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Tag Archives: Basic Reports

Deflation Is Everywhere—If You Know Where to Look, Report 18 Aug

At a shopping mall recently, we observed an interesting deal at Sketchers. If you buy two pairs of shoes, the second is 30% off. Sketchers has long offered deals like this (sometimes 50% off). This is a sign of deflation. Regular readers know to wait for the punchline. Manufacturer Gives Away Its Margins We do not refer merely to the fact that there is a discount. We are not simply arguing that Sketchers are sold cheaper—hence deflation. That is not our approach. Let’s look beneath the...

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The Economic Singularity, Report 11 Aug

We have recently written several essays about the fallacious concept of Gross Domestic Product. Among GDP’s several fatal flaws, it goes up when capital is converted to consumer goods, when seed corn is served at the feast. So we proposed—and originally dismissed—the idea of a national balance sheet. It’s easy (conceptually) to add up all the assets and the liabilities. But the problem is that the falling interest rate pushes up asset prices. Even if one booked assets at their original...

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I Know Usury When I See It, Report 4 Aug

“I know it, when I see it.” This phrase was first used by U.S. Supreme Court Justice Potter Stewart, in a case of obscenity. Instead of defining it—we would think that this would be a requirement for a law, which is of course backed by threat of imprisonment—he resorted to what might be called Begging Common Sense. It’s just common sense, it’s easy-peasy, there’s no need to define the term… This is not a satisfactory approach. Leaving aside concerns with undefined terms as the basis of...

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Obvious Capital Consumption, Report 28 Jul

We have spilled many electrons on the topic of capital consumption. Still, this is a very abstract topic and we think many people still struggle to picture what it means. Thus, the inspiration for this week’s essay. Enterprise Car Service Suppose a young man, Early Enterprise, inherits a car from his grandfather. Early decides to drive for Uber to earn a living. Being enterprising, he is up at dawn and drives all day. He finds that he makes a comfortable living. He grosses $250 a day, minus...

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The Fake Economy, Report 21 Jul

Folks in the liberty movement often say that the economy is fake. But this does not persuade anyone. It’s just preaching to the choir! We hope that this series on GDP provides more effective ammunition to argue with the Left-Right-Wall-Street-Main-Street-Capitalists-Socialists. We frame it that way, because nearly everyone loves to tout GDP (though some do so only when it suits their political agenda). It is fashionable to say variously that the Fed is doing a good job, Obama did a good job,...

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How to Fix GDP, Report 14 Jul

Last week, we looked at the idea of a national balance sheet, as a better way to measure the economy than GDP (which is production + destruction). The national balance sheet would take into account both assets and liabilities. If we take on another $1,000,000 debt to buy a $1,000,000 asset, then we have not added any equity. This is so, even though assets have gone up. But unfortunately, as a consequence of assets going up, consumption goes up. This is the much-vaunted wealth effect. The...

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More Squeeze, Less Juice, Report 7 Jul

We have been writing on the flaws in GDP: that it is no measure of the economy, because it looks only at cash and not the balance sheet, and that there are positive feedback loops. “OK, Mr. Smarty Pants,” you’re thinking (yes, we know you’re thinking this), “if GDP is not a good measure of the economy, then what is?!” The National Balance Sheet In the first part of this series, we introduce some concepts from accounting: cash basis and balance sheet. This approach would logically suggest that...

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GDP Begets More GDP (Positive Feedback), Report 30 June

Last week, we discussed the fundamental flaw in GDP. GDP is a perfect tool for central planning tools. But for measuring the economy, not so much. This is because it looks only at cash revenues. It does not look at the balance sheet. It does not take into account capital consumption or debt accumulation. Any Keynesian fool can add to GDP by borrowing to spend. But that is not economic growth. Borrowing to Consume Today, let’s look at another problem with GDP. To understand it, let’s walk...

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What Gets Measures Gets Improved, Report 23 June

Let’s start with Frederic Bastiat’s 170-year old parable of the broken window. A shopkeeper has a broken window. The shopkeeper is, of course, upset at the loss of six francs (0.06oz gold, or about $75). Bastiat discusses a then-popular facile argument: the glass guy is making money (to which all we can say is, “plus ça change, plus c’est la même chose”). Bastiat says it is true, and this is the seen. The glazier does make money. Then he introduces the concept of the unseen. The shoemaker...

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The Elephant in the Gold Room, Report 16 June

We will start this off with a pet peeve. Too often, one is reading something about gold. It starts off well enough, discussing problems with the dollar or the bond market or a real estate bubble… and them bam! Buy gold because the dollar is gonna be worthless! That number again is 1-800-BUY-GOLD or we have another 1-800-GOT-GOLD in case the lines on the first number are busy! Whether the writer is a bullion dealer, or whether just some HODLer (a term from bitcoin—it means Holding On For Dear...

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