Re: [A-List] article and notes

["Anne Williamson" <annewilliamson@xxxxxxx>]

I realize the author's larger message is anathema to many on the
list.  However, regarding the Fed and high tech, Dr. North has
some very interesting things to say.  Also - more recommendations
here for Stan.

Merry Christmas all!

Anne


                    Gary North's REALITY CHECK

Issue 102                                 December 24, 2001


    MOORE'S LAW, PARETO'S LAW, AND GREENSPAN'S DILEMMA

     Gordon Moore was one of the three founders of Intel,
the world's major producer of microcomputer chips.  When
you hear the word "pentium," think Intel.  It is one of the
most successful manufacturing companies on earth.  Year
after year, it dominates a highly competitive, highly
innovative market.

     Back in 1965, Moore made a prediction: the capacity of
integrated circuits (computer chips) over the next decade
would double every 18 to 24 months.  He did not say that
this will continue indefinitely.

     One implication of this observation that he failed to
spell out is this: that portion of a computer's purchase
price that is attributed to the cost of chips will fall in
value by approximately 50% every two years.  Another
implication: within three chip-generations -- six years --
this computer will become obsolete as far as most users are
concerned.  They will decide to buy a replacement computer.

     As it has turned out, to the amazement of everyone, is
that computer chips are still doubling in capacity --
transistors per unit of space -- but every 12 months.  This
means that the half life of the value of a computer chip is
one year.

     This doesn't mean that computer speed doubles every 12
months.  There is more to computer speed than chip speed.
There is also access-to-memory speed.  This isn't
increasing every 12 months because the size of memories
continues to grow rapidly.

     There is another inhibiting factor: the ever-
increasing complexity of software code.  There is a proverb
in the microcomputer industry:

        "Intel giveth, and Microsoft taketh away."

But new computers do get faster, year after year.  This
means that used computers get cheaper, year after year.
This means that previous capital investments made in
computers become less valuable, year after year.  This
means that in order to stay competitive, companies that use
computers extensively must make heavy capital investments
in new computers every few years.  Their capital in effect
wears out very fast.  It doesn't stop working, but it
ceases to work profitably.  It's as good as worn out.

     This means that high tech industry is very expensive
compared to mid-tech and low tech industry.  The capital
costs and the learning costs remain high.  This means that
the new technology must produce very high rates of return
in very short periods of time in order to justify the
expense of capital, for the half life of computer-driven
technology is very short.

     It has become obvious since March 10, 2000, when the
NASDAQ peaked at 5040, that the hope of high profitability
was mostly hype.  The bubble burst because the rate of
profit was so low -- and getting lower -- that the price of
NASDAQ shares was economically insane.  In December, 1999,
the P/E ratio -- price to earnings (profits) -- was 207.
You had to spend $207 to get one dollar in earnings.  In my
subscription newsletter, REMNANT REVIEW (February and
March, 2000), I announced this couldn't last much longer,
and it didn't.  The NASDAQ crashed.  It hasn't come back.
It won't come back.  Investors now know the truth:
compteition and high depreciation undermine the long-term
profitability of the vast majority of companies.

     Microsoft isn't profitable because of its innovative
technology.  It is profitable because of its enormous
market share, its installed base of existing consumers, and
the enormous cost to anyone of replacing Windows, learning
the new operating system (e.g., Linux), and finding
programs to run on it.

     Then there is Moore's second law: the cost of building
computer chip factories doubles every 12 months.  This is
exaggerated, but Moore himself thinks that this will be an
inhibiting factor in the extension of his first law.
Nobody will be able to afford to build such plants.  By
1997, Intel was spending $5 billion on two plants.  In a
1997 Interview, More said:

     That's where you get into numbers that sound
     impossible again. If we double it for a couple of
     generations, we're looking at $10 billion plants.
     I don't think there's any industry in the world
     that builds $10 billion plants, although oil
     refineries probably come close.

