Order and chaos

First, a good article on chaos

[P]rinting money can go only so far without creating inflation.

Government statistics are about the last place one should look to find inflation, as they are designed to not show much. Over the last 35 years the government has changed the way it calculates inflation several times. According to the Web site Shadow Government Statistics, using the pre-1980 method, the Consumer Price Index would be over 9 percent, compared with about 2 percent in the official statistics today.

While the truth probably lies somewhere in the middle, this doesn’t even take into account inflation we ignore by using a basket of goods that don’t match the real-world cost of living. (For example, health care costs are one-sixth of G.D.P. but only one-sixteenth of the price index, and rising income and payroll taxes do not count as inflation at all.)

Why does the government understate rising costs? Low official inflation benefits the government by reducing inflation-indexed payments, including Social Security. Lower official inflation means higher reported real G.D.P., higher reported real income and higher reported productivity.


At what level of government debt and future commitments does government default go from being unthinkable to inevitable, and how does our government think about that risk?

I recently posed this question to one of the president’s senior economic advisers. He answered that the government is different from financial institutions because it can print money, and statistically the United States is not as bad off as some other countries. For an investor, these responses do not inspire confidence.

On “quantitative easing,” I would say that someone who prints money and forces people to accept/make use of it is a thief while someone who prints without having such powers but assumes that people will switch over to unbacked paper money is merely delusional. The question of enforcing a gold standard, or its precise definition, is of secondary importance; people could use marbles—or Monopoly money for that matter—as currency for all I care. What’s important is that governments should be stripped of the powers to issue fiat currency and specify what constitutes legal tender.

Then the, er, strange article on “order” by a “civil servant”-

It would be evident from the above that there is a continuum between rules, regulation, user charges and taxes, and divides between these are often blurred. Ultimately they are all alternative ordering devices to attain desired outcomes in human affairs.

Desired by whom? The State, of course-

Man is a social being who, like ants and bees, or lions and elephants, aggregates together in large colonies or societies. This entails acceptance of a complex set of ordering devices to maintain social order, including regulating access to food and reproduction…. Order in human society is enforced through the mechanism of the State.

There are four ways through which the State can ensure desired outcomes: rules/ regulation, user charges, taxation and cajoling. The last has been the least used and researched mechanism, though this might be changing through the works of behavioral economists like Thaler and Sunstein who have made a compelling case for designing social and economic policies that incorporate an understanding of people’s cognitive limitations and predilections encoded in their DNA.

…Transgression of the law is subject to State prosecution.

(Given the absolutely outrageous laws in effect in most states, that last word should have been “persecution.”)

Its interesting to see an article that tackles the human problem in a technical manner. One almost feels that he’s talking about maintaining order amongst cattle.

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