Barber Half Dollar, 1892-1915

Slow change may pull us apart
When the light gets into your heart
--Simple Minds

In 1869 Charles E. Barber became chief engraver of the US Mint. At this time, Seated Liberty Half coinage was going strong. Like all engravers, however, Barber yearned to put his mark on US coinage.

His opportunity came in 1890. The Mint Act of 1890 act required that designs of US coins to change every 25 years. Because Seated coinage had already well exceeded its tenure, Barber got busy. The first step was to solicit designs--which resulted in about 300 proposals from sculptors and other artistic types. Barber rejected them all in favor of his own.

1910 Barber Half Dollar PCGS PR64 CAC ex Larry Shapiro

The obverse design returned to the Ms Liberty headshot tradition of the Flowing Hair, Draped Bust, and Capped Bust vintages. The right looking Liberty portrait drew heavily from the design of Liberty head coinage from the Second French Republic from 1848-1852. Thirteen stars (for the first time, six pointed stars) surround the obverse rim with IN GOD WE TRUST at the top, LIBERTY labeling the headband, and the date at the bottom.

The reverse featured a new rendition of the heraldic eagle that contained design elements from previous series. The spread winged eagle faces left, with talons clenching an olive branch and arrows. The eagle holds the E PLURIBUS UNUM banner with 13 five pointed stars above its head. UNITED STATES OF AMERICA circles the top while HALF DOLLAR circles the bottom.

Diameter: 30.6 mm
Weight: 12.5 g
Composition: silver .90; copper .10
Edge: Reeded

Mintages regularly exceeded one million per year with most going into circulation. The design, which left many of the device high points exposed to friction, made circulated Barber halves subject to considerable wear. Many survivors today are 'slick' Barbers, meaning that much of the relief has been worn away with few design details remaining.

To me, the most interesting numismatic coins among Barber series are the proofs. Proofs were struck each year by the Philadelphia mint. Mintages are tiny in all years. For example, for the 1910 date shown above, a total of 551 proof pieces were struck--not graded, struck. Yet, for most years, prices of proofs rarely exceed prices for business strike examples of the same grade.

Because most surviving proof examples were carefully cared for by collectors, they are well preserved with many possessing very interesting colors from years spent in paper albums and envelopes. Proof Barber halves can be very pretty, and given the small mintages, pops, and prices, they seem to offer interesting value.

Principals of Violence

Drinks flow
People forget
That big wheel spins
The hair thins
People forget
Forget they're hiding
--The Who

Most people do not view themselves as violent or aggressive. Instead, they view themselves as peaceful.

However, government is force, and those who condone the activities of the modern state are proponents of the use of offensive force.

The 'government' label, then, can be seen as serving a euphemistic purpose. By excluding the concept of force from the word, statists rationalize that they are not acting aggressively on others when they condone government programs.

But they surely are. They may not be pointing the guns, but their hired agents are.

Statists are principals of violence who exert force on others via agents of aggression.

Sameness is Maladaptive

Look in the mirror
And see how you've been taken
You won't surrender
But now your heart is breakin'
--John Waite

Sameness, uniformity, standardization. Many associate these with order, control, stability. In the near term, that illusion is seductive.

But the nature of the university is not grounded in similarity. It is grounded in differences, diversity, change. Darwin observed the importance of variation in adaptation.

Natural order is spontaneous and dynamic.

Sameness is maladaptive. Stabilization is chaos.

Needling the Rich

Walking side by side with death
The devil mocks their every step
The snow drives back the foot that's slow
The dogs of doom are howling more
--Led Zeppelin

In Matthew 19:24, Christ states that it is easier for a camel to pass through the eye of a needle than for a rich person to enter the kingdom of God.

Many view this passage as justification for taking wealth from rich people by force. Rather than constituting theft, forcibly alleviating wealth from people provides a two pronged benefit. It helps those who get the resources, and it helps save the souls of those who are now less rich.

While such twisted logic may be embraced on earth, it seems likely to find no quarter on Judgment Day.

