Sunday, August 31, 2014

The War on Hoarders and Misers

According to this report from The Korea Herald, President Park Geun-hye is seriously considering levying a tax on corporations for holding on to its profits. To be specific, if corporations do not spend “enough” of their profits on investments, salaries, and dividends, the government will levy a ten percent tax on those profits.

How much would be considered excess profits and how long a corporation has to hold on to its profits before the taxes are levied have apparently not been hammered out in detail just yet.

On top of that, the Bank of Korea cut interest rates to 2.25 percent just recently, which is the lowest that it has been since November 2010. What's more, further interest rate cuts are expected and it is feasible that interest rates could fall as low as 1 percent. And about a month ago, the Korean government expanded tax deductions for debit card users.

In other words, the Park administration wants us to spend money. And preferably a lot of it.

Ka-ching!
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The government's rationale is that if business owners come to terms that their “excess” profits will be taxed, they will choose to pay higher wages, salaries, and dividends so that people will spend more money, thereby spurring economic growth. Furthermore, assuming that businesses increase workers' wages (instead of diverting more of their profits to off-shore shell companies and tax havens), coupled with low interest rates and tax incentives for debit cards, the government hopes that the people will choose to spend their money rather than save it (instead of investing their money in riskier but higher-yielding investments).

(It is my opinion that the government is either completely ignorant of the concept of unintended consequences or it is aware of the concept but simply does not give a damn about it.)

The government's rationale behind this series of decisions is that savings is deleterious to economic growth. It is an idea that was made popular in the twentieth century by the great (which does not necessarily mean “good”) John Maynard Keynes.

People who subscribe to this economic school of thought often compare money to some kind of metaphor that can be found in the natural sciences. For instance, only just recently someone mentioned to me that money is like water; that it's supposed to flow freely. But does money flow? The words “flow” and “circulate” are often used to refer to the movement of money within a given economy. It allows people to simplify money; something which is far more complicated than people actually think it is.

However, money does not actually “flow” or “circulate.” In fact, I think it is misleading to say that money “flows” or “circulates.” It implies that money is somehow spent independently of human will. Money does not flow or circulate. As boring as it may sound, money is transferred from one person's cash balance to anther’s. And this transference depends entirely on how much people are willing to hold on to their money at any given time.

Believe it or not, this does not happen in reality.
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The basic argument behind the government's series of policy changes is the assumption that “hoarding” money (something that more sober minded people refer to as “savings”) somehow causes economic stagnation. It assumes that if far too many households and businesses save money rather than spend it, the savings will stifle demand for goods and services, thus leading to an economic contraction.

Many Keynesian economists have therefore always urged people, and especially the government, to spend. Even when there is no money to spend.

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However, these policies do more than to simply set the stage to get people to spend more money. It also tacitly makes villains out of people who wish to save money. Though the language used has thus far been benign, what has remained unsaid but expressed tacitly nonetheless was that those who do not spend their money are causing the economy to shut down. It assumes that businesses that choose to save money inevitably lead to reduced sales, which in turn leads to increased layoffs. Then as the total social income decreases, this leads to less money being made available for overall consumption. Then, as individuals begin to fear for their economic well-being, they too will begin to refuse to spend their money. The government's rationale is that hoarding begets more hoarding and that it causes the economy to sink ever deeper into a downward spiral.

In the end, what the government is actually saying is that people who save their money, these selfish hoarders, will eventually doom the economy into a permanent economic stagnation.

DOOM!  DOOM, I TELL YA!
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But is there any truth to this viewpoint? I, for one, do not think so.

There is a question that we have to ask ourselves. Why do people even save their money in the first place?

There is only one answer to that question. People save their money so that they can insure themselves against an uncertain future. Think about it. If the future weren't uncertain, if each and every one of us had the gift of being able to accurately predict when and how much money we will need, none of us would need to save our money. We would simply spend our money and make the necessary investments so that we may receive the amount of money we need to spend on the day we need to spend it.

Fortunately or unfortunately, however, the future is uncertain. We do not know how or when or where we will face our next calamity or good fortune. And the more uncertain and fearful we are, the more money we tend to save. And considering the fact that Korea is the fastest aging society in the world, and further considering all the financial troubles that are associated with aging, Koreans have all the reason in the world to be fearful of the future.

