The fall of tyranny, the rise of liberty

Summary: Massive debt is sealing the fate of governments and central banks.  As the cards collapse, radical developments in diverse areas of technology, combined with free market entrepreneurship, will destroy and rebuild the existing social order.   

Trouble begins when bureaucracies replace free markets.  In the U.S., we find money, the lifeblood of the economy, resting in the hands of a board of bureaucrats whose statements the financial punditry spends their waking hours trying to decipher.  What does this portend for the foreseeable future?  Ben Wright, Group Business Editor at The Telegraph, takes us through one possible scenario.

The total value of all global equities was around $70 trillion in June last year, according to the World Federation of Exchanges; meanwhile, the notional value of all outstanding derivatives contracts was more than $690  trillion. It is worth noting that the vast majority (around four-fifths) of all existing derivatives contracts are based on interest rates.

Derivatives are “essentially insurance policies - they are designed to protect the holder from adverse price movements,” such as a change in interest rates.

Let’s say that US interest rates do rise sooner and faster than the market expects. That means bond prices, which always move in the opposite direction to yields, will plummet. US Treasury bonds are like a mountain guide to which most other global securities are roped - if they fall, they take everything else with them. 

Who will get hurt? Everyone. But it’ll likely be the world’s banks, where even little mistakes can create big problems, that suffer the most pain.

Banks are well-aware of this threat and have negotiated interest rate derivatives to hedge their risk.  They bought these derivatives from other banks.

This creates what is known as counterparty risk. Bank A sells insurance to Bank B. But then Bank A gets into financial difficulties (a significant deterioration in their creditworthiness would be enough) and suddenly Bank B isn’t as well protected as it thought it was. . . . 

Clearing houses are designed to deal with one or two counterparties going down. But what happens if more go kaput? The clearing house itself would face collapse, be judged too big to fail and, well, you already know how this story ends.

We do, but where does it begin?

Governments’ silent partner: Central banking

It originates in the wish of big bankers to create a government scheme to protect and amplify their wealth, while promoting it as a necessary corrective to what they say is an inherently flawed free market that suffers from periodic crises.  This is often cited as the rationale for central banking.  The central bank is supposed to eliminate crises by coordinating and restricting the credit expansion (monetary inflation) of its fractional-reserve member banks.  In the event this doesn’t work, the central bank bails out the biggest banks under the flag of “lender of last resort.” 

Most economists consider fractional-reserve banking a sound and ethical business practice.  It consists of giving two people — depositor and borrower —  a claim of ownership to the same thing.  The free market penalizes fractional-reserve banking with bank runs and currency drains from less-inflationary competitor banks.  Historically, bankers resented this.  Governments, always looking for revenue, sided with the bankers and established central banking cartels.  Governments changed money itself from a commodity to something the banks could inflate at will (paper and digits), with another government agency acting as an “insurer” of digital deposits to calm the natives.  (See Rothbard, pp. 134-137)

The counterfeiting cartel called the federal reserve system has survived for over a century.  What would its economic report card look like?  It penalizes savers through deliberate monetary debasement.  It makes honest price discovery impossible.  It has created numerous financial crises, including two devastating ones.  After the crisis hits it finds fault everywhere except home in its Keynesian hunt for causes.  The bought economics profession becomes the barking dogs on the hunt.  Those closely connected to the Fed, such as the government, benefit from the Cantillon Effect. 

The claim that the economy needs a meddler to execute “monetary policy” is never seriously questioned.  See, for example, FRBNY president William Dudley’s “Lessons Learned” speech given in 2009 at the BIS conference in Basel, Switzerland:

Dudley: If one means by monetary policy the instrument of short-term interest rates, then I agree that monetary policy is not well-suited to deal with asset bubbles. But this suggests that it might be better for central bankers to examine the efficacy of other instruments in their toolbox, rather than simply ignoring the development of asset bubbles. 

If existing tools are judged inadequate, then central banks should work on developing additional policy instruments.

Got that?

Compare his comments to those of Milton Friedman, who Helicopter Ben once lauded for his view that the Fed failed to print enough money to offset price deflation following the Crash:

If a domestic money consists of a commodity, a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself.  Salerno, p. 356

Friedman expanded on this thought elsewhere:

If money consisted wholly of a physical commodity ... in principle there would be no need for control by the government at all. . . . 

If an automatic commodity standard were feasible, it would provide an excellent solution to the liberal dilemma of how to get a stable monetary framework without the danger of irresponsible exercise of monetary powers.  Salerno, pp. 334-335

Of course, this is not the Friedman Bernanke-the-Keynesian extolled.

All folly must be funded, and the Fed is front and center with its “accommodating” printing press. But the Fed is not just an economic calamity for most of us — it has blood on its hands.  Mostly, it’s the blood of everyday people, the ones who ultimately bail out the big boys involuntarily, with their money and their lives.  Central banking is the pillar of the welfare - warfare state. 

Without the Fed and its cohorts elsewhere, we likely would have had a relatively peaceful twentieth century instead of the record-setting slaughter we experienced.   See David Stockman’s “The Epochal Consequences Of Woodrow Wilson’s War” for details.  See also Wikipedia’s page on the Nye Committee findings or read highly-decorated Marine Major General Smedley Butler’s War is a Racket.

Senator Gerald Nye of North Dakota, Chairman of the Senate Munitions Committee, concluded that “We didn't win a thing we set out for in [World War I]. We merely succeeded, with tremendous loss of life, to make secure the loans of private bankers to the Allies.”

Thanks to Thomas Woodrow Wilson and his warmongering handlers, and the Federal Reserve Act Wilson signed into law, perpetual war has become the norm in foreign policy, as long as the wars are conducted in sufficiently obscure and distant locations so as not to rattle the folks back home.

Keep the names, change the meaning

The Fed has funded a fascist state almost from its inception.  With fascism we get good-old-boy economics in the name of free markets and the erosion of liberty in the name of liberty.  

Keynes became an international hero among interventionists when he published an opaque treatise justifying government control of markets.  In the preface to the German edition of The General Theory (1936), he wrote:

Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.

I agree that his “theory of output” is appealing to totalitarians.  It’s also appealing to totalitarian-lite politicians and economists such as exist the world over.   Little totalitarians’ fingerprints are everywhere we look.