Expedience

"A king may move a man. A father may claim a son. But even if the men who move you be kings or men of great power, your soul is in your keeping alone. When you stand before God you cannot say, 'But I was told to do thus,' or that 'Virtue was not convenient at the time.' That will not suffice. Remember that."
--King Baldwin IV (Kingdom of Heaven)

Expedience involves doing something convenient to advance one's interests even if it violates natural law. Expedience often appears in the political sphere, where people seek to marshal the strong arm of government to get what they want.

Expedience is action of opportunism, of getting more benefit for less effort.

Although we rationalize expedience in our earthly actions ("It was practical," "Compromise was necessary"), it seems likely that when we stand before the Creator to account for our actions, arguments of expedience will garner no sympathy.

Debt Iceberg

"Do you have the slightest comprehension of what you're getting into?"
--Molly Brown (Titanic)

The Constitution of the United States was the first complete framework for government that grounded in natural law. But it was not perfect, has these pages have discussed on several occasions (e.g., here).

Nice piece here discussing problems with the enumerated power in Article 1, Section 8 that permitted Congress "To borrow Money on the credit of the United States." The author notes that anti-federalists such as Brutus foresaw problems with this clause with prescient accuracy.

The author suggests that borrowing is politically attractive because it bypasses the unpopular need to tax citizens to pay for government programs--whether they be for warfare or welfare. But borrowing merely pushes taxation further out into the future. Indeed, people looking for evidence of short time horizons of politicians need look no further than political propensity to borrow--near term gratification that creates long term problems.

The political borrowing habit is so great that young and future generations have been sentenced to toil as debt slaves.

The author doubts that even amending the Constitution to eliminate congressional borrowing power would eliminate our debt addiction. Instead, he suspects that the good ship U.S.S. United States has a date with a looming debt iceberg.

My Science

Jake Lo: What judge is going to believe that?
Agent Wesley: My judge.
--Rapid Fire

Modern 'science' is the classic example of confirmation bias in motion. People have a belief. They seek credible evidence that confirms their belief. What better source of evidence could be more credible than a 'scientific study' that backs one's belief?

Markets for bias inevitably form. 'Scientists' perform studies for biased consumers--often through grants of resources provided by those same consumers. If that market grows large enough, it becomes scientific orthodoxy. Buyers collect those slanted studies and call them fact.

They file them away in a mental folder called My Science.

Buyback Bubble

"And with the surplus cash, we'd implement a major stock repurchase. So Trask is protected and their stock goes up, and everybody's happy. Or not."
--Tess McGill (Working Girl)

Not sure there is a more perverse incentive program than incentive stock options (ISOs). The thinking behind ISOs is that they help solve the agency problem. Managers are hired agents who may have different objectives from the owning principals. Because owners would like to see their share prices increase over time, then why not get the hired agents on the same page by offering them stock options, and rewarding them when they act in manners that get share prices higher?

The problem is that there are prudent and imprudent ways to boost share prices. Prudent approaches increase the intrinsic value of the firm over time. Smart investment in productivity-improving projects. Careful financial management. Product and process innovation. New market development.

But these things take time and capital--something that most agents (and many principals for that matter) don't have.

It can be a lot faster to boost share prices by imprudent means. A favorite approach currently is to borrow money on the cheap and use the proceeds to buy back shares. As shares are retired, there is less supply. With less supply, the price per remaining share should go higher. Both principals and agents are happy.

The problem, of course, is that stock prices become disconnected from the intrinsic, cash generating potential of companies and their shares. As long as credit is cheap and managers are rewarded via ISOs for boosting share price, there is no such thing as share prices that are too high to buy in.

Meanwhile, balance sheets get ever more levered...

Currently managers are borrowing money and buying in shares at all time stock market highs. Principals look at their monthly statements with glee. These ISOs really work, they conclude.

In reality, ISOs create a situation of mismanagement based on measurement. ISOs drive share prices higher for non-fundamental reasons. All are mesmerized by the rocket ride of price. What they can't see is overvalued shares and weakened balance sheets.

