December 13, 2011

Holiday Butter Shortages

In a recent article by David Charter a crisis in Norway was
discussed. They ran out of butter.
analysts say that the root of the problem is the near-monopoly held by the
giant domestic company Tine, which controls 90 per cent of the butter supply in
a country protected by trade barriers from European Union imports.” Norway,
which is one of the richest countries in Europe has an outdated state monopoly
system. This was created to keep prices high and protect local farmers.
From an
Austrian perspective this all rings true. Monopolies are unable to detect
changes in consumer demand because the price they set is the price consumers
must pay. Monopolies are possible only through state mandates. Otherwise,
butter competitors would have pushed Tine out of the competition or forced it
to lower its price.
Even more
exciting to see, however, from the perspective of a student fresh with Austrian
ideas is that exchange finds a way. The market finds a way.
“A man in
Lillehammer who advertised half a kilo of butter for sale received bids of up
to 3000 kronor ($A500), making it almost as expensive as silver at around $A30
an ounce. A Russian man was caught trying to smuggle 90kg over the border from
Sweden last week.”
Traeland Rostoel, 20, a student at Oxford, said he was taking a few slabs home
in his suitcase for Christmas.”
You cannot
suppress the world of human action.

December 11, 2011

But that isn't fair!

Especially with the 2012 elections coming up and the Occupy movement, there is a lot of talk about taxes, mostly about taxing the rich more, as it always is. CNN reports "To Obama, the fact that the wealthy can so whittle down their tax burden is 'the height of unfairness.'" This is silly, for two main reasons. First off, if the rich can whittle down their tax benefits, congradulations to them, I see this no differently than I see the company that can produce their product at a lesser costs and enjoy more profits (which we have already discussed on many occasions why companies that can do this should not be punished because they made 'too much profit"). Second off, there's that word fair again. We constantly discuss in class what are we striving for? Fair is arbitrary because the question fair to who? cannot be answered (in a non-sarcastic way). I cannot help but think about to Mises (I believe) who explained that people wanted socialism not because they thought it was a better theory, but simply so that those that were more well off than they were could suffer the same as them. Also, I think about how at a certain tax level people either begin working less so they don't reach that tax level and can keep more of their earnings or they simply begin working out of sight of the government so they are not taxed. Either way, it is possible to be a greater loss in tax revenue then if they had not raised the tax rates. Also, Hayek is absolutely correct when he tells us that there is no way to keep these arbitrary taxes from getting out of hand, "But is there any principle which we can hope will be adopted and which will prevent that the opportunity thus opened will be abused? It is hardly to be expected that an attempt to limit the scale of progression to some particular maximum figure would, in this respect, be effective. Such a percentage figure would be as arbitrary as the principle of progression itself and would be as readily changed when there was need for additional revenue." (pg 283) If only people would rethink their desire for 'fairness' and 'efficiency' then perhaps we could start replacing the bad ideas with good ideas as Mises suggests we should do.

November 30, 2011

India's Own Outsourcing Problem

In a New York times article titled "Outsourcing Giant Finds It Must Be Client, Too," author Vikas Bajaj explains how strict employment laws and labor regulations within India's 28 states are hurting growth and employment within the developing nation. Because the government makes hiring and firing permanent workers so difficult, many businesses find it easier and cheaper to hire temporary workers trained and provided by other companies such as TeamLease, the Bangalore-based agency owned by Manish Sabharwal. As Bajaj explains, "The practice highlights a fundamental tension between India’s socialist past and a new freewheeling, private sector that is increasingly powering the economy while chafing at what many companies say are laws so protective of workers that they blunt hiring and stifle growth." It seems as a result of its own policies, the outsourcing giant must turn to outsourcing to solve its employment problems.

Entrepreneurs such as Sabharwal have capitalized on the demand for labor in India…namely, skilled and affordable labor. "...The reason Mr. Sabharwal has thrived, he and others say, is because India needs him. The nation’s complex web of federal and state labor laws intended to protect permanent workers are so onerous that few employers want to hire them, they say. Those laws cover virtually every aspect of employment — how workers are hired, what they are paid, how many hours they can work and whether they can be fired. Factories employing 100 or more workers are not allowed to lay off employees without the government’s permission." But even he doesn't view outsourcing companies such as his own as a permanent fix. "Workarounds" such as TeamLease provide a temporary way around obstacles to growth. Such solutions aren't sufficient to continue bolstering manufacturing in the long run and create new jobs for 12 million Indians who enter the workforce every year.