As we’ve witnessed with Assange, Snowden, Manning, and others, those with the courage to expose government wrongdoing are immediately in its crosshairs as traitors.

Crises become an excuse to create more bureaucracies such as the DHS and its subordinate, the TSA.  An airplane ticket serves as a waiver of Fourth Amendment rights.

Surplus war weapons trickle down to domestic enforcement agencies.  The police are becoming indistinguishable from an occupying army, one that’s hostile to locals.

The "national security" mantra means we live by permissions and restrictions.  Kids are prohibited from selling lemonade or shoveling snow without a permit.  If they so much as point a finger at someone in the shape of a gun they can be suspended from school.

Many of these same kids will later be drawn into the military to kill on command for the state, while the alarming suicide rate of young veterans is brushed aside with “concerned” rhetoric.  According to one site, 49,000 veterans killed themselves between 2005 and 2011, more than twice the number of civilian suicides.  

The helping hand of big government always carries a penalty.   Government loans are turning college students into debt slaves — in many cases, unemployed or underemployed debt slaves.

Where there’s perpetual war there’s perpetual spying.  The NSA spies on everyone in virtually everything they do.  As Snowden remarked in a recent radio speech, referring to the Sydney siege and Charlie Hedbo attacks, “[mass surveillance] is not going to stop the next attacks either.  Because they’re not public safety programs. They’re spying programs.”

The government invokes Orwell with the Patriot Act, the Affordable Care Act, and now Net Neutrality, and most people, intellectually stunted from their government school experience, applaud or don’t care.

We can expect more of the same and worse when the next AIPAC- and CFR-approved candidate becomes president.

The trends favor liberty

The above scarcely begins to touch on the disaster the American state and its central bank have created.  For libertarians, matters grow worse with each passing day.  Fortunately, there are two unmistakable trends working in liberty’s favor:  Massive debt and advancing technology.

Technology is ripping a hole in centralized social control and its Keynesian underpinnings, bringing power and freedom to individuals the world over.  

Both Keynesianism and technology are on a cusp.  One is on a road to collapse, while the other is about to kick into high gear. 

On February 25, Boston University economist Laurence Kotlikoff told members of the Senate Budget Committee, “Our nation’s broke, and it’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today.  Indeed, it may well be in worse fiscal shape than any developed country, including Greece.”  

Why?  Because the U.S. has a $210 trillion fiscal gap.  How can the government close this gap?  Right now, it would “require an immediate 58.5 percent increase in all federal taxes or a 37.7 percent permanent, across-the-board decrease in federal spending.”

It’s not going to happen.  Congress will kick the can.  Creditors will get stiffed.  Government promises will be broken.  The bill for the Keynesian free lunch will come due, and the government check will bounce.

Where will that leave us?  With a weakened and discredited government, and the bogus Keynesian ideas that supported it, we will have to become more self-reliant.  The cry for the government to “Do something!” will be answered with an echo.  Free markets will emerge where they’ve been suppressed because much of government will be ineffective or no longer exist.  A free market in combination with a revolution in technology will remake our world.

The technology revolution: Subversive and seductive

Unlike other revolutions, the revolution in technology will not end.  It started when someone first used a stick to extend his reach.  It is ongoing, ever accelerating, and reaching into virtually every area of life.  Nor does it centralize power.  As we’ve witnessed with computers, it is radically decentralizing and price deflationary.  

Information technology has been growing exponentially since the 1890 US census.  More technologies have become information technologies, putting them on an exponential growth curve.

The exponential is not easy to grasp.  Futurist and entrepreneur Ray Kurzweil explains why:

1.    Linear growth is steady, while exponential growth becomes explosive.

2.    Exponential growth will always seem linear when viewed over a short-enough time span.

3.    Exponential growth is seductive.  In its early stages it acts like linear growth.  It becomes explosive after it reaches the knee of the curve. Most of us still view the distant future from a linear perspective.

4.    The rate of change is itself accelerating.  We won’t experience one hundred years of technological advance in the twenty-first century; we will witness on the order of twenty thousand years of progress (at the rate in the year 2000).

5.    Many scientists are skeptical of the exponential.  They are trained to be skeptical.  When progress moved along the linear portion of the exponential this was understandable.  We’re at the knee of the curve today in many areas of technology (see chart).

6.    Awareness of exponential phenomena sometimes produces overly-optimistic expectations.  Exponential growth picks up speed over time but it is not instantaneous.  

(From The Singularity is Near, Ray Kurzweil, p. 10)

Kurzweil refers to exponentially-growing technology in various disciplines as the law of accelerating returns.  As he explains: 

It’s the economic imperative of a competitive marketplace that is the primary force driving technology forward and fueling the law of accelerating returns.   In turn, the law of accelerating returns is transforming economic relationships. Economic imperative is the equivalent of survival in biological evolution. We are moving toward more intelligent and smaller machines as the result of myriad small advances, each with its own particular economic justification. Machines that can more precisely carry out their missions have increased value, which explains why they are being built. There are tens of thousands of projects that are advancing the various aspects of the law of accelerating returns in diverse incremental ways.  The Singularity is Near (2005)

The price-competitiveness of entrepreneurship will spread technology in various forms around the globe.  Recent headlines reveal major technology companies working to bring internet service to regions that have been without it, using airborne devices such as drones, satellites, or balloons.  With internet service and affordable devices will come educational opportunities for millions of people who have never had any. 

The massive impact of 3D Printing

Two years ago Allister Heath of The Telegraph wrote about 3D printing and what it will do to our world. 

Remarkably, 3D printing allows actual objects to be designed and created (or “printed”) surprisingly quickly with a computer connected to a printer-like device, using special material (often plastic, but increasingly almost anything) as “ink” and “paper”. With the costs of the machinery nearing mass-market levels, 3D printing is poised to take off, blurring the distinction between digital and physical realms, democratising manufacturing and turning large chunks of the global economy upside-down. . . .  

Making things using one’s own equipment may even become almost as common as cooking one’s own food or uploading one’s own pictures to a social network. . . . 

Given that economies of scale will no longer be so essential, 3D printing will drastically reduce the barriers to entry to start-ups. Anti-trust policy will become obsolete. The influx of new competitors will shake up many industries, just as old oligopolies built around intellectual property have already been smashed.