Welcome to the buyback bubble.

1885

Birds fly, in the eye of the faithless daughter
Broken, at the bitter end
Wasted, sacrifice for a new nirvana
Night time, sends us on our way
--Icicle Works

Last night's temperature of -12 degrees broke the previous Cincinnati record low set in 1885. Of course, the process for measuring temperature back then differed from today's approach, making apples-to-apples comparison difficult.

1885 Morgan Dollar PCGS MS66

Also different in 1885 was the nature and value of the dollar. Back then, dollars were not printed on paper. They were struck from silver. A silver dollar in 1885 possessed the purchasing power of nearly fifty present day dollars.

1885-O Morgan Dollar PCGS MS67

In 1885, the dollar was backed by gold. An ounce of gold was worth about $20. Today, an ounce of gold is worth over $1200.

1885-S Morgan Dollar PCGS MS65 ex Simpson

Unlike the temperature comparison, we can be confident that the value of today's US dollar is nowhere near its value in 1885.

position in gold, silver

Interest Rate Desert

After three days in the desert sun
I was looking at a river bed
And the story it told of a river that flowed
Made me sad to think it was dead
--America

Map taken from this article from The Telegraph that questions whether we have reached the limit of central bank effectiveness. The real question of course is whether central banks are effective at anything but magnifying chaos over time.

The map shows most of the world bathed in various shades of red. Red is appropriate as it signifies danger. The world has become an interest rate desert of financial repression--barren of incentive to save.

If this situations persists, then a subsequent map will show the world bathed in new shades of red--those corresponding to various states of squalor.

Live Port Maps

The fever's hot, the winds are blowin' cold
The captain's crazy eye puts the fear in your soul
I heard somebody cryin', "Lord, let this end
You know I'll never go to sea again."
--Jay Ferguson

Cool site called Marine Traffic includes live maps of world major ports. Of particular interest currently is logistics backup at West Coast ports such as Long Beach as dockworkers slow things down in advance of a possible strike.

Logjam live...

Fracking Out

Out where the river broke
The bloodwood and the desert oak
Holden wrecks and boiling diesels
Steam in forty five degrees
--Midnight Oil

Nice graph portraying the boom bust cycle playing out in US oil production. Cheap credit and suppressed rates ignited an orgy of debt-financed drilling and fracking projects. From a low below 200 in 2009, rig count exploded to a high of about 1600 in 2014.

Rig count has now collapsed by more than 30% as supply finally swamped demand in late 2014. If the world economy continues to slow, rig count count fall much farther.

An interesting question is how all of these projects funded under the assumption of high oil prices will be able marshal enough cash flow from operations to pay back their creditors.

This is a classic example crack up boom and bust courtesy of the Federal Reserve.

Hiring Robots

"Cyborgs don't feel pain. I do."
--Kyle Reese (The Terminator)

Gary North suggests that union longshoremen will someday be replaced with robots. A more general statement would be any price floor placed on labor, whether it be by minimum wage, union bargain, or state decree, will cause demand for labor to leave the market.

Buyers of labor might a) look in other labor markets, b) leave the labor market entirely, c) look for labor substitutes.

Labor substitutes consist of automation and robotics. Automation and robotics become more attractive when labor prices are held artificially high.

Some people feel that robots will take over the majority of jobs, creating widespread, permanent unemployment. This is a fallacy, unless labor decides to price itself off the market.

Crack Up

There's a room where the light won't find you
Holding hands while
The wall come tumbling down
When they do, I'll be right behind you
--Tears for Fears

Several excellent points made in this interview with David Stockman, including:

Many people who opposed the bailouts of 2008/2009 seem to have no problem with suppressing interest rates for extended periods of time. These people do not appear to realize that extended interest rate suppression policies are essentially prolonged bail out programs favoring one group (foolhardy borrowers and lenders) at the expense of another (savers).

