Sunday, December 28, 2014

Rare Honesty On Social Security

I've written a number of posts on Social Security, because there are obvious fallacies about it that get repeated over and over again in the press.  Even professional economists will make ridiculous claims about the so-called 'trust fund', as if it's a great asset, ignoring the obvious fact that all government securities are a liability to taxpayers — including those purchased with surplus Social Security payroll deductions.

In one previous post I described all government social welfare programs (including Social Security) with the intentionally oxymoronic phrase 'forced charities', because such welfare programs must operate via coercion, given that governments can only provide to one individual what they have taken from another — whereas charity is voluntary.

If you recall the Bernie Madoff scandal, you know that Madoff made large sums of money defrauding wealthy investors with a Ponzi like investment scheme.  As with all Ponzi schemes, Madoff would pay some investors with the money he received from other investors — as long as new investors were opening accounts, Madoff could keep the fraud going.  Of course, with a private scheme of this kind, collapse is inevitable once the number of investors stops growing fast enough to make the necessary payouts.

In an attempt to restore victims of Madoff's fraud after it collapsed, courts have allowed the bankruptcy case trustee, Irving Picard, to 'clawback' some of the fictitious profits from Madoff's customers who withdrew more from their accounts than they invested.  Since Madoff investors with a positive return were paid with money Madoff received from other investors, rather than the returns from profitable investments, such investors had no right to keep those payments.

Note that a Social Security recipient is in an even worse position than a Madoff investor regarding a rightful claim to payment, in that they're also not paid from an account in their name that has earned a return over the years — they're paid by current workers — but their original investment can't even rightfully be returned, having long since been spent by government.  Social Security doesn't have vague similarities to a Ponzi scheme — it's identical in every respect.

In the case of Social Security, the government is Bernie Madoff, paying current retirees from the payroll deduction it receives from workers, and spending any money that is left over on whatever it wants, via the purchase of government bonds (the so-called trust fund) which puts the surplus in the government's general fund to be spent.

Here's a table from the 'CBO - An Update To The Budget And Economic Outlook: 2014 to 2024', which shows that mandatory spending — which is dominated by Social Security, Medicare, and Medicaid — accounts for about 60% of federal budget outlays.  Notice the budget deficit is projected to grow by over 40% (-$680B to -$960B) from 2013 to 2024.  There's no reasonable way to address that problem without making changes to those programs, including Social Security --

http://www.cbo.gov/sites/default/files/45653-OutlookUpdate_2014_Aug.pdf
CBO's Baseline Budget Projections, An Update To The Budget And Economic Outlook: 2014 to 2024


There are some lonely critics of Social Security out there, but what they write is largely met with anger from the public.

Here's Walter Williams, John M. Olin Distinguished Professor of Economics at George Mason University, talking about the 'uglier mail' he gets when he writes about problems with government programs for the elderly.  He points out here what a terrible deal Social Security is for future recipients --


Here's Robert Samuelson pointing out that Social Security meets the definition of a welfare program, because it taxes one group to pay another.  He wrote this column in reply to angry responses he received for describing Social Security as 'middle-class welfare' --

http://www.washingtonpost.com/wp-dyn/content/article/2011/03/06/AR2011030602926_pf.html
Why Social Security is welfare
By Robert J. Samuelson | Monday, March 7, 2011;

In a recent column on the senior citizen lobby, I noted that Social Security is often "middle-class welfare" that bleeds the country. This offended many readers. In an e-mail, one snarled: "Social Security is not adding one penny to our national debt, you idiot." Others were more dignified: "Let's refrain from insulting individuals who have worked all their lives and contributed to the system for 50-plus years by insinuating that [their] earned benefits are welfare." Some argued that Social Security, with a $2.6 trillion trust fund, doesn't affect our budgetary predicament.

Wrong. As a rule, I don't use one column to comment on another. But I'm making an exception here because the issue is so important. Recall that Social Security, Medicare and Medicaid, the main programs for the elderly, exceed 40 percent of federal spending. Exempting them from cuts - as polls indicate many Americans prefer - would ordain massive deficits, huge tax increases or draconian reductions in other programs. That's a disastrous formula for the future.

We don't call Social Security "welfare" because it's a pejorative term, and politicians don't want to offend. So their rhetoric classifies Social Security as something else when it isn't. Here is how I define a welfare program: First, it taxes one group to support another group, meaning it's pay-as-you-go and not a contributory scheme where people's own savings pay their later benefits. And second, Congress can constantly alter benefits, reflecting changing needs, economic conditions and politics. Social Security qualifies on both counts.

Let's start with its $2.6 trillion trust fund. Doesn't this prove that people's payroll taxes were saved to pay for future benefits, disconnecting them from our larger budget problems? Well, no. Since the 1940s, Social Security has been a pay-as-you-go program. Most benefits are paid by payroll taxes on today's workers; in 2010, those taxes covered 91 percent of benefits. The trust fund's $2.6 trillion would provide only 3.5 years of benefits, which totaled about $700 billion in 2010.