     Obviously, our first reaction is to see what we
     can do to keep the technology moving but the
     costs down.  For example, we used to build a
     completely new set of equipment each generation.
     Now our development people try to reutilize as
     much of the previous generation's equipment as
     possible.  And they've been pretty successful. We
     may bring a $10 billion plant down to the $5
     billion range.  But these are still huge numbers.

     Then there is the question of what we can do with
these ever more powerful chips.

     Even with the level of technology that we can
     extrapolate fairly easily -- a few more
     generations -- we can imagine putting a billion
     transistors on a chip.  A billion transistors is
     mind-boggling.  Exploiting that level of
     technology, even if we get hung up at a mere
     billion transistors, could keep us busy for a
     century. . . .

     Our most advanced chips in design today will have
     less than 10 million transistors. So, we're
     talking about a hundred times the complexity of
     today's chips. We wouldn't have the foggiest idea
     what to do with a billion transistors right now,
     except to put more memory in a chip and speed it
     up. But as far as adding functionality, we don't
     know what can be done.

http://www.wired.com/wired/archive/5.05/ff_moore.2_pr.html

     Moore doesn't think that this doubling of chip
capacity can go on indefinitely.  But, year after year, it
has.  So far, so good.

     In the history of man, nothing has doubled every two
years.  Anything that does absorbs too many resources.  It
runs out of resources and stops doubling.  Moore's law is
unique, or so we thought until last year.  But then Raymond
Kurzweil, the inventor of voice-recognition software,
discovered that Moore's law las been going on since the
late 1800's.  Information-processing capacity per dollar of
cost doubled every three years from 1910 to 1950.  From
1950 to 1966, it doubled every two years.  Now it is
doubling every year.  He thinks the process is
accelerating.

     If this rate of increase continues -- and Moore
himself is highly skeptical about this -- then by 2023, the
computer chip's capacity per $1,000 will equal the human
brain.  By 2036, one penny will buy this much capacity.  In
2049, we will be able to buy a chip with the capacity of
the entire human race's brains for $1,000.  In 2059, this
will cost one penny.

   www.kurzweilai.net/articles/art0134.html?printable=1

     (My guess is that SAT scores of public high school
graduates will nevertheless be lower in 2023 than today,
and lower in 2059 than in 2023.)

     Kurzweil calls this the law of accelerating returns.
To prove its existence, however, he has to show that the
law of diminishing returns will also be abolished in the
construction of chip manufacturing factories.  So far, the
law of diminishing returns still applies to the capital
costs of plant construction.


THE CRISIS IN CAPITAL DEPRECIATION

     I have argued, following the lead of Dr. Kurt
Richesbacher, that the present recession is a corporate
profits recession, not a falling consumer demand recession.
He and I agree that one of the important factors in the
reduction of profits is the rising cost of computer
capital.  The depreciation rate of computer-related
production processes is high.  Moore's law indicates that
this rate of depreciation will get higher over time because
the half life of these investments keeps getting shorter.

     This implies that older, larger firms will suffer
continuing attrition because of tough competition from
newer firms that have newer capital and less overhead
investment in depreciating capital.  This is what we have
been seeing for a generation: the shrinking of employment
of the S&P 500 manufacturing firms.  Layoffs are continual
even in boom phases of the business cycle.  Computers
replace workers.  Then newer computers replace older
computers.  High-tech businesses cannot get off the ever-
accelerating treadmill of depreciating capital.

     As output increases in the computer-driven high tech
sector, prices of consumer goods fall.  We are seeing price
deflation in many industries, especially the computer
industry.  Think of the hand-held calculator's power in
1975.  I paid $50 for a four-function hand-held calculator.
For $20, I can get a complete business function calculator
that runs on solar power.  Think of the cost of computer
power per dollar.

     We consumers love falling prices.  The greater the
output of some industry, the lower the price of its output
should be.  The great economic benefit of free market
capitalism is that it increases output.  This is another
way of saying that it decreases consumer prices.  The lower
these prices go, the richer we consumers become.  If
consumers can maintain the same monetary income because of
increases in their own productivity -- greater output per
hour -- then falling prices make them richer.  This is the
best way to get a raise: your money income doesn't
increase, so you don't get kicked into a higher income tax
bracket.  Falling consumer prices are the economic
equivalent of a tax-free raise.  Keep those prices falling!

