BOA Blocks Zero Hedge At Work

I came across an article this morning explaining that Bank of America barred its employees from accessing the Zero Hedge blog at work.

Is anyone surprised by that, though?

Banking is arguably the most powerful industry in the world and also the most unstable right now. Any opposing speech could have some serious consequences if it catches on with enough people.

The ironic outcome of BOA’s behavior is increased curiosity surrounding Zero Hedge and more fuel for the blog, itself. It is pretty much a win-win for the blog.

Thoughts on College

There are things that I dislike about higher education.

But there are things that I enjoy about it, too. This post is about those things.

First and foremost, I enjoy the atmosphere of curiosity and intellectual exploration. Universities are where ideas are formed, tested, and published. Some ideas are idiotic, but some are great. What is great about the academic atmosphere is that people are free to tell one another their idea is idiotic and then explain why and then propose a new,  hopefully less idiotic idea.

In high school, I had no idea what I enjoyed learning about or exploring. But after spending 3.5 years thus far in college, I have a great idea of what I love, what I’m passionate about, and a general idea of what I want my career to look like. That is a huge achievement in a world where many people hate their jobs, don’t know what they love, and thus deal with the obvious dissatisfaction that comes from that.

College has undoubtedly lead me to a better understanding of how the world works. It has done this by filtering me into economics classes. The ironic thing is I haven’t really reaped much understanding from the classes, themselves, but the classes laid a foundation and familiarized me with the world of economics such that I could pursue my own journey of understanding it on my own terms. In other words, I have learned more about economics from Murray Rothbard and Bryan Caplan than my own professors, but I never would have started reading them if it were not for attending class.

The odd thing about college is that the more I learn, the more I know I do not know. College has been humbling in that manner. There is so much that is yet to be known, and there is so much that I think I know that I do not know. I am thankful for this.

College definitely is not for many people, though. Perhaps even most people. It does not serve much purpose for those who have no real ambition for anything. And it certainly does not serve those who do not care to work hard. The irony that I live with is that I was that kind of person when I first started attending. My curiosity and drive for success was directly related to number of classes that I took. Each time I enrolled into a new set of classes, I became more and more entranced with the material I was studying. The idea that “college will automatically lead you to a better, more fulfilled life” is what placed me in college to begin with (via my parents’ mandate), so if that was not present, I probably would not have started going, at least not right away.

The truth is college will not necessarily lead to a better life; many times, it will ruin your life. This is especially apparent with the student loan crisis. With the government expanding the salvific view of college, more people are going, the prices are rising, and more people are leaving with unsatisfied lives and tens of thousands of dollars of debt.

Thankfully I’m not in that boat. My time studying at college has been the most fruitful and satisfying time of my life, and great career opportunities lie ahead – not because of the degree, itself, but because of the work that I put it while obtaining it.

I still have a ways to go before walking the graduation stage, but as of now my response to higher education is a resounding “Thank you!”





Ch 3: The Blessings of Destruction

The last chapter explained the Broken Window Fallacy. Chapter 3 initiates the discussion on one of the most pervasive applications of the said fallacy: the idea that destruction is good for the economy because it stimulates demand.

Though some would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. (pg 25)

The idea that fundamental principles become irrelevant on an aggregate level puzzles me. I’m guessing it puzzled Mr. Hazlitt, as well. His remark points to the unfortunte habit among economists to dismiss what is obvious on a small scale when analyzing aggregates. If someone burnt your house to the ground, then economists would not be praising this tragedy because it means you have to buy another (some might, actually). It is a bona fide tragedy – a set back – because you have lost wealth and capital and have to use up resources just to get back to the previous level of wealth before the destruction.

The connection to the Broken Window parable could not be more clear; the community has a net loss with this destruction.

This obious truth is no different on a national level. When countries are leveled, there is no hidden economic benefit. Some point to the rise in productivity, when the rebuilding is occuring, as a benefit to society and the economy. But to suggest this is nonsense. I will give an example why: Say you are working on a project at work and it takes a lot of time to figure out how to proceed or move forward with your analysis. At this point, your productivity rate might not be so high – it may take a lot of time thinking and strategizing how to move forward. But then someone accidentally erases your all your work on your computer – a tragedy, no doubt. An economist walks in the door and tells you, “Cheer up! You are going to be so much more productive while you re-work everything that you lost!”

