Ice and Economics – Article by David J. Hebert

Ice and Economics – Article by David J. Hebert

The New Renaissance Hat
David J. Hebert
July 21, 2012
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What can ice teach us about economics? We’ll see, but let’s begin with some fundamentals.

Prices, property rights, and profit (and loss) lead to information, incentives, and innovation. This simple statement contains nearly every lesson necessary for a free and prosperous society. But what do these words mean?

Prices convey information about relative scarcities and communicate to us the relative value of competing uses of a resource. They also economize on the acquisition of knowledge. When we see the price of a resource rise, market actors understand the need to use less of the resource. What they don’t know, however, is whether this rise is due to a disaster that destroyed some of the stock of that resource (an inward supply shift) or if a new, more valuable use for that resource has been discovered (an outward demand shift). These facts are irrelevant for a person who is currently using the resource, but from a societal level, her using less is necessary. If there is a disaster, we would want people to use less of it so that everyone else can still use some. If there is a new, more valuable use discovered, we would want the original users to use less so that more could be allocated towards this new use.

The Right to Exclude

Property rights refers not only to the right to use a resource, but also to the right to exclude others from its use. In this sense property rights provide the incentive to allocate the use of a resource efficiently across time, for example, to conserve it for later. With firmly established and enforced property rights, not only does the owner not have to worry about someone else taking his things but he also doesn’t have to rush out to gather the resources as quickly as he can. A situation where there are no property rights is susceptible to what is called the “tragedy of the commons,” where the resource gets depleted too quickly and never has a chance to replenish.

Profit (and loss) leads to innovation. Earning a profit is akin to being rewarded for doing something good. Suffering a loss is the opposite, a punishment for doing something wrong. In this case, the deed being done is the attempt to allocate scarce resources to where their will earn their highest return. People who successfully do this are rewarded with monetary gain, which we call “profit.” People who fail to do this experience what we call “loss.” In doing so, economic actors learn what works and what does not. Reducing the profitability of an activity through taxes or legislation or sheltering people from losses, therefore, acts to retard this learning process and stifles innovation.

This lesson is exemplified in early nineteenth-century Boston with the rise of the American natural ice trade. In 1806 Frederic Tudor sailed a ship full of ice from Boston to the Bahamas. Two years earlier Tudor had begun experimenting with insulation with the goal of bringing ice to the Bahamas.  When he was ready to set sail, he found that the ship captains refused to carry his cargo for fear of damaging their vessels. So he bought his own brig, the Favorite, and set sail February 10, 1806. He arrived in Martinique with a large quantity of ice still intact and began selling. The Bahamians loved the ice, which they had never seen before. Yet that first year Tudor lost a substantial sum of money, although he proved that ice could be shipped to the Bahamas. Now the objective became doing it at a profit.  Convinced his idea would be wildly successful, he continued his attempts to drive down costs and increase demand.

Higher Return

Meanwhile, as the price of the ice on the ponds rose, the people of Boston gained the information that the ice would bring a higher return in the Bahamas, thus they used less themselves and sold the ice to the Bahamians. In 1840 the ponds in the Boston area were explicitly divided, giving each person on the lake the right to exclude everyone else from harvesting any ice that wasn’t theirs. This allowed Tudor, for example, to invest in his ice and let it freeze longer so that it could better survive the long journey from Boston to India, which entailed crossing the equator twice and sailing around the tip of Africa. As Tudor earned profit from his venture, more people were attracted to the ice.

To continue to earn a profit, therefore, he had to find a way to outcompete everyone else. In 1825 Tudor enlisted the help of Nathaniel Wyeth, one of his suppliers. Tudor noticed that Wyeth’s ice was always significantly cheaper than everyone else’s and was cut in neater blocks which packed more easily. Wyeth had converted some old farm plows into ice-cutting plows and had fastened horseshoes with spikes to allow horses to pull these modified plows across the ice. By scoring the ice in such a fashion, Wyeth could break uniform sized blocks much quicker than his competitors, who were using hand saws that produced very rough and uneven edges.

These wouldn’t be the only contributions of Wyeth, as he went on to invent many other cost saving techniques. For example, Wyeth developed a conveyor-belt system that would haul the ice from the pond into the waiting icehouse.  He also invented bigger plows that could cut more blocks at once and poles that were used to guide the floating ice blocks onto the conveyor belt;  refined the above-ground icehouse, which allowed ice to be stored anywhere in the world for months on end without any external source of refrigeration.

New Insulation

Tudor and Wyeth also experimented with new means of insulating the ice from the heat, discovering that sawdust was not only a fantastic insulator but was also cheaply available from the sawmills around Boston. They also taught their customers new ways to use the ice, including making ice cream and storing the ice in iceboxes to preserve foods longer.

In short the three Ps lead to the three Is: Prices, property rights, and profit (and loss) lead to information, incentives, and innovation.  With these firmly in place, a free and prosperous society will follow.

David Hebert is a Ph.D. Fellow at the Mercatus Center at George Mason University.

This article was originally published by The Foundation for Economic Education.

An Atheist Transhumanist Critique of TheThinkingAtheist’s “Afterlife” Video – Article by G. Stolyarov II

An Atheist Transhumanist Critique of TheThinkingAtheist’s “Afterlife” Video – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
July 21, 2012
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The video “Afterlife” is a compilation of remarks by Seth Andrews (TheThinkingAtheist) and other famous YouTube atheists regarding the religious concept of life after death. However, the video goes beyond merely (correctly) critiquing ideas of the afterlife, and reflects an unfortunate acceptance of human mortality itself. As a lifelong atheist and transhumanist – a resolute foe of senescence and death and a seeker of indefinite life extension – I offer my critiques of the statements and quotations made in this video. The video does present many interesting and valid insights, but it unfortunately throws the metaphorical baby – indefinite human life extension, driven by scientific discoveries and technological innovation – out with the bathwater – religious myths of an afterlife, unsubstantiated by evidence and arising out of a desire to attain comfort in the face of mortality. As much as I respect Mr. Andrews and others quoted here, I must regretfully conclude that “Afterlife” embraces the other side of the religious coin: the premise that the only way to try to beat back the alleged inevitability of one’s eventual non-existence is through an unsubstantiated fantasy. But there is another, fully secular, fully human-centered option: the progress of our civilization and its eventual ability to conquer the age-old (and old-age) perils plaguing humankind.

I would welcome an in-depth discussion with Mr. Andrews or any of the other commentators in the video regarding this alternative to the religious afterlife – an alternative that can affirm and extend the precious, only life that each of us has. I hope that more atheists can recognize that transhumanism is the logical implication of rejecting a teleological, theistic worldview and amplifying all that is best about us as humans, so that the purpose of the universe can be what we make of it.

Vladimir Nabokov: Although the two are identical twins, man, as a rule views the prenatal abyss with more calm than the one he is heading for (at some forty-five hundred heartbeats at hour).

My Response: In the “prenatal abyss”, one has never been alive, so one does not know what one is missing – or that one is missing, in fact. But once one is alive, one is able to anticipate one’s own non-existence – which is the worst fate of all for an individual, worse than eternal torture or eternal boredom (neither of which is realistic in any case). Furthermore, when one is alive, one has the ability to discover the history that came before one’s time. One has no way of knowing or observing the future after one’s death.

Mark Twain: I do not fear death. I had been dead for billions and billions of years before I was born, and had not suffered the slightest inconvenience from it.

My Response: Being dead presupposes having once been alive. Having never existed makes one a mere potential among trillions of possible beings. Having existed once but not anymore means that one’s entire self – a fully formed universe of memories, sensations, thoughts, and aspirations – has become snuffed out. For each of us, there was a time when we did not have all that we have now: our lives. But, now that we have it, to lose it would be intolerable. It would literally be the undoing of everything we have ever been or done or aspired toward.

DarkMatter2525: The universe would continue in its ways if humanity weren’t here to witness it.

My Response: True, but to the individual, it is the same as if the entire universe has been extinguished. Whatever goes on after one’s death, one cannot experience it or be aware of its existence – and hence the only significance it might have is in terms of one’s anticipation of how it might be. That anticipation can only take place while one is alive and is necessarily fraught with extreme uncertainty. It cannot compare to the real thing – to living in the future. I want to live a millennium from now, not merely speculate about how it might be.