     Today, we hear cries of alarm about falling prices.
Why?  Because of the existing levels of debt.  The problem
with capitalism isn't falling prices due to rising output.
The problem is that people have loaded up on debt on the
assumption that prices will rise (money will depreciate),
so they can stiff their creditors by paying off with less
valuable money.  This stiff-the-creditor strategy blows up
when the central bank (the Federal Reserve System)
stabilizes the money supply and allows the free market's
output to lower prices.

     Here is the problem with falling prices due to
increased output and a stable money supply: there is
larceny in the hearts of millions of people -- the desire
to steal from creditors by using newly created counterfeit
money.  They want the central bank to increase its output
of fiat money, so that they can pay off their debts with
money of reduced value.

     This is why the hue and cry to inflate, inflate,
inflate occurs every time the FED's prior policy of rapid
monetary inflation to stimulate the economy is changed, and
the growth of the money supply slows down.  This slowdown
of the digital printing presses creates an economic bust:
recession.  Millions of debtors -- from the average Joe to
the largest corporation -- who counted on the
counterfeiting skills of Alan Greenspan to bail them out
when it comes time to pay off their debts start screaming
bloody murder when the money machine slows.

     The Federal Reserve System controls the money machine.
When it buys government debt, it creates new money to make
the purchase.  The government dspends this newly
counterfeited money into circulation.  This is what
millions of larcenous debtors want.

     You may think the money isn't counterfeited.  Well, if
you or I diod this, we woulkd be arrested.  Why?  All we're
trying to do is give the local economy a shot in the arm!
I mean, that's how we can fight the recession!

     When you and I counterfeit money, all we are doing is
violating copyright law.  Our unbacked fiat money is as
much tied to something of historic value as the FED's.  In
fact, our money is more closely tied to something of
historic value than the FED's is: paper and ink.  Alan
Greenspan counterfeits the FED's money with nothing more
than entries in a computer -- the cheapskate!


THE FEDERAL RESERVE SYSTEM

     There are lots of academic textbooks on the FED, and
most of them aren't very good.  I have never seen one that
gets the FED's economics and its history straight.  It is
legally a private corporation that is run by a Board of
Governors that is an agency of the U.S. government.  The
proof of this is this: the Board of Governors does not pay
postage; local FED branch banks do.

     The best economic analysis of the FED is available on-
line free of charge.  It was published in 1983 by Dr.
Murray Rothbard.  I wrote the Web version's Foreword.

http://www.mises.org/mysteryofbanking/mysteryofbanking.pdf

     Rothbard also knew the history of the FED.  He has
written a good little book on this, THE CASE AGAINST THE
FED.  But there is still no major book on the FED's
history.  The FED's files are not open to the public,
including Congress.

     The FED controls the monetary base.  On this is built
various money supplies: M-1, M-2, M-3, MZM.  The FED
doesn't control these directly.

     The FED is worshipped by the academic economics
profession and the investment world.  It is the one major
government-created economic monopoly that is never
identified by academic economists as a monopoly.

     Every school of academic economics except the
Austrians (Mises, Rothbard) accepts the legitimacy of the
FED.  The investment world cries for the FED to create new
money every time there are signs of a recession.  Writers
who call themselves free market believe that this
government-created monopoly is far more efficient than a
free market in banking could ever be.

     Almost everyone believes that the FED can keep a
depression from happening.  How can it do this?  By
creating new money.  This is why we hear continual calls
for more monetary inflation today.  We are in a recession.

     In the latest issue of THE AMERICAN SPECTATOR, which
high-tech columnist George Gilder bought this year after it
almost went bankrupt, we read an analysis by Gilder and
Bret Swanson.  (I wrote for SPECTATOR in the early days,
1970-75, back when it was called THE ALTERNATIVE, before it
became a neoconservative tabloid -- just old fashioned
conservative.)