Without thinking too much about it, anyone can see that the economist is a dunce. The worker experiences high productivity because he knows how to do what he already did. It is no wonder economies experience high rates of productivity after destruction, then. If there is available capital for labor to use, they will just be reconstructing the economy the way it was prior to being destroyed. Houses will be rebuilt. Businesses will buy the capital they lost and will work to arrive at the point they were at pre-destruction. People will be working long and hard to obtain the purchasing power they need to rebuild there homes and feed their families.

Without destruction, homes would still be there and the citizens of that nation would work to purchase things they want not things they need. There is a tremendous difference.

Today, I think the only way our economy can really accelerate forward is if the policy-makers rid themselves of the fetish of aggregate spending. Spending is the result of production and any loss to production is never an economic gain because purchasing power is destroyed.


Book Review: Currency Wars

Book Review: Currency Wars – James Rickards

Read. This. Book.

There is no shortage of bad economists in this world, fortunately, Jim Rickards isn’t one of them.  He doesn’t have all the answers, to borrow a line from the Dhammapada, the Truth is like a tree with many thousands of leaves; I think Currency Wars has a few of those leaves within its pages.

Perhaps the thing that I like most about Currency Wars, is that Rickards isn’t an academic economist, he’s a financier.  He has a sound understanding of most of the larger movements that have taken place within economics in the last sixty years, but the strength of Currency Wars doesn’t lie in attempting to advance theory with delicate nuances.  As far as economics goes, the book consists of a brief review of international trade, monetary theory, and the interactions between the two.  Any sophomore or junior in an economics program would know this stuff already.

The book is written for people outside economics circles, and for them this would all be mostly new, and this includes the vast majority of historians.  Historians, sadly, know very little about economics, and this allows well-respected history books to contain absurdities that make any decent economist laugh, or maybe even cry.  If the ridiculous interpretations weren’t taught to us as children, I doubt anyone would ever believe them; things like: WWII ended the Great Depression.  Who could believe that bullets ripping through flesh and bombs blasting apart infrastructure are roads to wealth?  But I digress.

Rickards provides a historical analysis of the last century as it pertains to national monetarism and international stability, and he does so with sound economic theory.  This alone is an invaluable antidote to some of the myths that are perpetuated by historians who are absolutely economically ignorant.  All historians provide a breadcrumb trail of facts, but it takes sound theory to connect those crumbs into a meaningful narrative.  Without theory, history is nonsense.

While the first half of the book is valuable, the second half is riveting.  Decades of experience within the financial industry and a strong grasp of many of the underlying errors that promulgate the academic worlds of economics and finance allow Rickards to interpret the unfolding of current events as few others can.  His predictions are sobering yet optimistic in their own way.

The only complaint I have with the book is that he glosses over a few areas that I believe need further expansion, that and some of his recommendations are far from the only solution.  Many of his criticisms against particular doctrines within economics could be accused of building stawmen.  People who would make such accusations would be able to point to modern research and developing theories that show Rickards’ criticisms to be off target.  While certainly there are economists making those strides, I believe his criticisms still ring true with the vast majority of academics, such is the sad state of our discipline.  Rather than blast Rickards for beating a dead horse, we should be blasting our own for still riding them.

Twice now, economists from outside the particular echo-chamber where I’m comfortable dwelling have thoroughly impressed me, and have cited Walter Bagehot as an early influence on their thinking.  For every book I read, it seems I add at least one more to the list of things I need to research.  I won’t be letting anyone borrow this book, or if I do, I’m going to tear out the bibliography first, it’s a handy list of things I need get my hands on.

I can’t emphasize it enough, read this book.

– Other Steve

Old News

This is definitely old news, but I just watched this documentary about the latest financial crisis and I liked it (most of it). Besides being well made on a filming level, it does a great job of explaining the financial products that were being traded and gives a good glimpse of the corrupt relationships that exist between the banks and the treasury/central bank.