HealthyAddict: The universe is absolutely massive, and we are virtually insignificant in it.

My Response: The vastness of the universe in no way diminishes the significance of the individual. What is valuable, what is important is a function of entities that can pursue values or make judgments of importance. Only living, conscious entities can actively pursue values – and the very idea of values only makes sense in the context of the survival and flourishing of such living, conscious entities. The universe is vast, but the lives of humans and possibly other sentient beings are still of the ultimate importance – since it is the human scale on which valuation occurs. Size and importance are not related.

Another sense of the term “insignificance” might simply be “powerlessness” or “vulnerability” – without a moral judgment attached. It is true that humanity is still in its infancy, and still extremely fragile. Numerous natural disasters, originating on earth or in outer space, could severely damage or destroy our species. But this should only motivate us to expand our sphere of influence through technology and its application to the colonization of space and the enhancement of our bodies. If we are weak relative to the inanimate forces of the universe, then we must become stronger – as individuals and as a species.

Evid3nc3: I see no evidence that the rest of the universe cares that we exist or is even capable of caring. But I don’t really need validation from the rest of the universe to find my own life important.

My Response: I agree. There is no teleology built into the universe. What this means is that we must do our own caring; we cannot rely on the universe as a crutch – except in that we should utilize the laws of nature as instruments to advance our well-being. It is up to us to protect ourselves and expand our sphere of influence in the universe. And we should all, like Evid3nc3, find our own lives important – which is precisely why we should make every effort to prolong our lives – which are the source of that ultimate importance for us.

Laci Green: It’s just absurd to me how many people live for dying.

My Response:  I agree that it is wrong to live for dying or to anticipate that one’s individuality and vantage point into the world will persist after one’s physical body is destroyed. Rather than live for dying, one should live for living – and act to keep on living. To do so, one should support (at least morally) the emerging efforts to prolong human lifespans. One should also educate oneself about the possibility of indefinite life extension within the coming decades, as well as the developments that are occurring today to help bring this goal closer to reality.

Seth Andrews: I think fragile, fearful humans were terrified of death, and so they wrote their own ending to the story – this happy fantasy, a place where they’ll be reunited with people they’ve lost, they’ll experience constant joy, and of course they’ll never, ever die.

My Response: I think this is indeed the predominant motivation behind the origins of religion. People who could not hope to avoid death through technology sought to comfort themselves and to make everyday pursuits more tolerable by convincing themselves that their existence does not cease at death. In effect, religion is ersatz-immortality: a poor substitute for the real thing, but enough to trick many people into not realizing the grave implications of death. But in an era when technology is advancing so rapidly that there is hope for us and our contemporaries to live indefinitely – there are two main attitudinal dangers. The first danger is continuing to believe that the ersatz-immortality is good enough and that it justifies not striving hard for the real thing. The second is the other side of the same coin – unfortunately embraced by too many atheists: rejecting both the ersatz-immortality and the real thing, abandoning the most profound triumph for our species, when we are – in historical time – on the verge of achieving it. I support abandoning the fantasy, but I do not support relinquishing the reality – literally – and acquiescing to becoming food for worms.

DPRJones: The concept of an afterlife diminishes the value that we place on our lives and the here and now.

My Response: I agree that this could be the case, if the expectation of an afterlife discourages people from striving to both improve and prolong this life. As an atheist, I hold that this life is the only one there is – and it is indeed the most precious life there is and could be. Therefore, to lose this life is to lose everything, and so the foremost ethical objective should be to hold onto this life.

DarkMatter2525: An unlimited supply of anything, including life, means that its existence cannot be appreciated.

My Response: For all practical purposes, the air on Earth is inexhaustible by humans. Does that mean that we do not appreciate the ability to breathe and sustain our lives in that way? Does this mean that air is not essential to us or any less important to our lungs than if we had to ration it or purchase canisters of oxygen to carry around? Certainly not. While scarcity of a resource is a key determinant of its monetary price, the idea that scarcity is somehow necessary for mental appreciation is highly flawed. Use-value (utility) and monetary “value” (price) are not the same. We should – and can – appreciate a thing or a condition for its own qualities qua thing or condition – and the benefit those qualities confer upon us. How many of those things or conditions exist or are going to exist does not matter.

Furthermore, the fact is, we still live one moment at a time. We do not have all of eternity at our disposal at any given moment, no matter how long we live. We only have the given moment, and a limited range of possibilities for what we can do right then. Thus, a kind of temporal scarcity will always exist – in the sense that some activities and satisfactions will always be more remote in time than others, and we will have to wait and strive for the ones that are more remote.

DarkMatter2525: If life is eternal, then there should be no sense of urgency.

My Response: Value is not derived from urgency, but from improvement of the human condition and, subsequently, from enjoyment of the fruits of that improvement. A work of art or music is not any more beautiful because of the urgency with which we experience it; it is beautiful because of its intrinsic constituent characteristics – the brushstrokes and notes that comprise it. Indeed, urgency detracts from value by inducing a stressed, rushed, crazed, and hectic experience where we miss important aspects of life because we worry that we will not have the time to do whatever we consider to be higher on the priority list. With less urgency, we could partake of more of the good things in life and have a longer-term perspective – planning for the future and treating ourselves and others with more respect and consideration. We could be more frugal, since we would enjoy the fruits of saving directly. We could take better care of our living spaces – both locally in our homes and on the scale of planets. We could still fulfill all of our highest priorities – and more of them, too, since we would have more time. But longevity itself would reshape our priorities and enable us to gain a more balanced, deliberate, and sophisticated perspective on our lives.

For me, the greatest happiness comes from those serene moments where I do not have to rush anywhere and do not have to worry about falling behind. It comes from having accomplished and from having done something good that could later – with purpose and deliberation – be the stepping stone for something even better. In the midst of intense work, happiness is that plateau of leisure between the past and the future, the reaffirmation that life can be good when it amounts to a progress that never hits a permanent wall. Urgency detracts from happiness by preventing one from truly enjoying life in a leisurely fashion – as opposed to trying to cram in as much as possible now, now, now – expecting (fearing, perhaps) that there might not be much time left.

Thunderf00t: I do not fear being dead, but the concept of the alternatives offered by the religious do trouble me. [Regarding Heaven], there does appear to be one constant: It will last for eternity. Imagine that. Imagine eternity. […] The first hundred years may be possible; the first thousand – more painful; the first ten thousand – insufferable. But this is just the start. An eternity in heaven would be hell for me.

My Response:  I agree that Heaven as imagined by the religious would probably be a somewhat uninteresting place, since one would spend all of one’s time in it “glorifying God”. But this problem has nothing to do with experiencing an indefinite existence. It is a great poverty of imagination to be unable to think of what one could do with ten thousand years, or a much longer timeframe. Think: could you even consume all of the literature, music, art, and culture that humankind has created up to the present if you had ten thousand years? Indefinite longevity would bring about unprecedented richness, depth, and breadth of experience – as well as the immensity of individual learning and refinement, and the possibility to pursue multiple careers and many more hobbies than one currently can.

Furthermore, if Thunderf00t dislikes the prospect of an eternal existence, why would an eternal non-existence be any better or more preferable? Once you are dead, you are dead forever – and cannot choose to go back to not being dead. On the other hand, if you are alive indefinitely, and you feel tired, you could choose to take a nice long non-lethal nap or vacation and resume your activities when you are refreshed and in a better mood. Those who feel tedium or boredom now might later feel more like finding something meaningful and interesting to do in this vast universe. To die is to deny oneself this ability for an improvement in one’s outlook and enthusiasm.

The great and all-too-common error made by Thunderf00t is to see all of an individual’s life as a simultaneous totality rather than the way it is actually experienced: one moment at a time. While Thunderf00t might be unable to conceive of what he would do with ten thousand years, he probably knows what he would like to do the next minute, or the next day, or the next week. If he could live and work in this way – experiencing one day at a time – while remaining at his physical and intellectual prime – would there ever be a day when he would consciously decide that he would rather die tomorrow? Only a person in tremendous suffering could conceivably make such a choice. With technological and moral progress taking away ever more of that suffering, the desire to keep on living should become strengthened until no sane, rational person would ever want to die.

DarkMatter2525: Given eternity, anything that can be accomplished, will be accomplished. Beyond all achievements, there would only be limitless, pointless existence.