The collapse of the US shale oil patch is just another example of the boom/bust pattern put in motion by central bank easy money policies.

Extreme move by central banks like NIRP are a sign that we are entering the 'crack up' phase. CBs have painted themselves into a corner that they know no way out of. They are now stepping on the gas out of desperation.

Expect huge market volatility following periods of calm and complacency. The discounting mechanism has been broken and market participants are reactive--meaning little warning will precede sharp declines.

Whatever drives the 'weight of disbelief' in central bank omnipotence is what will kick volatility into high gear. While they can win a few rounds, central banks are certain to lose the ultimate confidence game in the end.

Greece's new found pushback against EU-imposed measures designed to keep holders of Greek bonds whole constitutes an important inflection point. Previous can-kicking exercises are wearing out. The new Greek government is now speaking the unspeakable: We're broke. We can't pay out debt back. If this message resonates, then the 'weight of disbelief' increases dramatically.

Political blowback from profoundly stupid and unsustainable fiscal and monetary policies is likely to increase. In previous episodes of blowback led to world war.

Of Bonds and Tulips

You can make or break
You can win or lose
That's a chance you take
When the heat's on you
--Glenn Frey

Peter Atwater ponders why investors would buy bonds with little or even negative yields. He largely rejects the 'safety' thesis offered by some today. After all, bonds producing negative yields are already 'breaking the buck' when it comes to preserving capital.

Instead, Atwater proposes that fixed income investors have turned into price appreciation speculators. Being long bonds has been a money trade for years, particularly when one can borrow cheaply to buy 'safe' sovereign bonds and make money on the spread. Add to that leveraged bond ETFs like TLT, which is up about 30% over the past year, and you have an asset class that makes many market participants salivate.

Being long bonds for price appreciation is particularly compelling to those who see opportunity to front run central banks engaging in QE-related bond purchases. The Fed, ECB, BOJ, et al have been buying $trillions in bonds with more planned. Why not get ahead of this seemingly 'sure thing' of non-economic buyers lighting a massive bid under bond prices?

Future historians will scratch their heads trying to determine why people bought bonds today like old Dutch speculators bought tulips.

Rose Return?

There used to be a graying tower alone on the sea
You became a light on the dark side of me
--Seal

Chatter is getting loud that the new MLB commissioner will lift sanctions against Pete Rose--sooner rather than later.

How grand it would be to see Charlie Hustle back in the game for real.

Favor and Payback

"Now, Joe, I think you'd better go back into the Senate and keep those Senators lined up."
--James Taylor (Mr Smith Goes to Washington)

Murray Rothbard used to say that retrospective analysis of political behavior that considered only behavior during time in political office was too narrow. Such analysis, Rothbard observed, was like pretending that the politician was dipped in and out of office with no consideration about what went on before and after office.

He was thinking, of course, of the influence of payback on political favor. A politician could act in-office in a manner that either a) pays back entities in exchange for previous pre-office favors, or b) favors entities in exchange for subsequent post-office payback.

Stated differently, the market for political favor is often subject to delays before both sides of a transaction are fully complete.

Nice example here in the context of our vaccination discussion. Former director of the Center of Disease Control (CDC) was recently named an executive VP at Merck (MRK). CDC is government agency charged with overseeing national vaccination programs. Merck is one of the largest producers MMR (measles, mumps, rubella) vaccine.

Retrospective analysis of this individual's behavior while at CDC can now be cast in more complete light.

Political Lies and Market Truth

The cracks between the paving stones
Look like rivers of flowing veins
Strange people who know me
Peeping from behind every window pane
--The Who

Prof Galles discusses fundamental differences between politics and markets with respect to truth. In a specialized society where people must trade with each other to obtain the full complement of resources needed to survive and prosper, conditions of interdependence develop. To gain an edge, some people will be tempted to lie in order to advance their interests.

Hampered markets foster lying. Government interference in voluntary exchange obscures truths that would have been revealed had people been free to engage in trade. For example, price floors and ceilings lie about scarcity, deceiving people about true opportunity costs and distorting terms of exchange. Taxes, tariffs, and regulations raise prices above what true scarcity would dictate. Subsidies do the opposite, artificially lowering price and encouraging overuse of scarce resources.

In unhampered markets, truth rules. Prices reveal how people truly value one good versus another. Honesty enhances reputation and encourages repeat business. Reputation effects reduce transaction costs as trust replaces need for expensive detailed contractual contingencies.

Politically hampered markets, those enacted by force, hinder search for truth. Unhampered markets based on peaceful cooperation reveal truths otherwise unknown.

Government Junkies

Let me be your ruler
You can call me queen bee
And baby I'll rule, I'll rule, I'll rule, I'll rule
Let me live that fantasy
--Lorde

John Stossel discusses actions of "government junkies" that interfere with the lives of individuals. The classic word for government junkies is statists--people who prefer political power over social power.

Political power is use of force to either coerce people to do things that they do not want to do or to prevent people from doing things that they do want to do. Social power is voluntary cooperation among people that creates spontaneous order and freedom to create.

Government junkies are motivated by various things. The obvious one is material benefit. By using the strong arm of government, production can be confiscated from others. Government junkies can take possession of the stolen resources themselves, or they can redistribute the booty to others who serve their interests.

Government junkies might also be captivated by the prospect of ruling others. They reap psychic income from feeling the power--the power to govern.

Finally, government junkies may lack confidence in the capabilities of others. They feel that others are too stupid, too selfish, too near sighted to govern themselves. They need guidance from people more capable of deciding for them.

Fully absorbed in the planning fallacy, government junkies believe themselves qualified to run the lives of others.

Vaccination by Force

"There will be a day when you will wish that you had done a little evil to do a greater good."
--Sybilla (Kingdom of Heaven)

A recent measles outbreak has once again raised the interesting question of the role of government in public health. During the ebola contagion last fall, these pages concluded that government might have legitimate power to quarantine people exposed to a deadly, contagious disease. When an individual is exposed to a deadly disease and then interacts with others understood to have been unable to take reasonable precaution against the disease, then the carrier can be seen as an aggressor.

Quarantining potential carriers, particularly when the mechanism of contagion is not well understood, can be seen as a valid power of government under such circumstances. Government's proper role is to help individuals protect themselves against aggression.

In the midst of the measles outbreak, we now hear outcries for mandatory (i.e., enforced by government) vaccination. While this situation may seem analogous to the ebola case above, it is not. With measles we have a case where the disease and its transmission are well understood. Vaccines against the measles have been available for decades. In fact, by the time vaccines were introduced, mortality from measles had already been drastically reduced:

Because of the broad availability of a vaccine, culpability of measles carriers is unlike the ebola case above, because people have attainable means to "self-defend" against measles infection. It is reasonable to assume that those who value the vaccine will choose to use it.

There is also reason to believe that measles vaccines might be harmful. As discussed here, vaccines might throw autoimmune systems out of balance, leading to allergies and chronic illnesses, particularly in children. As estimated here, 1970s kids like me received about 7 vaccines around the age of five or older. Today, kids receive about 25 vaccines by the age of two. Research seeking to connect vaccines to allergies and illness has been inconclusive although, surprisingly, it appears that basic randomized studies of vaccinated and unvaccinated populations have not been done. (The above graph, of course, suggests that the effect on measles mortality could be insignificant.)

The point is that some people may see vaccines as potentially harmful and not worth the risk. Opting out of the vaccine is a valid choice, as is electing the vaccine. What is not valid is forcing someone else to be vaccinated. Greater Good Accounting is a poor argument here. Public health officials and those seeking to vaccinate people against their wills become the aggressors.

Vaccination by force is analogous to war fought in the name of national security. Both are usually acts of preemptive aggression.

"We" Means "You"

Drench yourself in words unspoken
Live your life with arms wide open
--Natasha Bedingfield

These pages have noted it before. In the context of politics, "we" is a euphemism for "you." And the probable application of offensive force to get "you" to acquiesce to some "greater good."