     Gilder believes in high tech in a nearly religious
devotion.  This same religious commitment to high
technology was what lured millions of gullible investors
who chased the NASDAQ over the cliff in pursuit of easy
wealth.  I think they were fools, and I said so in February
and March of 2000, when the NASDAQ was at its peak.
Gilder's WEALTH AND POVERTY (1981) was a great book, and
THE SPIRIT OF ENTERPRISE (1984) was almost as good.  But
ever since he wrote MICROCOSM (1989), he has become a full-
time apostle of high technology.  High tech is a great
thing for consumers, but not very good for long-term
investors.  He now promotes high tech investing.  (As a
person who has been earning money as a writer since 1965,
let me say that Gilder's writing style began to decline
when he took up high tech.  I have always regarded WEALTH
AND POVERTY a rhetorical masterpiece, not just a logical
presentation.  But as he has aimed his mind into the
microcosm -- the quantum, as he calls it -- his writing
style has become quantum-like: unexplainable and
increasingly random.  It has also become more like
Microsoft's code: bloated.)

     Gilder believes in tax cuts.  I do, too.  But unlike
Gilder, I don't believe in fiat money or the FED.  I see
fiat money as the cause of unsustainable booms that lure
the sheep to the slaughter.  Gilder criticizes Washington's
politicians.

     The cosseted, cretinous world of Washington
     economics and media punditry sees economic growth
     as an effect of the Prozac of "consumer
     confidence" and government spending.  It imagines
     that seven trillion dollars of wealth can
     disappear because of bubble-headed investors
     rather than bubble-headed policy makers.

     I agree entirely with Washington on this issue.  The
bubble-headed investors were indeed greedy.  They thought
they were on a one-way ticket to Easy Street.  Then the
FED's inflationary policies made their greed seem rational.
Greenspan gave speech after speech lauding the new economy
and its new technology.  Meanwhile, he continued to crank
the money machine's digital handle.  Gilder continues:

     Congressional pundits aver that all we need to
     overcome a deflationary spiral is avid avoidance
     of permanent tax rate reductions and artful
     application of stimulus from the dildonic pen of
     Paul Krugman.

     Well, it's not proven yet that there is a deflationary
spiral.  Money is being poured into the economy at 8% per
annum -- high for a recession period.  This began before
the recession hit.  Prices are still going up, especially
if we look at the median CPI.  As for tax cuts, they are
always welcome by me.  But to expect anything major along
these lines in a nation that is politically divided right
down the middle on this issue is incredibly naive.  The
Senate is Democrat-controlled.  The House is closely
divided.  Bush didn't win the popular vote in 2000.
Besides, Clinton got a tax hike in 1993, but the economy
boomed anyway.  Bush, Sr. threw the economy into recession
in 1990 when he got Congress to hike taxes.  He listened to
idiot advisors who were not economists.  That cost him the
presidency.

     So, it's still anti-business as usual in Washington.
Gilder needs to find another scapegoat.  This won't do it:

          Prosperity, we are told, comes from taking
     money and benefits from productive and ingenious
     people -- thus reducing their productivity and
     investment -- and giving it to tax avoiders, thus
     ensuring that they stay out of work.

     So, what's new?  That's been the Republican Party Line
ever since Abe Lincoln went to war in 1861 to keep the
tariff high and mighty.  (On this point, see the book by
Charles Adams, WHEN IN THE COURSE OF HUMAN EVENTS.)  It has
been the Democrats' Party line ever since William Jennings
Bryan delivered his "Cross of Gold" speech in 1896.

     Gilder then turns to the technology sector.  I agree:
this sector is in the bad shape that he says.

     In key technology sectors, capital spending has
     sunk some eighty percent.  Semiconductor sales
     have been halved since autumn 2000.  Our most
     innovative fiber optic equipment firms now
     exhibit revenue half-lives of about three months.
     Running at $10 billion a month, defaults by
     Internet carriers are helping push bankruptcy
     levels to record highs.  Even the producer price
     index, one of the foggy rear-view mirrors
     Washington favors, has just plunged 1.6 percent
     in a single month, the largest drop since 1947.
     Forty percent officially -- but in reality more
     than one hundred percent -- of our economic
     growth since 1995 derives from technological
     advance.