These issues exist because interventionism by the Indian government negatively impacts the nation's labor market. A price for labor has emerged within various sectors of India's economy, but regulations require businesses to pay a price for labor that is higher than the market price. At this higher price many businesses cannot afford to hire permanent workers and take on the risk and costs associated with it while remaining profitable. Either that or they cannot hire as many workers as they would like, which hurts workers more than businesses. Government interventionism causes a misallocation of factors of production such as labor so that they are not utilized as profitably or efficiently as possible. The flow of knowledge and access to information throughout India have been interrupted due to government policy. Entrepreneurs such asSabharwal have set out to correct these discrepancies in the labor market, with hopes of bringing skilled and educated workers to the businesses who need them. But so long as the interventionist policy continues, the misallocation cannot be fully resolved. This is another instance of a central plan interfering with the individual plans of many.

As Wages Rise, Tough Choices

This article describes how minimum wage increase will effect the un/employement. Seven states including Colorado are increasing minimum wage beginning in 2012.
I like that the author of the article is fair enough to present both sides of the argument: those who say that increasing wages will help employees, and those who say that it will actually hurt them.
"Legislators commonly recommend boosting the minimum wage to compensate for
cost-of-living increases." "Evidence of any loss of employment or hours for the type of
minimum-wage changes we have seen in the U.S. in the last 20 years," says
Arindrajit Dube, a professor of economics at the University of Massachusetts
Amherst. If employers cut back on labor, it's generally due to poor economic
conditions, not pay requirements, Mr. Dube says."
How ignorant and arrogant can these professors get to say that?
Further in the article, the author tells about all the small business owners who plan to cut either number of employees or number of hours they work.
"About half of R.L. Vallee's roughly 450 employees make the minimum wage—mostly
entry-level cashiers, sales associates and inventory-control personnel. To cope
with the wage increases in Vermont, the 69-year-old family business plans to cut
employees' work hours in that state and is considering having employees there
pay a larger share of the premiums for their employer-provided health insurance."
""When you raise the price of something, including entry-level
labor, you're going to decrease demand for it," says Michael Saltsman, research
fellow at the Employment Policies Institute, a nonprofit research group in
Washington, D.C."
It's exactly what Austrian economists predicted would happen when minimum wage is increased: it won't help the employees; it will hurt them because employers will not pay more to employees only because government told them so. They'll pay more only if employees will produce more profit. Unfortunately government cannot regulate this part. You don't have to be a rocket scientist to understand this. Unfortunately it's not the case with politicians and some economists. They want to command the universe, and it aint gonna happen.

If You Raise the Price, They'll Still Come

If You Raise the Price, They'll Still Come

Published November 26, 2011
| Associated Press

Read more:   

Apparently there are plenty of examples of how companies can get away with charging more for their product because of a certain amount of loyalty customers feel towards the brand. This is a perfect real world example of how customers have learned in the market place.

Counter to Neoclassical mindsets, consumers may be opting into spending more money on products they have had good experience with in the past, rather than purchasing products with a less pronounced reputation that is selling their product at a cheaper price than their competitor. It was fairly common in a number of economics classes I took, for a reduction in prices to lead to a higher number of units sold. It is interesting to see a real world example of how consumers are acting counter to this common approach to economics. The difference is, I can see why it is happening because of some principles picked up from Austrian Economics. 

It is likely that the customers buying Starbucks, Nike, and McDonalds have a degree of loyalty to these brands that has been built by a number of positive experiences with not only the products but also the customer service offered by the companies that run the brands.

I had never thought of this phenomenon with the view of Austrian Economics before, and it is truly fascinating that there is a price associated with confidence in a product’s quality. If someone knows that the product they buy will be a good one there is a limit to what they will pay, but it may be higher than anyone may have considered.

November 29, 2011

"Human Rights" as Property Rights

I believe last week’s discussion about clearly defined property rights is of great importance – perhaps the most important tenet from the many we have studied. In terms of conflict resolution, no other principle is as clear and steadfast in its purpose. Without property rights, chaos would ultimately ensue. In an effort to avoid redundancy, I will focus my attention on a separate reading from Murray Rothbard that looks at property rights from a different angle. In this essay titled “Human Rights” as Property Rights, Rothbard critiques the meaning and significance that society puts on certain human rights that we all are accustomed to. For much of the essay, he focuses his attention on the right to free speech, arguing that no one person has the right to free speech without the clear ownership of the land they are speaking on. For example, if I were to trespass onto someone else’s property, I would be in direct violation of that person’s right to property, thus losing my ability of free speech. There are only two places where I have the ability to express my voice in a free manner: The first place being my own property. In an Austrian-Libertarian society, I would be able to do whatever my heart desires on my own property as long as I am not impending or endangering another person’s liberty. Free speech would of course fall under that guideline. The only other way I would be able to voice my opinion would be to formulate a contract with an owner of a separate building. The example given by Rothbard is when a person hires out a hall and addresses the people who willfully enter the premise. Without that contract from the owner, that person speaking would have no right to speak. In either of these situations, the right to property is what allows a person to freely speak. It seems at first a radical thing to declare, but when realizing the significance and importance of property rights, it actually makes perfect sense. The right to freedom of speech is just one example given, but any other “Human Right” would also be subject to a person’s ownership of property.