"We" is a euphemism for Sumner's Forgotten Man.

Debt and The Fed

When the walls come tumbin' down
When the walls come crumblin' crumblin'
When the walls come tumblin' tumblin'
Down
--John Mellencamp

I have little doubt that the Federal Reserve, and the modern central banking model in general, will some day be buried in the scrap heap of history. Whether it is placed there or whether it is randomly stratified in the ruble of economic and social collapse is another question.

Rand Paul makes some astute comments about the Fed in a recent screed against the institution. He notes its impact on the US dollar, observing that once upon a time the USD was backed by gold. Then it was backed by the "full faith and credit" of the US government. Now the dollar is "backed by used car loans, bad home loans, distressed assets, and derivatives."

Not to mention $18 trillion in federal debt...

In fact, Paul suggests that "the reason we have the Fed is because we have debt." This is true. A primary objective of the Fed today, one that does not precisely appear on its official list of charges, is to prevent an over-leveraged financial system from collapsing into insolvency.

But the reverse of Paul's suggestion is also true. The reason that we such large debt and leverage today is because of the Fed. Through its monetary policy agenda the Fed has facilitating borrowing far beyond what an unhampered system would permit.

Now we are caught in a vicious reinforcing cycle of more debt and intervention to prevent cataclysmic decline from that debt.

We can proactively reverse this cycle and our debt load by removing the Fed from the picture. Or we can reactively experience the wrath of market forces that, at some point, will no longer tolerate suppression by the Fed.

position in gold

Historic Baltic Dry

It was thirty days around the horn
The captain says its thirty five more
The moon looks mean, the crews ain't staying
There's gonna be some blood
Is what they're all saying
--Jay Ferguson

ZeroHedge reports historic lows in Baltic Dry Index. The BDI is an index of ocean shipping rates.

It is now below the 2008/9 lows and a kitten's whisker away from its all time 1986 lows.

Conspiracy Theory

"A good conspiracy is unprovable. I mean, if you can prove it, it means they screwed up somewhere along the line."
--Jerry Fletcher (Conspiracy Theory)

Conspiracy theory used to mean a thesis that a group of people secretly collaborated in some way to do something bad. Over time, conspiracy theories have taken on a social stigma and subject to ridicule and dismissal.

As proposed here, conspiracy theory no longer means an event explained by conspiracy. Instead, it means any explanation that is contrary to government or mainstream media explanation. Lies become truth. Fiction becomes fact.

Reason and analysis become conspiracy theory as it challenges consensus grounded in lies.

Scientific Orthodoxy

"You can break a man's skull. You can arrest him. You can throw him into a dungeon. But how do you control what's up here? How do you fight an idea?
--Sextus (Bun-Hur)

Many salient points made by Judge Nap here, including the observation that in a free society, people are free to reject scientific orthodoxy in favor of unorthodox views. People do so, of course, to their own peril.

There are many who associate scientific findings with finality. But, as Thomas Kuhn and others have observed, science is rarely final. In fact, as support builds for a particular scientific view, it is more likely to become distorted, rigid, and wrong. Unorthodox thinking is required to falsify the dominant coalition's paradigm and further advance what is known.

The state commonly embraces scientific orthodoxy because it is a means of capturing more political power. It should be no surprise that scientists and other intellectuals of the orthodox often partner with government. We have seen this in the realm of climate and recently in the realm of vaccinations. Chances of mischief increase as scientists bend the truth for their statist collaborators.

By endorsing scientific orthodoxy, government uses its coercive power to force it upon those who intellectually reject it. Science becomes a mechanism for one group to force its views on others.

Strong minds do not yield to such coercion.

Money Warehouses

You must have heard the cautionary tales
Of dangers hidden on cul-de-sac trails
From wiser men who've been through it all
And ghosts of failures spray-canned upon the wall
--Pete Townshend

Thesis that we're headed toward a period where people will see value in depositing their cash in what essentially are 'money warehouses.' You would not get paid interest because a warehouse would not speculate with your funds. Instead, you would pay the warehouse for keeping your deposits safe.