     But then he adds a conclusion: "A high-tech collapse
portends not mere recession but depression."  This doesn't
follow.

     The high tech sector is in recession because the
naive, inexperienced kids who ran the companies thought
that investment bankers were a bottomless pit of money to
fund projects that had no visible market.  For years, the
venture capitalists conformed to the script.  The best and
the brightest were all greed-driven, gullible fools.  They
figured that profits would come from lowering prices.  They
wanted by be Henry Ford.  Well, Henry Ford almost went bust
after General Motors's Alfred Sloane imitated Ford's
assembly line and invented a new management structure to
crush Ford.  The competition was fiecre.  The gtechies
nalways fighured that they would win the competition.
Pareto's 20-80 law has now wiped out the plans of most of
them.  While learning this lesson, investors shoveled
ocrans of money down a high tech rat hole.  Consumers were
ready to pay only discount prices.

     The world of high tech is the world of Moore's Law: a
doubling of chip capacity every year, which means a loss of
the value of last year's computer investment by something
approaching 50%.  Not quite 50%; software stays the same
and learning curves are high.  You can't actually take
advantage of most of the chips' increased capacity, which
is why I'm typing this on a 1983 keyboard, using a 1990
piece of software on a 166 megahertz computer.

     This world is also the world of Pareto's law.  At
least 80% of the players won't survive the cut.

     The bright, techie types in Silicon Valley who thought
it would be fat city forever, along with the greedy,
bonehead venture capitalists who threw their investors'
money down hundreds of digital ratholes, are now wailing
for help from Alan Greenspan.  Well, there is no help.  The
benefits of high tech are for consumers, not investors.
This is what the free market is all about: serving
consumers.  The depreciation rate is five to ten times
faster than depreciation on old economy plant and
equipment.

     To sustain the advance into the microcosm, as Gilder
has called it, is to require ever-greater quantities of
capital that will, in most cases, come a cropper when the
companies falter and get replaced by innovators.  In the
world of high tech, "buy and hold" is like buying and
holding a computer.  If you can use it personally, fine,
but the asset depreciates by about 50% per year.
Competition never ceases in the high tech world.  It grows
more severe as new technologies appear.  The price of this
accelerating competition is ruined companies and well-
served consumers.

     The law of diminishing returns is alive and well in
Silicon Valley.  The bankrupt ex-millionaires who are
trying to sell threir homes are testimony to its power.
The falling price of homes in Silicon Valley are also
testimony to its continuing power.

     Dinesh D'Souza wrote a good book, which came out in
2000: THE VIRTUE OF PROSPERITY: FINDING VALUES IN AN AGE OF
TECHNO-AFFLUENCE (Simon & Schuster).  It begins with a
description of a 1999 party of young multi-millionaires and
several billionaires in Silicon Valley, "home of 250,000
millionaires."  That was in 1999.  Chapter 1 is titled, "A
World Without Limits."  That was in 1999.  The NASDAQ
giveth, and the NASDAQ taketh away.  The book was written
at the top of the NASDAQ bubble.  The hot-shot kids got hit
by a dose of economic reality in March of 2000.  Lo and
behonmd, there has to be consumers willing to buy the
output of all those high tech firms.

     I will say it again: capitalism is based on consumer
sovereignty, not producer sovereignty.  When you hear cries
of pain and calls for government aid from businessmen who
thought the system favored them rathrer than consumers, you
are hearing the call for mercantilism once again.  The call
for the FED to inflate is one more call for the governmnent
to bail out inefficient entrepreneurs who lost their
competitive edge.  It is mercantilism revisited.

     A collapse of high tech firms' markets and also their
stock prices portends a return to sanity.  Every recession
is a re-pricing period in which widespread bad economic
decisions are eliminated by free market forces.  If
depression arrives, it is because of fractional reserve
commercial banking and a government-created central bank
caused widespread distortions with fiat money.  The
toppling houses of high tech cards were built by the FED's
prior policies of monetary inflation.  Yes, high tech
investments were a house of cards in early 2000.  So is the
S&P 500 today, with its price/earnings ratio of 39.
Industry needs to get its earnings up.  If it can't, then
the market will at some point get stock prices down.