The trust fund serves mainly to funnel taxes to recipients, and today's big surplus is an accident, as Charles Blahous shows in his book "Social Security: The Unfinished Work." In 1983, when the trust fund was nearly exhausted, a presidential commission proposed fixes but underestimated their effects. The large surplus "just developed. It wasn't planned," the commission's executive director said later. Even so, the surplus will disappear as the number of retirees rises.

Similarly, Congress has repeatedly altered benefits. From 1950 to 1972, it increased them nine times, including a doubling in the early 1950s. In 1972, it indexed benefits to inflation. People didn't complain when benefits rose, but possible cuts now trigger howls that a "contract" is being broken. Not so. In a 1960 decision ( Flemming v. Nestor ), the Supreme Court expressly rejected the argument that people have a contractual right to Social Security. It cited the 1935 Social Security Act: "The right to alter, amend, or repeal any provision of this Act is hereby reserved to Congress." Congress can change the program whenever it wants.

All this makes Social Security "welfare." Benefits shift; they're not strictly proportionate to wages but are skewed to favor low-wage earners - a value judgment reflecting who most deserves help; and they aren't paid from workers' own "contributions." But we ignored these realities and encouraged people to think they "earned" benefits and that Social Security is distinct from the larger budget. Politicians, pundits, think-tank experts and journalists engaged in this charade to spare Social Security's 54 million recipients the discomfort of understanding they're on welfare.

A relatively small elderly population sustained these fictions. Now, this is no longer possible. Contrary to the Obama administration's posture, Social Security does affect our larger budget problem. Annual benefits already exceed payroll taxes. The gap will grow. The trust fund holds Treasury bonds; when these are redeemed, the needed cash can be raised only by borrowing, taxing or cutting other programs. The connection between Social Security and the rest of the budget is brutally direct. The arcane accounting of the trust fund obscures what's happening. Just as important, how we treat Social Security will affect how we treat Medicare and, to a lesser extent, Medicaid.

It is because these programs involve middle-class welfare that cuts could occur without inflicting widespread hardship. All the elderly aren't poor. In 2008, a quarter of families headed by someone 65 or older had incomes exceeding $75,000. No doubt people would be outraged. Having been misled, they'd feel cheated. They paid their taxes, why can't they get all their promised benefits? But the alternative is much worse: imposing all the burdens on younger taxpayers and cuts in other government programs. Shared sacrifice is meaningless if it excludes older Americans.


Here's Walter Williams also making some of the same points — that Social Security is welfare, and that there is no promise of a benefit — but he also points out that Congress has changed the description of Social Security over the years, which has helped to create the false belief among Americans that individual taxpayers have a Social Security 'account', when that is certainly not the case --

http://econfaculty.gmu.edu/wew/articles/13/CongressionallyDupedAmericans.htm
http://www.creators.com/conservative/walter-williams/congressionally-duped-americans.html
http://townhall.com/columnists/walterewilliams/2013/11/06/congressionally-duped-americans-n1736128/page/full

Congressionally Duped Americans

Walter E. Williams | Nov 06, 2013

Last week's column, "Is There a Way Out?", generated quite a few responses, some a bit angry. Some people were offended by my reference to Social Security and Medicare as entitlements or handouts. They said that they worked for 45 years and paid into Social Security and Medicare and how dare I refer to the money they now receive as an entitlement. These people have been duped by Congress and shouldn't be held totally accountable for such a belief. Let's examine the plethora of congressional Social Security lies. I'll leave the Medicare lies for another column.

The Social Security pamphlet of 1936 read, "Beginning November 24, 1936, the United States Government will set up a Social Security account for you. ... The checks will come to you as a right" (http://tinyurl.com/maskyul). Therefore, Americans have been led to believe that Social Security is like a retirement account and money placed in it is their property. The fact of the matter belies that belief.

A year after the Social Security Act's passage, it was challenged in the U.S. Supreme Court, in Helvering v. Davis. The court held that Social Security is not an insurance program, saying, "The proceeds of both employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way." In a 1960 case, Flemming v. Nestor, the Supreme Court held, "To engraft upon the Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands."

Decades after Americans had been duped into thinking that the money taken from them was theirs, the Social Security Administration belatedly — and very quietly — tried to clean up its history of deception. Its website explains, "Entitlement to Social Security benefits is not (a) contractual right." It adds: "There has been a temptation throughout the program's history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense.

... Congress clearly had no such limitation in mind when crafting the law" (http://tinyurl.com/49p8fl2). The Social Security Administration failed to mention that it was the SSA itself, along with Congress, that created the lie that "the checks will come to you as a right."