Choice will have no bounds.  Already, 3D printers can manufacture things like furniture, cutlery, and machine tools, but this is only the beginning.

Far more complex items will become printable, a development which would truly change the world. Anthony Atala, of the Wake Forest Institute for Regenerative Medicine in North Carolina, recently harnessed a 3D printer with living cells as the “ink” to create a transplantable kidney. Even restaurants could be partly automated. Jeff Lipton, of Seraph Robotics, argues that food will be 3D printing’s killer app, and has demonstrated how scientifically precise cakes can be produced, feeding all the usual ingredients into the machine.

This is Joseph Schumpeter’s “creative destruction” in action.  But it applies to more than markets.

Eventually, even governments will be threatened by the 3D printing revolution. In a world of endless choice, who will put up with one size fits all public services and flawed, bureaucratic decision making?

Atomically Precise Manufacturing (APM)

Eric Drexler, the father of modern nanotechnology, sees 3D printing as a precursor to a more exacting manufacturing method he calls Atomically Precise Manufacturing (APM).  Because APM will use common feedstocks instead of scarce materials, its full development will result in radical abundance.

According to Drexler the science of APM is settled.  We are not waiting for some “Eureka!” moment.

We’ve come a long way, and there’s a long way to go, but the road has no gaps, no chasms to cross. . . .  The fruits of [APM] research appear in scientific journals, with more papers published daily than anyone could read.

Zyvex was founded in 1997 with the goal of developing atomically precise manufacturing.  Several of its products had been commercialized by 2007.  Its website describes nanotech in everyday terms.

Todays manufacturing methods are very crude at the molecular level. Casting, grinding, milling and even lithography move atoms in great thundering statistical herds. 

It's like trying to make things out of LEGO blocks with boxing gloves on your hands. Yes, you can push the LEGO blocks into great heaps and pile them up, but you can't really snap them together the way you'd like. 

In the future, nanotechnology (more specifically, molecular nanotechnology or MNT) will let us take off the boxing gloves. We'll be able to snap together the fundamental building blocks of nature easily, inexpensively and in most of the ways permitted by the laws of nature. This will let us continue the revolution in computer hardware to its ultimate limits: molecular computers made from molecular logic gates connected by molecular wires. This new pollution free manufacturing technology will also let us inexpensively fabricate a cornucopia of new products that are remarkably light, strong, smart, and durable.

Eliminating disease and rejuvenating our bodies 

“[Biologically,] we are fundamentally information,” Ray Kurzweil tells us in his movie, Transcendent Man.  “At the core of our ten trillion cells are genes, and genes are sequences of data.  And they evolved thousands of years ago.  Many of them go back millions of years.” 

The software in our bodies is ancient but we’re learning how to change it.  Changing it will revolutionize medicine.

A hybrid scenario involving both bio- and nanotechnology contemplates turning biological cells into computers. These “enhanced intelligence” cells can then detect and destroy cancer cells and pathogens or even regrow human body parts.

Biotech programmers will treat aging as they treat diseases.

Biotechnology will provide the means to actually change your genes: not just designer babies will be feasible but designer baby boomers. We’ll also be able to rejuvenate all of your body’s tissues and organs by transforming your skin cells into youthful versions of every other cell type. . . .   

Already, new drug development is precisely targeting key steps in the process of atherosclerosis (the cause of heart disease ), cancerous tumor formation, and the metabolic processes underlying each major disease and aging process.

Technology and medicine

Advances occur almost daily in a wide range of technologies.  What follows is a random sampling of medical research and applications.

Three years ago researchers at the University of Michigan 3D printed a windpipe that held an infant’s airway open.  It likely saved its life.  Glenn Green, an ear nose and throat specialist, helped develop the device.

The use of 3-D printed devices and body parts is still in its infancy. Cartilage and bone will be the first solutions to reach wide use, Green says, adding there is a "gigantic potential," for the future.

While nanotechnology still has years of research ahead of it, there are some promising developments for the near future. Dr Thomas Webster, the chair of chemical engineering at Northeastern University in Boston, is conducting research that attaches drugs and possibly metals and minerals to nanoparticles that then bind themselves to cancer cells and viruses, leaving healthy cells unharmed.  They’re not at the level of the nanobots in Michael Crichton’s novel Prey that “roamed through patients autonomously hunting down medical problems,” but they’re getting close.

Meanwhile, researchers the University of Manchester have used graphene oxide, a non-toxic material, “to target and neutralize cancer stem cells (CSCs) while not harming other cells.”  CSCs spread cancer within the body and are responsible for 90% of cancer deaths.

Another study using gold nanotubes integrates “diagnosis and therapy in one single system.”

The researchers injected the gold nanotubes intravenously. They controlled the length of the nanotubes for the right dimensions to absorb near-infrared light (which penetrates tissue well) from a pulsed infrared laser beam. 

By adjusting the brightness of the laser pulse, the researchers were able to control whether the gold nanotubes were in imaging mode or cancer-destruction mode.

Lung cancer is the number one cancer-killer in the U.S.  Detection of lung cancer is usually done with an invasive biopsy when the tumor has reached a diameter of 3 centimeters and is often metastatic.  Yong Zeng and his fellow researchers at the University of Kansas have developed a lab-on-a-chip that could detect lung cancer much earlier using a small drop of the patient’s blood.  “In theory,” Zeng says, “it should be applicable to other types of cancer.”  They are continuing research with this goal in view.

Conclusion

Things can always go wrong.  Nuclear war could erupt and wipe out humanity.  Smart robots could take over the world and wipe out humanity.  Terrorists could invent a killer virus that wipes out humanity.  The possible downsides to sophisticated technology are seemingly endless.

But as noted earlier, there are two trends today that are real and visible:  Massive debt and advancing technology.  Follow the implications.  There will be pain, but then recovery and real growth.

There are other facts working in favor of positive outcomes.  People generally want to live long, healthy, enjoyable lives.  Technology is working to make that a reality.  People generally don’t like dealing with bureaucracies, paying taxes, or making war on their neighbors.  Collapsing governments will make this a reality.  

And there are other thoughts to consider.  