     The inflationists-mercantilists want the FED to create
a new round of expanded debt and misallocated resources,
which the FED has been doing for over a year.  They are
like a tavern full of alcoholics who want another round of
govcernment-subsidized drinks.  What they need is not
another round of drinks.  What they need is some quality
time spent in a de-tox center.  That's called a recession.

     What is Gilder's answer?  More fiat money.  He writes:

     That most have failed to grasp deflation as part
     of this equation is understandable. Not only has
     it fooled policymakers, but it has also swallowed
     some of the nation's best business managers. . .
     .

     Deflation has hobbled Japan for a decade and
     demolished the airline, auto and telecom
     industries. Because it is so rare, and because it
     mimics inflation, deflation -- nothing more or
     less than an insufficient supply of money -- is
     inconspicuous. In an inflation, the government
     prints too much money. In a deflation, people and
     firms hoard scarce money in risk-averse accounts
     more likely to be included in government M
     statistics.  Unlike inflation, however -- where
     people quickly spend their depreciating dollars -
     - a deflationary rise in the Ms is coupled with
     much slower money turnover. The economy needs
     more money to sustain even diminished economic
     activity.  The famous monetarist Friedman, who
     assumes constant velocity, warned recently of
     imminent inflation.  But today, with some seventy
     percent of all dollars circulating overseas, the
     monetary Ms are nearly irrelevant. Even as the Ms
     expand at record pace, real liquidity -- signaled
     by plunging spot commodity prices -- is not
     rising.

     Constant velocity seems logical to me.  I know; the
statistics published by the St. Louis FED indicate lower
velocity.  Whatever that statistic means, and however it
was compiled, it is true that whenever it appears in the
data, price inflation slows.  It may be, however, that the
statistic merely indicates that price inflation is slowing,
and economists blame this on something they call lower
velocity.  My point is this: every dollar of FED reserves
that isn't used for currency will get used by the
commercial banks.  Somebody is spending bank account money.
Most money is bank account money.  Gilder continues:

     Likewise, a lame and lagging indicator is the
     consumer price index.  Automobile sticker prices
     are not falling, but ubiquitous zero percent
     financing has the same effect. Big Three
     incentive packages, averaging $2,400 in October,
     are $1,000 more than a year ago. Annual sales of
     16 million vehicles, therefore, means reduced Big
     Three revenue of $16 billion. "That's almost
     double the combined pre-tax earnings last year of
     Ford, Chrysler and General Motors," said Saul
     Rubin of UBS Warburg in Barron's. "The Big Three
     are going to post tremendous losses for the
     foreseeable future," writes analyst Michael
     Churchill of Polyconomics. "The auto industry
     provides an excellent illustration of why and how
     deflation trumps interest-rate cuts in terms of
     their impact on the economy."

     This sounds very bad for the auto industry.  They have
shot their wad in 2001.  Who will buy new cars at higher
interest rates in 2002?  They bought this year instead.

     To every man and nation comes a moment to decide
     whether to embrace reality and truth, however
     harsh and harrowing, or to indulge in evasions
     and alibis. Cleaving the global economy like a
     titanic force of nature are two imperious trends.
     Originating in the private sector, one is
     overwhelmingly positive and redemptive: the ever
     accelerating advance of technology. But it faces
     a powerful force of negation and decline.

     In short, man shall not live by bread alone,
especially when it is getting cheaper.  He must live by
fiat money.  "Let them eat digits!"  (Marie Gilder.)

     Goods are supposed to get cheaper when there are more
of them to buy.  Computers get cheaper.  Why not other
things?

     The problem is not the fall in prices of consumer
goods and raw commodities.  The problem is that the
financial house of cards that was created by fiat-money
misled investors is now shaking.  The idiots created the
NASDAQ's house of cards, especially the dot-com house of
cards, and it toppled.  Now the fractionally reserved house
of cards of the interlocked daisy chain of debt is looking
shaky.  "I'll pay you when he pays me."  There is in the
range of $100 trillion of these promises to pay.  All of
them rest on an assumption: central banks will keep
cranking out digital money and buying government debt with
it.


CONCLUSIONS

     The best and the brightest got their heads handed to
them in 2000.  The insanity of the NASDAQ's 207 P/E ratio
finally got exposed for the insanity it was beginning on
March 10, 2000.  Now the industry's defenders are calling
for Greenspan to increase the money supply.  WHAT DO THEY
THINK HE HAS BEEN DOING FOR OVER A YEAR?????

     Americans are trapped in a world of debt that they
voluntarily entered into, one by one, contract by contract,
on the assumption that the FED will forever crank out
unbacked counterfeit money.

     These deflation-fearful advocates of ever-more fiat
money really need to read Rothbard's MYSTERY OF BANKING and
his 60-page masterpiece, WHAT HAS GOVERNMENT DONE TO OUR
MONEY? (1964).

     The problem with today's economy isn't Americans'
supposed distrust of high tech.  We love high tech.  We
want more high tech.  And we want it at half the price that
the kids in Silicon Valley have pasted onto sales tags this
month.  We'll get what we want, too, if necessary when the
kids' companies go belly-up, and the liquidators sell off
the inventory.

     High tech is for us consumers.  We don't give a rip
about the producers who just can't cut it, nor should we.
That's what the free market is all about: a denial of
producer's sovereignty (mercantilism).  High tech is all
about rapid depreciation and the creation of consumers'
surplus.  If the kids can't stand the heat, they should get
out of the kitchen.

     Then what is the economic problem?  The problem is the
government-granted monopoly of central banking, the
fractional reserve commercial banking system that central
banks protect, and a government that is addicted to debt,
taxes, and fiat money.

     What is the solution?  A full gold coin standard, 100%
reserve banking, the abolition of the Federal Reserve
System, the abolition of the IRS, and the replacement of
the income tax with a national sales tax.

     The solution, in short, is less government -- not the
supply-side economists' version of less government, but the
Austrian School's version.  Or, to quote the original
Austrian economist, the prophet Samuel,

     And he said, This will be the manner of the king
     that shall reign over you: He will take your
     sons, and appoint them for himself, for his
     chariots, and to be his horsemen; and some shall
     run before his chariots.  And he will appoint him
     captains over thousands, and captains over
     fifties; and will set them to ear his ground, and
     to reap his harvest, and to make his instruments
     of war, and instruments of his chariots. And he
     will take your daughters to be confectionaries,
     and to be cooks, and to be bakers.  And he will
     take your fields, and your vineyards, and your
     oliveyards, even the best of them, and give them
     to his servants.  And he will take the tenth of
     your seed, and of your vineyards, and give to his
     officers, and to his servants.  And he will take
     your menservants, and your maidservants, and your
     goodliest young men, and your asses, and put them
     to his work.  He will take the tenth of your
     sheep: and ye shall be his servants.  And ye
     shall cry out in that day because of your king
     which ye shall have chosen you; and the LORD will
     not hear you in that day. (I Sam. 8:11-18).

     The day that politicians cut the U.S. government's tax
rate to a flat 10% is the day that we return to good, old
fashioned tyranny -- traditional tyranny.  Spare me the
Laffer Curve.  I go by the Samuel Curve.  Don't cut taxes
so that government revenues will rise.  Cut them until
government revenues fall.  Then cut them some more.