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There is another reason why businesses save money. If businesses expect the value of money to fall in the near future, they will spend their money now while the money is more valuable. However, if businesses expect the value of money to rise, they will wait to spend their money later when it is more valuable.

Milton Friedman once said that there are four ways to spend money. One of the ways to spend money is for an individual to spend his/her own money. When people do that, people try to get the most for their money and tend to be more careful about how they handle their money. Therefore, for the most part, people's decision to save or spend their money tends to be based on very sound reasons.

The Korean government might think that its recent policy changes is for the benefit of the public. In the short-run, the Park administration might just be vindicated. But what happens in fifteen years when Korea becomes a “super aged” society (meaning that more than one-fifth of the population will be over the age of 65), when there will be more retirees, who will have minimal income and will therefore need more government handouts, than there are working people?

For those unaware, Korean subway cars reserve the seats at the end of each train car (where the two kids are seated) for senior citizens whereas the other seats are for everyone else.  This picture asks its viewers to imagine a future when those seats will be reserved for children instead of senior citizens.
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The idea that savings somehow impedes economic growth is a popular one, especially among politicians. However, just because something is popular does not make it right. Saving for a rainy day does not cause negative economic growth or economic stagnation. That is because savings don't take money out of the economy. Savings are an insurance. Therefore, savings is really just another word for deferred consumption.

There is, however, yet another rationale behind the government's series of policy changes. It is the presumption that the more money there is, the more wealth there is. As counter-intuitive as this may sound, that is just not true. The units of money that we have in our wallets or bank accounts do not matter. If such a thing actually mattered, Zimbabweans would be the richest people in the world!

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What people really want is not more money, but more bang for their buck. In other words, they want their money to be able to buy more things. Simply increasing the amount of money, which is all that the Korean government will be able to achieve with its policies (assuming that it is successful), will simply dilute the effectiveness of the money that people do own. It will not improve the people's standard of living.

The only thing that can make the money more valuable is for there to be a fall in prices aka deflation, which is the very thing that every government wishes to avoid. After all, although deflation is what people need, it is not what they want (whether or not deflation is a good thing is an entirely different topic that shall be dealt with on another day).

To be specific, people want the prices of all goods that they buy to fall. However, at the same time, they want the price of the goods that they sell to rise. Therefore, though nobody will actually claim to want it, what their actions often belie is that everyone actually wants inflation. And politicians are only too happy to give people what they want, rather than what they need.

It is possible that the Park administration's war on savings might lead to some short-term economic gains. After all, almost anything can be proven to be correct by resorting to clever statistics. But in the long run, I just don't see how it is anything but doomed to fail.


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Wednesday, August 27, 2014

Random Thoughts about the Free Market, JR Pub, Ebola, and Racism

1) Free Markets don't need no regulations

As a Free Market capitalist, the story that has unfolded around JR Pub's sign about not wanting to admit Africans into their establishment out of fear of transmitting the Ebola virus carries all the attributes of the Free Market that I love.

Despite the fact that Korea (thankfully) does not have an anti-discrimination law, when it was shown that a business owner behaved in a racist manner (whether or not this was actually racist will be discussed later), the public – whether they were actual or potential customers – decided to punish the business owners by doing the only thing that they could do, which is also the most powerful thing that they could do. They chose to spend their money elsewhere. Then the owners of JR Pub took immediate steps to resolve the issue to placate the angry public.

There was no need for an army of bureaucrats or business regulations or legal statutes. It is a great example of the way Free Markets work; or at least the way it ought to work.

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2) So an Ebola patient walks into a bar...

A lot of noise was made about the ignorance that surrounded JR Pub's decision to turn away Africans from their establishment out of fear of the Ebola virus. Some people also correctly claimed that Ebola is spread through the contact of bodily fluids, and is not, in fact, spread through the air or through food.

However, in a hypothetical example, assuming you were minding your own business while enjoying a drink in a bar, if someone whom you recognized as suffering from Ebola walked into the bar, would you still stay in the bar knowing how the virus spreads? Or would you at the very least step outside the building to call the Center for Disease Control and Prevention?

You don't have to tell me what you will do. But honestly ask yourself what you would do in the situation. Personally, even if I knew for a fact that there was no chance for me to contract the disease merely because of the presence of a patient near my vicinity, I would leave posthaste. But that's because I have seen first hand the ugliness and brutality that a crowd is capable of committing, especially after a few too many drinks have been imbibed.