The free market is the expression of economic law.  Keynesianism consciously violates it.  Governments the world over have bet the farm on Keynesianism.  They’re about to lose the farm.  

Technology, meanwhile, will continue its accelerating advances, benefiting most people in the process.   The benefits will become increasingly radical, remaking our world.  

It will be a world where killer diseases can be detected and treated quickly at low cost.

It will be a world where aging is more of a choice rather than an imposition of nature.

It will be a world where people can afford to own machines that can make just about anything they want or need from ordinary materials.  Abundance will replace scarcity.  Poverty will cease to exist.

It will be a world in which energy is plentiful and cheap.  War for oil or other scarce resources will be relegated to history.

It will be a world where people are easily connected through technology, where real-time translation software destroys the language barriers that exist today.

It will be a world in which people will be able to get the education they want through digital technologies.

I, for one, look forward to it. 

How to short Western Civilization

Below are excerpts from a St. Patrick's Day article written by Gary North.  The full article is accessible only from a paywall.

The Logic of Gold and Anti-gold Investing by Gary North

When you buy gold, you are shorting Western civilization.

I have been saying this for 50 years, and I will not stop saying it.

When you buy gold, you are shorting Keynesianism. You are shorting the Chicago School of economics. You are shorting the stock market. You are shorting currencies. You are saying to yourself, loud and clear, that you do not believe that a world controlled by central banks is a stable, reliable world. . . .

The best thing you have that will defend you against really bad times is a good job: voluntary exchange. You need continuing income, based on the sale of your labor services. . . It is your job, meaning your productivity, that is the source of most of your wealth. The rest of your assets are simply used as a temporary backstop to bail you out when you lose your primary source of income.

The average man believes in the promises of politicians. To the extent that he understands central banks, he trusts them too. He thinks the world is run by experts, and these experts are going to do whatever it takes in order to make the world safe for the average Joe. So, there are lots of reasons not to buy gold. You will be told by everybody that buying gold is foolish. Your investment advisor will tell you this. Your brother-in-law will tell you this. CNBC will tell you this.

The entire civilization is built on this presumption: gold is a barbarous relic. This is because modern civilization is built on the wisdom of central bankers. The modern world is built on permanent monetary debasement. . . .

Why should you buy gold if you don't own any gold? Because there should be something in your life that says this: "I don't trust the politicians, the central bankers, and the Medicare system." At some point in your life, you have to put it on the line. You have to have at least a symbolic amount of your net worth tied up into an asset that will protect you briefly if there is a major crisis.

I have not told people to put half their money into gold and silver. I have told them to put somewhere between 10% and 20% of their retirement portfolios in the precious metals -- but not in an IRA or a 401(k) program -- too visible to the IRS. I have told them to start with gold coins. . . .

People in China, India, and Asia know they cannot safely trust governments. They know they cannot safely trust the central bankers. They have been lied to all their lives by government officials, and they have been mired in poverty. So, when they get ahead in their economic lives, they buy some gold, because that's what their grandparents and their great grandparents did. Why? Because they knew from experience that they could not safely trust politicians and bankers.

But Americans still think they can trust politicians and bankers.They don't want to make a symbolic move to buy gold.

Anyone who refuses to own gold is saying, loud and clear, that he trusts Janet Yellen, he trusts Obama, he trusts Jeb Bush, he trusts Hillary Clinton, and he trusts his local Congressman, who has assured us Social Security and Medicare payments are guaranteed forever. He also trusts the business cycle. He doesn't think he's going to get fired. He doesn't think mass inflation is a possibility.

The Founder no one knows

The first major secessionist movement in American history depended on many things for its success, not the least of which was an unemployed, twice-married tax collector from Thetford, England who had dropped out of school at age 12 to apprentice in his father’s stay-making business.  As an adult he stumbled through various unsuccessful occupations while building a reputation as a beer hall debater.  

At 37, broke and already close to the end of his life given the statistics for that period, he took a coach to London where he had a chance meeting with Benjamin Franklin.  Franklin was so impressed with his intellect he wrote him a letter of recommendation and urged him to take it to Philadelphia where he might find employment as a tutor.  

Typhus almost killed him on the voyage over, but after a lengthy convalescence he found work as editor of a new magazine, publishing his first article on January 24, 1775.  Foreign vices, he wrote, engaging his poetic flair, should they survive the voyage from Europe, 

either expire on their arrival, or linger away in an incurable consumption. There is a happy something in the climate of America, which disarms them of all their power both of infection and attraction.

As one biographer has noted, “This was the beginning of [his] long love affair with America.” 

More articles, often of an incendiary nature, tripled the number of subscribers.  Later that year Franklin returned to Philadelphia and asked him to write a history of the colonies’ conflict with the Mother Country.  Since he had once again lost his job over a salary dispute he decided to accept Franklin’s offer.  

The 77-page pamphlet he published anonymously changed world history.  

It argued persuasively that the choice for Americans was independence or slavery, that King George, far from deserving unconditional loyalty, was in truth “the Royal Brute of Great Britain” and the one chiefly responsible for the oppressive measures imposed on the colonists. [Mises article]

Published on January 10, 1776 and priced at an affordable two shillings, it sold 120,000 copies in three months, reaching tradesmen and statesmen alike.  As Pulitzer Prize-winning historian Bernard Bailyn has written, 

A group of influential and articulate leaders, especially those from Massachusetts, were convinced that only independence from England could properly serve American needs, and Benjamin Franklin . . . had reached the same conclusion and had found like-minded people in Philadelphia.  But that was not the common opinion of the Congress, and it was not the general view of the population at large.  Not a single colony had instructed its delegates to work for independence . . . All the most powerful unspoken assumptions of the time -- indeed, common sense -- ran counter to the notion of independence. [Bernard Bailyn, pp. 68-69, emphasis in original]

His pamphlet overturned those unspoken assumptions.  After July 4th colonists understood what the war was about.  

But it wasn't going well at all.  After suffering heavy losses in New York, Washington retreated across New Jersey and crossed the Delaware River, settling in outside Philadelphia.  By mid-December many soldiers had only one goal, staying alive until their period of enlistment was up at the end of the month.  Morale was low, and desertions were rising.  Well-aware of the colonists’ condition, British General Sir William Howe ordered his troops into winter quarters, creating outposts from New York to Burlington, New Jersey.  

A desperate Washington turned to the Thetford native, who was serving as an aide-de-camp, and asked him for help. 

Shortly before Washington crossed the Delaware on Christmas night for an early morning attack on a Hessian garrison at Trenton, he penned the first of a series of essays known as “The American Crisis.”  It is said that Washington ordered the essay read to his demoralized and ill-clad troops during a sleet-storm before making the crossing.  The essay, immortalized in American history with its opening words — These are the times that try men’s souls — may have inspired the men or not, but it did boost the spirits of patriot civilians when they heard news of the Americans’ decisive victory.  [Mises article]

After the war he returned to England to find a builder for an iron bridge he had designed.  Though he was by then a celebrity and participating in the “pomp and show” of Europe, he had strong longings for his adopted country thousands of miles away.

In a letter to his newly-married friend, Kitty Nicholson Few, in January 1789, he anguished over the future of the country he had helped create that had undergone a nationalist-led coup d’etat in Philadelphia during the summer of 1787. 

A thousand years hence (for I must indulge in a few thoughts), perhaps in less, America may be what England now is! The innocence of her character that won the hearts of all nations in her favor may sound like a romance, and her inimitable virtue as if it had never been. The ruins of that liberty which thousands bled for, or suffered to obtain, may just furnish materials for a village tale or extort a sigh from rustic sensibility, while the fashionable of that day, enveloped in dissipation, shall deride the principle and deny the fact.

Those last words — “shall deride the principle and deny the fact” — do we not hear them every day, in one form or another, from anyone with a public voice?  Have we not surrendered to an elite that wanted a more “energetic” government funded by an “elastic” currency?  Have we become “what England now is,” which he described as “the greatest perfection of fraud and corruption that ever took place since governments began”?  I leave that for you to decide.

Happy birthday, Thomas Paine.  And thanks for the country.

For a dramatization of his role in the American Revolution, see this.

What to do with the fast pace of technology

TIME’s Rana Foroohar is concerned about how technology is making all of us less trusting.  It’s moving too fast, she says, at least for the average Joe.  

Backing her up is the 2015 Trust Barometer Survey, released every year at the World Economic Forum in Davos that’s ongoing now.  Two out of every three consumers in the 27 countries surveyed said they were unable to cope with the fast pace of technology development.  Ms. Foroohar didn’t mention this, but we’re already on the knee of the technology exponential.  As change moves into the vertical part of the curve and accelerates at a blinding pace, what will consumers do then?  Taking a Trust survey will be pointless.

I suppose this might be why she’s so concerned.  Warning to tech giants: The average Joe, she believes, will line up behind politicians promising to do something about it.  

What might they do?

Expect more push back on sharing economy companies that skirt local regulation, a greater focus on the monopoly power of mammoth tech companies, and closer scrutiny of the personal wealth of tech titans themselves.

You’ve been warned, Tech Giants.  Get with it, or else.

Or else what?  Let’s see . . . “expect more push back,” she says.  Who is doing the pushing in the first place?  Companies like Apple, Google, Amazon, Microsoft, or IBM?  When was the last time you saw Jeff Bezos or Tim Cook “pushing” something in the coercive sense?  Whatever it is they’re offering can always be declined.  Millions of people do it.  The phrase “No, thanks” comes to mind.  Average Joes are free to use it whenever they wish.  Even Joes way above or below average have been known to use it.  

Maybe they’ve been habituated with government programs that don’t allow saying no without suffering a penalty, like the income tax and ObamaCare. 

Note: Governments push in the coercive sense.  They also push back coercively whenever their subjects resist laws or regulations they don’t like.  

But aren’t these tech mammoths monopolies?  If they were, they’d be pretty much impervious to competition and consumer wishes.  That’s hardly the case with the ones making headlines with new products.  To repeat: Anyone uncomfortable about the pace of technology can stop buying the gadgets and services the techs are offering. 

I don’t question the veracity of the Trust Barometer survey, but I would like to remind Ms. Foroohar of another poll taken every day, 24/7.  I’m referring to the free market, of course, where surveys are carried out by way of the buying decisions of consumers.  Unlike other surveys this one is comprehensive.  It is democracy in action, people voting or abstaining from voting by buying or not buying.  Want to get a tech giant’s attention?  Stop buying their products.  They’ll get the message.

We all know people who don’t embrace the latest and greatest.  I have a buddy who is very happy with his iPhone 4s and not at all interested in the latest models.  I have another friend who would almost prefer death to using any digital device.  A very prolific writer still uses PC-AT keyboards of the 1980s because he found they get the job done better than newer ones.  I promised my father shortly before his death that I would get our mother to use email.  Never happened, and she was perfectly content without it.  My siblings wade slowly into the tech world, but they’ve never mentioned being overwhelmed by it. 

Of those who buy digital gadgets or do their shopping online, the message consumers are sending is give us more — more features, more memory, faster processors, more delivery options — at the same or lower price.  Most of them can’t wait to get something better.  Knowing this is where their profits lie, tech companies do what they can to comply.  This is capitalism in action.  This is freedom in action.

For decades we’ve heard how fabulously rich some of the “tech titans” are, and now that a consumer survey shows distrust is in the air Ms. Foroohar expects government to scrutinize their wealth more closely.  She doesn’t say why, but I suppose it has something to do with envy.

Long ago sociologist Franz Oppenheimer made the distinction between the political means and the economic means of acquiring wealth.  The first is by theft, the second, production.  The state provides the political means of getting rich through confiscation and favors — favors that include antitrust investigations targeting one’s competitors, for example.  Any big company that wants no part of politics would soon change course, as they become ripe targets for bribe-seeking legislators who threaten some new regulation or investigation.  It is the state apparatus, not the free market, that makes possible entrenched business corruption.  Rent-seeking, as it’s called, is a way of increasing one’s share of existing wealth without creating wealth.  

And speaking of monopolies . . .

Why is she so concerned with the threat of monopolistic power yet makes no mention of actual monopolies, such as the state itself and its counterfeiter, the central bank?  As noted above we can remove ourselves from the effects of any market entity but how in the world can average Joes avoid the greedy and threatening reach of the state?  How can they avoid losing wealth if they have no other option than the central bank’s monopoly money?