My Response: Considering that over a thousand new books get produced every day, doing or accomplishing “everything” would be impossible – since our minds’ conception of the possibilities will always outpace our ability to actualize those possibilities. DarkMatter2525 is assuming a finite, static set of possible accomplishments. In reality, the scope of possible accomplishments and activities grows every day at much faster rate than any given human has the ability to pursue those accomplishments and activities. One cannot experience today all that has been created even today by the billions of people now alive. The longer we live, the smaller will be the fraction of available pursuits in which we will be able to engage at any given time. Even if humans are able to enhance their minds radically in order to process and memorize as much text as a computer can – the human creative faculty would be able to generate proportionally more text as well, so that the volume of available output would still accelerate away from the ability of any human to process all of it. And books are just one subset of human activity – which will become increasingly diverse and multifaceted as our civilization advances. And think of all those billions of galaxies, each with billions of stars, that we have yet to explore and colonize!

Laci Green: When I think about my own death, I used to feel scared, but I don’t think I do anymore.

My Response: I hypothesize (though I cannot be sure) that Ms. Green only sees death in the abstract for now. She is young and healthy, and it is easy to rationalize away the significance of death when it is remote. This is a coping mechanism that many people have, and it works particularly well when everyday life is reasonably good. But how many people can have this equanimity when death approaches – when it is too late to do anything about it? If Ms. Green does not wish to experience fear regarding the prospect of her eventual death – fine. I have no problem with people choosing to focus on other matters in an everyday context. However, I sincerely wish that she and others who do not feel scared would nonetheless have an intellectual awareness of the great destruction wrought by senescence, decay, and death. Then they could – calmly or cheerfully, as they please – support research and advance moral arguments that assist humankind in beating back this menace. I advocate not fear, but action.

AronRa: I’m not afraid of being dead. After we die, we will not know the truth at that point. We will not know, wish, think, remember, dream anything.

My Response: Precisely, and that is the worst possible fate. Our very being, our “I-ness” – that which makes all other experiences possible – will be extinguished, and not even the memory of our once having existed will remain with us.

Seth Andrews:  I don‘t really find this sad or tragic either. I don’t really welcome death, but I don’t live in fear of the end. And I’ve come to see it as just another part of the natural world.

My Response: Not all that is “natural” is good – and, indeed, nature offers ways out of the problem of senescence by showing us numerous species that do not experience the ravages of biological aging or experience them at a much slower rate than we do. Since, in its truest sense, the word “natural” is just an expression for “what is” – Mr. Andrews is committing the Panglossian fallacy – the view that “whatever is, is right.” Cancer is natural, and it is brutal. Also natural is the fact that 99.9% of all the species that ever existed are now extinct. Just because this is natural, does not mean that we should accept it for ourselves. We can remake the outcomes of nature by studying the laws of nature and harnessing them for our own benefit. Once we have secured our continuing existence, we can work to eventually create a more humane, less predatory environment for all life forms that deserve it. We already do this to some extent with domestic pets and certain other useful animals – though, arguably, not to the extent that a more morally developed and resource-rich society might accommodate.

Thunderf00t: In some respects, we never die. Our lives are entangled with those who come after us, just as our lives are entangled with those who came before us. [Faraday, Newton, and Pasteur affect everyone’s lives today.] Death is not the end. We are intertwined with both lesser and greater things.

My Response: It is true that our lives have an impact on others, and that impact can extend beyond the lifespan of the individual. It is also true that we sometimes do not even perceive all the ways in which we impact others and others impact us. However, while our influence on the rest of the world might be a source of pride or reassurance to us in life, in death it means nothing – because we would not be aware of it even as a general concept without any particular details. Others who remain alive might still hazily and incompletely remember the dead individual, of course – but that memory is an asset to them, not to the dead. I benefit from the existence of Faraday, Newton, and Pasteur – good for me. But they are oblivious to this at present.

Laci Green: Just because there is no grand scheme it plays into does not mean there is not something beautiful about what is going on here.

My Response: I agree that the universe, or existence, has no grand scheme. But it is not clear to what “beautiful” phenomena Ms. Green is referring. There is true beauty in existence, but there are also true nastiness and cruelty and injustice. It is important to recognize the beautiful and good elements of the world, while struggling to eradicate or reform the bad. The real war we must fight is against the forces of ruin, and we should not lapse into the Panglossian fallacy of accepting absolutely anything that occurs on a regular basis as somehow “beautiful” or even remotely palatable.

ZOMGitsCriss: Ironically, the only part of me that is immortal is my material body. […] Every atom of me will be recycled back into the universe.

My Response: A long time ago (when I was fourteen), I tried to find consolation in that idea as well. It worked for about two hours. But then I realized that what matters is the arrangement of those atoms and the temporal continuity of that arrangement. I gain and lose atoms all the time, but each individual atom is not what makes me who I am. The essence of who I am, rather, is the manner in which those atoms interact with one another within the overall structure of my body – including my mind. When that is gone, I am gone.

DarkMatter2525: Even though a cell might not last forever, the role it plays in the larger organism is important, and that is how I see myself – as a part of something bigger.

My Response: But that “something bigger” does not care about DarkMatter2525, by his own earlier admission! So why should he care about it enough to be willing to be a mere cog in it? And if, as Laci Green says, there is no grand scheme to it all, then what exactly is he a part of? In terms of purpose, the only alternative to a teleological worldview, where purpose is “built into” the universe, is a humanistic worldview where purpose originates from the self – based on the biological requirements of one’s own survival, which, once sustained at a certain level, enable the individual to use his will to shape the universe to give it purpose. But in order to confer purpose upon an initially purposeless cosmos, one has to exist and to keep existing. Once existence stops, the purpose-giving process also stops, and so the “something bigger” is also no more.

ZOMGitsCriss: Knowing that this life is the only one I have makes me a lot more conscious of my actions, makes me want to do something with this short life I have.

My Response: I agree that knowing that this is the only life we have should make this life the greatest value to us – to be treated with the utmost seriousness and respect. We should seek to do great things with our time – but we should also seek to prolong our time, which is in itself a monumental and glorious undertaking.

Seth Andrews : There’s too much to learn, too much to see, too much to know, too much to experience. I’m not just going to exist. I’m going to live.

My Response: Certainly, some conditions of existence are better than others, and mere survival is not all there is to life. Flourishing can occur when life is lived in a way that fulfills an increasingly sophisticated series of human needs – ranging on Maslow’s hierarchy of needs from basic material sustenance to self-actualization. But pursuing the higher needs by no means undercuts or conflicts with the more basic needs. Indeed, the higher needs are largely unattainable unless one already lives in a prosperous, peaceful civilization where the basic needs are so easily fulfilled that one almost takes them for granted.

All too many people perceive survival as somehow antithetical to enjoying life – but in fact enjoyment of life is not possible without being alive. Therefore, if one wishes to do more of the things that make life enjoyable, one should strive to live as long as possible – far beyond the paltry eighty or so years that comprise the current average life expectancy in the Western world.

Inflation is a Monetary Phenomenon – Article by Ron Paul

Inflation is a Monetary Phenomenon – Article by Ron Paul

The New Renaissance Hat
Ron Paul
July 18, 2012
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Later this month Congress will have an unprecedented opportunity to force the Federal Reserve to provide meaningful transparency to lawmakers and taxpayers. HR 459, my bill known as “Audit the Fed,” is scheduled for a vote before the full Congress in July. More than 270 of my colleagues cosponsored the bill, and it has the support of congressional leadership. But its passage in the House of Representatives is only the beginning of the battle, as many Senators and the President still don’t see the critical need to have a national discussion about monetary policy.

The American public now senses that the Fed’s actions, especially since 2008, are enormously inflationary and will cause great harm to the American economy in the long run. They are beginning to understand what so many economists still don’t understand, which is that inflation is a monetary phenomenon, and rising prices are merely a symptom of that phenomenon.  Prices eventually rise when the supply of US dollars (paper or electronic) grows faster than the available goods and services being chased by those dollars.

This fundamental truth has been thoroughly explained by Milton Friedman and many others, so today’s Keynesian economists have no excuse for their claims that “inflation is under control.”  Ordinary Americans don’t need a PhD simply to look at the Fed’s balance sheet and understand the staggering amount of money creation that has occurred in recent years. They know it will have harmful consequences for all of us eventually.