Here's my question to those who protest that their Social Security checks are not an entitlement or handouts: Seeing as Congress has not "set up a Social Security account for you" containing your Social Security and Medicare "contributions," where does the money you receive come from? I promise you it's neither Santa Claus nor the tooth fairy. The only way Congress can send checks to Social Security and Medicare recipients is to take the earnings of a person currently in the workforce. The way Congress conceals its Ponzi scheme is to dupe Social Security and Medicare recipients into thinking that it's their money that is put away and invested. Therefore, Social Security recipients want their monthly check and are oblivious about who has to pay and the pending economic calamity that awaits future generations because of the federal government's $100 trillion-plus unfunded liability, of which Social Security and Medicare are the major parts.

Pointing to the congressional lies and future economic chaos is not the same as calling for a cessation of checks going out to recipients. Instead, it's a call for the recognition that we've made a mistake that needs to be corrected while there's time to avoid a calamity. It's also a call for us to recognize that we all share in the blame and hence the burden to make it right. Politicians have little interest in doing something about an economic calamity that will happen in 2030 or 2040; they only care about the next election. Older Americans, who own most of the political clout, must lead the fight to get Congress to do something about entitlement programs. Of course, the alternative is continued belief in the Social Security and Medicare myth and the heck with future generations.


Friday, December 26, 2014

My Freedom Requires Your Oppression

Here is a March 2014 tweet from Nancy Pelosi's daughter, Christine Pelosi, attempting to play on the 'Gadsden Flag' as a way to defend the 'Affordable Care Act' --

https://twitter.com/sfpelosi/status/446472281833734144
http://archive.is/UHhzS
Christine Pelosi Play On The Gadsden Flag


The contradiction in this play on the 'Gadsden Flag' is obvious — all government social welfare programs (Social Security, Medicare, Medicaid, the Affordable Care Act, etc.) are transfer payment programs — in other words, they are forced charities.  That's all they can be.  The government is not an economic producer that provides goods and services — all government social welfare programs operate via coercion, taking from one individual to give to another.  The government must first take from one individual, in order to provide anything to another.

The challenge to supporters of such transfer payment programs is not to explain how they are not forced charities — the attempt would just be blatant dishonesty — but to explain how a forced charity can be moral.  That people do not offer such an explanation, is a good indication that they cannot — it is no surprise, since it would require explaining how an initiation of force is moral.

There is no shame in needing help and asking for it, but there is shame in pretending that forcing others to help is moral, because a majority of people have approved the coercion via some political process.

And note that it is impossible to tread on a government, since government, in essence, is a monopoly on the use of force.  That is, government is not subjugated when its actions are curtailed, and it is prevented from applying an immoral use of force — this is the removal of a subjugation.  Ultimately, the only human value that government can provide to a society is the protection of individual rights (police, courts, and the military) — everything else can be provided by private sector businesses or private citizens (even things like fire protection services — everyone has heard of volunteer fire departments, for example).

The repeal of the 'Affordable Care Act', or any other government social welfare program, does not constitute one group treading on another — it is the removal of such a treading, since such a repeal would prevent one group from forcing another to participate in a forced charity.

And here is a portion of an opinion piece Christine Pelosi wrote back in 2011, entitled 'Elections 2011: Voters Reject Tea Party Extremes, Protect Freedoms' --

https://www.huffingtonpost.com/christine-pelosi/victory-voters-reject-tea_b_1084078.html
https://web.archive.org/.../http://www.huffingtonpost.com:80/christine-pelosi/victory-voters-reject-tea_b_1084078.html
Americans cherish our liberty and don't want government or corporations to take away our freedoms. President Obama must be heartened and his Republican challengers concerned about the people's vetoes of extreme tea party corporate libertarian overreach in Ohio (workers' rights) Maine (voting rights) Arizona (immigrants' rights) Mississippi (reproductive freedom), and Iowa (marriage equality).


Christine Pelosi, like many other Americans, has a good deal of trouble thinking about 'freedom' coherently — when such people want something from government, they act as if they are defending freedom, regardless of how many freedoms must be violated to give them what they want.

In seeing Pelosi's tweet and the article quoted above, I could not help but think of Orwell's term 'DOUBLETHINK', from his novel '1984' --

https://archive.org/details/GeOr_1984/page/n269/mode/2up
DOUBLETHINK means the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them.  The Party intellectual knows in which direction his memories must be altered; he therefore knows that he is playing tricks with reality; but by the exercise of DOUBLETHINK he also satisfies himself that reality is not violated.  The process has to be conscious, or it would not be carried out with sufficient precision, but it also has to be unconscious, or it would bring with it a feeling of falsity and hence of guilt.  DOUBLETHINK lies at the very heart of Ingsoc, since the essential act of the Party is to use conscious deception while retaining the firmness of purpose that goes with complete honesty.  To tell deliberate lies while genuinely believing in them, to forget any fact that has become inconvenient, and then, when it becomes necessary again, to draw it back from oblivion for just so long as it is needed, to deny the existence of objective reality and all the while to take account of the reality which one denies — all this is indispensably necessary.


It was at least nice to see a number of mocking replies to Pelosi's ridiculous tweet.  Like this one —
I see a typo and missing comma. Should be "DON'T TREAD ON ME, OBAMACARE"

And notice that Christine Pelosi is highly educated.  Here is her profile at democracypartners.com --

http://web.archive.org/.../http://www.democracypartners.com:80/?q=partners/christine-pelosi
Christine Pelosi's Profile At DemocracyPartners


Trying To Put A Slippery Worm On A Hook

Here is representative Nancy Pelosi on 'Meet The Press' on November 17, 2013, trying to make it seem like she was not ignorant or lying when she made this statement regarding the 'Affordable Care Act' in 2009 —
'... if you like what you have, and you want to keep it, you have the choice to do that'


David Gregory repeatedly reminds Pelosi that many existing insurance policies were cancelled, and each time she attempts to evade the contradictions in her statements by trying to stress some kind of notification requirement on insurance companies, to describe 'what your plan does' to policy holders.  Pelosi's response was so nonsensical and clumsy, it would be considered pure comedy, if it were not for all the people who were harmed.

Anyone who would support a politician that speaks this way, regardless of their party affiliation, should be ashamed.

Even if you assume the 'Affordable Care Act' is beneficial, there is no reasonable way to defend Pelosi's handling of David Gregory's questions.  The only honest answer would be to begin with an apology for having made an obviously false statement, and then to offer an explanation for why cancelling so many existing policy was beneficial.  Of course, this is impossible — it would require an omniscience regarding individuals and their circumstances and insurance policies, that no human being could possibly have, never mind a group of mediocre bureaucrats — Republican or Democrat.

Thursday, December 25, 2014

Celebrating Tyranny

Gadsden Flag
The flag named for Christopher Gadsden, which he presented to the South Carolina Congress in February, 1776.

Christopher Gadsden (1724-1805) was a leader of the South Carolina Patriot movement during the American Revolution.  He was a delegate to the Continental Congress and a general in the Continental Army during the revolutionary war.  He was one of the men who risked his life to form the United States of America.

In February of 1776, he presented the flag above to the 'Provincial Congress of South Carolina'.  This flag is now commonly referred to as the 'Gadsden Flag'.

Here's the description of the 'Gadsden Flag' in the 'Journal of the Provincial Congress of South Carolina', from the entry dated February 9, 1776 --

https://books.google.com/books?id=_Y01AQAAMAAJ&printsec=frontcover#v=onepage&q&f=false
Col. Gadsden presented to the Congress an elegant standard, such as is to be used by the commander in chief of the American Navy; being a yellow field, with a lively representation of a rattlesnake in the middle, in the attitude of going to strike, and these words underneath, "Don't tread on me."
Gadsden Flag Description, Journal of the Provincial Congress of South Carolina
Part of the entry from the Journal of the Provincial Congress of South Carolina, dated February 9, 1776.


Here's a tweet mocking the 'Gadsden Flag', as if the struggle that gave rise to it, and what it represents — defiance of tyranny — aren't worthy of defense or celebration --

https://twitter.com/DahmPublishing/status/543893502942531586


How can anyone make sense of this?

If you don't like the positions of a political group or movement that uses the 'Gadsden Flag' as a symbol, then you should criticize those positions — not attempt to denigrate a symbol that helped to unite people against a real oppressor, and that represents a real human virtue — independence.

Nothing positive or constructive can be said in support of the tweet above — I assume Nora Wahlquist was attempting to be cute, but her tweet is just plain stupid.  If she was attempting to denigrate anyone or anything other than herself, she failed.

Tuesday, December 23, 2014

Chilling Failures of Public Education

Albert Shanker was president of the 'United Federation of Teachers' from 1964 to 1986, and president of the 'American Federation of Teachers' from 1974 until his death in 1997.

From 1970 to 1997, Shanker wrote a weekly column entitled 'Where We Stand', which appeared every Sunday in the 'New York Times'.

Here's part of Shanker's column from July 23, 1989, where he makes the startling admission that the public education system was in the process of failing, for operating like a communist economy with no incentives for innovation and productivity --

http://archive.is/CPhnG
https://www.nysut.org/resources/special-resources-sites/social-justice/shanker-library
http://archive.is/fhgZI
http://source.nysut.org/weblink7/DocView.aspx?id=1068
http://www.shankerinstitute.org/about-albert-shanker/
An image of a portion of Albert Shanker's July 23, 1989, 'Where We Stand' column.
An image of a portion of Albert Shanker's July 23, 1989, 'Where We Stand' column.


This paragraph from Shanker's column deserves to be repeated —
It’s time to admit that public education operates like a planned economy, a bureaucratic system in which everybody’s role is spelled out in advance and there are few incentives for innovation and productivity. It’s no surprise that our school system doesn’t improve : It more resembles the communist economy than our own market economy.
Those are tough words from a union leader who spent his life working in the public education system, and who helped to make it function like a 'planned economy'.

Now consider this tweet regarding public education, showing a quote from John Green --

https://archive.is/rbKZk


Green's quote is disturbing to read, and it is sad that it is being repeated in social media, as if it contains an important insight.

Notice that John Green's first two sentences in the quote above make absolutely no sense — even if you are perfectly happy with our dysfunctional, government monopolized, public education system, Green's quote does nothing to explain why you should want to pay for it.

Green asserts that the benefit from public education exists apart from its individual participants (parents and students).  But all human values can only be defined with respect to individual people.  There is no such thing as 'the benefit of the social order', as Green put it, because a social order is not an individual human being with interests, desires, or goals.  Attempting to discuss human values outside of the context of individual human beings is worse than a contradiction, because human values only exist at all because of individual human beings.

In short, why would we spend the time and money to build and run any system that was not intended to benefit the people that participate in that system, or are affected by it, rather than some undefined abstraction, 'the social order'?

For example, consider the case of a prison system.  In a free society, a prison system is not created and maintained for the benefit of some particular 'social order' — it is created and maintained (made part of a particular social order), because individual people want to have some form of protection against crime.

John Green uses the phrase 'social order' as if it describes an obvious value that all societies should strive to achieve.  But this is obviously false.  The phrase 'social order' is commonly used in two different senses: 1) to refer to a set of related social structures — institutions, relations, and practices. etc., or 2) to refer to a stable society, in contrast to one that exhibits chaos or disorder.  Both of these uses of the phrase 'social order' are morally neutral.

Saying that something is 'for the benefit of the social order', is crude question begging: 'What particular institution or practice of which social order, and for what purpose?'

Notice that countries like North Korea and Cuba have elaborate social structures, stability, and free compulsory education, and no reasonable person would defend them as having a social order that should be emulated.  Indeed, being stranded on a deserted island, with no social order of any kind, would be preferable to the lives of most North Koreans — you may still starve to death, but at least you will not be persecuted in the process.

Here is a more objective view of public education from H. L. Mencken, in the April 1924 issue of 'The American Mercury' --

http://www.unz.org/Pub/AmMercury-1924apr-00504

...
    That erroneous assumption is to the effect that the aim of public education is to fill the young of the species with knowledge and awaken their intelligence, and so make them fit to discharge the duties of citizenship in an enlightened and independent manner.  Nothing could be further from the truth.  The aim of public education is not to spread enlightenment at all; it is simply to reduce as many individuals as possible to the same safe level, to breed and train a standardized citizenry, to put down dissent and originality.  That is its aim in the United States, whatever the pretensions of politicians, pedagogues and other such mountebanks, and that is its aim everywhere else.
...


Personally, I do not like paying taxes for public schools — not because I like 'living in a country with a bunch of stupid people', to use John Green's words, but because I know a government monopolized educational system will not prevent that — John Green and those who quote him favorably demonstrate that vividly.

If he were alive today, H. L. Mencken certainly would not be surprised to read John Green's statement, or to see it repeated — it fits Mencken's criticism of the nature of public education perfectly, in that Green's sentiment on public education is the unenlightened expression of a trained standardized citizenry, reduced to the same safe level.

When I first read John Green's statement, I wondered if it was not intended as some kind of provocation — at first glance, this kind of aggressive, self-righteous stupidity, that treats government dysfunction as cause for celebration, seems a little unbelievable.  But after seeing it repeated, it is clear that Green's sentiment resonates with many people.

I would love to pay taxes for an educational system that had enlightenment as its aim, and actually produced it as a result, but clearly that is not what we have.

Here is a comment on some of the other fallacies contained in Green's statement —
     http://jsbmorse.com/john-greens-fallacies-on-education/
     http://archive.is/qZxnP

Saturday, December 13, 2014

Without An Argument, You Can Always Lie

Back in late 2003, Walter Williams was fooled by an urban legend, that many of his readers pointed out was false.  In a follow-up article, Williams explained what made the myth he was taken in by so believable.  The myth dealt with a person receiving a jury award for their own irresponsibility, which, as Williams pointed out in his response, is a fairly common occurrence today —
     http://econfaculty.gmu.edu/wew/articles/04/legend.html

Indeed, there was nothing outlandish about the jury award in the myth Williams described at the link above, since it was smaller than actual awards given by other juries in cases that were just as ridiculous — like the $2.86 million dollar award to Stella Liebeck, who spilled hot coffee on herself (that award was later settled out of court for a reduced, but undisclosed amount), or the $65 million dollar award for the death of Karen Norman, who drowned while drunk in the back seat of a Honda (an autopsy showed a blood alcohol level of  0.17), because she couldn't release her seat belt (that award was thrown out on appeal).

