The Broken Window (with Tom DiLorenzo and Jeffrey Tucker)

Ron Paul Explains Economic Liberty

Are We All Austrians Now?

...why the establishment fears Ron Paul and how his economic ideas are being embraced by mainstream voters.

Ron Paul and Contemporary Economics

Presented by David Gordon at the Mises Circle in New Orleans, 5 November 2011.

Thomas E. Woods, Jr.: Learn Austrian Economics

The past several years have seen a revival of interest in the Austrian School of economics. (Go to the link to find links to essays and books on the topic - Learn Austrian Economics)

Again I Say 30% of Americans are Stupid

Looks like my assertion that 30% of Americans are stupid has been proven yet again by Rasmussen:

Voters don’t care much for government regulation of the economy and think it has a bigger negative impact on small business.

A new Rasmussen Reports national telephone survey finds that 70% of Likely U.S. Voters believe government regulations hurt small businesses more than big businesses. Just 13% think big businesses are hurt more. Sixteen percent (16%) are not sure. (To see survey question wording, click here).

Sixty-three percent (63%) think big businesses take advantage of the political process to hurt smaller competitors. Only 15% disagree, although 22% more are not sure.

When I was in college, my roommate pointed out to me how other nations, especially the Western European ones, had even more strict laws and regulations regarding intellectual property than the United States despite the Digital Millennium Copyright Act.  This led me to conclude that the more Socialist a nation is, the more likely a big corporation is to take control of that country.

The dirty secret of this supposed capitalist society we live in is that big corporations love big government regulations.  They do not mind spending literally millions of dollars on lobbyists and bribes (see campaign contributions) in order to gain an edge in the market.  Unlike most voters and politicians, they remember their origins as a company because most large corporations were created in a single generation by a brilliant business person.  Usually, that business started out as a small shop somewhere in some no-name location and expanded from there.

But they also recognize that there are constant threats to their reign in the markets by small business.  The invention of the automobile spelled the doom of passenger trains in the transportation market.  The placement of McDonald’s restaurants on highways pushed other places like White Castle into obscurity, despite the latter actually coming out of the Great Depression stronger.  The Wal-Mart chain was started small and expanded, beating existing department stores by its revolutionary system of distribution which allowed for lower prices.

Speaking of Wal-Mart, back in 2007, shortly after the Democrats took Congress back, the Wal-Mart CEO came out in support of raising the minimum wage.  Now why would Wal-Mart, popularly alleged to have not paid its employees anything above minimum wage, support such a regulation?  Out of the goodness of his heart?  Don’t make me laugh.  Seeing as how the stereotypical corporate CEO is a greedy, selfish profiteer, how come no progressive on the Left viewed this statement as the least bit suspicious?

The reason that he said that was because Wal-Mart can pay for the increase in labor expenses while smaller businesses cannot.  Minimum wage laws serve only to raise unemployment (if you think that is a bad thing, I could go either way on that indicator) and stifle the growth of small businesses.  In effect, the Wal-Mart CEO was looking to prevent some new hotshot with even better ideas from killing his own golden goose.

Now it appears that 70% of Americans now also believe that business regulations have a bigger negative impact on small businesses.  I would add to that assertion that big businesses actually benefit from government regulations rather than are restricted by them.  Even when there are restrictions placed by government leaders and bureaucrats, they still can get away with them by paying off the inspectors, as was the case with BP (OK, I do not know that for certain, but BP did violate more safety regulations than any other oil company and somehow this was not picked up by the regulators).

Given that 30% still believe that big government hurts big business, or are unsure on that matter, it continues to prove my assertion that at least 30% of Americans are generally ignorant of the practical nature of how things are when it comes to government and its relation to the economy.  And while I am  certain that the other 70% probably a variety of ideas on how to fix this, one thing is certain: this does not bode well for the bureaucrats who believed that there was job security in working for the government.

The Broken Window Fallacy

This short video explains one of the most persistent economic fallacies of our day.

4 Free Market Myths Debunked

Four of the most common myths about the free market debunked

Economics 101: Keynesian Economics Is Wrong!

Statistics are to Economics like Oil is to Water

Ludwig von Mises, one of the most influential contributors to Austrian economics, said that economics is really just a subset of praxeology.  I know, I’ve just thrown around some big words there, so I’ll elaborate: Mises believed that economics is about studying a specific kind of human behavior, which is what praxeology is (the study of human behavior).  In other words, economics is the study of the transactions that individuals make.

Given this simple concept, I have found myself fascinated by the attempts that are made by various groups, think tanks, and government agencies to find statistical measures.  Even more laughable is how the entertainment-driven news media likes to spin all of these statistics and measurements to further their own goals.  Oh, and don’t get me started with politicians.

Individuals of all political spectrums accept these statistics at face value and don’t ever question how they are measured or whether or not they have enough factors in place.  For example, did you know that the Dow Jones Industrial Average is really just the stock market index of the top 30 companies?  And that those 30 companies are a chosen elite but by no means represent the bulk of the economy.  Considering that roughly 98% of the people who are employed in the United States work for a company that has less than 100 people, I doubt that when the Dow Jones loses a few hundred points, it directly affects everyone.  Given the reactions of various media outlets, however, you’d think Jesus had come back and was eating everyone’s brains, due to an unfortunate misinterpretation of St. John’s visions.