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3) Sincere Apologies

According to The Korea Observer, the owner who instructed his staff to put up the sign took sole blame and apologized. He also said that he would give a 50 percent discount on all drinks and food to those coming to the bar on one particular evening and that all proceeds of the night would “go to a charity and those who are in need of help.”

(I have yet to hear anyone explain to me why giving to charity would make things under this present set of circumstances any better, but whatever floats their boat, I suppose.)

However, though this is certainly not a scientific survey by any stretch of the imagination, there was a simple poll that the website's readers could participate in. When asked “Should we boycott the bar over the ban on 'Africans,'” readers could choose between “Yes, screw that apology!” and “No, the apology is enough.”

As of this writing, 780 people were in favor of boycotting the bar and 660 people were in favor of not boycotting the establishment.

Though it is unclear if those who think that the apology is insufficient would have any lasting effect on the business' profit margins, I cannot help but wonder just how much more apologizing they could possibly want.

A part of me is reminded of the way so many Koreans demand a “sincere” apology from Japan over its war crimes. No, I am not comparing actual war crimes to perceived racism. What I am comparing is people's seemingly unquenchable thirst for “sincere” apologies, which all too frequently does nothing more than to allow people to hide behind the cover of perennial victimhood.

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4) On Political Correctness

Has fears over the Ebola virus been blown out of proportion? Even with a Liberian man who has come to Korea about a week ago having gone missing somewhere in Busan (assuming that the man is still even in Korea), a country where there has been a Ebola virus outbreak, it is likely that the fear of the virus is still very much greater than the actual threat of the virus.

But why should any government, university, or pub, or individual for that matter apologize for trying to ensure that they remain contagion-free? The fact remains that even if there is little danger of the virus spreading to Korea, I don't owe it to anybody to have myself exposed to diseases brought into this country, potential or otherwise, no matter what problems exist in other countries or whose feelings might get hurt! In today's overly politically correct culture, not nearly enough people seem to be willing to even entertain such a thought.

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5) Racism vs. Ignorance

But now that we have brought up the topic of racism, what is racism? It is the notion of ascribing moral, social, intellectual or political significance to a man’s genetic lineage. It is one of the most primitive forms of brutish collectivism.

Does anyone have any real evidence to make the claim that the owners of JR Pub are, indeed, racists? Does anyone have unimpeachable evidence that their intent was malicious? In other words, did they put up their sign in order to make some kind of statement about the inferiority/diseased nature/undesirability of Africans? Or was it a decision made out of innocent ignorance? Racism may be intolerable but isn't ignorance forgivable?

But either way, does it matter? If the owners are indeed racists, though they might not have changed their minds, they will most certainly think twice about giving voice to their racist thoughts in the future. If it was a result of ignorance, you can bet that these men, or at least the one who made his employees put up the sign, will have certainly learned a very valuable lesson about avoiding anything that can even be remotely considered to be racist.

And isn't that what is supposed to matter? On one hand, ignorance is rectified.  On the other hand, if they were, indeed, racists, even if we don't respect or like the way other people think, aren't we supposed to tolerate others so long as their actions do not lead to the harm of others?

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6) Predetermined Judgments

In the Asia Pundits article that was quoted earlier, a woman who is a white African was informed that whereas black Africans could not enter the establishment, she could. Others, including the woman in question, were quick to conclude that this was therefore a case of blatant racism. But does it really refute the claim of ignorance? Is it possible that those owners and employees of JR Pub were ignorant enough to have thought that black people were more prone to suffer from the virus than white people?

I was neither there nor have I spoken to anyone involved. So I cannot say one way or the other. But too many people, who were also neither there nor spoken to the involved parties, seem to have determined what had happened.

There are very few epithets that carry as much weight as “racist.” However, armed with nothing but moral assertions and unimpeachable political correctness, which would never be given any serious consideration in any respectable court of law, hundreds, if not thousands of people who have most likely never even met the owners have accused them of being racists.

During the Jim Crow laws in the United States, the idea that you can tell who is good and who is evil by the color of their skin was the law of the land. Since the laws were abolished, and not just in the United States but throughout the civilized world, that line of thinking has been rejected. However, in modern times, as soon as the perceived victims are black, that mentality comes roaring back. That is because the mentality has not really been rejected. It has only been put under new management.

The way much of the public has responded, or at least those who have bothered to respond, has not given me much reason to rethink my position about mobs and their non-thinking tendencies.

