Saturday, 4 September 2010

Rent seeking and economists - part 2

Any government implementing a Keynesian policy simply “Keynesianizes” the economy. The effect is an economy that behaves precisely in the pertinacious routine dictated though the Keynesian assumptions.

As a rational economist, there is value in promoting and executing Keynesian policy. This is of course rent-seeking at its worst, but it is rational.

Keynesian policy is the most indisputable technique to election and re-election for any politician. All the advantages achieved through printing and the outlay of money are instantaneous. They are extremely perceptible. They allow a politician to pork barrel. That is they can focus on politically powerful voting blocs (whether they have any relationship to the majority or not). With the overheads from such a policy being incurred at a later date (the long term), the link between policy and long-run consequences difficult for the voting public to perceive. Better, these perverse incentives and the effects can be spread thinly transversely over the total populace creating a policy which is unlikely to result in short term complaints. That is the poor voter is unlikely to notice the damage and costs they are facing.

As the number of Keynesian demand-managers continues to decline, the effects of supply and demand make the perverse rent seeking behavior more focused and stronger. This dwindling assemblage of economists is sought by government officials who pursue advice and understanding. The occasions to address with the seats of power over the simpler halls of learning incentivise many economists’ to find the good in a theory unsupported by reality.

So, we let the printing press roll and allow government to spend our money in pursuit of short-run stimulation with the cost being against long-run stability.

Of course, when we spend credit (e.g. through credit cards) on short term consumptive goods (such as alcohol) and rack up debt in place of saving and investing, we are all becoming good Keynsians and helping the economy...

Forget Keynes.

Government "stimulation" basically slows change. This takes funds from more productive sectors and redirects it into less productive ones. It maintains the status quo at the expense of slowed growth and future debt.

The last 100 years has been a period of rapid change. ALL decades experienced innovative development and creative destruction. The Government response has been to promote the existing corporations that once where great and no longer have the innovative culture that caused them to exist in the first place.

This of course is politics responding over economics. Politicians like large government. They can pork barrel existing (and politically supportive) firms over newer ones which are likely to change existing economic and cultural dynamics. The problem is that this always fails in the long term, but with the result that we have lower net wealth and productivity in the short term.

Keynes did decry the long term, for in politics, everything is the short term economically.

Friday, 3 September 2010

The legacy of Keynes.

Central governments are and remain a net supplier of macroeconomic instability. This is a direct result of the institutions and policy tools created to conform to a Keynesian vision. These are now an fundamental portion of our economic and political environs.

For Keynesians, the complete commercial sector is questioned in the position of only two classes of goods:
1. consumption goods and
2. investment goods.

It is simple of course to ignore the distributions of prices within these two classes. Having studied Bayesian statistics and having my masters in statistics with respect to the problem of homogeneity of variance measurements, I can state that this is a huge flaw. Comparing two means with similar values but hugely different variances is a mathematical and logical flaw. One Keynes decided to overlook when it was noted by Hayek.

The shoddier logic than this from Keynes comes from price equilibria. Here one relative price that is engaged in this formulation. This involves the relative value of consumer goods with respect to investment goods as articulated by the interest rate. This calculation is based on an assumption where it can either not to function and fail or function aberrantly An assumption not based on quantitative data available even at the time.

Of course, the notion of scarcity is missing from Keyne’s philosophy. The trade-off between generating consumption goods and constructing investment goods is an oft overlooked foundation of reality. We have limits. We can only do one thing at the expense of another.
In all cases, the manufacture of a greater amount of plant and equipment – capital has ALWAYS to be facilitated through an increase in net savings. These savings are obtained through a decrease in current consumption. The US has lived on the savings of other nations for many years through a Fed policy of unnaturally low interest rates. There is always a need to pay the piper eventually.

Keynesian aggregates serve to conceal these very mechanisms. Keynes simply swept away the impression of any trade-off between consumption and investment. The problem is though his formulation was elegant, it had little correlation to reality. We live in a universe of limits. Like it or not, all things are made at the expense of an alternative. Liberal views that ALL PEOPLE SHOULD HAVE EVERYTHING MEAN LITTLE, THERE ARE LIMITS AND NO AMOUNT OF POLITICAL HOT AIR CAN ALTER THIS FACT. Welcome to the real world.

William H. Hutt when calling the theory a “theory of idle resources” and F. A. Hayek in stating the underlying foundation of Keynesianism to be an “economics of abundance” hit the nail of the head. The problem is not a world of abundance, but one of scarcity. This is the foundation of economics.

The set of reciprocally supporting but mutually unsupportable proposals concerning the relationship between how selected macroeconomic aggregates are related to one another is unsupported in reality for all the elegance of the theory. Keynesian policy is this set of self-justifying policy prescriptions.

Rent seeking in economics

Keynesian-ism and neo-Keynesian thought seems to be popular despite the fact it has never worked and is based on fallacies such as the savings myth (assuming that savings is bad and lowers productivity) and a predisposition to favor the short term over the long term.

So with the failings of these types of policies, why do well known and vocal economists such as Paul Krugman promote them for all their flaws? Why is it that despite the negative effects that are reported in high end academic papers to these policies do these fallacies continue top the taught and promoted?

I would like to propose rent-seeking as a solution. As rational actors (more so than many other parts of the economy), economists have a choice; an easy path (rent seeking by promoting big-government policy) or a more obscure path of publishing flaws with this view and seeking solutions that create productivity and growth. That is freedom based solutions.

Why rent seeking?
Simple, big government pays for reports that support the views of big government. This comes from endowments, research grants and many other sources of government funding. Conversely, when a report goes against the proposed views of the politicians in power, it is relegated into obscurity with the author of the report.

An ideal example is the report on the total energy reserves within the US as commissioned by President Carter. The initial report produced by respected geologists noted that the US supply of oil was sufficient to at least 2300 and that there was at least 4,000 years supply of natural gas. This was based on not only existing use, but also forecast demand in the future.

Carter rejected this report. He recommissioned the report with less well known geologists (actually government officials with little past experience in the field). This allowed him to state that oil supply would probably only be able to keep up with Americans' demand for six to eight more years. This allowed him to convince the Democratic Congress to create the United States Department of Energy (DoE).

The end was that the respected academic was replaced by those who would say what the government wanted.

Being that oil and gas reserves that are available for an economic return now are larger then in the 1970's as well as well as the consumption of these reserves is far greater over this 35 year period, I would have to side with the initial report and discard the report that stated US oil would be exhausted by 1985.

Yet, who is remembered? in this case, the report that mattered was the one that stated the fallacy the government wanted, not that which was based on science and the truth. So why do economists continue with these fallacies?

I say rent seeking. It is more profitable to take the path of least resistance and gain credence and funding through rent seeking behavior then it is to show courage and maintain the facts.

So, I would say, rent seeking by economists is logical and rational. Unfortunately, it is not a good outcome.

Tuesday, 31 August 2010

GREM Paper

My GREM paper is finally published on the SANS reading room.

This document provides instructions on how to unpack NsPack 3.4 and 3.7 using the OllyDbg debugger. The OllyScripts used in this process are included in the appendixes. The custom plug-ins that are used to automate the procedure are provided with the source code. This paper also includes instructions on how to fully restore the import table so the file can be restored to its original state and executed. This is continued further with instructions on how to convert the machine code (assembly language) into a higher level language (in this paper we will use C) so that an analyst can better understand the workings and purpose of the packer.