They Weave the Spider’s Web
SOUNDTRACK: https://www.youtube.com/watch?v=emKPydpF7Aw
וְאֵלַי דָּבָר יְגֻנָּב וַתִּקַּח אָזְנִי שֵׁמֶץ מֶנְהוּ. בִּשְׂעִפִּים מֵחֶזְיֹנוֹת לָיְלָה בִּנְפֹל תַּרְדֵּמָה עַל אֲנָשִׁים. פַּחַד קְרָאַנִי וּרְעָדָה וְרֹב עַצְמוֹתַי הִפְחִיד. וְרוּחַ עַל פָּנַי יַחֲלֹף תְּסַמֵּר שַׂעֲרַת בְּשָׂרִי. יַעֲמֹד וְלֹא אַכִּיר מַרְאֵהוּ תְּמוּנָה לְנֶגֶד עֵינָי דְּמָמָה וָקוֹל אֶשְׁמָע. הַאֱנוֹשׁ מֵאֱלוֹהַ יִצְדָּק אִם מֵעֹשֵׂהוּ יִטְהַר גָּבֶר. הֵן בַּעֲבָדָיו לֹא יַאֲמִין וּבְמַלְאָכָיו יָשִׂים תָּהֳלָה. אַף שֹׁכְנֵי בָתֵּי חֹמֶר אֲשֶׁר בֶּעָפָר יְסוֹדָם יְדַכְּאוּם לִפְנֵי עָשׁ. מִבֹּקֶר לָעֶרֶב יֻכַּתּוּ מִבְּלִי מֵשִׂים לָנֶצַח יֹאבֵדוּ. הֲלֹא נִסַּע יִתְרָם בָּם יָמוּתוּ וְלֹא בְחָכְמָה
لَا إِلَٰهَ إِلَّا ٱللَّٰهُ وَحْدَهُ لَا شَرِيكَ لَهُ، لَهُ ٱلْمُلْكُ وَلَهُ ٱلْحَمْدُ، يُحْيِي وَيُمِيتُ وَهُوَ حَيٌّ لَا يَمُوتُ أَبَدًا أَبَدًا، ذُو ٱلْجَلَالِ وَٱلْإِكْرَامِ بِيَدِهِ ٱلْخَيْرُ وَهُوَ عَلَىٰ كُلِّ شَيْءٍ قَدِيرٌ
Now a thing was secretly brought to me, and mine ear received a little thereof. In thoughts from the visions of the night, when deep sleep falleth on men, Fear came upon me, and trembling, which made all my bones to shake. Then a spirit passed before my face; the hair of my flesh stood up: It stood still, but I could not discern the form thereof: an image was before mine eyes, there was silence, and I heard a voice, saying, Shall mortal man be more just than God? shall a man be more pure than his maker? Behold, he put no trust in his servants; and his angels he charged with folly: How much less in them that dwell in houses of clay, whose foundation is in the dust, which are crushed before the moth? They are destroyed from morning to evening: they perish for ever without any regarding it. Doth not their excellency which is in them go away? They die, even without wisdom.
There is no deity but God alone and has no partners. To Him belongs all sovereignty and to Him belongs all Praise. He gives life and causes death, and He [Himself] is alive and does not die, ever! Ever! He of Majesty and Munificence. In His hand is all goodness and He has power over everything.
It would be difficult to maintain a coercive stranglehold on an entire people who share a language, a culture, and good memories without at least some apologetics. One of the foundational myths of the modern state is GDP, and permanent positive GDP growth. It becomes necessary to show, to demonstrate, by quantitative, mathematical means, that the society is progressing. If we are progressing, then ipso facto we are not regressing, which can only be good news. And who is to thank for this? Why, the state, of course, for arranging the more or less planned economy to maximize efficiency, according to some jiggly lines on some goddam graph or other that you ignored in high school and you sure as shit don’t want to think about now.
You don’t want to think about the economists. But the economists want to think about you.