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Saturday, August 16, 2014

Don't Let Rich People Own Apartments They Don't Live In?


I've been wondering what to write about lately. There are plenty of things to write about, I suppose. The Pope is in town, but I already called him a wolf in sheep's clothing before. I don't need to write another post about that ignorant shaman just to rehash what I had said earlier. There is also the murders/wrongful deaths that have occurred in the ROK Army as well as a spate of suicides. But I also wrote a bit about the military before and I really don't want to talk about this depressing topic again. At least not for a while.

So, with no intent to write anything, I was going through my Facebook feed when I saw a post from Gawker, a website that I had never heard of before, that was shared with the caption “It's just simple economics.”

I don't know how anyone can ever spend a single moment trying to understand the economy and somehow imagine it to be "simple."


Of course I had to give it a read. As expected, it was ridiculous and before I knew it, I wrote a comment. And I kept writing. When I finally hit the “Enter” key, however, I saw that it was long enough to be an actual post by itself. So I decided to repost it here.

(Well, I never denied that I suffer from long-windedness. And no, neither the original article nor my response to it is related to Korea. But, hey, it's economics and economic laws do not recognize national borders.)

So here are the reasons why this article, “Don't Let Rich People Own Apartments They Don't Live In” is really “simple” economics, and I do mean “simple” as in “mentally retarded:


1) There was no mention of the original cause of why so many low income earners cannot afford low income housing – rent control.



2)There was no mention of the reason for why so many corporations purchase property in order to use them as tax shelters – New York has one of the worst business tax climates in America.


3) There was no mention of what such a law would do to landlords. You know, the people that the poor would have to rent from? If landlords can't keep their apartments because they can't afford to pay those high taxes because they don't live in them, then who are the poor going to rent from? Are the poor somehow magically going to find money under their mattresses to buy apartments in Manhattan suddenly?


Every poor person's bed


4) There was no proper definition of “public good.”


5) There was no information about who will oversee this “public good” (Does anyone really trust de Blasio or Cuomo or Spitzer or Paterson or Bloomberg or Giuliani to know what the public good is or even know how to achieve it?). There was also no mention that rent control has always been justified as being “necessary for the public good.”


6) There was no mention of how successful (but really, I want to say “unsuccessful” but that seems far too much of an understatement) “confiscating rich people's property for the public good” has been in any country in history that has ever attempted it.



7) There was no mention of how some renters have no choice but to leave for extended periods of time. Like, oh I don't know, military servicemen? And you can bet if there are exemptions made for one group of people, everyone else who can afford it, and their special interest groups (oh you can bet that there will be a multitude of special interest groups) will be lawyering up to get those sweet, sweet exemptions. Because why not clog up the courts more than they already are anyway? What's the worst that could possibly happen?


8) Basically, there was no mention of any kind of cause and effect; like as though people don't adapt and change their behaviors and actions depending on changing incentives and disincentives. Like as though all of this taxing and shaming will somehow magically take place and people will just accept their new lot in life without so much as a complaint. This may be difficult for many of the world's moralizing armchair pseudo-economists to take in, but the fact of the matter is that life is NOT static.


So how might people respond to such changes? Oh, I don't know, increased taxes on “excess” property could make businesses “rent” said property to their own shell companies or their own employees, who may or may not be full time, or part time, or union, or non-union, or contracted, or non-contracted employees; or just someone's grandparents that they happen to know. Which would then allow them to get tax breaks on top of owning the property.

Believe me, if I can think of such a loophole without even getting paid to do it, you can bet your mother's pension that there are a whole lot of well-paid accountants at Goldman Sachs who will come up with even more ingenious ways to get around those taxes that would make everyone feel like they just got knocked around by Mike Tyson.



The original author of this post, Hamilton Nolan, is a raging idiot. Or a really naive fool who can't see beyond his own nose. Or he's a brilliant troll.

The fact of the matter is that there is no such thing as a simple solution for the world's ills. Least of all a simple economic solution. The economy is far too complex for there ever to be a simple solution. If there were, people who are way smarter than us would have thought of them long ago. If anyone ever claims to have a simple economic solution, you can be sure that they are either peddling snake oil or sheer stupidity.

The following is a quote by Murray Rothbard that I have used many times before. I'll stop quoting it when pseudo-economists stop being stupid.

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

Sunday, August 10, 2014

What is “The Will of the People?”

