"To defend the truth, to articulate it with humility and conviction, and to bear witness to it in life are therefore exacting and indispensable forms of charity."

H. H. Benedict XVI. Caritas in Veritate Encyclical. June 29, 2009

Friday, March 6, 2009

Governments are market institutions

Governments too are institutions which are constrained by this complicated system of incentives, competition, consumer sovereignty, and (summing up) spontaneous order which we usually call the market.

Governmental institution, in its productive activities, depends on the same praxeologic laws which apply to any other firm. A government which sells its products at more expensive prices than other governments or gives less quality in exchange for a given amount of money compared to others will receive less and less resources till it goes, sooner or later, to the bankruptcy; this is, to a situation of revolution in which governmental structure is fundamentally modified.

Governments open to competition (in the form of at least free migration in and out, access to information on the performance of foreign governments, and checks and balances) are more suitable to perform well and finally survive than those trying to impose barriers of entry to competition.

Although usually the epicenter of central planning of society, government is itself a sort of spontaneous ordering and, as such, it evolves in ways which can't be predictable but on the point that they will tend to survive if satisfy consumer sovereignty or disappear otherwise.

So, quoting Mises at length:
"A statesman can succeed only insofar as his plans are adjusted to the climate of opinion of his time, that is to the ideas that have got hold of his fellows' minds. He can become a leader only if he is prepared to guide people along the paths they want to walk and toward the goal they want to attain. A statesman who antagonizes public opinion is doomed to failure. No matter whether he is an autocrat or an officer of a democracy, the politician must give the people what they wish to get, very much as a businessman must supply the customers with the things they wish to acquire." Theory and History, page 187.

Thursday, March 5, 2009

Cost-pushing and demand-pulling as monetary phenomena

So called cost-push inflation and demand-pull inflation don't have to be viewed as explanations contrary to the idea that inflation is a strictly monetary phenomenon. Increasing prices through cost-pushing and demand-pulling are indeed present in inflationary episodes and can validly be recognized from a monetary viewpoint. They have, however, to be viewed not only as manifestations or symptoms but as causes of inflation, via either money supply or money demand.

This is true even if you use the monetarist frame. For instance, remember of Friedman (1) setting down wages as a determinant of the velocity of money. According to this, a rise in wages (as in a policy of rising minimum wages) could not necessarily be reflected in unemployment but could rather put pressure on prices. In the extreme case, we would have:

(↑w)L+rK=
(↑v)M=
(↑P)Q

This is: we could have, following the necessary logic consequences of Friedman representation of v, a cost pushing on prices within the equation of exchange (or at least the Friedmanite version of it).

(1) Friedman, Milton. The Quantity Theory of Money−A Restatement. 1956 -University of Chicago Press, 1987-. Page 293. See particularly equation 13.

Monday, March 2, 2009

Gini as an envy coefficient

Gini coefficient of incomes can be interpreted as a measure of envy.

If it's high, people don't ask if there are some lazier and others more diligent. It's bad anyway because some earn more than others.

If it've risen, it doesn't matter if that occurred because some went farewell or the arriving of wealthy people. It' bad anyway because some earn more now than others.

In usual interpretations of the Gini coefficient, it doesn't matter poverty, it doesn't matter effort. The one thing it matters is inequality. And the more inequality there is the worse. What can be that but pure and blatant envy?