This is part of a mail I wrote. I post it in order to keep a log of my current thoughts:
Thanks Daniel I will read those articles.
What I like about the Austrians is that they consider economy as a social science. They despise all formulas or mathematical theories as being simple and dangerous to rational thinking. They built something more like a philosophy where logical and linguistic reasoning is the thought base. The basis is individual human action and its effects on society when they act as whole with their group behavior. No ethics are involved, all is based on incentives. Men act due to certain reasons and under some circumstances they do things. All is based on motivations and incentives.
Economy is a sub science of praxeology which is the science of human action. Praxeology is what the Austrians teach. They focus on studying human actions. Economy is praxeology mixed with commerce, with price ratios and exchange of goods.
Regarding economy they mostly deduce that the more the government interferes the more harm they make. That government should be minimal and only act to protect private property, to assure security and control crime. They should absolutely not act to legalize the theft of private property. Unfortunately that’s basically what they do now and what they tend to do the bigger they get. It is normal they act like that. The bigger they get the more they have to steal from working citizens in order to maintain themselves. Austrians deduce that things such as social security, big taxes and the fixation of minimum salaries are harmful. I see their philosophy as interesting and realistic and can perfectly understand why politicians, companies, citizens or corporations act the way they do. They could not act much differently in the position they are. The government and public members try to assure their salaries, its reasonable. I also think that the USA became what it was due to the fact that it was more in the past like an ideal Austrian society, but not anymore. The government became gradually so big that it lost what it made it become what it is and should either reverse in size and behavior or collapse.
As I see it the USA is a socialist country and I believe that no socialist economy can endure. Of course they would never admit they are socialists but as I see it that’s exactly what they are. Ludwig Van Mises wrote an incredible book called Socialism. He basically deduced that any socialist society like Russia, the German Nazis, or currently the USA, is doomed to change or collapse. I include the USA today because it is incredible how it resembles a socialist society where humans are completely controlled by a planning entity. Freedom is just an illusion to support a government controlling, planning and regulating every aspect of life. Not only the USA acts like that, several countries have evolved to do the same in more or less degree. Maybe some exceptions are found in Australia, Canada, New Zeeland Chile and South Korea. Actually I see Germany as much less socialist than the USA.
The Austrian School of Thought does not offer any formula or solution. They offer a way of thinking, a framework, nothing else. Charlie Munger and Phil Carret seem fans of them. Specially Carret (that’s how I learned about them). Under that framework I understand how Munger thinks. Those investors worry more about incentives and motivations than anything else. They often say that they study incentives before anything else. Thinking that way can be extremely beneficial for investing. Austrians teach you how to think in that sense. All seems logical after you understand their philosophy. And it is quite beautiful how it all builds up.
Try to read a book about one of my favorite Austrians (Rothbard) who explains well how banks have evolved. You can understand how banks are now an extension of the government and the negative consequences that it has.
Note that one of the blessings that Europe has is that they can not easily control the money supply. Specially due to the lack of fiscal union. That’s exactly what most people see as a problem. As as I see it it is better that they cannot do things because anything they do with regards to money supply or the economy would be for the worse. No one can control price ratios better that common working citizens who act to make their life better. Humans as a group decide the value of goods. Each exerces a vote and the prices of things emerge as a consequence. Humans do not consciously fix those prices. They emerge by the actions or lack of actions of each person. By the act of choosing to buy or not to buy things and their preference ranks. The government can not optimally fix prices, including interest rates. Anything done in that sense by the government is harmful as a whole.
The problem in the USA Government is the contrary to that of Europe in the sense that the former can do whatever they want more easily, with no friction. They can print as much as they want, there is basically nothing that can stop them. They have become the biggest legalized counterfiters of the world. They can fix interest rates and control banks. While that temporarily benefits their huge government and public organizations for a while, it harms the common citizens. But the government is supported by working people. Therefore if the people are worse off the government at the end is also worse off.
I have noticed that more and more companies are running away from the USA. Two of my companies are now based in the UK. Good for me in the sense that I receive 100% of their dividends now. And many of the USA companies I have are accumulating huge cash reserves outside since already several years. Its also normal they do that. Companies also act based on incentives. They simply go where they can profit more. Robert Rodriguez, one of my favorite investors moved his fund away from his former state to another state, to avoid paying taxes. People move where they believe they are better off. It’s no wonder that immigration has fallen so much in the last years. In previous decades when the housing sector collapsed its recovery used to be substantially helped by immigrants buying. That is not the case anymore.
That’s a bit how I think but I might be wrong, I can be making mistakes. But as I said the Austrians they do not draw any conclusions or give truths about anything. Austrians just give you some basic axioms about human action and everything builds up from there.
An american citizen is controlled to the extent that even if you wish to go and work on any other country you will have to keep on paying taxes (huge taxes) to the USA. That’s why you start to see some that are applying for another nationality. If I go to live to any country I just pay taxes where I work. But If I was american I should still have to keep on paying taxes to the USA. I see that as a theft of liberty. But I understand why that was done by the government, the planning class: so that they can assure themselves more sources of income.
Please do not think that I don’t like Americans, it has nothing to do with that. I admire them in many senses. I lived in New York two full years and liked it a lot. They have great companies and workers. They are spontaneous, they are mostly not racist, they are optimists. But the government has gradually evolved to control them. It has evolved to a level that is huge and difficult to sustain. Common citizens cannot support the government easily anymore, it’s too big and interferes too much. They interfere even with interest rates which are the base of the economy. If you thought as an Austrian you would see that that can only have negative consequences. Basically because interest rates are a price ratio which relates to the preference of goods over time. And no central planning organization can control any price, specially not the interest rates which are also a price. Prices and interest should emerge based on human preferences, based on human preferences with regard to time. Only working citizens as a whole can fix them. The government interfering with them is what I see as a problem with no easy solution. Unfortunately its the common citizens that are paying the consequences and become poorer or less rich than what they could be if the government had never interfered.
Then again it does not mean at all that you are doomed to lose money if you invest in the USA, quite the contrary maybe. Government interference often shifts capital to rich people. It often shifts capital from the able to the unable. As an investor you can profit from any situation if you are more often right than wrong in your interpretation of actions and how capital flows as a consequence. In that sense the Austrians have helped me to invest. They helped me to see the world by studying incentives and motivations, by focusing on actions and why and who benefits and who does not. Studying human actions and focusing on understanding why men act as they do can be profitable. Focusing on human behavior can be beneficial in many senses and specially in the investing context.
PD: Interesting interview with Sam Zell. Is the USA benefited by government market interference (quantitative easing)? :