You would be on the hook to do your due diligence to make sure that the warehouse was secure to your liking.

This is what banks originally did. Progressively, however, they moved toward today's leveraged, protected model that is the source of much systemic risk and fraud

I do sense entrepreneurial opportunity here.

Interview Pushback

You could have a big dipper
Going up and down, all around the bends
You could have a bumper car, bumping
The amusement never ends
--Peter Gabriel

Nice pushback from Rand Paul against a CNBC interviewer who introduces each of four different topics (forced vaccinations, coporate tax holidays, audit the Fed, and ophthalmologist certifications) with slant and then repeatedly interrupts Paul as he tries to respond.

Paul calmly corrects the interviewer various times on her premises and approach. In his wrap-up comments, Paul says:

"Part of the problem is that you end up having interviews like this where the interview is so slanted and full of distortions that you don't get useful information. I think this is what's bad about TV sometimes so, frankly, I think, if we do this again, you need to start out with a little more objectivity going into the interview."

This, of course, is a fundamental problem with journalists seeking to be 'objective' reporters. They have difficulty checking their biases and consequently report distorted views of events.

Slanted interviewer backdrops discourage me from watching or listening to interviews--and certainly from getting interviewed myself. However, Rand Paul provides a good example of how to navigate the minefield while thoughtfully conveying perspective that many information consumers may find useful.

COLAs

We've got to hold on to what we've got
It doesn't make a difference if we make it or not
--Bon Jovi

Many agreements that include routine payouts, including many transfer payments, include "cost of living adjustments." COLAs are multipliers that, nearly always, increase the payout by estimated cost of living increases. These estimates typically come from the government sponsored change in the 'Consumer Price Index' or CPI.

If the CPI is deemed to increase 3% annually, then a $100 payout that employs CPI-based COLAs  would increase to $103.

The rationale behind COLAs is that payouts need to be revised for higher prices of goods and service over time. Without a COLA, the reasoning goes, a $100 payout buys less over time.

Beyond issues of manipulation to CPI metrics, which seem to elude the awareness of most people, is the widespread belief that prices naturally go higher over time. This is an erroneous assumption. As society becomes more productive, the natural direction of prices is down--not up.

Higher prices are due to aggressive force being applied somewhere in the system. Typically, this force takes the form of a) outright money printing, or b) suppressed interest rates that gradually rob the system of capital necessary for productivity improvement.

In unhampered systems, COLAs would typically revise routine payouts lower.

Billing It Forward

P.J. McNeal: About this five thousand dollars. Where did you get it?
Tillie Wiecek: That is important?
P.J. McNeal: Yes, it's very important. Where he got it--or where YOU got it--might have a lot to do with the case. He might have had it hidden away, or maybe you got it from some mob that's trying to spring him.
Tillie Wiecek: No, no. It's mine. I work. I scrub floors. Eleven years I save every penny. I never miss a day's work. I earn it...every penny.
--Call Northside 777

Occasionally I hear someone recognize the sacrifices that people in previous generations made for the present generation. In economic terms, sacrificing means foregoing something in favor of something else. Economizing.

The greatest economic sacrifices that one generation can make for the next are those which build wealth for the future. By doing so, one generation quite literally pays it forward to the next generation.

A generation can pay it forward in various ways. It can work more and rest less. It can save more and consume less. It can invest part of those savings intelligently in productive capital that the next generation can work with to produce even more wealth.

The present generation is doing little of this. It wants to retire early. It is withdrawing from the workforce in favor of transfer payments. It spends more than it produces in income (no savings). Debt is taken on to subsidize this habit. Policies encourage consumption and debt and discourage savings. Capital for future productivity improvement is consumed.

All of this leads to less wealth, not more, for future generations.

Rather than paying it forward, the present generation is billing it forward.