What is this thing that politicians call “will of the people?”

I had earlier predicted that the ruling Saenuri Party would lose the July-30 by-elections. Ruling parties almost never win in by-elections. However, the Saenuri Party has surprised everyone by having won a super-majority in the National Assembly, including a seat in the South Jeolla province, which has been a liberal stronghold for decades. The Saenuri Party now holds 158 out of 300 seats in Korea's unicameral legislature.

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But does this electoral win mean that President Park or Saenuri lawmakers have gained a mandate of some sort? Only 32.9 percent of eligible voters turned out to vote in the by-elections.

To quote a line from a TV show that I like, it's true that decisions are made by those who show up. And to the victor goes the spoils. But a mandate? To put it mildly, that seems like a stretch.

As for the New Politics Alliance for Democracy (NPAD) Party, with its two co-chairmen Kim Han-gil and Ahn Cheol-soo having all but officially given up their roles as party leaders, the party leadership has fallen onto the shoulders of Park Young-sun. Due to her party's diminishing popularity, in her very first press conference as de facto party chief, she pledged “to do her utmost to rebuild the largest opposition party by winning the hearts and minds of the people, saying that the NPAD 'failed to honor their will.'”

However, what neither Saenuri nor NPAD lawmakers seems to understand is that there is no such thing as “the People.” As much as politicians may wish to simplify everything into quantifiable polls, it does not change the fact that though there are millions of individuals who all have different wants, needs, and priorities; this ridiculous concept of a single blob-like People is actually non-existent.

So what the hell do politicians mean when they talk about “the will of the People?”

Start small and local.
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However, let's say for the sake of argument that there is such a thing as “the People” and let's say that they have Borg-like characteristics and all have a collective mind.

Is it a good idea to obey their every whim? Yes, one of the central tenets of democratic republicanism is majority rule. But has no one in the National Assembly ever even heard of Tocqueville? His book “Democracy in America,” details the perils of democracy by pointing out the dangers of majoritarianism and mediocrity, and that the people in their ignorance tend to meekly obey despots that are disguised as democratically elected leaders.

Or have they read Tocqueville but decided to embrace all the things that he warned against?

More than majority rule, the most important thing about a stable democratic republic is the absolute importance of the rule of law. And the rule of law requires principles. It requires sober and rational thought. It requires a system of morals and ethics.

What it most certainly does not require is gross and unthinking populism.

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Wednesday, July 30, 2014

The Trouble with Non-Economists talking about Economics

Murray N. Rothbard once said:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

This maxim applies even more so for academics, who, unfortunately, oftentimes mistakenly presume that possessing superior knowledge in their respective fields of expertise necessarily means that they possess superior knowledge over ALL matters. Perhaps due to vanity, academics tend to suppose that all of their prejudices from A to Z hold value for no other reason than they are academics.

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Unfortunately, many academics outside the field of economics who possess little to no knowledge about even the basic fundamentals of economics do not hesitate to make sweeping pronouncements about the subject. A good example of this is one Robert J. Fouser, who is an associate professor of Korean language education at Seoul National University.

Now I have never met Professor Fouser and I have never spoken to him. All I know about him is that he is a Korean language professor at Seoul National University. Therefore, since all I know about him is his occupation, I will give him the benefit of the doubt and assume that he is an excellent linguist and an expert in the Korean language. In fact, I will go further and even assume that he is a gentleman whose only wish is for everyone in the world to be happy. However, that does not mean that his opinions about anything outside of his field of expertise carry any more weight than the opinions of anyone else.

That did not stop Professor Fouser from pontificating about the state of the Korean economy or the need for “economic democracy” in his editorial in The Korea Herald.

He began by saying:

Talking to ordinary people is the best way to check the pulse of a nation. Last week, I was lucky to be able to take the pulse of Korea through long talks with friends who also happen to be ordinary people. The talks paint a picture of a nation deeply troubled by worry and self-doubt. Above all, the overwhelming message is that the Korean dream is slipping away.

What sorts of criteria must people meet in order to be considered “an ordinary person?” He does not say. Furthermore, assuming that “pulse of Korea” means “the overall mood of the Korean people,” then is talking to a few friends all that is needed to discover the mood of this entire nation? If that's the case, I think all those people at Pew Research Center should quit their jobs and find more meaningful employment elsewhere.

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He also adds rhetorical flair when he says, “Opportunity comes through reforms that break down barriers and help create fair competition.”