Well, what is GDP, anyway? GDP stands for Gross Domestic Product. It is meant to demonstrate, to fully capture the production of an entire country, in the same way that the concept of profit would demonstrate the net production of an individual business. We can all get on board with this idea. How much is the entire country producing, anyhow? Could be interesting to know…
GDP is calculated by adding up all spending which economists have deemed to be of just the right type. Money spent on a final consumer good, say a can of coke, indicates that a can of coke has been produced. Voila! Production has been measured in dollars and cents. GDP adds up spending in four broad categories, Consumption, Investment, Government Spending, and Net Exports, to determine how much has been spent on items produced. When added together, these numbers produce total GDP.
Now, it should be more than clear that spending does not necessarily equate to production. Sometimes, money is spent on objects that are altogether useless. But just what kind of Consumption, Investment, Government Spending, and Net Exports are of the correct type to be added into the accounting is a question which has no answer. Economists worry over tedious and thick manuals filled with senseless and ever-changing protocols describing what Consumption, Government Spending, &c. are good and bad. I am familiar with some of this arcane and perverse knowledge; I only wish I had preserved my innocence longer. It should suffice for now to observe that what spending may be considered worthy and what may be considered unworthy is not a question which is given to objective and neat resolution. It is subjective, so subjective indeed, that we may observe that what one person may call construction, another may call destruction. This concern is most striking in the case of Government Spending, where many minds believe by axiom that all money spent is at best profitless and at worst actually destructive; yet a large amount of Government Spending is counted into GDP. Let us leave this concern for now.
Suppose all the spending was counted up, and we arrived at some titanic, majestic number. A number so large, it would require a state to produce. What now? What does this number mean? Very little indeed. I plagiarize from Ludwig von Mises:
“It is possible to determine in terms of money prices the sum of the income or the wealth of a number of people. But it is nonsensical to reckon national income or national wealth. As soon as we embark upon considerations foreign to the reasoning of a man operating within the pale of a market society, we are no longer helped by monetary calculation methods. The attempts to determine in money the wealth of a nation or of the whole of mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimensions of the pyramid of Cheops. If a business calculation values a supply of potatoes at $100, the idea is that it will be possible to sell it or to replace it against this sum. If a whole entrepreneurial unit is estimated at $1,000,000, it means that one expects to sell it for this amount. But what is the meaning of the items in a statement of a nation’s total wealth? What is the meaning of the computation’s final result? What must be entered into it and what is to be left outside? Is it correct or not to enclose the “value” of the country’s climate and the people’s innate abilities and acquired skills? The businessman can convert his property into money, but a nation cannot.”
I realize after copypastaing this profound and revelatory statement that it is likely too abstruse, wants too many propositions, and is indeed lacking too much textual context to be easily understood by the lay reader. But, nevertheless, perhaps, dear reader, your mind’s ear will have been charmed by the pretty phrases and musical syllogisms, and you will be inspired to search out the source of this delightful bagatelle, and there appreciate it in its fuller majesty.
In any event, we turn now to the burden of this piece. A sudden revelation came to me some time ago. A physical shudder passed over me, and ringing filled my ears. This enlightenment was unsolicited, and indeed unwelcome. In much wisdom is much grief. I shall now detail the plan of the thesis.
Consider a country with a fixed money supply. The country has no trade with foreign nations, nor is there any question of foreign money entering the country, or domestic money leaving it. Thus, the pricing of all the goods in the country will always be constrained by the limit on the supply of money. The value of all the goods, both producer’s goods and consumer’s goods, cannot be worth more than all the money in the country, because this price could never be actually paid. It cannot be worth less than all of the money actively available and bidding for the goods either, because if the money is available to bid on the goods, then this ipso facto means that it is the value of the goods. Thus, in practice, the value of goods will be determined by the amount of money available, and not used for the purpose of cash reserves. In mathematical symbols,
Where m is the total fixed money supply, c is total cash reserves, g is the total consumer’s goods in the country, and p is the total producer’s goods.
(For purposes of explanation we will assume away any issues arising from the velocity of money.)
Now, it will be obvious that whatever the real value of the total goods in the country, be it more or less, in a country with a fixed money supply, the nominal value of the total goods will not vary at all (if we assume the amount of cash reserves to be held constant). Thus, nominal spending could never increase. Thus, nominal GDP could never increase. Consider the irony of a country where real production increases magnificently year after year, but the nominal amount of spending never increased. This country would not qualify for a loan from the IMF, but it may be a paradise on Earth.