Maybe technology and entrepreneurship will solve these problems in short order.  I hope so.

Ms. Foroohar, a graduate of Columbia, a member of the Council on Foreign Relations, and an occasional commentator on various TV shows, is well-aware of the points presented here, I’m sure.  Why she turns her back on them is a mystery.  

Kurzweil's Black Swans

What can we expect in 2015?  Global recession and civil disorder top the list, according to what I read.  Given the way central banks and governments have sabotaged free markets at every turn, coupled with the belligerent nature of U.S. foreign policy and the militarization of our police, both forecasts strike me as plausible. 

But the plausible doesn’t need forecasting, does it?  We need to be reminded of it, certainly, and in that sense it’s critical.  But what we really want to know is: Are any black swans on the horizon?

There are two problems with black swans.  One is predicting them: how do you predict an event that by definition comes as a surprise?  The other is convincing people that this surprising event will in fact occur.  

We all know what happened to the price of oil, but how many prognosticators provided advanced warning of a sharp downturn?  Michael Lynch is one, to an extent.  Are there others who called the drop and who also are not known for making “stopped watch” predictions, as Lynch calls them?

According to gasbuddy.com, gas prices nationally dropped 6.5 cents in the last week, to $2.119/gallon.  

Since last week, some 12,000 stations dropped their price under $2/gal, with 45.1% of all gas stations (nearly 61,000) now selling under the $2/gal mark. The national average currently stands at its lowest since May 9, 2009, a date that saw 8.9% unemployment . . .

If someone had put this in writing a year ago he or she would’ve been regarded as crazy or Nostradamus.  Who is on record for saying gas prices would drop like a brick?  For most people this was a black swan.

But there are problems with what seems plausible, too.

Certain Austrian economists predicted serious price inflation following the Fed’s unprecedented expansion of the monetary base in 2008-2009.  Quite plausible, given Austrian theory.  If the new money had reached the buying public, we almost certainly would’ve seen a rapid rise in prices as the fractional reserve multiplier kicked in.  But most Austrians and other economists didn’t foresee Bernanke paying banks not to lend the money he created.  Nor perhaps did they fully account for the astronomical debt held by households and businesses, making them adverse to borrowing, or the commercial banks’ reluctance to lend in such an environment.

The non-event of high price inflation struck many analysts as a black swan.

Can we make any reliable predictions of the kind that would surprise almost everyone if they occurred?  Is there any radar anywhere on which black swans are visible?

The answer is no if by black swan we’re looking for a specific event at a specific time.  The answer is a profound yes if we mean there are changes coming that will hit almost everyone over the head.

According to Wikipedia the first smartphone patent was issued to Theodore G. Paraskevakos in 1973, the first devices went on sale in the early 1990s, and today there is fierce competition among companies to make them as powerful and affordable as possible.  I cite the example of smartphones because most people are familiar with them, and as information technologies they’re subject to the law of accelerating returns.  

It is this law that will produce radical changes in the near future and which people seem both to expect and disbelieve at the same time.  

On the knee of the exponential

To quote Ray Kurzweil from his March 7, 2001 essay:

An analysis of the history of technology shows that technological change is exponential, contrary to the common-sense “intuitive linear” view. So we won’t experience 100 years of progress in the 21st century — it will be more like 20,000 years of progress (at today’s rate). The “returns,” such as chip speed and cost-effectiveness, also increase exponentially. There’s even exponential growth in the rate of exponential growth. Within a few decades, machine intelligence will surpass human intelligence, leading to The Singularity — technological change so rapid and profound it represents a rupture in the fabric of human history.  [Italics in original]

I encourage you to read his first sentence a second time.  Common sense will be blind to the technological changes coming.  The incremental advances in smartphone technology will take flight, along with other technologies, as progress reaches the “knee” of the exponential curve (the point at which the exponential trend becomes noticeable).  We are near or on that knee right now.  

The first technological steps — sharp edges, fire, the wheel — took tens of thousands of years. For people living in this era, there was little noticeable technological change in even a thousand years. By 1000 A.D., progress was much faster and a paradigm shift required only a century or two. In the nineteenth century, we saw more technological change than in the nine centuries preceding it. Then in the first twenty years of the twentieth century, we saw more advancement than in all of the nineteenth century. Now, paradigm shifts occur in only a few years time. . . . 

As exponential growth continues to accelerate into the first half of the twenty-first century, it will appear to explode into infinity, at least from the limited and linear perspective of contemporary humans. The progress will ultimately become so fast that it will rupture our ability to follow it. It will literally get out of our control.

If Kurzweil were a kook with a blog it would be easy to dismiss him.  But forget that.  Ray Kurzweil is such an accomplished individual it is difficult to summarize his achievements in a brief article and do him justice.  He is a best-selling author, computer scientist, inventor, futurist, entrepreneur, documentary producer, lecturer, and director of engineering at Google.  As a teenager in 1965 he appeared on Steve Allen’s I’ve Got a Secret and played a piano piece composed by a computer he built. According to Wikipedia,

He has received twenty honorary doctorates, and honors from three U.S. presidents. Kurzweil has been described as a "restless genius" by The Wall Street Journal and "the ultimate thinking machine" by Forbes. PBS included Kurzweil as one of 16 "revolutionaries who made America" along with other inventors of the past two centuries. Inc. magazine ranked him #8 among the "most fascinating" entrepreneurs in the United States and called him "Edison's rightful heir”.

People have faulted him for his perennial optimism, but as he says entrepreneurs are predisposed to optimism.  He’s famous for his predictions, which he discusses in extensive detail here.  He writes:

Fundamental measures of information technology follow predictable and exponential trajectories, belying the conventional wisdom that “you can’t predict the future.” There are still many things — which project, company or technical standard will prevail in the marketplace, or when peace will come to the Middle East — that remain unpredictable, but the underlying price/performance and capacity of information is nonetheless remarkably predictable. Surprisingly, these trends are unperturbed by conditions such as war or peace and prosperity or recession.

In his 1990s book The Age of Spiritual Machines he made 147 predictions for 2009.  Of these 127 were correct or essentially correct (86%), 17 were partially correct, and 3 were wrong — according to his analysis.

Kurzweil's swans

Some of his predictions for the years ahead, which he made in late 2013, include:

• By the early 2020s, we will have the means to program our biology away from disease and aging.  We already have the tools to reprogram our biology the way we reprogram our computers.  “RNA interference, for example, can turn genes off that promote disease and aging.”

• By 2030 solar energy will have the capacity to meet all of our energy needs. The production of food and clean water will also be revolutionized. “The total number of watts of electricity produced by solar energy is growing exponentially, doubling every two years. It is now less than seven doublings from 100%.” Once we have inexpensive energy we will be able to convert all the bad water on the planet to usable water.  Agriculture will go from horizontal to vertical, where we will grow high-quality food in AI controlled buildings.

• By the early 2020s we will print out a significant fraction of the products we use including clothing as well as replacement organs.  The early 2020s will be the golden age of 3D printing.  We’ll be able to choose from thousands of open source clothing designs and print them out at pennies per pound.  “We can already experimentally print out organs by printing a biodegradable scaffolding and then populating it with a patient's own stem cells, all with a 3D printer.  By the early 2020s, this will reach clinical practice.”

• Within five years, search engines will be based on an understanding of natural language. “At Google, we are creating a system that will read every document on the web and every book for meaning and provide a rich search and question answering experience based on the true meaning of natural language.”

• By the early 2020s we will be routinely working and playing with each other in full immersion visual-auditory virtual environments. By the 2030s, we will add the tactile sense to full immersion virtual reality.  The latter will require “nanobots [nanometer-size robots] traveling noninvasively into the brain through the capillaries and augmenting the signals coming from our real senses.”

For a robust discussion of how these and many other technological changes will radically alter our lives, please see Kurzweil’s book, The Singularity is Near: When Humans Transcend Biology. 

Counterfeiting is the health of those who rule us

I found this re-posted on a Facebook page today, having originated from End the Fed: 

This is not so much posing a question as making a point.  Nevertheless, how might a contemporary economist (i.e., an inflationist) address such a query, assuming it was serious?  Here’s how I imagine she might go about it in an offhand manner.

In the US, counterfeiting is illegal only when some person or organization other than the Federal Reserve Open Market Committee practices it.  When politically-appointed bureaucrats print money, it's not only legal it's essential to the health of the economy.  If you don't believe me read the textbooks.  It turns out that what’s true on a micro level — that counterfeiting is theft — isn’t true on the macro level.  Only those committed to the principles of the Austrian school would disagree.  And the world today little resembles the teachings of the Austrian school.

Without the Fed and its fiat machine we would have to rely on the market to provide the money necessary to maintain the division of labor.  The market, that wild beast forever in need of government restraint, would control the most critical element of the economy.  Consider: The Fed-less market of the 19th century brought us price deflation.  Price deflation -- lower prices -- the ultimate nightmare.  Far better to have the spotless bureaucrats of the Committee debase the currency so that goods keep rising in price.  Chairman Greenspan once reminded us of the overwhelming success they've had driving the “price level” through the roof.  As any poor person will assure you, having one’s money buy less is a godsend.

Shhh.  Listen.  That tap-tap-tap you hear is a banker probing in the darkness of his empty vault.  That could be the big banks' fate if the Greenspan - Bernanke - Yellen combo couldn't make unlimited amounts of money snap into existence.  How could the federal government ever keep the economy from imploding and shore-up our inalienable entitlements if the big banks dried up?  If it had to rely on greedy taxpayers for all its funding and borrowing?  If it couldn't swap its IOUs for freshly minted digits?  If the Fed couldn't tap its computer to create those digits?

In other words, if it couldn’t counterfeit?

The Federal Reserve Act was signed into law by Thomas Woodrow Wilson, 28th president of the United States, on December 23, 1913.  As such we should remember the Fed this Christmas and every Christmas —  every day! — for without it we would've had no "war to end all wars" and its record-setting slaughter, no Great Depression, no follow-up world war, and no modern world plagued with the fallout from Keynesianism.  

Let's not forget Mr. Wilson, either, usually regarded as among the top ten greatest presidents.

If war is the health of the state, then counterfeiting is the health of war. Taxes alone wouldn't begin to provide the revenue needed to keep the rest of the world in line and the home folks dependent and obedient.   Onward central bankers!  Onward counterfeiting! 

Conclusion

Offhand, I can't think of a bigger racket than central banking and fiat money.

Think small — very small — incredibly small

Do you have forebodings about the future?  I do, which is why I’ve been looking closer at the transformations technology promises to bring us.

First, a brief review.  I’ve previously written about the rapid pace of technological development (here and here) and Ray Kurzweil’s point that though technology is growing exponentially, we experience it linearly, and we tend to base our expectations on our linear experience.  (See his essay “The Law of Accelerating Returns” for details.)

Here’s an example. When the Human Genome Project began in 1990 he predicted the project would be completed in 15 years.  Almost no one believed him.  After a year of work, biochemists had succeeded it transcribing one ten-thousandth of the genome.  Seven years later a mere one percent had been finished.  One imagines the laughing was well underway.  But the project actually finished ahead of schedule, in 2003.

In The Singularity is Near Kurzweil explains how this happened:

Scientists are trained to be skeptical, to speak cautiously of current research goals, and to rarely speculate beyond the current generation of scientific pursuit. This may have been a satisfactory approach when a generation of science and technology lasted longer than a human generation, but it does not serve society’s interests now that a generation of scientific and technological progress comprises only a few years.

He has been amazingly accurate in his predictions, and over the years he’s turned those predictions into a fortune inventing and marketing products based on his expectations of the technologies that will be available in years ahead. “Invention is a lot like surfing,” he says, “you have to catch the wave at the right time.”

Kurzweil sees three overlapping areas where growth is increasing exponentially and which will transport us to a world formerly associated with science fiction and fantasy: genetics, nanotechnology, and robotics.  

Our atomically-precise future

In this article I want to discuss nanotechnology — a term popularized by K. Eric Drexler in his 1986 book Engines of Creation: The Coming Era of Nanotechnology (online here) — and its implications for our economic lives.  