Just what does “fair” mean exactly? The fact of the matter is that there is no objective standard of “fairness.” What is “fair” tends to be strictly in the eye of the beholder. So what does Professor Fouser mean when he says “fair?” I guess we will never know. But even if we did get to learn what he thinks the word should mean, would it matter? I think not.

Just like so many unemployed hipsters who think that they have “figured out” what capitalism is, Professor Fouser also felt confident enough to give his diagnosis when he said:

The essential problem is that capitalism, particularly the variety that developed in Korea, relies on expanding markets for its prosperity.

Where have I heard that from before? Oh right, it was Karl Marx who said it first in the Communist Manifesto when he said:

The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere.

You'd think that the Ghostbusters would have gotten around to taking care of the ghost of Karl Marx by now.
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Never mind that capitalism is not actually a conscious living being but merely an idea; an economic system which is defined by the private ownership of property. Never mind that capitalism is merely an economic system that allows people the opportunity to pursue their desire to seek greater prosperity, which is not the same as a need to seek greater prosperity. Never mind that prosperity can be had even without “expanding” to new markets abroad. As long as there are any human needs that are unsatisfied, there is no limit to do business, even within Korea's own humble market.

But why try to explain all that when he already knows what “the essential problem of capitalism” really is?

Then Professor Fouser went on to say:

A relatively small number of nations with technological advantages monopolized high-value goods. These nations boomed because they had a growing consumer and production base at home and competitive advantages in exports... Japan, once known for its massive trade surpluses, has seen a trade deficit for 24 months in a row since June 2012.

What does it mean to monopolize something? A monopoly occurs when a single business entity owns all the market for a given product or service. By definition, there can be no other competitive agent. When was the last time any country in the world had a monopoly on any good? I will await patiently for that answer.

Next, is having a growing consumer and production base and competitive advantages in exports all that are needed to get rich? They are certainly important, but they are not the be-all and end-all of gaining riches. If they were, India would be one of the richest countries in the world, and Switzerland would be one of the poorest! Professor Fouser did not mention a single word about other necessary qualifications that a country has to meet in order to break away from the chains of poverty such as the supremacy of the rule of law, the reliability of institutions, low levels of government corruption, the importance of culture, work ethic, education levels, women's rights, the effects of war and peace, or history.

Even if he had mentioned all of that, he would have only begun to scratch the surface about how some societies get rich while others remain poor. But why worry about such fine details? It's all about the Big Picture, I'm sure.

It's like as though no one in the history of the world has ever attempted to study this subject before!
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And just what the hell is wrong with trade deficits? If trade surpluses are so great, seeing how the United States ran a trade surplus in nine out of the ten years of the Great Depression, the 1930s should have been a ten-year long party for Americans!

Conventional wisdom seems to go like this – The Japanese economy's performance has been lackadaisical. Japan has had trade deficits for twenty-four months in a row. Therefore, trade deficits must be bad.

Then, using that same logic, seeing how the United States ran a trade surplus for nine out of ten years during the Great Depression, is it correct to say that trade surpluses must be bad?

Neither a trade deficit nor a trade surplus means a damned thing when it comes to the overall health of an economy. There are many reasons, some of them known and others unknown, as to why an economy flourishes or flounders. Trade deficits and trade surpluses are not one of them. This may be difficult to understand for many people but, believe it or not, economies are far too complex to draw simplistic causal connections.

This should be your level of skepticism when someone claims to have a simple solution to fix the economy.
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So, after having used shoddy research methods, normative statements that can mean anything depending on the reader, and one economic fallacy after another, Professor Fouser finally says:

Focusing on inequality is the first step toward restoring the Korean dream. To do so, Korea needs to move beyond the din of petty politics and revive the national discussion on “economic democracy.”

At this point, I ought to explain how the entire concept of “income distribution” is tendentious; that the concept is flawed from the very start because it takes the existence of wealth for granted, that wealth exists somehow – never mind how it came into existence – meaning that the only thing that people need to be concerned about is that it has to be distributed and apportioned among everyone. Never mind who is going to do the apportioning or how or for whom and damn the morals and damn the consequences!

But nitpicking the arguments that he stated alone were exhausting enough as it was.

I'll say it again. I'm sure that Professor Fouser is an excellent linguist and an expert in the Korean language and a gentleman of noble intent. But perhaps it might be prudent for him (and others) to stick to what he is good at and leave the subject of economics to economists.


Oh, wait.  Never mind.
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Monday, July 28, 2014

Super Fun Economic Review – Part 2: Partying with Jack Daniel like it's 1999!

As stated in my previous post, both Saenuri lawmakers as well as the Ministry of Strategy and Finance wants to see “adjustments” made to the value of the Won. It's their way of saying that they want to see the value of the currency depreciate.

Well, why does a currency appreciate in the first place? Simply put, it occurs because the currency is in demand. For example, if a country exports a lot, the demand for that currency will go up. There are, of course, other reasons, too, such as increasing (or at least stable) interest rates, an increase in per capital income, a stable government, etc.

So, the value of the Won has been relatively quite high over the past few months.

However, a few really big things have been happening in the world over the past few years that are beyond the Korean government's control. Since 2008, the United States government has injected into its economy close to US$5 trillion in stimulus money while keeping interest rates at nearly zero percent and having the world's largest debt, which has devalued the Dollar somewhat. The Japanese government recently decided to depreciate the Yen. And with several European economies having gone belly up over the past few years (see PIIGS economies), there have been calls by several European governments to depreciate the Euro, and the Euro is expected to depreciate against the Dollar in the next few months.

Congratulations!  You read through that borefest and did't get distracted by porn!  Here's your reward!  Look at those puppies!  LOOK!  AT!  THEM!
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Everyone is depreciating (or wants to depreciate) their own currencies. It's why Saenuri lawmaker Representative Kim Moo-seong said, “There is a Currency War going on in the world right now.”

So why do governments want to depreciate their own currencies? The main reason why any government would want to depreciate its own currency is for the sake of becoming “more competitive.” With one country after another going through some form of economic contraction or another, governments are trying to increase exports. And the best way to increase exports is by making sure to sell at a cheaper price than other countries. And if you can't make the product cheaper, you can make the money worth a little less.

(Side note: If depreciating a currency makes a country more competitive, shouldn't Zimbabwe be the richest country in the world?)

Move over, Travie McCoy.  I want to be a trillionaire!
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The problem with depreciation is that it's like having a shot of whiskey. Everyone who is calling for their currencies to depreciate are basically saying, "A shot would really perk me up right now."

Well, it's true. Having a shot of whiskey will definitely perk people up. But the problem with having that shot of whiskey, as any whiskey aficionado will tell you, is that you can never have just one shot of whiskey... If there is any among you who is thinking that this analogy does not work because you yourself do not enjoy whiskey, YOU SHUT UP AND DIE, YOU ABOMINATION!

The fact of the matter is that we live in an interlinked global economy and in such an economy, currencies don't rise or fall in a vacuum. For example, one complaint that the United States always raises against China is the latter's monetary policy, which has kept the Chinese currency, the yuan, artificially low. The Chinese government has pursued such a policy because it ensured that Chinese goods remain cheap, which is one of the big reasons for the trade imbalance between the United States and China. That has provided a steep incentive for the United States to retaliate by lowering its currency as well, which in effect, it has done.

Yet another reward!
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Countries around the world often see currency wars as a zero-sum game. In reality, it is really a lose-lose game for everyone. For example, unstable exchange rates can deter international investment and slow economic recovery. And of course, currency wars can have secondary political effects as well. Though this may admittedly be a case of post hoc ergo propter hoc, when was the last time that the American and Chinese governments have ever seen eye-to-eye on anything?

So going back to the whiskey analogy, it turns out that people aren't just slamming down whiskey shots just to perk up a bit. They are actually in a drinking competition that's being hosted by Delta Tau Chi (Who got that reference, huh?) and everyone's trying to out-drink each other. And the drunker they get, the more irritable the contestants are getting.

Now it may be an incontestable fact that Jack Daniel's is the best goddamned drink on this side of the Milky Way Galaxy but it is also true that spending a bit too much time with him usually gets people into all manners of trouble.

Just ask this guy!
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Oh, but what is this that I hear? A question from the audience?

“But, John, aren't you by definition saying that as long as people slam down their shots of sweet, sweet Jack Daniel's nectar in moderation, it will perk people up and they won't ever have to worry about getting arrested for indecent exposure in a public park in the presence of four minors and their very angry mothers and one dad? Then isn't it also true that depreciating a currency in moderation can actually work to stimulate an economy, too?”

