David Hines
Dividing the Pi
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By David Hines
October 28, 2010

Pi is an irrational number. So is the political argument about dividing it.

Here are some approximate numbers: Two of the 3 to the left of the decimal point are consumed by Social Security, Medicare, and defense. Half of the other 1 goes to other mandatory spending. The other half of it goes to "other discretionary" spending, including the TARP. Why "other"? Because defense is considered discretionary. As military expenditures increase, the "other discretionary" to be divided and redistributed decreases. Conversely, as other redistribution schemes proliferate, defense must necessarily suffer.

The 1 to the right of the decimal goes to interest. This leaves the dividing redistributionists arguing about the remaining 0.0415926...

With the massive borrowing of the last two administrations, the interest is increasing. And the pie has dried up and shrunk. Money that existed on paper as a function of the real estate bubble disappeared virtually overnight. It never really existed. It represented no real increase in wheat, gold, oil, or US-made Playstations. The argument was therefore about how to divide an illusion.

The math is relatively simple; comporting the math to reality is the difficult part. A lot of calculations are tied to GDP. But how accurate a reflection of reality is the GDP? Less and less. Greenspan invented the hedonic adjustment. This represents money that never changed hands, but is included as "trade." For example, if you have free checking, the government considers that a valuable service which you would otherwise have to pay for. A bureaucrat assigns a value to that service, and voila — the GDP just got bigger!

Numerous hedonic adjustments are made, to arrive at a GDP that doesn't measure what it purports to measure. All numbers expressed as a percentage of GDP are therefore understated. Base a calculation on a fake number, and you get a fake result no matter how accurate your calculator.

Perversely, hedonics works the opposite way when calculating inflation. If the new model of an item sells at the same price but has more features, a bureaucrat decides how much the price of the item has "dropped." You pay a dollar figure higher than the Consumer Price Index reflects. Through the magic of hedonics, inflation disappears! Nice trick, eh? Don't expect a cost-of-living adjustment on your fixed income.

A lot of people are working the numbers instead of...well, working. They'd rather have government confiscate other people's resources for them than create their own. It would seem to be apparent that for a pie to be divided, it must first be assembled and baked. That's not the way modern Keynesians operate. They say that if we eat more pie, more pie will appear.

In a free market, having money is a reflection that you produced something that somebody else found desirable enough that they'd hand over gold or silver for it, which they earned by producing something desirable. Or somebody's parents produced, and didn't indulge in frivolous expenditures. Accumulating savings resulted in the purchase of a mill, or an oven, or a farm, or an orchard. Until that stuff existed, pie couldn't be made.

Under the current bipartisan Keynesians, who funds the flour mill? The oven? Who hires the wheat farmer, the miller, the baker, and the apple picker? The government. It will borrow money from China (or merely print it) and lend it to preferred corporations to get all that pie made. Free pie for all — except for the wheat farmer, the miller, the baker, and the apple picker. They're greedy for earning money by making pie possible, and must be heavily taxed.

Don't develop too great a taste for pie. With eaters esteemed far more highly than producers, there will be less and less pie. It seems to me that too many are exerting efforts to divide the pie, and too few working at putting the pie together.

© David Hines

 

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David Hines

Born in a mill town, David Hines has seen work as a furniture mover, computer programmer/analyst, and professional musician... (more)

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