Here's a professor of economics at UC Berkeley, giving a positive reference to a post denouncing Walter Williams — as if the details of the myth that fooled Williams had no similarity to many other product liability jury awards in recent years, and the problem Williams was trying to describe is just an absurd fiction, completely without plausibility —
     http://delong.typepad.com/egregious_moderation/2009/10/walter-williams-the-fact-that-i-am-completely-wrong-is....html
     https://archive.is/KRE9m

Here's the actual post denouncing Williams --

http://www.balloon-juice.com/2009/06/01/the-fact-that-i-am-completely-wrong-is-just-more-proof-how-right-i-am/
https://archive.is/pHHQ8

This little anecdote, included in a list of “outrageous lawsuits,” just came to one of my email lists:
This year’s runaway First Place Stella Award winner was Mrs. Merv Grazinski of Oklahoma who purchased a new 32-foot Winnebago motor home. On her first trip home from an OU football game, she, having driven onto the freeway, set the cruise control at 70 mph and calmly left the driver’s seat to go to the back of the Winnebago to make herself a sandwich.

Not surprisingly, the motor home left the freeway, crashed and overturned.

Also not surprisingly, Mrs. Grazinski sued Winnebago for not putting in the owner’s manual that she couldn’t actually leave the driver’s seat while the cruise control was set. The Oklahoma jury awarded her, are you sitting down, $1,750,000 PLUS a new motor home. Winnebago actually changed their manuals as a result of this suit, just in case Mrs. Grazinski has any relatives who might also buy a motor home.
I thought the “PLUS a new motor home” was such a nice wingnutty touch to a long debunked tale, one that I even talked about in 2005, that I decided to check the intertrons to see if it was still flying around the tubes and found this old Walter Williams post that made me laugh out loud:
Literally hundreds of readers informed me that in last week’s column, “Some Things I Wonder About,” my reference to a Merv Grazinski of Oklahoma City — who set his 32-foot Winnebago on cruise control, left the driver’s seat to brew a cup of coffee, crashed, then sued Winnebago for not having a warning against the dangers of doing so and received a jury award of $1,750,000 plus a new motor home — was an urban legend and as such totally false.
My having fallen for this “urban legend” points to more due diligence to fact-checking. Without making any excuses whatsoever for my lapse in due diligence, let’s look at it.
Thirty, 40 or 50 years ago, no one in their right mind would have believed the Merv Grazinski urban legend possible, but not so today. Personal responsibility has taken a back seat in our increasingly immoral and litigious society. Consider some actual lawsuits researched at (www.overlawyered.com).
This is a particular example of wingnut argumentation that I find rather amusing, and it always takes the following form:

Sure, I’ve now learned that X is not actually happening, but the fact that I believed that X could be happening is not, as one would think, a commentary on my foolishness and gullibility, but rather it is a scathing indictment of our societal decline.

We need to come up with a fashionable name for this, and I’m sure you all have your own examples.


To make this description of what Williams wrote seem believable — 'I've now learned that X is not actually happening' — the author of that post must leave out the relevant examples Williams included to support his belief — the ones also described at www.overlawyered.com.  Of course, the 'X' here is frivolous lawsuits and absurd jury awards, and that Walter Williams (or anyone else) was fooled by a false description of such a case, is no indication that they are not actually happening, regardless of how much this writer would like to pretend.

What's amusing here is not that Walter Williams wrote an 'example of wingnut argumentation', as the post author put it, but that someone would just ignore the obvious and numerous examples Williams provided, and expect everyone else to be just as dishonest.  And it's sad, though not surprising, that a professor at a major university would help to fulfill that expectation.

To further undercut the absurd statement that 'X is not actually happening', consider the now infamous case mentioned above: 'Liebeck v. McDonald's'.

Back in 1992, a then 79 year old woman named Stella Liebeck was badly burned when she spilled a fresh cup of McDonald's coffee in her lap, while seated in the passenger seat of her grandson's car (which was parked).  Liebeck's attorneys successfully argued that the McDonald's requirement (at that time) to hold coffee at 180-190°F was inherently dangerous, and that coffee should never be served hotter than 140°F.

The problem with this argument is that, even if it were implemented, it wouldn't prevent burn injuries — it would reduce their severity, while still leaving people a grounds for bringing personal injury suits (maybe the attorneys thought of that).  The only way to eliminate the risk of burn injuries from hot beverages, is to prevent them from being served — which obviously no one would accept.

And notice that the 'National Coffee Association' recommends brewing coffee at around 200°F --

http://ncausa.org/i4a/pages/index.cfm?pageid=71

Water Temperature During Brewing

Your brewer should maintain a water temperature between 195 - 205 degrees Fahrenheit for optimal extraction.  Colder water will result in flat, underextracted coffee while water that is too hot will also cause a loss of quality in the taste of the coffee.  If you are brewing the coffee manually, let the water come to a full boil, but do not overboil. Turn off the heat source and allow the water to rest a minute before pouring it over the grounds.



And here's a recommendation from a former Starbucks manager that 180°F is the optimum temperature to serve coffee — more indication that the McDonald's temperature requirement was not unusual.  Coffee is served very hot, because people like it that way --

http://www.businessinsider.com/starbucks-drink-extra-hot-2013-12
Alecia Li Morgan worked at Starbucks for five years, first as a barista and later as a store manager.