Well, firstly that's a terrific question, hypothetical reader who is actually really me (and no, it is not sad at all that I am having a conversation with myself).

The answer to the question as to whether or not depreciating a currency works to stimulate an economy is this – Yes and no.

Depreciation works if prices and wages don't adjust to the new economic conditions. For example, let's say that you're a citizen of Country A and you make A$1,000 a month. Now it so happens that your country trades with Country B. It also so happens that in order to improve economic conditions, your country's government decides to depreciate your currency. So, in the past, if your A$1,000 was worth B$1,000, now your A$1000 is only worth B$500.

In this new situation, citizens from Country B can afford to buy more of your things. Now if the prices of your goods and your wages remain the same, depreciation will absolutely work as those suckers from Country B (who conveniently aren't depreciating their own currency for no other reason than to let this hypothetical example work; ceteris paribus, bitch!) stops buying their own stuff and continues to buy your stuff! But it will only work temporarily.

“Temporarily” is a very important qualification.

Has this blown your mind yet?
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It will only work temporarily because eventually, inflation always catches up to depreciation. Let me explain. When the value of your country's currency is artificially depreciated, other people's demand for your goods will go up. And one of the laws of supply and demand is that if demand goes up, so does price.

What that means specifically for you is that your monthly bills are going to come out higher than you're used to. And when prices go up and enough people get upset about it (Hello, labor unions!) it's not long before wages also go up until it catches up with the price and then some.

So, just like slamming down shot after shot after shot of Jack Daniel's, it's not a matter of whether or not a little currency depreciation will perk you up. It's a matter of how long you get to have fun before you wake up the next day with no memory of why you thought it was a great idea to drunkenly text your ex-girlfriend who has been happily married for the past three years that you still love her thirty-eight times while lying next to a one-legged hooker. Not to mention the massive hangover.

Someone should make this app RIGHT NOW!
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But that's where democratically elected governments come in. Every politician wants to get elected and they want to stay elected. So whenever the hangover is about to set it, they have good news for us partiers! Just a little hair of the dog and you're good to party again like it's 1999!

That hair of the dog usually includes more currency depreciation and more economic stimulus packages. But as anyone who has ever had a destructive love affair with Jack Daniel's can tell you, after a while, even the hair of the dog can't perk you up. You will also need at least a pack of Marlboro’s (Hello, lowered interest rates!) and if it's bad enough, Adderall (Hello, quantitative easing!).

What you slowly begin to realize, however, is that your body is silently pleading for you to stop. You need solid food. You need water. And you need sleep. You need time to recover. You realize that your stress levels are getting higher, your brain function is slowing down, and all that booze and drugs is burning a hole in your checking account, which means that you have to call mom and dad to ask for more money.

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Now you're in a rut. To reduce your stress levels, you need money so that you can pay your rent and not get evicted; but to do that, you need to call mom and dad to ask for more money and explain to them how you misspent their money (that they had to take out in loans from Repos-R-Us Bank) on booze and drugs instead of studying in the library to get that 4.0 GPA that you swore to them that you would get if they would only just bite the bullet and send you to this overpriced Ivy League college campus.

Now you're having second thoughts. Telling them about all those stupid things you did would disappoint them, break their hearts, make them lose faith in you, anger them, and hurt them. Worse yet, they might stop sending you money and force you to move back in to your old bedroom and get a job at the local paper mill where the highlight of your day will be watching reruns of “The Bold and the Beautiful” on your union-approved hour-long lunch break with those other middle-aged factory lifers who don't like yer kind with all that mumbo-jumbo book learnin'.

Talk about getting stuck between a rock and a hard place, right?

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This sort of thing also happens in economies and there's a name for it – stagflation. And it's no fun. If you don't believe me, ask Jimmy Carter.

Before you know it, you've become a junkie and have resorted to stealing (Hello, Taxes Against Corporate Surplus Profits!).

So what's the real solution? Well, unfortunately, the real solution is economic as much as it is political. Do you trust the government to have enough discipline to depreciate the currency only when it is absolutely necessary, and not do it any time it is expedient? Do you trust that the stupid college kid really has the willpower to go to only one Delta Tau Chi-sponsored Drinkathon and then spend the rest of his time to make sure that he graduates with a summa cum laude? Or do you think there has to be strong rules and strict morals?


As for me, I don't trust those bastards. But that's just my opinion.

To quote Gandalf the Grey - Fly, you fools!
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