In the second half of the paper, Rothbard writes about the fact that most of the problems related to freedom of speech occur on government owned streets. The government is basically the property owner of the streets, and because of that, they must decide on how to allocate their scarce resources – in this case the use of the actual street. What eventually happens is the government allows certain events to take place, such as a political rally (which blocks traffic, etc) and excludes others. No apparent reason is needed or given; it is simply up to the government’s discretion. (Oxymoron?) The point Rothbard is making is that if the streets were owned by private individuals/firms, the use of these streets for assembly would be solved in a similar fashion to the example already given of a person renting out a hall from the owner of the hall.

For lack of being able to write it better myself, a quote from Rothbard follows.

One would, in a fully libertarian society, have no more "right" to use someone else's street than he would have the "right" to preempt someone else's assembly hall; in both cases, the only right would be the property right to use one's money to rent the resource, if the landlord is willing. Of course, so long as the streets continue to be government-owned, the problem and the conflict remain insoluble; for government ownership of the streets means that all of one's other property rights, including speech, assembly distribution of leaflets, etc., will be hampered and restricted by the ever-present necessity to traverse and use government-owned streets, which government may decide to block or restrict in any way. If the government allows the street meeting, it will restrict traffic; if it blocks the meeting in behalf of the flow of traffic, it will block the freedom of access to the government streets. In either case, and whichever way it chooses, the "rights" of some taxpayers will have to be curtailed.

I found this article to be wholly fascinating and it only adds to the already discussed importance of property rights. This essay, coupled with Cordato’s writings from last week’s class illustrate that clearly defined and enforced property rights are a crucial principle for any complex society to prosper. Attached is the essay by Rothbard, and if given the time, I think everyone on the blog should give it a read-through.

November 28, 2011

Taxes, taxes, taxes

Tonight, I plan to offer a brief essay on three kinds of taxation models, and some thoughts about them based on the information that I found. The three models specifically are the progressive income tax that is presently used, the progressive consumption tax that is espoused by Robert Frank, and a proportional income tax that is considered in the article “Progressive Taxation Reconsidered” by Hayek. They all have their considerations and their champions, but they all have the same objective: to give the government that works for the people the money it needs to operate effectively.

First is the progressive income tax model. It is, as previously noted, the model that is presently used. As such, it is the one that has the most evidence, and the most baggage from all of us. Its theory is simple: it is meant to keep the government funded, without reducing the purchasing power of the people in the country (, which is all very well and good. However, Hayek discusses that this kind of taxation is vulnerable to political manipulation by the most populous and therefore most powerful groups, which would be the middle class. The political machinations that Hayek discusses shift the tax burden off the middle class; presumably, the intent is that the upper class bear the burden, but the lower class also bears a disproportionate amount under the system.

Progressive consumption would work very differently. It would tax the purchases that people make, adding to the price of already expensive items ( This would have the desirable effect of not completely killing the expensive items. They would still be available for the consumer who wanted them. However, there was a concern raised ( that different tax policies between the Untied States, if we adopt this model, and a trade partner that still has progressive income tax, could make the act of trading very difficult. Also, it strikes me, personally, as possible that a person of wealth could buy exclusively from foreign providers and have his or her purchases imported to try to duck the tax. Never mind that this could easily be more expensive in the long run; people will do what they believe is in their best interest, even if they are dead wrong.

Finally, there is the proportional income tax that Hayek was discussing. It is, just like it sounds like, a tax where everyone pays the same percentage of their income in taxes. It is quite simple sounding, and has the advantage of being fairer than the progressive income tax ( , as discussed at length above. The only downside that I could find came from the assumption that the tax was being levied as a sales tax, rather than an income tax; that would be unfair, because someone who makes $30,000 annually would be hurt more than one who makes $300,000.