By “nanotechnology” Drexler means “technology based on the manipulation of individual atoms and molecules to build structures to complex, atomic specifications.”  To distinguish his meaning from other, more inclusive definitions he uses the term atomically-precise manufacturing (APM).  APM will build things by rearranging atoms and using those nano-structures as building blocks for larger products.

What kinds of products?  Everything being built today by conventional means and other products that can’t be built today.

Materials are characterized by their arrangement of atoms — if we rearrange the atoms in coal a certain way we can produce a diamond.  Atomically-precise control of materials can produce patterns of atoms that are out of reach of today’s technologies.

In his 2013 book Radical Abundance: How a Revolution in Nanotechnology Will Change Civilization, Drexler tells us that

Atomic precision starts with small-molecule feedstocks, atomically precise by nature and often available at a low cost per kilogram. A sequence of atomically precise processing steps then enables precise control of the structure of materials and components, yielding products with performance improved by factors that can range from ten to over one million.  [my emphasis]

APM will change industrial production beyond recognition or replace it outright.  

Traditional manufacturing builds in a "top down" fashion, taking a chunk of material and removing chunks of it - for example, by grinding, or by dissolving with acids - until the final product part is achieved. The goal of nanotechnology is to instead build in a "bottom-up" fashion, starting with individual molecules and bringing them together to form product parts in which every atom is in a precise, designed location.  [Foresight Institute]

APM-based technologies will [from Drexler, Radical Abundance]:

• Slash resource consumption and toxic emissions
• Provide the infrastructure for low-cost solar energy and a carbon-neutral economy
• Produce better products at far lower cost than today
• Collapse long specialized supply chains to a few steps of local production
• Transform daily life, labor, and the structure of society on Earth, just as the agricultural, industrial, and information revolutions have done

Drexler likens APM to digital technology transferred to the material world, in which microblocks are combined much like ink droplets to form endless, intricate patterns.

A better analogy than ink droplets, however, would be blocks of the sort found in high-end Lego sets, which include not only blocks in different shapes and colors, but also blocks that provide intricate, functional parts such as motors, gear trains, sensors, and computers.

When advanced APM arrives within the next decade you’ll have a box on your desk that will allow you to do with atoms what you presently do with bits and pixels.  At roughly the same price.  But without worrying about atoms, just as you don’t concern yourself with bits and pixels.  On a larger scale, advanced APM will mean, for example,

replacing an enormous automobile factory and all of its multi-million dollar equipment with a garage-sized facility that can assemble cars from inexpensive, microscopic parts, with production times measured in minutes. 

The technologies that can make these visions real are emerging—under many names, behind the scenes, with a long road still ahead, yet moving surprisingly fast.

The need for engineering

As with the stunning nature of Kurzweil’s predictions for the decades ahead (which you really ought to check out), it’s difficult to imagine the economic world as we know it being turned upside down because we’re slipping past the knee of an exponential curve.  Yet APM is not waiting for some scientific breakthrough to make it a real possibility.  The road ahead “has no gaps, no chasms to cross,” Drexler says.

What is missing from APM research?  Better engineering; specifically, “AP molecular systems engineering.”

No matter how research-intensive a project may be, work coordinated around concrete engineering objectives will eventually be required to produce concrete engineering results. . . . 

The semiconductor industry provides a model for coordinating research to advance the technology of an entire field. What’s more, the achievements of semiconductor engineers give us a sense of the potential scale of results, for it was their work that brought us nanoscale digital information systems and today’s Information Revolution.

Roadmapping has been the key to the success of the semiconductor industry.  

In 2007, under the auspices of the Waitt Family Foundation, researchers in nanotechnology finally produced a guiding document for their field: Productive Nanosystems: A Technology Roadmap.  The Executive Summary tells us that: 

It is uncontroversial that expanding the scope of atomic precision will dramatically improve high-performance technologies of all kinds, from medicine, sensors, and displays to materials and solar power. Holding to Moore’s law demands it, probably in the next 15 years or less. [My emphasis]

Assuming the document is up-to-date, APM should be here by or before 2022.  Mark your calendars.

3D Printing — a hint of the APM future

The nascent technology of 3D printing is a stepping stone between traditional manufacturing methods and APM.  Drexler contrasts 3D with traditional processes:

Some traditional methods make a shape all at once using a costly, specialized tool, like a mold to shape plastic, a die to stamp steel, or an optical mask in semiconductor lithography. Other traditional methods carve shapes by removing small bits of material using general-purpose equipment like lathes, drills, and milling machines. 

3D printing, by contrast, makes shapes by adding small bits of material using general-purpose machines guided by digital data files. 3D printing can make shapes beyond the reach of casting or carving.

One 3D printer is a kit you assemble yourself called the RepRap.  With a RepRap 3D printer, you can “print” the parts that make up a RepRap and assemble them yourself.  According to the video at the RepRap website, the RepRap project aims to put a factory in every home — a factory that can make more factories.  RepRap has a slogan, “wealth without money.” 

RepRap and other 3D printer user communities stir memories of the Homebrew Computer Club that launched the PC revolution in the mid-Seventies.  The Club spawned many pioneers in the microcomputer industry, including the two Steves.  The MITS Altair 8800 was one of the first kit computers, comparable to the RepRap today.  Unlike Altair, RepRap can self-replicate.

Conclusion

There are downsides to every technology.  As with clubs and axes once used to obtain food and shelter, APM technologies can be weaponized.  The good news is that APM, like information technologies, has a strong decentralizing and price deflationary component.  In this sense it works in favor of individuals and free markets, and against the Keynesian states we live under.  The APM revolution has the potential to dramatically empower people, as we’re seeing with the information revolution today. 

Though there are many questions one could raise about APM, I have one in particular that I invite any APM researcher to address: If APM continues to develop into a Kurzweil future, will someone someday be able to “print” gold and other precious metals?  

And further: The whole of economics is based on scarcity.  APM won’t eliminate scarcity, but it could surely relegate it to a position of less importance since common feedstocks will replace scarce resources.  What does a world with scant scarcity look like?

We are encouraged by psychologists to live in the present, in the here-and-now.  The here-and-now has many dimensions, one of which is the legacy of innumerable statists.  I look forward to a “present” when their legacy is found only in history books.  Technology will help get us there.