I’ve spoken at length about inflation, and how Fed money creation is effectively a tax. Every dollar created out of thin air dilutes the value of the dollars in your pocket and your savings in the bank. But the truth is that we are only beginning to see the results of the Fed’s dramatic increase in the money supply. As former Fed Chair Alan Greenspan himself explained last week to Larry Kudlow, most of the dollar deposits created by the Fed via successive rounds of “quantitative easing” remain on the balance sheet of Fed member banks. Because of very rational economic fears, banks are not lending, businesses are not expanding, and individuals are shedding debt. So, the trillions of dollars created by the Fed since 2008 remained largely undeployed. When those dollars eventually make their way into the world economy, prices across all sectors of the economy are likely to rise dramatically.

The true evil of inflation is that newly created money benefits politically favored financial interests, especially banks, on the front end. Over time, however, the net result of monetary inflation is always the devaluation of savings and purchasing power. This devaluation discourages saving, which is the key to capital accumulation and investment in a healthy economy. Inflation also tends to hurt seniors and those living on fixed incomes the most.

For decades the Fed has operated without any meaningful oversight whatsoever, resulting in the loss of savings, loss of purchasing power, and loss of quality of life for all Americans. It causes individuals and businesses to make bad decisions, misallocating their capital because market signals have been distorted. It causes financial ruin by engineering the inevitable boom and bust cycles that so many erroneously blame on capitalism. And it does all this in secrecy, to the benefit of the financial and political classes. It is time to Audit the Fed, as a first step toward ending its unchecked power over our money and economic fortunes.

Representative Ron Paul (R – TX), MD, is a Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

Property Rights Aren’t Always the Libertarian Solution – Article by Sanford Ikeda

Property Rights Aren’t Always the Libertarian Solution – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
July 15, 2012
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At FEE’s seminar last week on libertarian perspectives on current events, a participant asked: “How do we privatize the air?”

The student may have had in mind the economic principle, popularized by Ronald Coase, that externalities–especially negative externalities such as air pollution– result from ill-defined or unenforced property rights. The question also seems to reflect a common libertarian idea that in a free society all scarce resources must be owned by somebody. That would include the atmosphere when clean air is scarce.

Property Rights and Economic Development

The Coase Theorem is an economic proposition which says that when property rights are well defined and enforced, and the costs of search, bargaining, and enforcement are reasonably low, voluntary trade will tend to produce results that are economically efficient. Negative externalities will be internalized, as unowned resources are transformed into marketable goods. And if, because of incomplete property rights, entrepreneurs are unable to capture enough of the benefits from their actions (that is, if positive externalities would result), they will be less inclined to make the discoveries that drive economic development. Those benefits would be internalized, too.

There are some positive externalities that most, perhaps all, of those who favor tough property enforcement would hesitate to try to privatize. For example, cultures develop in part on the basis of imitation. Jazz musicians copy from one another all the time, from motifs to entire songs, and reinterpret them in their own creations. Classical musicians have also done this. As a courtesy, the protocol is to name the artist from whom you are copying, such as in “Variations on a Theme of Paganini.”

On an even higher level of abstraction, artists, writers, and even ordinary people partake in an esthetic ethos; scholars, intellectuals, and laymen draw on the intellectual milieu of a place and time. Without the experimentation that comes from such borrowing and give-and-take, cultures would stop evolving; they would die.

The same thing goes for economic development. One entrepreneur discovers a demand for flat-screen televisions and is soon followed by imitators, which in the long run results in lower prices and better quality–and often new products and uses, such as tablet computers.

Don’t get me wrong! Private property rights prevent the kind of free riding that hinders economic development. And of course private property is essential for personal freedom: Property rights not only help to avoid or resolve interpersonal conflict–such as the tragedy of the commons–they are what provide a person with a sphere of autonomy and privacy in an economically developed world where contact with strangers is commonplace.

Elinor Ostrom on the Establishment of Conventions

There are many instances where free riding is a net negative, and the overuse of the atmosphere in the form of air pollution is probably one of them. Despite the efforts of some economists, legislators, and policymakers to institute so-called “cap-and-trade”–which would attempt to establish property rights in the air through government policy–it may be impossible to do something similar for all scarce resources, either by legal mandate or market arrangements. But this need not discourage libertarians, of either the minimal-state or market-anarchist variety.

Consider the work of Elinor Ostrom, winner of the 2009 Nobel Prize in economics, the only women so far to be so honored. Sadly, Ostrom died on June 12, a great loss for social science. While few would consider her a libertarian–I don’t believe she thought she was–libertarians can learn a lot from her work. She is perhaps best known for her 1990 book, Governing the Commons, in which she presented her methods and findings regarding how people coped (or didn’t cope) with what has come to be known as “common-pool resource” (CPR) problems:

What one can observe in the world, however, is that neither the state nor the market is uniformly successful in enabling individuals to sustain long-term, productive use of natural resource systems. Further, communities of individuals have relied on institutions resembling neither the state nor the market to govern some resource systems with reasonable degrees of success over long periods of time.

Voluntary Conventions

In those instances the nonstate, nonmarket institutions she studied were, when successful, conventions that the users of common-pool resources agreed to and used sometimes for centuries. They were made voluntarily and evolved over time, but they were not market outcomes, at least in the narrow sense, because no one “owned” the resource in question and it was not bought and sold. Ostrom added:

The central question of this study is how a group of principals who are in an independent situation can organize and govern themselves to obtain continuing joint benefits when all face temptations to free-ride, shirk, or otherwise act opportunistically.

Her research covered the harvesting of forests in thirteenth-century Switzerland and sixteenth-century Japan and irrigation institutions in various regions of fifteenth-century Spain. Although not every community Ostrom studied was successful in establishing such conventions, it is instructive how highly complex agreements, enforced by both local norms and effective monitoring, were able to overcome the free-rider problems that standard economic theory–and perhaps vulgar libertarianism–would predict are insurmountable without property rights.

Dealing with air pollution is of course a more difficult problem since it typically entails a much larger population and more diffuse sources and consequences. But it’s important to realize that a “libertarian solution” to air pollution may not necessarily be a “market solution.”

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Casino Banking – Article by Gerald P. O’Driscoll, Jr.

Casino Banking – Article by Gerald P. O’Driscoll, Jr.

The New Renaissance Hat
Gerald P. O’Driscoll, Jr.
July 15, 2012
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JPMorgan Chase & Co., one of the nation’s leading banks, revealed in May that a London trader racked up losses reportedly amounting to $2.3 billion over a 15-day period. The losses averaged over $150 million per day, sometimes hitting $200 million daily. The bank originally stated the trades were done to hedge possible losses on assets that might suffer due to Europe’s economic woes. There is now doubt whether it was a hedge or just a risky financial bet.

A hedge is a financial transaction designed to offset possible losses in an asset or good already owned. The classic hedge occurs when a farmer sells his crop in a futures market for delivery at a specified date after harvesting. He sells today what he will only produce tomorrow, and locks in the price. If the price at harvest time is lower than today’s price, he makes money on the forward contract, while losing a corresponding amount of money on the crops in the ground. In a perfect hedge the gains and losses should exactly offset each other.

How did JPMorgan suffer such large losses on its hedges, and what are the lessons?

It appears the London trader entered into financial transactions on the basis of observed relationships among various bond indices. The market relationships broke down. The indices moved differently from what historical patterns or financial models predicted. Such a breakdown has been at the heart of a number of spectacular financial collapses, notably that of Long-Term Capital Management (LTCM) in 1998 and a number of others during the financial meltdown of 2007–08.

LTCM invested the money of rich clients in financial bets based on the expected relationships among the prices of various assets. According to Nicole Gelinas in After the Fall: Saving Capitalism from Wall Street—and Washington, at the time of its collapse LTCM had $2.3 billion of client money. By borrowing, it leveraged that investment 53 to 1. Further, it employed derivatives to further magnify its bets so that its total obligations were a fantastic $1.25 trillion.

A derivative is any security whose price movements depend on (are derived from) movements in an underlying asset. “Puts” and “calls” on equity shares are relatively simple derivatives familiar to many. Asset prices, like various bonds, move in predictable ways with respect to each other, and values of derivatives linked to the assets similarly move in a predictable fashion with respect to the prices of the underlying assets—in normal times.