So, ultimately, what I have found indicates that the progressive income tax that we presently have is the least effective and most unfair model of taxation. The proportional income tax seems to be the simplest one, and the most immune to political tampering, but the progressive consumption tax would be the most fine tunable. In the case of both, however, there is one thing that I can’t help but be concerned with, and that is trade. In the case of consumption taxes especially; the WTO has the ability to pressure nations, even the United States, into changing their laws. Without a trade conversion ability, these taxes may prove to be politically difficult on the international scale.

November 16, 2011

Live it up!

The new Colorado Springs slogan “Live it up!” and the official nickname “The Springs” was introduced this week. So far $111,000 has been spent to come up with this ground-breaking new brand.

The process was long are arduous. The board brainstormed over several original slogans like, “Live life to the fullest,” “Just do it,” “Live and learn,” or “You can do it. We can help.” The use of an exclamation point was also questionable. However, “Live it up!’ encompasses “The Springs” in the best way. It’s just so awesome here. Enjoying some Dairy Queen at the mall? Live it up! Driving to work? Live it up! Shopping for some jeans at the new Kohl’s? Live it up, people!

“The Springs” economy has suffered badly over the past few years, but it’s time to just get over it. If we just live it up, it will probably go away. The key is to ignore bad stuff and it will eventually disappear. Who cares about our streetlights, parks, school busses, police, or firefighters? That’s old news. Forget about it. Just live it up people. We have mountains!

This project has created a whole new role of government in society. Not only should the government use force to protect property rights. They can also use such force for marketing campaigns. Making commercials is really fun and easy, especially with the government's power. “The Springs” government is definitely getting creative with its role in society and use of force.

Also, forget about specialized knowledge. Could anyone possibly think of a better slogan or nickname anyway? Marketing firms are a joke these days. They use this thing called creativity to thing of orignal ideas. Or focus groups and market research to test the resonance of a product or brand among its target market. But what's the point if you can just get a bunch of random people together to think of something? Hundreds of citizens and government employees worked on this project. A famous hip hop artist was even included! I found the theme song of Colorado Springs written by Mac Miller himself!

Just kidding, here's the REAL video:

Besides, a lot of the typical roles of government have just gotten a little too boring and predictable. Murders and robberies happen all the time. It’s time to change it up. Let’s do some marketing and make a commercial for fun instead! Live it up!

The 'Middle Class'

After a particularly stimulating Austrian Economics class
one day I happened upon an issue of Time magazine while standing in the
checkout line at King Soopers. You can imagine my displeasure when near the
bottom right-hand corner of the cover one headline read ‘The Decline of the
Middle Class’. “What do they even mean, ‘the middle class’?” I asked myself. I
located the article on page 31 and began to read.
“America was once the great middle-class society. Now we are
divided between rich and poor, with the greatest degree of inequality among
high-income democracies.” I was once taught that the term ‘middle-class’ is one
without much definitive meaning. If you divide levels of incomes into different
‘classes’ it seems that any way you slice it, there will always be a middle.
This did not deter me, for it was still possible that this particular issue of
Time magazine contained the secret reasons for why the term ‘middle-class’ held
such sway.
After briefly referencing the Depression and Roosevelt’s New
Deal-a key feature of any contemporary article which attempts to identify the
cause of and prescribe remedies for the current ‘economic downturn’-the author,
Jeffrey D. Sachs, writes that “At home, workers with lower skills and education
are being squeezed by competition from overseas.” Sachs contrasts this with
eras of prosperity and writes that in the fifties and sixties rapid economic
growth was the result of a ‘more robust safety net’.
“Social Security, the GI Bill, interstate-highway
construction and many other programs ensure that the elderly were protected,
higher education was increasingly within reach of all, and the business sector
had the modern infrastructure needed to prosper. In this highly effective
‘mixed economy,’ one bolstered both by business and by activist government, the
gap between rich and poor narrowed substantially.”
At this point I assumed Sachs’ next step would be to argue
for bigger government, and possibly even demonstrate his support for recent
attempts to bolster the economy. Alas, this was not his position. Sachs does
not support ‘haphazard-stimulus’. However, as regards the picture he paints of
the Republican approach he writes, “They claim, without evidence that taxes and
regulations are killing job creation, though many countries with much higher
taxes and much stffer corporate regulations have much higher employment rates
than the U.S.”
What are we to do then? Sachs believes that the answer lies
in public investments. Only public investments will allow us to keep our high
living standards. What then is the difference between his view and Obama’s
actions? The public investments he proposes are smart long-term investments
into ‘education, infrastructure and human capital’. Investing in these areas
will help us to be more competitive.
By now it has become clear to me that containing the term
‘middle-class’ in the headline was just a flashy way to attract the attention
of any ‘middle-classer’ who happened to be standing in line at King Soopers. Also
among the words used to attract and please while lacking inadequate meaning; “public
investments”; Using this term allows him to pretend that these ‘investments’
aren’t made by the government (perhaps haphazardly) with our taxes. Rather, it
sounds as if all of us together and united will make the choice to
strategically place our money in the hands of those who know where to invest
it. “Mixed economy”; in world of hybrids a mixed economy sounds like a nice way
to settle the issue between those who support a free market and those who
support government planning. In reality, a ‘mixed economy’ is one that is not
free. Without a market where people are free from government force and coercion
and happily exchange from one other empty words can only succeed in alleviating
the worries of those who prefer not to think.

November 15, 2011

Policy Changes In an Ever Changing Economy

After my first glance at the title of this article, "A System in Need of an Update," I was very skeptical. It made me think of someone trying to "update" the economy "system" like someone would update their laptops with the newest anti-virus software. After reading this article I was very comforted. The system this author is talking about is the way we think about the prosperity of the United States.

"The federal tax law for individuals and corporations badly needs to be rewritten, with an emphasis on simplicity, low rates, a broader tax base and taxation of consumption rather than investment." Wow, an author who thinks that taxing consumption instead of investment is solid concept? That's new. This is by far the most dynamic thought process used out of all the articles I read on

Instead of a magical fix that will cure this fictional economic "problem" Mr. Capretta seems to believe more in promoting prosperity than promoting his political views. This view is very rare these days. Even people who seem to have very sensical views on policy based upon microeconomic principles are missing the point. There is no fix, there is no cure, there is no problem, but there certainly are barriers preventing prosperity. Capretta always pushes for the updating of old social programs started back in the Great Depression. He claims they are outdated and need updating because today is a different day, and I cannot agree more. Capretta sees how the world is changing and our need to change with it.

Mr. Capretta seems to have at least a couple things figured out. Instead of promoting a cause, he promotes prosperity. Instead of viewing the world as stuck in one place, he acknowledges that it is changing. Instead of fiscal stimulus, he argues for fiscal restraint. Promote savings, don't tax it. Get rid of wasteful government programs, not add more of them. All of these ideas are extremely consistent with the principles that we have discussed in Austrian economics. It is nice to see a published author who has his head screwed on straight. Since I didn't want to rip apart another Keynesian author telling me that we just need more stimulus, I'll just let you read this guy's article and breathe a sigh of relief in agreement.

November 8, 2011


So as some of you may know, I wrote a blog for Austrian for the month of September called "Who Are You? And Why Are You Saying Such Terrible Things?" Well, apparently I should have known who I was talking about. Anyways for my blog this month I am creating a link to my response to him. Enjoy. Also, here's a link to Graeme Maxton's biography: just in case you don't know who he is either.

November 7, 2011

Conspiracy Theories, Aliens, LSD, and The Unabomber

“A "conspiracy theory" can unsettle the system by causing the public to doubt the State's ideological propaganda.” ~Murray Rothbard.

I came across this quote in “What the State is not” in The Anatomy of the State by Murray Rothbard and I found it very interesting. Conspiracy theories instantly remind me of crazy people claiming to be kidnapped and brainwashed by aliens in Roswell, New Mexico. They are completely contrived and based on the stories of delusional people who probably have a long history of mental illness. However, some might say that this is exactly what the government wants you to think.

I did some further research on conspiracies and naturally fixated on the creepiest one I could find. MKULTRA was a secret CIA experiment on mental health patients, prison inmates, and US citizens without consent. Drugs, hypnosis, torture, sexual molestation, and many other techniques were tested on patients to research human behavior and mind control. In one experiment, patients were given LSD for 77 days in row . There have been several connections with MKULTRA and notorious killers like Theodore Kaczynski, “The Unabomber,” at Harvard University in the 1960s.

CIA director Richard Helms ordered the records of MKULTRA to be destroyed in 1973, but 20,000 files remained because they were stored in an unusual location and forgotten. In 1974, The New York Times reported that the CIA conducted experiments on patients without asking for consent. This prompted an investigation by both the US Congress and a presidential committee, which reached the conclusion that these experiments were illegally conducted and used a variety of torture methods, drugs, and radiation to explore mind control. It is possible that MKULTRA has not been disbanded and experiments on mind control continue to go on.

Rothbard writes, “It is also important for the State to inculcate in its subjects an aversion to any "conspiracy theory of history;" for a search for "conspiracies" means a search for motives and an attribution of responsibility for historical misdeeds” (5). Government agencies can break the law and hurt citizens. MKULTRA is proof. Conspiracies are not just fabricated stories from mental hospital patients, but that is what they want you to think.

November 6, 2011

Unemployment and Entrepreneurship

Today I came across an article that from the point of view of Neo will spell doom and gloom for the economy in the near future. However the Austrian school would view this news as more of an opportunity. Not as a whole economy picking up again like an engine starting up, but several individual catallaxies with a changed set of incentives to begin more productive means. So what is the article about that causes such divergent views between these schools of economic thought? Unemployment Benefits. The article mentions how nearly 2 million unemployed Americans have exhausted their unemployment benefits that last up to 99 weeks and then stop. For Neo this means a disaster. What will prop up aggregate demand? Surely those that no longer have the benefits can no longer buy anything so the economy will fall back into recession.
Yet I think Austrian economics would ask. What are those individuals going to do? A person running out of those benefits must be a scary thing, and their way of life is going to change it must change if they want to continue living. While not every person will react to these scenarios the same. Some will seek to find other ways to gain from the system of redistribution through things such as food stamps, and others still may go out and seek to use force to gain a living which we remember the government has a monopoly on making it an illegal action. While these may play out I certainly hope not. I view a much different possible scenario, one much more hopeful and positive.
Many of the unemployed will see that for their own individual means that they must invest in themselves and get training, education, or a new set of skills that are in demand. Others may have ideas that they have had a while to collect will want to try their hand at moving resources to some use one that can bring them a living, and therefore what others would exchange for. In being an entrepreneur they would begin creating a more productive set of circumstances and allow for them to not only have a way of life but also to employ others who may not have the risk taking ability. So in many ways the developing situation may be just what is needed to bring unemployment down by offering a new set of circumstances the incentives also change. The pressure to actually do something besides receive a check for being unemployed applies pressure to be productive in society. This increased productivity is just what is needed to improve the outlook for a conglomerate of catallaxies.

November 4, 2011

Beware the Intellectuals!

This weeks reading laid out for us what the State is..and what the State is not....if the State is an organization that has a monopoly on the use of force, and keeps itself alive by coercive is it that the State remains and that the masses have not risen up in revolt against the predation and coercion we are all subjected too?
I believe part of that answer is the coalitions the State builds...and how those coalitions have the masses conditioned to accept certain ideas.
We spoke in class about one of the readings that spoke the concept of IDEAS being the force for change and that in order to change society, the ideas need to change, and we had a conversation about that needing to start in the world of Academia. However, I would like to propose a different slant to that argument.
The State preserves itself through coalitions with the "Intellectuals" my last blog I wrote about how the Administrative Bureaucracy that we all so readily accept was based on the idea of scientific experts creating policy, and one of our readings elicited this point as well.
I think this is very dangerous, and one of those IDEAS we must reform and replace. The State has preserved its monopoly on the use of force by forming coalitions with the Intellectuals in our society. "The masses of men do not create their own ideas or indeed think through these ideas independently; they follow passively the ideas adopted and disseminated by a body of intellectuals. The intellectuals are the opinion molders in society. And since it is precisely a molding of opinion that the State most desperately needs, the basis for age-old alliance between the State and the intellectuals becomes clear" (Bastiat)
So why is following the advice of the "experts" so dangerous to liberty? And how has this allowed the State to retain its monopoly on force?
Because the State creates a coalition with the intellectuals through political patronage. It provides them with a permanent place in the administrative and political power centers of the government, which in turn provides them the means to be rent seekers and to amass greater political support by providing plunder. And they promote more rent seeking (plunder) to align more people to their political ideology, and amass a political basis that provides legitimacy to their use of force to take from some at the expense of others. "In other words, experts are often called in, not to provide factual information or dispassionate analysis for the purposes of decision-making by responsible officials, but to give political cover for decisions already made and based on other considerations entirely. (Sowell)"
The other issue with trusting the exercise of force to the "experts" is that although one may be an educated expert in one field, they often cross over into other fields where their expertise is not so sure footed, and we the people, the masses, as Bastiat states, are molded by those opinions. "The ignorance, prejudices, and groupthink of an educated elite are still ignorance, prejudice, and groupthink - and for those with one percent of the knowledge in a society to be guiding or controlling those with the other 99 percent is as perilous as it is absurd. (Sowell).
Now take into considerations Mancur Olsen's contention that the longer a nation is stable with stable borders and no longer one form of government continues, the greater the degree of rent seeking will occur, and combine that with the obvious connection between intellectuals, policy making, and the power monopoly of the state, and the conclusion this student must reach is THANK GOD for classes like Austrian that are outside the normal groupthink of the Academic experience and teach an individual to think for one self and not to blindly follow the "experts".