* * * * * * * * * * * * * * * * * * * * * * * * * * * *



----- Original Message -----
From: Mark Jones <mark.jones@xxxxxxxxxxxxx>
To: <a-list@xxxxxxxxxxxxxxxxxxx>
Sent: Monday, December 24, 2001 11:43 AM
Subject: Re: [A-List] article and notes


> At 24/12/2001 12:36, Stan wrote:
>
> >  I have to admit that Henry's and Anne's posts have lost me, not being
an
> > economist... Is there a user friendly glossary around for twits like me
> > to help us figure this stuff out, and a kind of Econ 101 that can put
> > this together?  I have more than just selfish reasons for this.  A
number
> > of us here in NC want to put together a one-day workshop, aimed at
> > working class folks with, say, a 7th grade reading level, called
Economic
> > Literacy, that *begins* to demystify this stuff.  That means we have to
> > become literate ourselves.
>
> This is a must-do I should have thought. Thanks to Anne and Henry, and
also
> to Rob Schaap and others, we've managed to at least raise some key
> underlying issues arising from the Enron debacle. Gold and money,
> derivatives and financial markets, energy markets and spot traders v.
> energy monopolies, are interlocking sets of questions about the way the
> system works and what it has in store, but it's a bit like lifting the
> bonnet on a modern car and staring at the mass of tubes before trying to
> fix something with your Swiss Army knife--not very productive so far. I
> also have Stan's feeling that we are not doing justice to the Enron
fall-out.
>
> Very big changes in the scenery are becoming apparent now the dust of 9/11
> is beginning to settle. But some of the machinery has come adrift from its
> moorings and there is still a lot of grinding and graunching from the
> imperial gearbox (sorry for laboured metaphor). So the final outcome of
> things like status-jostling between Russia and Iran in the Caspian, the
> permanence of the US presence there, the rapprochement between Russia and
> Nato, etc, may still not be discernible, and there is also the question of
> more terrorist outrages on nuclear power stations and the like, so maybe
> the current surface calm is just apocalypse postponed anyway.
>
> There obviously is some kind of social and economic revival going on in
> Russia (no depression lasts forever) but the emerging 'long view' of
> Russian history--the palpable sense now that the Soviet era was an
> interlude which contained, expressed and preserved many sometimes-hidden
> continuities in Russian life and culture--does not hide the equally facts
> of the drastic and qualitative diminution in the global importance of
> Russia; it is a revival of sorts from a  very low baseline, and probably
no
> more than an inflection in a long-term decline. This is certainly true of
> Russian oil. The recent increases in Russian production (as shown in
> Laherrere's paper and also Colin Campbell's, both which I posted here)
> represent no more than a return to the normal trend of depletion following
> the cataclysm of the early 90's. Russian oil and gas are both in sharp
> decline and that is the basal fact for any appreciation of the strategic
> implications of Russian posturing and bullishness. (Also, it's wrong to
> compare Russian reserves with Saudi reserves by lumping oil and gas
> together; that makes nonsense of the whole idea of conventional oil
> reserves. In any case there is no logistical comparison between Russian
> oil, which comes from far away and from inhospitable places, to the oil we
> get from al-Ghawar. When Ghawar dies, western civilisation dies. And
> *that's* critical dependence if you like).
>
> Early next year I plan to post a series of papers on the theory of money,
> the money form of value, and the general question of fiat money, commodity
> money and gold as money and store of value. In all the discussion we have
> had so far there has been no reference to gold's costs of production, but
I
> personally am not yet buying off on neoclassical ideas about value. Gold
is
> a store of value because it is extremely expensive to produce, ie a lot of
> socially-necessary labour-time is congealed in every ingot. Gold does not
> decay, and is therefore a convenient store of labour-time. But it's
> physical charm and incorruptibility is not the source of its value. Today,
> there is a big disconnect between the value of gold and its price in the
> market, mainly because the market, as Anne and others point out, is
rigged.
> When the price and value of gold reconnect it is going to have the
> explosive force of particles of matter and anti-matter colliding, but
> before we can understand what the implications of this are, and how the
> crisis will play out, there has to be a clearer understanding of how gold
> as money works in the first place.
>
> Finally, I asked Leo Panitch if the Socialist Register people would like
to
> jointly host with the A-List an on-line seminar on the theme of state,
> democracy, crisis and socialism (broad enough?). Leo agreed in principle,
> but wants to consult. So in the same amicable spirit I am now consulting
> you all. Think about it.
>
> Now I gotta run, Chrsitmas is here, sorry for any logical disconnects in
> any of the above, have a good one.
>
> best to all as ever
>
> Mark
>
>
>