"Back when I first started working at Starbucks, the acceptable range for beverage temperature was around 145-165 degrees," she wrote. "That's not really all that hot."

The perfect temperature for a coffee, she learned through extensive trial and error, is 180 degrees Fahrenheit.

Morgan offered these tips and tricks for when and how to order a drink "extra hot:"

1. When it's cold outside. "When I worked at Starbucks in North Dakota, the temperatures would reach -30F plus wind chill, so drinks cooled down QUICKLY if taken outside/ordered in a drive thru," Morgan wrote.

2. When you are ordering a milk-based drinks. Creamers, even when steamed, can cool down the temperature of a coffee. Tell the barista you want the milk steamed to 180 degrees, and it won't negatively affect the taste of the espresso or coffee.

3. When you don't plan to drink the coffee right away. If you want to enjoy your coffee at work but there's a convenient Starbucks location closer to home, ordering it extra hot will keep it warm during the commute.


Stella Liebeck's injuries were severe and tragic, but it makes no sense to make others pay for the risk she decided to take.

If this sounds too harsh, consider the case of 'McMahon v. Bunn Matic Corporation', which is almost identical to 'Liebeck v. McDonald's'.  This case came about because Angelina McMahon spilled a hot cup of coffee in her lap while in the passenger seat of a moving vehicle.  But unlike Liebeck's case, McMahon's case was dismissed.

Here's the closing paragraph from that verdict --

http://caselaw.findlaw.com/us-7th-circuit/1365042.html
     It is easy to sympathize with Angelina McMahon, severely injured by a common household beverage-and, for all we can see, without fault on her part.   Using the legal system to shift the costs of this injury to someone else may be attractive to the McMahons, but it would have bad consequences for coffee fanciers who like their beverage hot.   First-party health and accident insurance deals with injuries of the kind Angelina suffered without the high costs of adjudication, and without potential side effects such as lukewarm coffee.   We do not know whether the McMahons carried such insurance (directly or through an employer's health plan), but we are confident that Indiana law does not make Bunn and similar firms insurers through the tort system of the harms, even grievous ones, that are common to the human existence.

affirmed.

EASTERBROOK, Circuit Judge.


Many may wish to believe that Angelina McMahon was victimized by this court decision, but the simple truth is, the judge in this case refused to victimize others, for an accident that happened as a result of an activity that people routinely engage in with full consent, however risky.

Saturday, December 6, 2014

Desperately Seeking a Store of Value

Money is generally defined as anything that serves as:
  1. a medium of exchange
  2. a measure of value, or unit of accounting
  3. a standard of deferred payment
  4. a store of value
Here's an exchange from back in July 2011, between former Representative Ron Paul, and former Federal Reserve Chairman Ben Bernanke, where Bernanke answers 'No' to Ron Paul's question: 'Do you think gold is money?'  The discussion of gold begins at about 4:25 in this clip --

Here's an article at theatlantic.com siding with Bernanke regarding his claim that gold isn't money.  The writer repeats Bernanke's comment that gold is an asset, but goes on to say that gold isn't a well-accepted medium of exchange, even if it's accepted as such in some locations —
     http://www.theatlantic.com/business/archive/2011/07/bernanke-to-ron-paul-gold-isnt-money/241903/
Gold Isn't a Well-Accepted Medium of Exchange
So what is money? It's a commonly circulated medium of exchange. Let's test this with an example. Is an iPad money? Of course not: if you go to the grocery store and hope to buy $500 worth of groceries, unless you get a very strange cashier, the store won't accept your iPad in exchange. If you provide $500 worth of gold, you would see the same result: a sale would not occur. Some people in some places might accept gold as a means of exchange, but that can be true for other things that we wouldn't consider money either.
The writer goes on to say that gold was once money, and could be again, if the U.S. were to re-adopt a gold standard —
So perhaps Paul would have been a little more satisfied with Bernanke's response if he said. "No, but it could be." As a matter of fact, gold was once money and could be again if the U.S. re-adopts the gold standard. But at this time, gold is not money.
The comment that gold could be money again implies that something functioning as money depends on a particular nation deciding to use it as the standard for it's currency.  But notice that whether or not a particular nation decides to adopt a gold standard, has no effect on whether or not gold can serve the four functions of money.  That a particular government doesn't use gold as its currency standard, doesn't make gold less effective as a store of value, or a medium of exchange, for example — even if people subject to that government are less inclined to trade with gold (or any other commodity) as a result of it not being the standard.

And using the iPad example the writer gave, notice that iPads wouldn't function well as money, even if governments adopted an 'iPad standard' for their currencies, because iPads don't serve the required functions of money:  1) iPads are expensive, and aren't divisible, so they wouldn't function well as a medium of exchange, 2) iPads could serve as a unit of accounting, though they wouldn't work well here either because of their price relative to many other cheaper goods, 3) but because iPads go obsolete so quickly, they would be useless as a standard of deferred payment, 4) and even if they went obsolete more slowly, they can also decay in storage, so they are not useful as a store of value.

Unlike iPads and many other commodities, gold has all the properties required by money.  And notice that as a store of value, gold is more properly defined as money than the U.S. dollar, since over the long term the U.S. dollar is a wasting asset — it tends to lose value every year.

It's not surprising that this would be the case, since gold is rare, and humans can't simply make or mine as much as they want — if this weren't so, gold would be worthless.  For the U.S. dollar, or any other fiat currency, exactly the opposite is true — the intrinsic value of the currency is kept as close to zero as possible, to minimize the cost of producing it.

The graph below shows world gold production from 1900 through 2012.  In 2012 world gold production was just above 2,600 metric tons per year (2,600,000 kilograms, or 5,732,018.82 pounds) --

http://minerals.usgs.gov/minerals/pubs/commodity/gold/
http://minerals.usgs.gov/minerals/pubs/historical-statistics/ds140-gold.pdf
http://goldratefortoday.org/world-gold-production-1900-2010/
World Gold Production 1900 - 2012


So how much total gold is above ground?  No one knows, but in 2013, estimates for the total amount of gold mined since the dawn of time were around 170,000 metric tons.

Here's the estimate from the 'World Gold Council' --

http://www.gold.org/supply-and-demand/supply
At the end of 2013, there were 177,200 tonnes of stocks in existence above ground. If every single ounce of this gold were placed next to each other, the resulting cube of pure gold would only measure 21 metres in any direction. While its rarity endures, the sources of gold have become as geographically-diverse as gold demand.


The 'Gold Money Foundation' has a paper explaining why the 'World Gold Council' estimate could overstate the total gold supply by about 16,000 metric tons, as of 2011 --

https://wealth.goldmoney.com/images/media/Files/GMYF/theabovegroundgoldstock.pdf
Gold Money Foundation Estimate World Gold Stock


So using the 2012 gold production figure of 2,600 metric tons, the total world gold stock grew by about 1.5 to 1.6%, depending on the initial estimate used for the total stock.  According to the 'Gold Money Foundation', the long term average increase in the total world gold stock is about 2% annually --

https://wealth.goldmoney.com/images/media/Files/GMYF/theabovegroundgoldstock.pdf
Gold Money Foundation Comparison of Gold Stock and M2 Growth
Gold Money Foundation Chart of Gold Stock Growth


For comparison, consider the chart below from the 'Federal Reserve Bank of St. Louis', showing the M2 Money Stock from 1980 through 2014.  Roughly speaking, M2 money includes various types of savings deposits, along with M1 money, and M1 money includes the currency in circulation and checking account deposits.  Notice that over those 34 years, the M2 Money Stock twice doubled, with a total increase of roughly seven fold, while the world gold stock increased by approximately 65% (again, depending on the gold stock estimates used) --

http://research.stlouisfed.org/fred2/series/M2/
FRED Chart of M2 Money Stock



Now consider this absurd quote from John Maynard Keynes, in his 'General Theory of Employment, Interest, and Money' (see Chapter 10, part VI), where he attempts to make gold mining sound no more sensible than having the Treasury bury bank-notes for people to dig up.  Notice that Keynes describes this as 'better than nothing' as an economic stimulus, even though he considered it a poor choice (it's much worse than he thought) --

https://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter10.html
     It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly 'wasteful' forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict 'business' principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.
     If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.


Of course, this is ridiculous — as a productive endeavor, gold mining is useless, but as a means to extract a form of money that can actually store value, gold mining has been wildly successful.

Mining gold is useful precisely because it's hard — because gold is scarce, and because men have no direct control over its supply, except through long hours of hard work.

If gold were common and easy to produce, like a bank-note printed by the Treasury, it would be no more useful as a form of money than a bank-note, and no one would have any incentive to mine it.

Here's a chart from Jeremy Seigel's, 'Stocks for the Long Run', to demonstrate how badly the U.S. dollar serves as a store of value.  And note that the U.S. dollar is the world's reserve currency, so among the world's fiat currencies, the U.S. dollar is held in the highest confidence --

http://www.aaii.com/journal/article/real-returns-favor-holding-stocks.touch
Total Real Return Indexes, Jeremey Siegel, Stocks for the Long Run


Here's a question for those who, like Keynes, think gold mining is ridiculous —
If you could print $100 bills in your home, knowing you would be safe from prosecution for doing so, whether it was legal or not, would you?
If you answered that question honestly, you have a deep understanding of why fiat currencies tend to decline in value and why men are compelled to mine gold — you understand why even holding the world's reserve currency is a large negative return over time.

The irony of the disparaging quote above regarding gold mining from 'The General Theory of Employment, Interest, and Money', and Keynesianism in general, is that they have contributed to conditions that make gold mining more necessary than ever — that is, if societies want some form of money that stores value.