October 31, 2011

Would Hayek, A Capitalist Icon, Have Sided With Occupy Wall Street?

The article above suggests Friedrich Hayek would have empathized with the “occupy wall street” protesters. Really? Empathy for a bunch of hippies that when asked what it is they want to accomplish, end up giving incoherent “answers” which have no rational basis. Take a look at this interview to see what I’m talking about. Granted, that’s just one protester’s thought process, but I would assume it is fair to say that most of these protesters are just as clueless. I think what the article is trying to confer is Hayek would vehemently disagree with some of the actions that the government has implemented, such as bailing out failing corporations that should have otherwise filed for Chapter 11. But this notion of thinking is clearly not the same as that of the protesters. How is Wall Street to blame? Am I missing something here, because as far as I am concerned, these protesters should shift their focus to the government, and in particular the FED. It’s the Federal Reserve that bailed out these companies that were supposedly “too big to fail.” That’s the real root of the problem. An analogy: Let’s say a stray cat comes to my doorstep and so I decide to give it some milk. Well what’s going to happen the next day? The cat’s going to come back and expect some more milk. It’s not the cat’s fault for getting a free handout; it’s me for giving it. In relation, these businesses are the cat and the FED is the one providing the milk, so to speak. Who’s not going to take a free bailout when provided with one? Not many, so if people want to protest then they should protest the Federal Reserve. These people on Wall Street are doing nothing more than exercising their rights to act within the free market. And when some of them end up making extraordinary gains, what do we do? We cry foul. The fact is, we live in a country based on capitalism, and in any capitalistic society, there are going to be people who benefit from the system more highly than others. Why else would people take risks if this were not the case? Chastising a businessman/woman for succeeding within the free market makes absolutely no sense to me.

To reiterate, I think the real problem is with the Federal Reserve and not with Wall Street. And to give a word of advice to these protesters; if you want to be taken seriously then you need to implement some form of discipline and/or leadership. Come up with a unified message and deliver that message to the media in a professional manner. Doing this, while also focusing more attention on the inadequacies of the Federal Reserve would, in my opinion, be a much more productive movement. Obviously people are upset with these bailouts, QE protocols, etc. but it’s hard for people to get behind a movement which at the moment carries no validity. I mean honestly, what is a drum circle full of hippies going to accomplish.

Analysing campaigning with Bastiat

    The above mentioned article discusses how one of the current GOP candidates Rick Perry has promised 2.5 million jobs in his ad. I think that the Austrian school would agree that much of what Perry proposes could be beneficial to the current climate of jobs and the like. With ideas like removing certain regulations from energy industries and lowering corporate taxes I think that a reduction in government in these ways falls in line with Bastiat’s ideals expressed in this weeks reading. I think it is interesting to look at an article such as this after reading Bastiat and his call to look at the things unseen in the economy and evaluate every angle.
    I agree that when government opts to use its force to have an effect on the economy it will bog things up and add red tape. However my thoughts had never before gone as far as Bastiat’s thought that if government takes money from its citizens and doesn’t yield results it is essentially the same as a thief coming and taking the same sum out from under the citizen’s nose.
    I asked myself about what things are going on in this article that are difficult for me to see? Furthermore, I questioned how these regulations were imposed on the public and how they are paid for. The most intriguing quote from the article is this:"I'll eliminate President Obama's regulations that hurt other sources of domestic energy, like coal and natural gas," Perry says in the ad. "That will create jobs and reduce our reliance on oil from countries that hate America.
    "I'll eliminate President Obama's regulations that hurt other sources of domestic     energy, like coal and natural gas," Perry says in the ad. "That will create jobs and     reduce our reliance on oil from countries that hate America."
It seems that Perry is advocating the removal of bad policy. The interesting point of view I see is that it is important to remember that these policies are enacted and enforced through the expenditure of our tax dollars. Could it be that the money we give the government is utilized to stifle the market through regulations causing us taxpayers to fund our own detriment?
    I would be a fool if I said that I knew the appropriate level of government involvement in our lives but to think of the two options of where money I earn ends up, in my hands or in the coffers of some government official, I must ask what its being done with my money? Furthermore, do these uses fall in line with how I would personally utilize said money? I cannot know the extent that my money is being utilized by the government in a fashion that runs counter to my own preferences, but I personally would prefer it if my money didn’t contribute to more regulations that add to the companies costs of doing business. I think that if companies did not have to expend their resources on complying with these regulations then they would choose to spend the funds on hiring more workers or developing more capital that would allow for more efficient production. All of these things would inevitably end up benefiting me in addition to me not paying as much for taxes.