Now, we are faced with a concern. It is an empirically observed fact that economists claim that it is an empirically observed fact that nominal spending does continue to rise, year after year, and that therefore GDP rises as well. In light of the above, how could this be?
The answer is simple: If we relax one supposition to suit the real world, and dispense with a fixed money supply, all confusion is immediately banished. Consider a country in which the money supply is increased by some rate annually. By the law of supply, the nominal value of all goods will increase to fit the available money supply. The price of money, denominated in goods, will decline with increased supply of money. And just like that: Increased spending, and GDP growth! Note that this a priori proposition (for which empirical proof would be redundant and impossible) is (or was) a generally accepted fact, even among so-called “Economists”.
Now: A brief diversion into GDP deflation. It must be admitted that not all monetary inflation is turned automatically into increased spending. An attempt is made to “deflate” increased spending with a “GDP Deflator”. The GDP deflator, which is patched together by the hacks over at the Bureau of Economic Analysis, is an index of inflation of “Price Level”, like the Consumer Price Index. I will spare the tiresome particulars, it is sufficient to observe that the GDP Deflator is exactly analogous to the CPI in its complete arbitrariness. Again I quote from Mises:
“The pretentious solemnity which statisticians and statistical bureaus display in computing indexes of purchasing power and cost of living is out of place. These index numbers are at best rather crude and inaccurate illustrations of changes which have occurred. In periods of slow alterations in the relation between the supply of and the demand for money they do not convey any information at all. In periods of inflation and consequently of sharp price changes they provide a rough image of events which every individual experiences in his daily life. A judicious housewife knows much more about price changes as far as they affect her own household than the statistical averages can tell. She has little use for computations disregarding changes both in quality and in the amount of goods which she is able or permitted to buy at the prices entering into the computation. If she “measures” the changes for her personal appreciation by taking the prices of only two or three commodities as a yardstick, she is no less “scientific” and no more arbitrary than the sophisticated mathematicians in choosing their methods for the manipulation of the data of the market.
In practical life nobody lets himself be fooled by index numbers. Nobody agrees with the fiction that they are to be considered as measurements. Where quantities are measured, all further doubts and disagreements concerning their dimensions cease. These questions are settled. Nobody ventures to argue with the meteorologists about their measurements of temperature, humidity, atmospheric pressure, and other meteorological data. But on the other hand nobody acquiesces in an index number if he does not expect a personal advantage from its acknowledgment by public opinion. The establishment of index numbers does not settle disputes; it merely shifts them into a field in which the clash of antagonistic opinions and interests is irreconcilable.”
Now, let us consider the final result of Nominal GDP, as deflated by the GDP deflator, so-called “Real GDP”. Let us say the number reported is $XYZ. The deflated number considers the value of the goods produced according to the value and quantity of money in previous years. But in what world does this have any meaning? If the goods had already been produced in previous years, those dollars would have been worth more in relation to the goods. To illustrate: Assume that Equatorial Guinea produced 3,000,000 barrels of crude oil. In the year 2021, the barrels are worth $65, but in 2020 they were worth $50. Thus, a calculation of spending in the year 2021, deflated according to the dollars of 2020, would lower the price of oil to $50. But in 2020 there was not yet an additional 3,000,000 barrels of oil?!?! Who can say what the price of oil would have been in 2020 if there was an additional 3,000,000 barrels of oil? It might have fallen to $20! Thus, a representation of “Real GDP” in 2020 dollars is entirely fictional. It is a synthetic construct which bears no relation to the real world. We cannot say what the prices of all goods produced in 2021 would have been in 2020 if they were magicked into appearance at that time. We can only record the amount actually spent in 2021, a number confounded by inflation of the money supply. In short, GDP is a Mickey Mouse number which measures nothing, except GDP, in GDP units, which have nothing to do with reality.
The point I am raising may not particularly concern you if you consider economics to be nothing more than a bag of tricks for politicians to pull out when “unemployment” gets too high, where rigor is neither expected nor sought. It pains me to inform you that this is not the understanding among economists, who view their field as exactly analogous to physics. Their pretensions are very excessive.
I hope you fully understand the magnificence of this breakthrough. There will be a test. Thank you.
See these links for some more whack sheit:
