QE3, easy money brings a hard future.

At the request of a fellow liberty activist I was asked to make a comment or two on QE3 (Quantitative Easing 3) that has just happened within the last few weeks. I will spare this post from being a completely technical post because 1)I'm not an expert in the field and most importantly 2)The experts have already tackled this from the technical standpoint. Murray Rothbard has destroyed the quantitative easing policy and a good article can be found here which will go more in depth than this post.

What exactly is Quantitative Easing and why is this one labeled 3?

In the case of the most recent QE policy for the U.S is the buying of assets, mortgage backed securities, from private banks by the printing of dollars to the tune of 40$ billion a month.¹ It's labeled 3 because this has been the "3rd" QE since I believe 2008.

What is the intended purpose of QE3?

The Federal Reserve, the private company that has a monopoly on our money supply, believes that this easy money policy can be used to stimulate an economy that is in need of a little boost. By injecting money into the system their is more of an incentive to spend money now as consumers because we see lower interest rates than that which naturally occur in the free market. The Fed believes by doing this we can avoid dipping into recessions and have an ever growing economy.

What is the unintended consequences of QE3?

I like to give the Fed the benefit of the doubt and say they are truly trying to help people but just don't see the fallacy in their economic policy. How true this is I can't say because there's a big incentive for quantitative easing in the realm of purely making money for the politically connected.

As the Fed trots along claiming to be helping the middle class and the poor by using QE3 to create jobs it doesn't realize that the exact opposite occurs; the Fed is destroying the middle class.

Two implications of QE3 can be seen very easily. The first is that the Fed buys these securities from private companies like Goldman Sachs. The second is that the money supply of our dollars is obviously increased.

It then becomes more obvious what is happening. Only those private companies that are politically connected like Goldman Sachs get money while others do not. This is because government in general cannot allocate resources with any objective measure and can only do so arbitrarily, so usually only those that have friends get the help.

On the other hand the other easy implication to see is that using basic supply and demand economics as the supply of our dollar has risen the value of each dollar has to drop holding all other things equal. This can be seen as the inflation of our dollar which is NOT a naturally occurring phenomena in a free market; actually the exact opposite typically happens we see the value of our money steadily increase as prices drop.

But what does this all really mean to people and the economy?

Well to really understand what happens we must first take a look into what happens in a free market economy where no central banking system exists.

When the Fed decides to "stimulate" the economy with QE the response is for a lower interest rate than the actual market interest rate.

When, in a free market, the interest rate begins to drop this is a result of an individuals time preference to spending. Instead of spending at the present they wish to save money to spend at a future time. As a result banks wanting people to start spending see this saving of money and the market response is to lower interest rates. This becomes a signal to businesses and entrepreneurs that an increase of savings has occurred. As the interest rates drop these businesses see prior unprofitable ventures to become profitable and decide to invest in capital. Since actual savings have occurred these business will make profits by best serving consumers with previous capital investments and it's a win win for all involved. But this is only possible with the actual savings people have done.

When a central banking system, like the Fed, gets involved and artificially lowers interest rates what happens? Well businesses see the same signals as they do when saving occurs so they begin their investment in capital.

The problem should be obvious now. No savings has actually occurred to purchase whatever the investment was used for. As a direct result of this monetary policy resources have been allocated incorrectly and both the businesses and customer loses. When this starts happening companies start going under because no one is purchasing the goods they made with the false signals and a recession begins.

What should be even more emphasized besides the fact that easy money leads to hard future by the means of a recession is the fact of who actually wins with this policy. The ones that win are those that FIRST get the money, Goldman Sachs, because the value of that money has not been reflected in the market as a drop yet. So when they spend that money it has a higher value than when it gets to the middle class and the lower class who has to deal with a highly inflated piece of paper. This policy enriches the super rich at the expense of destroying the middle class through inflation.

¹Big Wall Street Banks already complaining QE3 is not enough

Rothbard

Anarchy isn't the utopia, limited government is.

Many of the objections I come upon when discussing the issues of a free society is that many people believe it's my version of a utopia. This is a nirvana fallacy because they are assuming that I'm assuming all bad that exists in human nature will disappear along with the State. I will always be the first to state that I realize no system is going to get rid of the bad in the world, just that comparing apples to apples a free society would be better suited to deal with the bad than any other type of government.

But what is the actual utopia that many seem to simply overlook? The belief that a government in control of the State apparatus can simply stay "limited" to protecting property rights. Even when there is a piece of paper that "limits" the powers of government, like the Constitution of the United States.

History has shown time and time again that giving power to a centralized government always leads to tyranny over time. The Constitution was violated not 10 years after its ratification with the Alien and Sedition Acts and today is even used to give government more power and take liberty away from individuals.

So who are the ones that truly want to live in a fairy tale land and who are the ones that want to give individuals actual freedom? Who are the ones that that have history to show that society can operate the way we say it will and who are the ones that have history that proves them wrong?

A Voluntary/Anarcho-Capitalist society has no apparatus to strip individuals of freedom only a limited government does.

Smoking in a free society.

I had a friend of mine come to me with a question he had. This was the question- " Well, I was having a conversation with a women and we ended talking about smoking (cigarettes) and how exactly (in a free society) would people go about smoking in public? Since a second party could prove that the smoke from the cigarette was in fact harmful to the surrounding individuals."

Here was my response-

So sure there's a couple of approaches that can happen in a free society. I'll post a couple here and I probably might extend this into another blog post.

I'd like to always first say that though we might be able to think of the ways things might be handled in a free society there's definitely no way to say who is correct and who is wrong, the free market and the choice of consumers and individuals will dictate what happens.

Having said that we can definitely ponder about the situations that could come about to make everyone happy through voluntary associations.

So in a free society we have to remember that "in public" would mean something much different than it is now. This "in public" is private property and not essentially owned by "the public". Although a community could come together and purchase a piece of property for the use of everyone.

Now that that has been defined those who own the private property can essentially make the rules for this very example of smoking cigarettes. Some private property owners could very well say smoking is allowed here and other property owners could say smoking is not allowed here. It's easy to see what would happen in the property that the owners say no smoking. It gets more interesting dealing with the property that the owners say you can smoke there.

With that property in mind the owners could also say that if you enter this premise you are not allowed to bring suit against anyone for smoking. So by merely entering the property, which you can choose to or not to enter, you will not have the ability to bring suit upon people smoking there because you entered a contract stating you wouldn't. So to me that issue can be laid out pretty simply.

Now, I don't like to just show the easy cases and say hey see my society would work just well with these very easy cases. We should always seek to push these cases into more difficult situations so as to show a free society could still very well function.

So to push the situation even further let's say that some property allows for smokers but does not provide that you enter a contract stating you will not bring suit upon those who smoke on that property. Now you could very well have a problem with someone hurting your health, which hurts your body which is property by the way, and this could happen on said property.

What could possibly happen then?

So this dwells even deeper into Voluntarist/Anarcho-capitalist ideology. It brings up the idea of insurance in a free society that people could pay for to account for risk.

In our situation then if let's say I was so deathly afraid of getting second hand smoke diseases/cancer/whatever I could simply purchase insurance that would protect me if I was to get second hand smoke problems. Basically I pay premiums to the insurance agency and if I got sick they would pay me 2 million dollars or whatever we agreed upon for the contract.

Well now this insurance company has an incentive to make sure that I'm not harmed by second hand smoke or else they have to pay out 2 million dollars to me. This insurance agency, that probably insures other people as well, would then make it in their best interest to only insure those who will not bring harm upon me through smoking. So those who have private property and want to be insured would, by market forces, make it necessary that 1) you can't get harmed by second hand smoke on their property or 2) if you can be harmed you cannot bring suit upon anyone within that property nor could your insurance agency.

Now that these are in place and I decide to enter a property that allows smoking but doesn't allow suits against those that smoke I have voluntarily entered into that premises and now bear responsibility of my actions. You could now say though that you could go onto that property, be harmed, and try to bring a claim from the insurance agency for the 2 million dollars since in fact you were harmed by second hand smoke. But since you entered that property voluntarily the insurance agency could very well have a clause in the contract saying that you void the insurance agency's liability to pay you if you enter such a property.

If you wanted to be the smoker then you have the choice of staying on your property and smoking or being on someone else's property that allows smoking.

This is how these types of problems can be mitigated in a voluntary and free society. It seems convoluted and complicated when written down but it is in fact very simple in practice and how many insurance agencies conduct business today.

The Economic Irrationality of the State

Probably one of the few articles, The Economic Irrationality of the State that I'd ask everyone here to read. The author,Eric Englund, puts it so much more eloquently than I ever could on how the state should not exist from an economic argument.

I can't remember where I read this but Murray Rothbard had mentioned that it was the impossibility of defending even a minarchist government, where only private property and contracts were protected by government, over defending a socialistic government that led him to become an Anarcho-Capitalist.

If person A believed in socialism, B in America's Constitutional Republic, C in minarchism, and D in anarchism. What right does person A have to force socialism on person B? What right does person B have to force America's form of government on person C? What right does person C have to force minarchism on person D?

As most here are inclined to be close to person B or C which is based off a subjective idea of what government should do. If you believe that your form of government is the right one and should be forced upon person D, what possible logical defense can be made to stop person's A belief of government over B, C, and D?

Since I believe that there is no logical defense that can be made (post here if you have one) we must all reject the state completely from a moral stand point.

Reject Totalitarianism, reject the state, and support freedom.