But the summer of 1998 was not a normal time. There was turmoil in Asian financial markets, then Russia threatened to default on its domestic debt. Global credit and liquidity dried up, and LTCM could not fund itself. It collapsed spectacularly.

A decade later there was turmoil in housing finance. The housing bubble was bursting. Mortgage lenders were under pressure, and some were failing. Many mortgages had been packed together in mortgage-backed securities, which were sold to or guaranteed by Fannie Mae and Freddie Mac. Fannie and Freddie, allegedly private entities but in reality guaranteed by the government, were failing. Lehman Brothers, an investment bank, was heavily involved in housing finance; it borrowed short-term, even overnight, to finance long-term holdings; it employed heavy leverage; and it made liberal use of derivatives contracts. It declared bankruptcy on September 15, 2008.

The specifics varied between 1998 and 2008, and between LTCM and Lehman. But the reliance on certain asset prices moving in predictable fashion was one shared element. So, too, was the heavy use of borrowed money (leverage) and the reliance on derivatives contracts. The volatility of complex derivatives contracts led legendary investor Warren Buffett to characterize them as “financial weapons of mass destruction.”

The Usual Suspects

In short there is nothing new in what happened to JPMorgan. It claimed it was not trying to make risky financial bets, but hedge risks already booked on its balance sheet. While details of the trades that led to losses are sketchy at this writing, they apparently employed both leverage and derivatives. As documented here, these are elements present in major financial blowups and collapses going back decades (and further). LTCM, Lehman, and Fannie and Freddie all thought they had at least some of their risks hedged. But hedges have a tendency to unravel just when needed most: in times of financial turmoil. Even so, financial institutions permit their traders to make the same kinds of dangerous bets over and over again. We used to have financial crises every decade or so. Now the cycle seems to be halved.

In the past I have dubbed today’s banking practice of placing dangerous financial bets “casino banking.” It differs little from the activities conducted at gaming tables in Las Vegas and has little or no reference to the fundamentally healthy activity of matching viable businesses with capital and credit.

In a Cato Policy Analysis, “Capital Inadequacies: The Dismal Failure of the Basel Regime of Bank Capital Regulation,” Kevin Dowd and three coauthors examined some of the technical problems with standard risk models used by large banks. It is an exhaustive analysis, and I commend it to those interested. The authors delve into many issues, but concentrate on the many flaws of the complex mathematical models used by banks to control risks.

In August 2007 Goldman Sachs Chief Financial Officer David Viniar puzzled over a series of “25-standard deviation moves” in financial markets affecting Goldman. (Returns deviated from their expected values by 25 standard deviations, a measure of volatility.) Such moves should occur once every 10-to-the-137th-power years if the assumptions of the risk model were correct (a Gaussian, or “normal,” distribution of returns). As Dowd and his coauthors put it, “Such an event is about as likely as Hell freezing over. The occurrence of even a single such event is therefore conclusive proof that financial returns are not Gaussian—or even remotely so.” And yet there were several in a matter of days. In Dowd & Co.’s telling, the models lie, the banks swear to it, and the regulators pretend to believe them. All of this goes to answer how the losses at Morgan might have happened. Traders rely on flawed models to execute their trades.

Now to the Lessons

Major financial institutions continue to take on large risks. Why? Assume the trades made by Morgan really were to hedge the bank’s exposure to events in Europe. That implies, of course, that risky investments had already been put in place (since they then needed to be hedged). Additionally, the risks were so complex that even a highly skilled staff (which Morgan certainly employs) could not successfully execute hedges on them.

Reports indicate that senior management and the board of directors were aware of the trades and exercising oversight. The fact that the losses were incurred anyway confirms what many of us have been arguing. Major financial institutions are at once very large and very complex. They are too large and too complex to manage. That is in part what beset Citigroup in the 2000s and now Morgan, which has until now been recognized as a well-managed institution.

If ordinary market forces were at work, these institutions would shrink to manageable sizes and levels of complexity. Ordinary market forces are not at work, however. Public policy rewards size (and the complexity that accompanies it). Major financial institutions know from experience that they will be bailed out when they incur losses that threaten their survival. Morgan’s losses do not appear to fall into that category, but they illustrate how bad incentives lead to bad outcomes.

Minding Our Business

Some commentators have argued that politicians and the public have no business in Morgan’s losses. Only Morgan’s stockholders, who saw its share price drop over 9 percent in one day, and senior management and traders who lost their jobs should have an interest. But in fact losses incurred at major financial institutions are the business of taxpayers because government policy has made them their business.

Large financial institutions will continue taking on excessive risks so long as they know they can offload the losses onto taxpayers if needed. That is the policy summarized as “too big to fail.” Let us not forget the Troubled Asset Relief Program (TARP), signed into law by President George W. Bush in October 2008. It was a $700 billion boondoggle to transfer taxpayer money to stockholders and creditors of major banks—and to their senior management; don’t forget the bonuses paid out of the funds.

Banks may be too big and complex to close immediately, but no institution is too big to fail. Failure means the stockholders and possibly the bondholders are wiped out. Until that discipline is reintroduced (having once existed), there will be more big financial bets going bad at these banks.

Changing the bailout policy will not be easy because of what is known as the time-inconsistency problem. Having bailed out so many companies so many times, the federal government cannot credibly commit in advance not to do so in the future. It can say no to future bailouts today, but people know that when financial collapse hits tomorrow, government will say yes once again. The promises made today will not match the government’s future actions. There is inconsistency between words and deeds across time.

What to do in the meantime? The Volcker Rule was a modest attempt to rein in risk-taking. Former Fed Chairman Paul Volcker wanted to stop banks from making risky trades on their own books (as opposed to executing trades for customers). Industry lobbying has hopelessly complicated the rule and delayed its issuance.

Morgan’s chief executive officer, James Dimon, asserted the London trades would not have violated the rule. If true, it suggests that an even stronger rule needs to be in place. Various suggestions have been made to address excessive risk-taking by financial firms backed by the taxpayers. It is time to take them more seriously.

Gerald O’Driscoll is a senior fellow at the Cato Institute. With Mario J. Rizzo, he coauthored The Economics of Time and Ignorance.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Not Enough Inflation? – Article by Tyler Watts

Not Enough Inflation? – Article by Tyler Watts

The New Renaissance Hat
Tyler Watts
July 15, 2012
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Two wrongs may not make a right, but a second dose of poison might just cure the first dose. That’s at least what Paul Krugman, America’s most prominent left-wing economic pundit, is saying about an untapped remedy for our economic woes. In his April 5 New York Times column, “Not Enough Inflation,” Krugman repeated his claim that “a bit more inflation would be a good thing, not a bad thing.”

If you’re wondering how progressively higher prices for everyday goods could help any household get ahead economically, let alone contribute to overall economic recovery, you’re in good company. As all econ-principles students know, inflation is caused by an increase in the supply of money relative to money demand. The increase in consumer goods prices—that’s how the layman defines and experiences inflation—is really just a symptom of the reduced purchasing power of money caused by the increase in its quantity. The higher prices for all goods in turn mean lower real incomes for consumers—which is all of us—not to mention that inflation is also typically symptomatic of the boom-bust business cycle and can cause significant widespread economic damage. In its most severe forms, inflation can wipe out people’s monetary wealth and bring commerce to a halt.

But smart guys like Professor Krugman aren’t mere monetary cranks. They know that high inflation is economically dangerous. What they’re asking for is just a small, temporary dose of fresh money to inject some new life into the economy. There is a kernel of truth to this inflationary prescription. As the Scottish philosopher David Hume explained in his 1752 essay Of Money, prices for different kinds of goods react differently to new money entering the economy. Generally speaking, commodities or consumer goods prices will rise faster than wages. So for a manufacturing entrepreneur, for instance, who employs many workers, inflation will cause output prices (revenue) to increase relative to wages (costs), bringing an increase in profits that will induce an increase in output. Therefore, in Hume’s terms, an increase of money “must first quicken the diligence of every [entrepreneur], before it increase the price of labor.”

