Greece’s Emerging Barter EconomyEmerging barter markets and alternative currencies aren’t unusual in times of financial chaos. Greece’s own barter movement is demonstrative of what occurs in lieu of people no longer having access to or trusting the currency they were previously forced to conduct daily business with. As Frezza mentions, a type of alternative and localized medium of exchange has developed and the RT report highlights a “time bank” where people offer their skills for a set amount of time which can in turn be traded for goods and services.
Emerging orders like these should spark the interests of austro-libertarians as they give keen insight into how society, and thus humanity, will react to catastrophe if the institutions many take advantage of suddenly disappear. Ardent libertarians such as Murray Rothbard truly believed that society would be better off with the quick and even immediate abolishment of the state. While such a principled stance is admired, some recognize the kind of havoc drastic, instantaneous changes could potentially create. While button pushing sets the stage for long term prosperity, it would undoubtedly bring short term pain.
Seeing the barter system evolve in Greece however gives heed to optimism and confidence in society’s coping mechanism to deal with the sudden changing of circumstances such as the erosion of the state. Another great example of this rests in a recent article by Doug French about the restaurant chain Waffle House’s ability to operate in emergency conditions:
“Hurricane Irene knocked out power in Weldon, N.C., on Saturday evening,” writes Valerie Bauerlein for the Wall Street Journal, “but as the sun rose on this tobacco-farming town at 6:30 the next morning, the local Waffle House, still without electricity, was cooking up scrambled eggs and sausage biscuits.”
What professor Kouvelis leaves out is the Hayekian insight that Waffle House gains its knowledge through market mechanisms for discovery, communication, and use of knowledge in the allocation of productive resources. Waffle House can only serve customers and make money if they are open. The company does little advertising and doesn’t hold press conferences. The secret to its success is serving good food and always being available. This may involve being open but only serving a few items. By narrowing their focus, the company can more effectively ensure that it can push a limited number of ingredients through a disrupted supply chain. The company would only breed dissatisfied customers if it remained open only to run out of eggs or hash browns.Despite a lack of power brought about by natural disaster, Waffle House quickly readjusts to meet a new demand by utilizing its resources and supply chain infrastructure. It is the triumph of capitalism in the face of adversity.
Man’s ability to adapt to changing circumstances is a trait that has enabled it to survive, progress, and outwit natural selection for thousands of years. Greece’s newly developed bartering system is in response to both a lack of access to cash and the country’s inevitable exit from the Eurozone. The country, which has become stunningly indebted due to a bloated public sector and unsustainable welfare and retiree benefits, is destined for a default on its national debt. Such a necessary default will come in the form of either bond holder haircuts, the coordinated devaluation of the euro by the European Central Bank, or abandonment of the euro and the massive printing of the drachma. This is on top of austerity measures such as tax increases currently being imposed to shore up the country’s finances. The citizens of Greece see the writing on the wall and have begun setting up an alternative market to reconcile what will undoubtedly be a monetary event for the history books. Not only is their experiment in barter economy preparing them for the worst by establishing local commercial networks but it also throws a wrench into the mechanism of the state-enforced monopoly on currency creation known as central banking. Though the local alternative units may represent the euro now, there is no telling what currency or standard the people could turn to in order to establish prices should the fiat system lose its appeal.Next is a post on Paul Krugman's column today:
Is Job Loss Economically Damaging?Keynesian cheerleader Paul Krugman is out with a New York Times article today using his economic credentials to make yet another politically partisan attack.
Can you say one-trick pony?
This time, the Princeton prof. has his target set on Republican presidential nominee Mitt Romney and his previous business experience running Bain Capital for roughly fifteen years. Krugman alleges Bain Capital, a private equity firm, engaged in more job destruction than job creation:
But how were profits to be increased? The popular image — shaped in part by Oliver Stone — is that buyouts were followed by ruthless cost-cutting, largely at the expense of workers who either lost their jobs or found their wages and benefits cut. And while reality is more complex than this image — some companies have expanded and added workers after a leveraged buyout — it contains more than a grain of truth. One recent analysis of “private equity transactions” — the kind of buyouts and takeovers Bain specialized in — noted that business in general is always both creating and destroying jobs, and that this is also true of companies that were buyout or takeover targets. However, job creation at the target firms is no greater than in similar firms that aren’t targets, while “gross job destruction is substantially higher.”
So Mr. Romney made his fortune in a business that is, on balance, about job destruction rather than job creation.Despite his admission that job creation and destruction go hand in hand, Krugman paints the whole of the leverage buyout industry as one of evil capitalists benefiting at the expense of shackled workers.
Nothing can be further from the truth however when it comes to this often-demonized industry.
Krugman, like many ideological followers of Keynes, sees job creation as the ultimate goal for raising the standard of living. As long as we are all employed, then somehow goods and services will continue to be produced and sold. It doesn’t matter how unproductive some jobs are (think digging ditches); resources have to be fully utilized and wages must be paid to get those animal spirits spending again.
But this assumes jobs are ends in themselves when, in reality, they are means used to acquire wealth. The same concept applies to money which is simply a medium to enable commercial exchange. At best, jobs are a mere impediment we must endure to pursue those activities which we find pleasurable.
Since jobs in themselves aren’t the pathway to prosperity, Krugman’s assertion about the leverage buyout industry rests on faulty, simplistic logic. While it’s true that firms such as Bain Capital assist others in downsizing, it’s only a function of increasing long term sustainability and profitability.
Arguably the most profound lesson in economics was highlighted by French political philosopher Frédéric Bastiat. In his classic essay, “That Which Is Seen, and That Which Is Not Seen,” Bastiat stresses the importance of analyzing opportunity costs beyond easily recognizable effects. Using the example of a shopkeeper’s window being smashed in an act of delinquency, the classical liberal theorist explains that while the window-pane producer sees an increase in demand, such shallow observations don’t consider what the shopkeeper’s money had the potential to be spent on. Perhaps the baker or tailor would have been patronized in lieu of the window not being broken.
When Krugman claims that leverage buyout firms are job destroyers, he too misses the unseen. If a company reliant on profitability is experiencing inefficiencies, it’s better to vet them out sooner than later. Companies like Bain Capital provide this service in order to lay the groundwork for increasing productivity. Cost cutting, though it appears damaging initially, is merely a reaction to changing market conditions and previously unsustainable labor costs. Businesses striving to out-compete their competition do so by attracting better workers through bidding up wages and producing more efficiently to offer lower prices. While downsizing is detrimental to workers in the short term, there is reason to conclude that those jobs would have been lost anyway in the long run. Freeing up once used capital ultimately leaves it available for more profitable endeavors.
Krugman misses this important distinction; he narrows in on the “seen” only. The Keynesian ideology has clouded the thinking of economists for decades with its focus on jobs and money as ends only. For a Nobel prize winning economist to miss Bastiat’s lesson is a testament to its importance in an era of endless government deficits and money printing.