An unfortunate reality is that many people still think that this crash was primarily a product of capitalism. This couldn’t be more wrong. Peter Schiff, in his latest book, The Real Crash, has it right when he explains that the willingness to exploit the financial system is always present and it is the people who enable that behavior that should be blamed, i.e. the central bankers and government. In other words, incentives drive the economy (is this new?) and if someone knows that very risky behavior has no downside, then they will act accordingly. This is not capitalism. Capitalism does a much better job at restricting reckless behavior because the potential for major loss is real.


Update: The video is no longer streaming for free. That is why the video is not working. If you want to check to see if it comes back, you can check here.

What do Bankers Know about Money?

Short answer:

Not a whole lot.

Long answer: 

It’s been a few weeks since I began my career as a capitalist at one of the largest banks in the world.  I find that my economics degree is mostly useless to me as I go about the business of doing my specific job.  This doesn’t surprise me at all; an economist is to a businessman what a biologist is to a hunter.  Sure the biologist might know that most bears die in the wild from an abscess tooth, but the only biology the hunter cares about is which parts of the bear are delicate enough so that when a large caliber bullet rips through them, the bear is unable to place the hunter in any mortal danger.  My economics degree allows me to know the social function of my job, but that doesn’t really help me perform it any better.  On the flip side, of the vast majority of people I’ve met so far, despite fruitful decades of successfully advancing their careers in the banking world, most are pretty clueless when it comes to theories of money or understanding the social function of what it is they do every day.  Most have some sort of passive faith that what they do is necessary, but they say it with all the conviction of a janitor who blithely proclaims that without him nobody would wax the floors.

I bring this situation to light, not in some vain attempt to fix something that I perceive to be a problem.  On the contrary, our society is fundamentally built upon the division of labor, it is the means of our survival and method by which we have made this spinning rock capable of supporting seven billion of our kind where a few thousand years ago it could only support the tiniest fraction of that number.  I could no more hate the ignorance of successful businessmen in an esoteric field like economics than I could hate the reflection that looks back at me in the mirror when I brush my teeth.  The reason that I can reliably procure six freshly slaughtered hens with a scant hour of labor, a feat unfathomable to my grandfather, is that the farmer, meat packer, truck driver, grocer and banker spend their time getting better at their own jobs rather than squandering it on some sort of luxury consumer philosophy called economics.

The problem that I am attempting to fix is the confidence that my average countryman places in those that wield power over him.  I don’t yet know the wellspring from which this confidence in the system bubbles, but I have encountered no shortage of people who think that civilization is still marching onward and upward, guided by either virtuous leaders, effective bureaucracies, or perhaps even the invisible touch of the goddess Democracy herself.  The term social engineering is bandied about casually as if our society could be carved, welded, bored, and tuned with the sort of precision that could only be measured by the most delicate calipers.  Our nation is seen like a powerful locomotive, surging ahead on a carefully laid track with a confident conductor, his steady hand on the controls, his steely gaze ever fixed on the horizon.

Bankers know nothing of money, politicians know nothing of society, nobody is driving the train.

– Other Steve

Ch 2: The Broken Window

There is a lot of hooplah surrounding the interpretation of Bastiat’s Broken Window Fallacy. Economics bloggers from all over the interwebs are quoting Bastiat and squabbling about what he actually meant when he wrote That Which is Seen, and That Which is Unseen.

For those unfamiliar, see the video below:


Hazlitt points out in the chapter that the point is wealth. Destroying the window may seem like it is good for the economy because the glazier gets some money out of it (i.e. on a large scale, more glazier jobs are created). But this thinking misses the jobs that could have been created if the shopkeeper were to spend his money on something else, like Playstation 3’s. Up to now, it is just a matter of spending money one place or another; there is no net wealth effect. But the point of the parable is grasped when we realize that with the broken window, the community in which the shopkeeper is apart only gets a new window out of the circumstance. Without breaking the window, though, the shopkeeper is free to spend his money on the Playstation 3, so the community gets both the window and the Playstation 3. Here is the net wealth effect.

The point is wealth. Destruction cannot create more wealth – this is the topic of the next chapter.