This “sticky wages” effect is what economists like Hume, John Maynard Keynes, and Krugman have in mind when advocating inflationary stimulus. Krugman also notes that “parts of the private sector continue to be crippled by the overhang of debt accumulated during the bubble years,” and that “modest inflation . . . by eroding the real value of that debt . . . [would] help promote the private-sector recovery.” So higher inflation not only increases the demand for labor, but can also help clean up companies’ and individuals’ balance sheets, giving them the ability to ramp up their hiring and spending. What’s not to love about this miracle elixir?

There are two big problems with inflationary stimulus. The first involves the process dynamics of the market economy. The inflationists tend to omit the rest of the story, which involves the long-run effects of new money. New money will eventually increase all prices—even wages—meaning the stimulus effect can only be temporary. For if entrepreneurs read the price increases not as mere inflation, but higher demand for their products (as the inflationists hope), they are liable to make investments to expand their production capacity. Once the inflation effect peters out, once rising wages eventually push profits back down, they find that extra production is no longer profitable. The expansion can’t be sustained without more inflationary stimulus.

In a rising inflation environment, moreover, people will eventually come to anticipate further price increases. Workers demand upward wage adjustments in advance, and entrepreneurs anticipate rising costs and thus scale back their expansion plans. Once people catch on to inflationary stimulus in this fashion, larger and larger money injections (that is, higher inflation rates) are needed to merely maintain output levels. At some point, the high, rising, and volatile inflation rate itself becomes a drag on the economy. Miscalculation of next year’s, or even next month’s, inflation rate could spell disaster for entrepreneur and worker alike. As inflation heats up, it can actually drag investment down, as people seek to shelter their wealth in “sterile” assets like gold. Inflation, instead of a stimulus factor, becomes a source of economic confusion and frustration. Iconic images of people hauling wheelbarrow loads of money to buy a loaf of bread in post-World War I Germany remind us of the potential economic turmoil of unchecked inflation. This of course is not what Krugman has in mind, but we should not forget that the mightiest river begins as a trickle.

The second big problem with inflation is a moral one. Along with causing economic confusion, inflation redistributes wealth. The key fact here, again, is that not all prices rise immediately when new money enters circulation. People who are first to receive the new money get to spend it before prices go up. Those last in line see prices go up before their own incomes do. Inflation also redistributes wealth from lenders to borrowers, as Krugman indicated, by reducing the real value of debt. But Krugman conveniently ignores the corresponding fact that, whenever a borrower’s real debt burden is eased, a lender’s asset value is eroded. Thus to use inflation as a partial bailout for borrowers is to harm lenders and investors. This is happening already—even at “mild” inflation rates that are too low for Krugman’s tastes, real returns on investments like bank CDs are driven into negative territory.

Through these redistributions of purchasing power, inflation acts like a tax: a tax on savers, on investors, on those at the very end of the monetary policy food chain. Ironically for Progressives like Krugman, this inflation tax arguably hits the poor and uneducated hardest. Educated, economically sophisticated people know the warning signs of inflation and know how to shelter their assets—as attested by the flurry of gold bullion dealers’ ads on cable news and AM radio. The poor are much more likely to be wage earners whose incomes tend to lag inflation, or pensioners who, even with annual cost-of-living adjustments, can still see consistent reductions in their purchasing power.

Nonetheless, Krugman and the inflation party don’t understand the free-market camp’s arguments against inflation. He accuses us of “obsessing” over inflation, while he thinks the Fed should focus on curing unemployment. Even conceding that inflation can provide a temporary, halting employment stimulus, the objection remains strong. It comes down to the fact that inflation is a big lie—or, should we say, a million little lies, because inflation distorts all prices and thereby hinders their crucial function of giving entrepreneurs and workers the correct information and incentives on which to make the best economic decisions. Inflation’s promises of faster growth and greater wealth are illusory. Like alcohol or drug abuse, every high begets a crash that demands larger and larger doses to maintain the effect. Inflation is a dangerous medicine that stands to do the patient more harm than good.

Tyler Watts is an assistant professor of economics at Ball State University and the winner of the 2012 Beth A. Hoffman Memorial Prize for Economic Writing.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

The Movement for Indefinite Life Extension: The Next Step for Humankind – Article by G. Stolyarov II

The Movement for Indefinite Life Extension: The Next Step for Humankind – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
July 14, 2012
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An old cliché would have us believe that nothing is inevitable except death and taxes. The Movement for Indefinite Life Extension (MILE) respectfully disagrees. Increasing numbers of people are coming to the conclusion that there is nothing natural or inevitable about the decrepitude and vulnerability that accompanies old age in humans. Nature already offers examples of ways to avoid our predicament. Many other animal species are negligibly senescent; they do not experience significant biological decay with time and have much longer life expectancies than we do. Scientific advances in biotechnology, nanotechnology, medicine, and computing offer humankind the possibility to radically extend lifespans beyond anything seen in history.

Does this sound utopian or unattainable? That depends on your historical perspective. Inventions from the horseless carriage to powered flight were considered impossible by “experts” – until they became reality. Today we drive automobiles and fly on airplanes routinely. In a few decades – with sufficient determination, resources, and public support – we could be living much longer than any of our ancestors, while retaining our youthful vigor and resilience.

Too many people fall prey to the unfortunate status quo bias – the assumption that the way matters happen to be today is the way they have always been and always will be. In fact, colossal changes are possible and happen all around us. Each generation finds itself in a dramatically different world. Chances are that you already lived through the revolution caused by the Internet and personal electronic technology. With the pace of technological, societal, intellectual, and political change accelerating, it is becoming increasingly apparent that the stability of the status quo is an illusion. We are always going somewhere: let us make it the best destination possible, and let us exert every effort to make sure that we get there as individuals.

In a world of accelerating change, our bodies and minds will need to be enhanced and maintained in their prime in order to keep up with the improved knowledge and technology available – and to contribute to further improvements. This virtuous cycle will enable human beings to transcend limitations previously considered insurmountable, and to solve age-old problems: war, poverty, crime, pollution, tyranny, and the existential threat to our species from natural disasters and human follies. The longer people live, the more motivated they will be to think in the long term and to invest in the future. They will know that their actions will have consequences for them personally, not just for remote unspecified descendants. People will have more time to learn and to work – but also more time to enjoy life and follow their dreams. Almost everyone wants the good life. The MILE wants to help make that good life a reality. The job of the MILE is to show a clear path toward radical improvement for good people everywhere.

The MILE embodies a combination of scientific, technological, philosophical, philanthropic, and even esthetic aspirations. Every skill set – from research to public relations – can find an application to the grand goal of indefinite life extension. There is no single leader or hierarchy in the MILE. You can be a leader and an example to others through your work on one of the many fronts in the war on death and decay. The MILE is a tolerant and diverse movement that welcomes a wide range of people and intellectual persuasions. Whatever your age, gender, culture, country of origin, place of residency, religion (or lack thereof), occupation, or lifestyle – as long as you love life and wish to cultivate and lengthen it, the MILE welcomes you. The MILE will deploy an increasing array of tools to help empower you and motivate you to contribute. By joining the MILE, you will not only become part of the most profound improvement in human history – indefinite life extension; you will also enjoy doing it.

The future is in our hands. The innovations of our ancestors made possible our current historically high standards of living. Today we can take the next step and secure the future for those who are alive and wish to remain that way. Death is indeed not inevitable if we deploy knowledge, persistence, and persuasive skill in achieving the needed commitment from humankind.

Update to Resources on Indefinite Life Extension – July 10, 2012

Update to Resources on Indefinite Life Extension – July 10, 2012

TRA’s Resources on Indefinite Life Extension page has been enhanced over the past two months with links to numerous fascinating articles and videos.

