On Money

Here is how good my students are: first, one sends me this excellent story from the Ludwig von Mises Institute:

Second Life’s economy could reasonably be compared to that of a small foreign country dependent on tourism. Consumers are inhabitants of the real world who take what are essentially pleasure trips to Second Life, perhaps to meet new people at a dance club, shop for virtual clothing, attend a conference, or gamble at a casino. Like real tourists, consumers exchange their real US dollars for Second Life’s currency, the Linden Dollar (L$), typically on a currency exchange run by Linden, called the LindeX. They then use their L$ to purchase goods and services created by other Second Life residents, and if they have extra L$ when they’re done, they can sell their L$ for US$ on the LindeX.

…

Given the strong evidence that Linden has unnaturally inflated the L$ supply, Austrian economics tells us that there are a couple of potential outcomes that are likely to occur. In the first, Linden will stop running significant deficits at some point. With less L$ available to spend, residents will demand fewer goods and services, leading to lower prices and reduced profits. Previously profitable enterprises will go out of business and the wealth of many residents will decrease, slowing overall economic activity.

The other possibility is that Linden will continue running deficits to the point that a sufficient number of residents and speculators will recognize the L$’s frailty. In what Ludwig von Mises referred to as a “crack-up boom,” everyone will scramble to redeem his L$ for “real goods,” which, in the case of Second Life, is probably the US$.

Yes, if you play in Second Life, I’d recommend you trade your L currency for US currency (and then that for something not tanking, like Euros or Yen). Because one corporation is doing exactly what no central bank – real or fictional – can ever get away with: covering deficits by simply printing money (and, worse, not keeping that money backed by something of actual value).

Following this another sends me to this short animated film:

Which is very interesting, in its easily-accessible discussion of the simple deposit multiplier. Specifically, it discusses the natural implication of this (and the part that really does in the heads of accounting students): most of our money is not backed by gold, foreign reserves, etc., but debt.

It’s some 47 minutes, but quite interesting. Both are good thinking-points, with regard to fiat money.

On Government

What a day for government!

Bush Vetoes Child Health Plan

President Bush, in a sharp confrontation with Congress, on Wednesday vetoed a bipartisan bill that would have dramatically expanded children’s health insurance.

It was only the fourth veto of Bush’s presidency, and one that some Republicans feared could carry steep risks for their party in next year’s elections. The Senate approved the bill with enough votes to override the veto, but the margin in the House fell short of the required number.

…

“Never has it been clearer how detached President Bush is from the priorities of the American people,” Reid said in a statement. “By vetoing a bipartisan bill to renew the successful Children’s Health Insurance Program, President Bush is denying health care to millions of low-income kids in America.”

We’ve seen the SCHIP legislation discussed here, also. As a leftie, pro-intervention, health-economics, etc., you will not be surprised to learn that I’m in favour of the idea. But, then, this administration has proven time and again that investing in future-cost-saving infrastructure, whether health, education, bridges or decent policy in Iraq, just isn’t its bag.

Reid, by the by: wrong response. Leave the politics for a moment, and explain the cost that this veto has on future health care resources, the loss of income for swathes of the economy (and, alley-oop, the rest of us), etc. This isn’t about having a heart – it’s about having a brain.

At least Spitzer’s lawsuit should be informative.

Next in a who’s who of who shouldn’t be in charge of administration of the biggest economy in the history of the word:

Federal employees wasted at least $146 million over a one-year period on business- and first-class airline tickets, in some cases simply because they felt entitled to the perk, congressional investigators say.

A draft report by the Government Accountability Office, obtained Tuesday by The Associated Press, is the first to examine compliance with travel rules across the federal government following reports of extensive abuse of premium-class travel by Pentagon and State Department employees.

The review of travel spending by more than a dozen agencies from July 1, 2005, to June 30, 2006, found 67 percent of premium-class travel by executives or their employees, worth at least $146 million, was unauthorized or otherwise unjustified.

Among the worst offenders: the State Department, whose employees typically fly abroad on official business.

Media-wise, this one certainly has legs. What do people expect, though? We’re talking hundreds-of-millions-of-dollar-Presidential campaigns. Bloomberg’s spending to retain the Mayoralty of NY. The New Jersey Gubernatorial elections. People expect a pay-off for that sort of investment. This really ought not come as a surprise to us. We get, as they say, the governments we deserve. Even the anti-thesis of one.

Getting back to Taibbi, and his article about the death of government in the face of the End of History,

House Republicans are threatening to launch a discharge petition on legislation that would ensure the future prosperity of conservative radio talk-show hosts but is expected to face opposition from Democratic leaders. On Monday evening, Republicans filed a rule with the House Rules Committee laying the groundwork for a petition that would force action on protecting radio from government regulation later this fall.

The move comes at a time when Democrats have launched a coordinated attack on conservative radio host Rush Limbaugh, accusing him of disparaging American troops critical of the Iraq war as “phony soldiers.”

Senate Majority Whip Dick Durbin (D-Ill.) has said broadcasters should be required to give listeners both sides of political issues so voters can make informed decisions.

Conservatives fear that forcing stations to make equal time for liberal talk radio would cut into profits so severely that radio executives would choose to scale back on conservative programming to avoid rising costs and interference from the government.

Which is actually fine by me – radio’s bandwidth is supposed to be regulated. If not for all the other shit that really should take priority – such as acting like grown-ups and seeing to it that ‘the message’ doesn’t need controlling at all. How about just putting proper officials, rather than appointing political ones, at the FCC? Then legislation would be unnecessary (I guess I am a little Austrian, after all).

That series in Harper’s (Undoing Bush: how to repair eight years of sabotage, bungling, and neglect) looks more prescient by the day.