form the OP on are not going to encourage prudent interventions, but rather imprudent, ideologically driven ones with not a little of envy in their roots. As we can see there is even unwillingness to accept and admit the relevance of fairly easily warranted material facts. The consequences of the ideology, attitudes and imprudence for sound governance would predictably be damaging. KF

  20. 20
  21. 21
    kairosfocus says:

    F/N: On a related theme to investors, entrepreneurship. I here clip from Calculation and Coordination, Peter J. Boettke , Routledge 2001.

    First, a brief clarification:

    Entrepreneurship – as described
    in the work of market process economists – is a necessary ingredient in the
    economic process in order that individuals can realize the mutual gains from
    exchange. Entrepreneurship takes at least two general forms:|
    1 alertness to existing opportunities for mutual gain, and
    2 the discovery of new opportunities for mutual gain. [pp. 4 – 5]

    Where:

    The prime mover of the economic system toward progress is entrepreneurial
    action. It is through the entrepreneurial process that we come to detect previous
    errors, adjust our behavior to correct those errors, and thus move to a state of
    affairs less erroneous than before. Entrepreneurial action is guided by relative
    price signals and the lure of pure profit (which requires the calculation of profit
    and loss accounting). Without these important indicators of economic life, the
    individual would be lost amid a sea of economic possibilities. However, these
    indicators are a product of specific institutional configurations and cannot be
    derived outside of that context. Absent the intricate institutional context of a
    private property market society, and individuals, while still striving to achieve
    their goals as best as they can, will be unguided by the incentives and
    informational surrogates which exist only within the private property monetary
    price system . . . .

    1 economics institutions,
    2 political/legal institutions, and
    3 social/cultural institutions . . . .

    while there are many different ways that people choose to live throughout our world, there are
    very few ways for them to live peacefully and prosperously as a society. [p. 5]

    That is, cultural-social context, laws, policy and politics matter and a reasonably free, legitimate market context are pivotal in nurturing the pursuit of opportunities that open up a better future for one and all. Where, markets that signal opportunity costs [the next best opportunity to use a resource] are a key illumination that allows reasonable calculation and planning to make good use of opportunities. Where, an economic exchange is one where there is mutual benefit. To buy that cup of coffee in a shop with an ambiance, I am willing to part with $x, precisely because I find it a good value for my hard earned money. Likewise, management, owners and staff, to get many times over $x, are willing to give up time, effort, and more in order to gain reasonable pay for work and return for investments.

    I/L/O the Laffer and Armey-Rahn discussion above (as well as the Garrison summary), government and other key institutions are pivotal to the pattern of necessary institutions. Where government must be aware that tickling a moody dragon’s tail is not a simple matter that one is of course the master of.

    KF

  22. 22
    kairosfocus says:

    F/N: I ran across a suggested — warped — political spectrum by a professor and have added some remarks on such. KF

  23. 23
    kairosfocus says:

    Further food for thought, from Steven Horwitz in hisMicrofoundations and
    Macroeconomics [Routledge, 2000] — here, an economically oriented philosophy of causally relevant action in time:

    In Newtonian time, there is no fundamental difference between past, present, and future.

    In ‘real’ time, however, the analogy to space makes no sense, because in
    real time, only the past is known. The future, by contrast, is uncertain, and
    the present is that infinitesimal slice between the known past and the
    unknowable, but not unimaginable, future. The Austrian conception of time
    is related to its concern with radical uncertainty and dispersed and tacit
    knowledge. We are aware of the passage of time because our knowledge
    changes. As time passes, more of the world passes into the known past.
    Theories that incorporate real time must also be able to take account of
    changes in knowledge. Taking time seriously therefore implies that assumptions
    of perfect knowledge, including rational expectations, are inappropriate for
    discussing real-world market processes. As Lachmann (1977c [1959]:93) argues,
    ‘the fact that time cannot pass without modifying knowledge…appears to
    destroy the possibility of treating expectations as data of a dynamic equilibrium
    system’. One consequence of this view of time is that all action is inherently
    speculative, which is what Garrison means by saying that ‘time is the medium
    of action’. 8 All human action, especially acts of production, take place through
    time and therefore are speculative to one degree or another.
    Markets attempt to cope with time and ignorance through the institutions
    associated with the ‘market for time’. The savings—investment nexus, and
    the interest rates that result, are institutional responses to the ‘dark forces of
    time and ignorance’ identified by Keynes. For Austrians, the existence of
    interest derives from the fact of time-preference. Given that human beings
    are neither immortal nor indestructible, we prefer the present to the future,
    ceteris paribus. To convince us to wait for a good, we must be compensated
    for the passage of time and its concomitant uncertainty, hence the phenomenon
    of interest. 9 For the saver, interest is necessary to sacrifice current consumption
    possibilities for future ones. For the investor (i.e., the borrower who will turn
    savings into capital), there must exist at least the possibility of final good
    whose price is greater than the sum of the prices of the inputs in order to
    justify the passage of time between the combining of the inputs and the sale
    of the output. 10 In equilibrium, that difference between the final good’s price
    and the sum of the input prices is interest. 11 [pp. 4 – 5]

    In short, time is causal and human action — including, investment — is influenced by risk, ignorance and uncertainty. The investor is a person of hopefully reasonable faith, acting in the now to hopefully build a better tomorrow. In that context, savings are used to feed value added processes through exchanges intended to be mutually beneficial. The balance of such benefits is what is in part at stake.

    Where also, we must not forget that a proportion of investments will fail and what succeeds has to pick up the tab.

    KF

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