Articles

– “Scientists turn skin cells into beating heart muscle” – Kate Kelland – Reuters – May 22, 2012

– “Is Amyloidosis the Limiting Factor for Human Lifespan?” – Lyle J. Dennis, M.D. – Extreme Longevity – May 22, 2012

– “Israeli scientists create beating heart tissue from skin cells” – The Telegraph – May 23, 2012

– “Paralyzed rats walk again in Swiss lab study” – Chris Wickham – MSNBC.com – May 31, 2012

– “New Cancer Drugs Use Body’s Own Defenses” – Ron Winslow – Wall Street Journal – June 1, 2012

– “Bristol immune drug shows promise in three cancers” – Julie Steenhuysen – Reuters – June 2, 2012

– “Prostate cancer drug so effective trial stopped” – Victoria Colliver – San Francisco Chronicle – June 2, 2012

– “New ‘smart bomb’ drug attacks breast cancer, doctors say” – Associated Press – June 3, 2012

– “Alzheimer’s vaccine trial a success” – Karolinska Institutet – June 6, 2012

– “Man Cured of AIDS: ‘I Feel Good’” – Carrie Gann – ABC News – June 8, 2012

– “Artificial Lifeforms Promise Cleaner World, Healthier Humans” – Dick Pelletier – Positive Futurist – June 9, 2012

– “Secret of ageing found: Japanese scientists pave way to everlasting life” – RT – June 9, 2012

– “How aging normal cells fuel tumor growth and metastasis” – Thomas Jefferson University – June 14, 2012

– “People Who Justify Aging are Profoundly Wrong – Aging is Abhorrent” – Maria Konovalenko – Institute for Ethics & Emerging Technologies – June 14, 2012

– “Scientists tie DNA repair to key cell signaling network” – University of Texas Medical Branch at Galveston – June 15, 2012

– “Deciding How We Age as We Age” – Seth Cochran – h+ Magazine – June 19, 2012

– “How we die (in one chart)” – Sarah Kliff – Washington Post – June 22, 2012

– “Modified humans: the most cost-efficient way to colonize space” – Dick Pelletier – Positive Futurist – June 2012

– “Japanese Scientists Grow Human Liver From Stem Cells” – Reuters and Singularity Weblog – June 2012

– “Why Do Naked Mole Rats Live So Long? Do they hold the key to human life extension?” – Maria Konovalenko – Institute for Ethics & Emerging Technologies – June 29, 2012

– “Scientists Develop Alternative to Gene Therapy” – ScienceDaily – Scripps Research Institute – July 1, 2012

– “How to live beyond 100” – Lucy Wallis – BBC News – July 2, 2012

– “Earth 2050-2100: longer lives; new energy; FTL travel; global village” – Dick Pelletier – Positive Futurist – July 3, 2012

– “Scientists discover bees can ‘turn back time,’ reverse brain aging” – Phys.org – Arizona State University – July 3, 2012

– “Secret formula may be key to reverse aging” – Mike Holfeld – Click Orlando – July 4, 2012

– “Is there a biological limit to longevity?” – Aubrey de Grey – KurzweilAI – July 5, 2012

– “Demystifying the immortality of cancer cells” – Medical Xpress – July 5, 2012

– “Suggesting a Test of Rapamycin and Metformin Together” – Reason – FightAging.org – July 5, 2012

– “Earth 2050-2100: Longer Lives; New Energy; FTL Travel; Global Village” – Dick Pelletier – Positive Futurist – July 7, 2012

Videos

Aubrey de Grey

Aubrey de Grey – Aging & Suffering – Interview with Adam Ford – May 31, 2012

Nikola Danaylov (Socrates)

Anders Sandberg on Singularity 1 on 1: We Are All Amazingly Stupid, But We Can Get Better – May 27, 2012

Hugo de Garis on Singularity 1 on 1: Are We Building Gods or Terminators? – June 2012

Frontier-Making Private Initiatives: Examples from History – Article by G. Stolyarov II

Frontier-Making Private Initiatives: Examples from History – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
July 8, 2012
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In my video “SpaceX, Neil deGrasse Tyson, & Private vs. Government Technological Breakthroughs”, I provided a brief discussion of notable counterexamples to Neil deGrasse Tyson’s assertions that private enterprise does not have the resources or exploratory orientation to open up radically new frontiers. Tyson argues that only well-funded government efforts can open up space or could have opened up the New World. History, however, offers many examples of precisely what Tyson denies to be possible: private enterprise breaking new ground and making the exploration of a frontier possible. Indeed, in many of these cases, governments only entered the arena later, once private inventors or entrepreneurs have already established an industry in which governments could get involved. Here, I offer a somewhat more thorough list of such examples of groundbreaking and well-known private initiatives, as well as links to further information about each. I may also update this list as additional examples occur to me.

The Industrial Revolution: The Industrial Revolution – the explosion of technologies for mass production during the late 18th and early 19th centuries – itself arose out of private initiative. The extensive Wikipedia entry on the Industrial Revolution shows that virtually every one of the major inventions that made it possible was created by a private individual and put into commercial use by private entrepreneurs. This paradigm shift, more than any other, rescued the majority of humankind from the brink of subsistence and set the stage for the high living standards we enjoy today.

Automobile: The automobile owes its existence to ingenious tinkerers, inventors, and entrepreneurs. The first self-propelled vehicle was invented circa 1769 by Nicolas-Joseph Cugnot. Cugnot did work on experiments for the French military and did receive a pension from King Louis XV for his inventions. However, subsequent developments that made possible the automobile occurred solely due to private initiative. The first internal combustion engines were independently developed circa 1807 by the private inventors Nicéphore Niépce and François Isaac de Rivaz. For the remainder of the 19th century, innovations in automobile technology were carried forward by a succession of tinkerers. The ubiquity and mass availability of the automobile owe their existence to the mass-production techniques pioneered by Henry Ford in the early 20th century.

Great Northern Railway: While some railroads, such as the notorious repeatedly bankrupt Transcontinental Railroad in the United States, received government subsidies, many thriving railroads were fully funded and operated privately. James J. Hill’s Great Northern Railway – which played a pivotal role in the development of the Pacific Northwest – is an excellent example.

Electrification: The infusion of cheap, ubiquitous artificial light into human societies during the late 19th centuries owes its existence largely to the work of two private inventors and entrepreneurs: Nicola Tesla and Thomas Edison.

Computing: The first computers, too, were the products of private tinkering. A precursor, the Jacquard Loom, was developed by Joseph Marie Jacquard in 1801. The concept for the first fully functional computer was developed by Charles Babbage in 1837 – though Babbage did not have the funds to complete his prototype. The Wikipedia entry on the history of computing shows that private individuals contributed overwhelmingly to the theoretical and practical knowledge needed to construct the first fully functioning general-purpose computers in the mid-20th century. To be sure, some of the development took place in government-funded universities or was done for the benefit of the United States military. However, it is undeniable that we have private entrepreneurs and companies to thank for the introduction of computers and software to the general public beginning in the 1970s.

Civilian Internet: While the Internet began as a US military project (ARPANET) in the 1960s, it was not until it was opened to the private market that its effects on the world became truly groundbreaking. An excellent discussion of this development can be found in Peter Klein’s essay, “Government Did Invent the Internet, But the Market Made It Glorious”.

Human Genome Project: While the United States government’s Human Genome Project began first in 1990, it was overtaken by the privately funded genome-sequencing project of J. Craig Venter and his company Celera. Celera started its work on sequencing the human genome in 1998 and completed it in 2001 at approximately a tenth of the cost of the federally funded project. The two projects published their results jointly, but the private project was far speedier and more cost-efficient.

Private Deep-Space Asteroid-Hunting Telescope: This initiative is in the works, but Leonard David of SPACE.com writes that Project Sentinel is expected to be launched in 2016 using SpaceX’s Falcon 9 rocket. This is an unprecedented private undertaking by the B612 Foundation, described by Mr. David as “a nonprofit group of scientists and explorers that has long advocated the exploration of asteroids and better space rock monitoring.” Project Sentinel aims to vastly improve our knowledge of potentially devastating near-Earth asteroids and to map 90% of them within 5.5 years of operation. The awareness conferred by this project might just save humanity itself.

With this illustrious history, private enterprise may yet bring us even greater achievements – from the colonization of Mars to indefinite human life extension. In my estimation, the probability of such an outcome far exceeds that of a national government undertaking such ambitious advancements of our civilization.

Federal Student Aid and the Law of Unintended Consequences – Article by Richard Vedder

Federal Student Aid and the Law of Unintended Consequences – Article by Richard Vedder

The New Renaissance Hat
Richard Vedder
July 8, 2012
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RICHARD VEDDER is the Edwin and Ruth Kennedy Distinguished Professor of Economics at Ohio University and director of the Center for College Affordability and Productivity. He received his B.A. from Northwestern University and his M.A. and Ph.D. in economics from the University of Illinois. He has written for the Wall Street Journal, National Review, and Investor’s Business Daily, and is the author of several books, including The American Economy in Historical Perspective and Going Broke by Degree: Why College Costs Too Much.