It’s easy to determine economic outcomes when you limit your scope.  In reality, this is what statistics does.  It takes a small sample of larger population and runs mathematical calculations against the data.  Ideally, the sample is random and the larger the sample, the more accurate your data, but in reality, samples are often skewed, intentionally or not (opinion polls are the worst, as I’ve already pointed out).  Unfortunately, economics is not exempt from the shortcomings of statistics, especially when there is no sample size big enough to accurately reflect the reality of the situation.

While I am keenly interested in the subject of economics, I tend to not bother with the statistical analysis and focus instead on the relational aspects myself.  That doesn’t make me an expert, but it certainly does beat predicting the nature of the animal spirits.  Before the housing collapse, I saw how housing was increasing at a rapid rate and I realized that there was an upper limit before people stopped buying homes.  There is only so much debt a person is willing to get into before they stop (usually those who don’t have some kind of mental illness or are just plain stupid).  At that time, my parents told me about a condo that was for sale and that I could probably buy it if I wanted it.  I declined and it looks like that decision was sensible from where I stand.

The truth is, the best indicator of the economic times is to observe what the trends are.  Pay careful attention to what people are willing to into debt for and how people are handling their spending.  Common sense, the most uncommon kind of sense in our postmodern age, can easily dictate the direction that things are going in.  But it’s not an exact science, in fact it’s not really science at all, but merely educated guesses based on observational evidence.

And while it may not be ideal, it is probably just as accurate as mixing statistics with economics.  The downside is that you won’t sound official because you won’t have fancy charts or flashy pictures to illustrate your points.  But hey, if you spent your entire life trying to impress people, then you’d just be another worthless politician or blabbering blogger.

Jaguar Inflation

The Comeback Austrian

He was born in the 19th century, wrote his most influential book more than 65 years ago, and he's not quite as well known or beloved as the sexy Mexican actress who shares his last name. Yet somehow, Friedrich Hayek is on the rise.

When Glenn Beck recently explored Hayek's classic, "The Road to Serfdom," on his TV show, the book went to No. 1 on Amazon and remains in the top 10. Hayek's persona co-starred with his old sparring partner John Maynard Keynes in a rap video "Fear the Boom and Bust" that has been viewed over 1.4 million times on YouTube and subtitled in 10 languages.

Why the sudden interest in the ideas of a Vienna-born, Nobel Prize-winning economist largely forgotten by mainstream economists?

Why Friedrich Hayek Is Making a Comeback

What F.A. Hayek saw, and what most all his contemporaries missed, was that every step away from the free market and toward government planning represented a compromise of human freedom generally and a step toward a form of dictatorship--and this is true in all times and places. He demonstrated this against every claim that government control was really only a means of increasing social well-being. Hayek said that government planning would make society less liveable, more brutal, more despotic. Socialism in all its forms is contrary to freedom.

Nazism, he wrote, is not different in kind from Communism. Further, he showed that the very forms of government that England and America were supposedly fighting abroad were being enacted at home, if under a different guise. Further steps down this road, he said, can only end in the abolition of effective liberty for everyone.

Statists Hate Gold

Amidst the increasing calls among statists for increased federal spending, one can practically feel the deep, visceral hatred for gold arising within statists. The reason is that statists know that gold is a communications vehicle that tells people what government officials are doing to their money. That's the last thing that statists want people to find out.

Practically everywhere you look, both the federal welfare state and the federal warfare state are in deep crisis.

For all practical purposes, such beloved welfare-state programs as Social Security, Medicare, Medicaid, and other welfare entitlement programs are busted, bankrupt. That is, there is no reserve fund to make the payments that need to be made to dole recipients. Instead, the federal government collects part of the money to make these payments in the form of taxes. But the problem is that the tax revenues are still insufficient to pay all the dole recipients, and the shortfall is enormous.

Why Statists Hate Gold

Foreign governments have been getting in on the recent gold rush, driven by continued fears about Europe's debt crisis and the pace of the global economic recovery.

Those concerns have been propelling the precious metal to record highs over the past 18 months. In fact, gold posted a new intra-day high Friday, when it reached $1,260.90 an ounce. A day earlier, it reached a fresh record high closing price of $1,248.70 an ounce.

Last year, foreign central banks were net buyers of gold for the first time since 1997. India, China and Russia have been the biggest buyers. And more recently, the Philippines and Kazakhstan jumped into the fray with big purchases of the precious metal during the first quarter, according to data released by the World Gold Council Thursday.

Central banks join gold rush

What is the Underground Economy?

The Underground Economy by Danny G. LeRoy

1. It is not something subterranean. It is neither a physical structure nor a place. The pejorative term "underground economy" is used to describe the activities of buying and selling that occur beyond the purview of authorities. Typically the goods or services that are exchanged include, among others, drugs, sex, electronics, software, movies, music, and building-construction services.

