A joke about economists

Two economists were walking down the street one day when they passed two large piles of dog poop. The first economist said to the other, “I’ll pay you $20,000 to eat one of those piles of shit.” The second one agrees and chooses one of the piles and eats it. The first economist pays him his $20,000.

Then the second economist says, “I’ll pay you $20,000 to eat the other pile of shit.” The first one says okay, and eats the shit. The second economist pays him the $20,000.

They resume walking down the street.

After a while, the second economist says, “You know, I don’t feel very good. We both have the same amount of money as when we started. The only difference is we’ve both eaten shit.”

The first economist says: “Ah, but you’re ignoring the fact that we’ve engaged in $40,000 worth of trade!”

Zombie-scented cologne would have been so much easier

Ok, after watching the second episode of The Walking Dead I’m left wondering why no one has thought to create zombie-scented cologne that would trick the monsters into thinking you are one of them. What? Are there no capitalists left in this post-apocalyptic world? This seems like a major market failure that I don’t think would have occurred in real life. The writers are going to have to do better if they want me to find this story believable. 

submitted with a wink

This guy should win the Pulitzer for best editorial cartoon. I can’t find the original source for this, so if anyone knows it I’d love to link to the artist. 

Edit: Thanks to Ionosphere for pointing out that it was created by Andy Singer. 

Federal Reserve official says if QE3 doesn’t stimulate the economy they’ll just buy more assets

Here is the quote from Market Watch:

“Unlike our past asset-purchase programs, this one doesn’t have a preset expiration date,” said San Francisco Fed President John Williams at a speech at the City Club on Monday. “Instead, it is explicitly linked to what happens with the economy.”

This really is the chicanery that the Federal Reserve and it’s supporters are famous for. Oh, QE1 wasn’t good enough? Ok. Let’s try QE2. Oh, that’s not working well? How about QE3? Ah screw it! There will be no QE4, let’s just make QE3 infinite!

I mean, just look at that quote above. He said, “[QE3 is] explicitly linked to what happens with the economy.”

In other words, there will be no objective marker for failure. If the economy is still doing bad, well that’s because the economy is bad, so we need to buy more assets, which could be expanded from the current $40 billion per month in mortgage-based securities. To proponents, you see, quantitative easing can never be a bad policy. It’s just that there was never enough of it.

There is an upside, too, for those that love quantitative easing. Once the economy finally begins to improve they can say, “See! Quantitative easing worked! We finally spent our way out of the hole!” There will be no need to prove causation, or even correlation. They’ll just say we needed to hit that magic amount.

But what happens if in one or two years from now the economy hasn’t improved much? The proponents of quantitative easing will just say that the economy is complex (which it undoubtedly is) and that other factors have kept it from improving.

This is the problem with trying to play God with the economy. We know it is complex and that no human brain - or panel of human brains - could possibly comprehend it’s infinite complexities. It is a glaring example of the Hayekian knowledge problem exemplified by Lawrence E. Reed’s classic “I, Pencil” (If you haven’t read it seriously go check it out right now). The basic gist of the essay is an explanation of how not one person on the planet has the skills necessary to create a pencil from scratch. Instead, it takes numerous individuals in the marketplace who voluntarily come together to make it happen, some even unaware that they are part of the process.

Ok, that was a bit of a tangent, but it’s important. The federal reserve is like the guy who would try to create a pencil from scratch. It is impossible. He would be unable to grow and harvest the rubber, cut and form the tree into the wood, harvest the graphite and fit it into the wood, mine and form the metal that holds the eraser to the wood, and manufacturer the yellow paint from scratch.

Similarly, it is impossible for the federal reserve to know which assets to buy. They can guess, or make an informed guess, but there is a reason why private actors in the market aren’t buying those assets, whether they be securities, or treasury bonds, or whatever. The point is that it is entirely impossible for the Federal Reserve to know what number of assets should be available in the marketplace and at what price. But, as the purchase more they are creating a false demand and thus manipulating price.

More importantly, perhaps, since the Federal Reserve Note is a pseudo-monopoly currency, the Federal Reserve’s policies affect everyone, whether through inflation, deflation, or manipulation of interest rates.

This wouldn’t be a problem if they were a completely private organization that had competition, or at least didn’t have government enforced laws that make the Federal Reserve Note a pseudo-monopoly. But, the Federal Reserve chairman is appointed by the president and those laws do exist so there is an incentive to manipulate the market in a way that makes the president look good, especially when his opponent threatened to fire you. But again, with how complex the economy is it’s hard to believe that a few people could be so effective at manipulating it. 

It’s a compex issues, no doubt, but that’s all the more reason not to have central control. Liberals and conseratives seem to agree that monopolies are never good, but for some reason they don’t apply that logic to our currency?

Bullocks. Competition is always a good thing. 

Happy Birthday

F.A. Hayek!