The following is adapted from a speech delivered on May 10, 2012, at Hillsdale College’s Allan P. Kirby, Jr. Center for Constitutional Studies and Citizenship in Washington, D.C.

Reprinted by permission from Imprimis, a publication of Hillsdale College.

FEDERAL STUDENT financial assistance programs are costly, inefficient, byzantine, and fail to serve their desired objectives. In a word, they are dysfunctional, among the worst of many bad federal programs.

These programs are commonly rationalized on three grounds: on the grounds that assuring more young people a higher education has positive spillover effects for the country; on the grounds that higher education promotes equal economic opportunity (or, as the politicians say, that it is “a ticket to achieving the American Dream”); or on the grounds that too few students would go to college in the absence of federal loan programs, since private markets for loans to college students are defective.

All three of these arguments are dubious at best. The alleged positive spillover effects of sending more and more Americans to college are very difficult to measure. And as the late Milton Friedman suggested to me shortly before his death, they may be more than offset by negative spillover effects. Consider, for instance, the relationship between spending by state governments on higher education and their rate of economic growth. Controlling for other factors important in growth determination, the relationship between education spending and economic growth is negative or, at best, non-existent.

What about higher education being a vehicle for equal economic opportunity or income equality? Over the last four decades, a period in which the proportion of adults with four-year college degrees tripled, income equality has declined. (As a side note, I do not know the socially optimal level of economic inequality, and the tacit assumption that more such equality is always desirable is suspect; my point here is simply that, in reality, higher education today does not promote income equality.)

Finally, in regards to the argument that capital markets for student loans are defective, if financial institutions can lend to college students on credit cards and make car loans to college students in large numbers—which they do—there is no reason why they can’t also make student educational loans.

Despite the fact that the rationales for federal student financial assistance programs are very weak, these programs are growing rapidly. The Pell Grant program did much more than double in size between 2007 and 2010. Although it was designed to help poor people, it is now becoming a middle class entitlement. Student loans have been growing eight to ten percent a year for at least two decades, and, as is well publicized, now aggregate to one trillion dollars of debt outstanding—roughly $25,000 on average for the 40,000,000 holders of the debt. Astoundingly, student loan debt now exceeds credit card debt.

Nor is it correct to assume that most of this debt is held by young people in their twenties and early thirties. The median age of those with loan obligations today is around 33, and approximately 40 percent of the debt is held by people 40 years of age or older. So when politicians talk about maintaining low interest loans to help kids in college, more often than not the help is going to middle-aged individuals long gone from the halls of academia.

With this as an introduction, let me outline eight problems with federal student grant and loan programs. The list is not exclusive.

(1) Student loan interest rates are not set by the forces of supply and demand, but by the political process. Normally, interest rates are a price used to allocate scarce resources; but when that price is manipulated by politicians, it leads to distortions in the use of resources. Since student loan interest rates are always set at below-market rates, too much money is borrowed for college. Currently those interest rates are extremely low, with a key rate of 3.4 percent—which, after adjusting for inflation, is approximately zero. Moreover, both the president and Governor Romney say they want to continue that low interest rate after July 1, when it is supposed to double. This aggravates an already bad situation, and provides a perfect example of the fundamental problem facing our nation today: politicians pushing programs whose benefits are visible and immediate (even if illusory, as suggested above), while their extraordinarily high costs are less visible and more distant in time.

(2) In the real world, interest rates vary with the prospects that the borrower will repay the loan. In the surreal world of student loans, the brilliant student completing an electrical engineering degree at M.I.T. pays the same interest rate as the student majoring in ethnic studies at a state university who has a GPA below 2.0. The former student will almost certainly graduate and get a job paying $50,000 a year or more, whereas the odds are high the latter student will fail to graduate and will be lucky to make $30,000 a year.

Related to this problem, colleges themselves have no “skin in the game.” They are responsible for allowing loan commitments to occur, but they face no penalties or negative consequences when defaults are extremely high, imposing costs on taxpayers.

(3) Perhaps most importantly, federal student grant and loan programs have contributed to the tuition price explosion. When third parties pay a large part of the bill, at least temporarily, the customer’s demand for the service rises and he is not as sensitive to price as he would be if he were paying himself. Colleges and universities take advantage of that and raise their prices to capture the funds that ostensibly are designed to help students. This is what happened previously in health care, and is what is currently happening in higher education.

(4) The federal government now has a monopoly in providing student loans. Until recently, at least it farmed out the servicing of loans to a variety of private financial service firms, adding an element of competition in terms of quality of service, if not price. But the Obama administration, with its strong hostility to private enterprise, moved to establish a complete monopoly. One would think the example of the U.S. Postal Service today, losing taxpayer money hand over fist and incapable of making even the most obviously needed reforms, would be enough proof against the prudence of such a move. And remember: because of highly irresponsible fiscal policies, the federal government borrows 30 or 40 percent of the money it currently spends, much of that from overseas. Thus we are incurring long-term obligations to foreigners to finance loans to largely middle class Americans to go to college. This is not an appropriate use of public funds at a time of dangerously high federal budget deficits.

(5) Those applying for student loans or Pell Grants are compelled to complete the FAFSA form, which is extremely complex, involves more than 100 questions, and is used by colleges to administer scholarships (or, more accurately, tuition discounts). Thus colleges are given all sorts of highly personal and private information on incomes, wealth, debts, child support, and so forth. A car dealer who demanded such information so that he could see how badly he could gouge you would either be out of business or in jail within days or weeks. But it is commonplace in higher education because of federal student financial assistance programs.

(6) As federal programs have increased the number of students who enroll in college, the number of new college graduates now far exceeds the number of new managerial, technical and professional jobs—positions that college graduates have traditionally taken. A survey by Northeastern University estimates that 54 percent of recent college graduates are underemployed or unemployed. Thus we currently have 107,000 janitors and 16,000 parking lot attendants with bachelor’s degrees, not to mention bartenders, hair dressers, mail carriers, and so on. And many of those in these limited-income occupations are struggling to pay off student loan obligations.

Connected to this is the fact that more and more kids are going to college who lack the cognitive skills, the discipline, the academic preparation, or the ambition to succeed academically. They simply cannot or do not master well much of the rather complex materials that college students are expected to learn. As a result, many students either do not graduate or fail to graduate on time. I have estimated that only 40 percent or less of Pell Grant recipients get degrees within six years—an extremely high dropout or failure rate. No one has seriously questioned that statistic—a number, by the way, that the federal government does not publish, no doubt because it is embarrassingly low.

Also related is the fact that, in an attempt to minimize this problem, colleges have lowered standards, expecting students to read and write less while giving higher grades for lesser amounts of work. Surveys show that students spend on average less than 30 hours per week on academic work—less than they spend on recreation.  As Richard Arum and Josipa Roksa show in their book Academically Adrift: Limited Learning on College Campuses, critical thinking skills among college seniors on average are little more than among freshmen.

(7) As suggested to me a couple of days ago by a North Carolina judge, based on a case in his courtroom, with so many funds so readily available there is a temptation and opportunity for persons to acquire low interest student loans with the intention of dropping out of school quickly to use the proceeds for other purposes. (In the North Carolina student loan fraud case, it was to start up a t-shirt business.)

(8) Lazy or mediocre students can get greater subsidies than hard-working and industrious ones. Take Pell Grants. A student who works extra hard and graduates with top grades after three years will receive only half as much money as a student who flunks several courses and takes six years to finish or doesn’t obtain a degree at all. In other words, for recipients of federal aid there are disincentives to excel.

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If the Law of Unintended Consequences ever applied, it is in federal student financial assistance. Programs created with the noblest of intentions have failed to serve either their customers or the nation well. In the 1950s and 1960s, before these programs were large, American higher education enjoyed a Golden Age. Enrollments were rising, lower-income student access was growing, and American leadership in higher education was becoming well established. In other words, the system flourished without these programs. Subsequently, massive growth in federal spending and involvement in higher education has proved counterproductive.

With the ratio of debt to GDP rising nationally, and the federal government continuing to spend more and more taxpayer money on higher education at an unsustainable long-term pace, a re-thinking of federal student financial aid policies is a good place to start in meeting America’s economic crisis.