2. Markets are processes involving the interplay of buyers and sellers. When the role of government is restricted to protecting persons and private property against aggression and theft, market processes transpire without impediment. Consumption opportunities are maximized as entrepreneurs deploy resources to produce goods and services in view of profitably satisfying the myriad wants of consumers.

3. When governments interfere with market processes by way of taxes, regulations, and prohibitions, they go beyond protecting individuals and private property from aggression and theft. Government-granted monopoly privilege in the form of compulsory producer cartels or patents do not protect property rights; they invade them. The aim of government interventionism is to control the productive and consumptive behavior of individuals. In other words, central authorities want to influence what you do with your body and the things that you own, ostensibly for your own good.

4. This puts those enforcing government interventionism in a difficult position, particularly with respect to the prohibition of marijuana, hash, or cocaine and services like sexual gratification. By making the production, marketing, and consumption of these goods and services illegal, enforcement agencies are required to divert resources from the protection of person and property toward surveying, capturing, fining, or arresting willing consumers, purveyors, or marketers. They are trying to halt market processes — the interplay of willing buyers and sellers. Not only is this enforcement activity very costly; it is also not very effective. In fact, evidence suggests that prohibiting drugs and prostitution is counterproductive.

5. When something becomes illegal, consumer demand does not vanish. Instead, consumers seek alternative, more costly and risky, means of satisfying their wants. Prices are higher than they would be otherwise, and product diversity, quality, and quantity demanded are lower. In view of suppressed demand and the potential to earn large profits, individuals with a knack for averting authorities direct their energy and resources to satisfy this demand. The illegality of the activity enables the intermediaries to ask higher prices of consumers and to bid down prices paid to growers of hemp, coca, and opium poppies. It gives rise to drug cartels, prostitution rings, and violence associated with the protection of "their" territories.

6. The government's "war on drugs" has been both a tremendous triumph and an abysmal failure. Drug warriors have been very successful. We have all seen media images of police stings involving massive amounts of money, drugs, and firearms. However, this has had no impact in local markets. Illegal drugs are available just about everywhere and at prices that have fallen in real terms over time. The amount of pot that could be bought for $10 at a local high school in 1980, for example, is likely the same quantity that could be obtained for $10 today.

7. Prohibition advocates can point to some positive effects. The quantity demanded of soft drugs such as marijuana and hash is likely lower than it would be otherwise. The same can be said of prostitution. But it is hard to believe that the desired effects are anywhere large enough to justify the human cost of their prohibition in terms of lives lost and lives destroyed.
-The Underground Economy in One Page

Economics 101: Deficits, Debts and Unfunded Liabilities

Blog of the Moment: Krugman-in-Wonderland

From William L. Anderson, who teaches economics at Frostburg State University in Frostburg, Maryland.



Krugman-in-Wonderland

This week, I will be covering Say's Law in my principles of macroeconomic classes, which would be anathema to Krugman. Say demonstrated in his 1803 book on political economy that all of our "spending" must have a source: our production.

It makes sense. Economies that produce a lot of goods that people want also are economies with lots of consumer spending. Think about it; all of use work to produce a good or service that others want, and by being paid with money, we then can find a way to "trade" what we have produced so that we can gain goods and services that others have made.

Krugman and Keynesians, on the other hand, see no meaningful connection between production and consumption, and this dichotomy not only is central to Keynesianism, but also to Marxism, socialism, and Institutionalism (of the old variety as developed by Thorstein Veblen more than a century ago). To a Keynesian, we produce goods and then hope that the producers have enough money and the will to spend so they can "buy back the product" they created when they become consumers.

Sometimes, this really becomes ridiculous, as shown by this example. Around 1908, Henry Ford doubled the pay of the workers at his Dearborn, Michigan, plant from $2.50 a day to $5. According to the Keynesians and others, by doing so, Ford "turned his workers into consumers and created the American middle class."

Why is this notion ridiculous? Think about it. If all Ford did was to double the pay of his workers, doing so would have doubled his labor costs, which would have meant that in order to make a profit, he would have to sell his cars at much higher prices than he already was doing.

However, we know that Ford cut the price of the Model T to under $300 after a while, which fulfilled his goal of making the automobile available to nearly anyone. So, this notion that he raised wages to give his workers more money so they could "buy back" the cars they made simply makes no sense. None.

What happened was this: the assembly-line work was monotonous, and Ford had huge, costly turnover problems. By doubling wages, which then were the highest industrial wages in the world, he solved the turnover issue and those cost savings more than made up for the higher labor costs. Furthermore, by ensuring that his workers would be available and anxious to keep their high-paying jobs, Ford could turn his attention to the quality issues that had been plaguing the production of the Model T.

In the end, Ford said that what he did was a "cost-saving" measure, as he took into consideration ALL of his opportunity costs of production, not just the simple wages. Now, most people can understand this explanation, but because Keynesians are so stuck on the "buy back the product" mentality, this bit of logic escapes them.

As for our current "recovery," I am sorry, but there is no meaningful recovery out there. The Obama administration is forcing up business costs, but does nothing to encourage new investments in those product lines that can lead us out of the recession.-Is Krugman's Economy Stupid?