Perhaps my favorite part of the Christmas season is receiving cards or messages from old friends. For me this includes news from my favorite bars in the different cities I have lived: The Green Room in Durham, NC, Porters’ Pub in Easton, PA, The Old Hack Pub in Brussels, Belgium, and The Bombay Bicycle Club in San Antonio, TX. The BBC is a great place, located in Brackenridge Park near the zoo, especially to meet a truly wide range of people. I used to frequent there when I was teaching at the nearby university. I recently received news of the regulars from the owner Bill, who also asked me the following question:
When do you think Israel will bomb Iran? I want to buy some oil futures as a hedge against high gas prices. Your thoughts
What follows is my response to Bill.
Dear Bill,
As you well know my academic background you cannot expect a simple answer to any question. So first I must digress to consider economic theory and history. The vast majority of people who call themselves economists are actually educated and paid to serve the interests of particular elite groups; i.e., the state or those who control the state. This has happened to other kept professional classes, exemplified by the long history of court historians, and more recently by climatologists. The elite class that makes up the state has, through many modes, but most successfully in the modern era through monetary inflation, parasitically lived off of the general population. It has been the task of the economists to make the people believe that this robbery has been for their own good. Economics is thought to be more complicated and mathematical because the purpose of so-called economics is to obfuscate, not to explain truth.
There is one school of economics, the Austrian, that does search for truth, as exemplified by its great champion, Ludwig von Mises (Anna’s middle name Louisa is in honor of Ludwig). One of the fundamental premises developed by Mises (and others in the Austrian school) is that the business cycle, the boom followed by the bust, is generated by excess credit in its many forms. Put simply, the government creates credit (or money directly) to maintain power for itself or to enrich its cronies; think military industrial complex, Wall Street, medical industrial complex, big agriculture (e.g., the Texas mohair interest), etc. The new money creates bubbles in various parts of the economy that must eventually collapse because they are not based on the reality of scarce resources. This process of boom and bust based on the false information for the economy in general enriches the connected elite and impoverishes the people. At the end of the process the currency collapses (most recently Zimbabwe), taking much of the distribution of labor in the economy with it. Mises called this late stage the crack-up boom. (more…)
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