This Halloween, Keynes's Zombie Lives On

I read an interesting op-ed by Paul Krugman today in which he criticized what he called "weaponized Keynesians" which he defined as "those who believe that the government does not create jobs when it funds the building of bridges or important research or retrains workers, but when it builds airplanes that are never going to be used in combat, that is of course economic salvation." If the supercommittee does not come up with a plan for deficit reduction by the approaching deadline there will be automatic cuts triggered in the defense budget. Krugman uses the piece to attack House and Senate Republicans for their hypocritical stance on the issue of defense spending. Republicans who so adamantly support cutting government spending to bolster the economy do a complete 180 when it comes to defense and to defend this stance they claim "such cuts would destroy jobs."

Krugman is indeed right to focus on this inconsistency on the part of Republicans who seem inconsistent on how economic prosperity comes about, via the free market or government intervention? He claims that "to admit that public spending on useful projects can create jobs is to admit that such spending can in fact do good..." Much of the evidence Keynesians use to support their economic theories comes from observing the effects of past military buildups. But where Krugman ponders why anyone would choose to spend on bombs as opposed to bridges, I wonder why the Nobel Prize recipient and his conservative opponents in government all still subscribe to the notions of Keynes and his incomplete understanding of the world of human action.

Both ideological groups are wrong to varying degrees in this case. We can have a separate debate on the normative issues of tax policy and where to spend government income. But to think that anyone might still be looking towards the government and further deficit spending to solve our economic woes and create jobs is embarrassing. Increasing the money supply, lowering interest rates, and an all around attitude of fiscal irresponsibility throughout government and financial sector brought about our current recession. Instead of identifying the misallocation of factors of production towards capital goods that easy money causes, Keyensians in both parties believe inadequate consumer demand is the culprit and it only takes a little government spending to boost that demand and jump start the economy. They really seem to believe the jobs they "create" would still be there a year from now when the government stops paying for them.

October 29, 2011

Stimulate demand through more credit

October 23, 2011 Financial Times

Lawrence Summers , former secretary of treasury under Clinton administration, former head of the White House National Economic Council under Obama administration

Article: Why the housing burden stalls America’s economic recovery

“The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending.”

October 28, 2001 Interview with Aaron Task (The Daily Ticker)

“Because the reason firms aren’t hiring people is that they don’t have the demand. And the only way they’ll get the demand is to get more spending. And the only way people will be able to spend more if they have access to credit. So, we’ve got to find ways to work through the old debts, to enable people to take on new debts. That’s why people speak of bankruptcy as a cleansing process. But unless we are able to get more demand going, we’re not going to generate incomes that are necessary to have the growth that is going to let us move forward.";_ylt=Aoi3H2UAxLmY7YEhdOBIdPG7YWsA;_ylu=X3oDMTFjbWs2NGQ4BHBvcwMzBHNlYwNGUERhaWx5VGlja2VyQmxvZwRzbGsDbGFycnlzdW1tZXJz

Unfortunately, Mr. Summers thinks of the economy as an engine, which has no gasoline (credit) to run properly. Despite the fact that he acknowledged himself that we got into this recession because of too much borrowing, lending and spending, he said that the only way to get out of this recession is to increase borrowing, lending and spending. According to the following quote which has been attributed to more than one person, I conclude that Lawrence Summer is insane: “insanity is doing the same thing over and over and expecting a different result” The problem, however, is that Mr. Summers is not the only insane economist in Washington D.C. This recession was brought about by enormous expansion of the credit, which artificially stimulated the economic growth and bid up prices for factors of production way too high. Then, after the bubble, came the bust, in which we are in right now. However, since depressions and recessions are not allowed to happen, the Fed decided to stimulate the catallaxy (economy) with even more money. The Fed increased the money supply by influx of cash and by lowering the interest rate to its minimum. However, it did not work. Now, the Fed will have to begin paying people for borrowing money to continue to stimulate the demand to create jobs. The fact that the Fed cannot lower interest rate any further makes many people (except Mr. Summers and others like him) to realize that this recession cannot be fixed like other recessions in the past. According to Austrian school of economics believes that

the "depression" is seen as the necessary and healthy phase by which the market economy sloughs off and liquidates the unsound, uneconomic investments of the boom, and reestablishes those proportions between consumption and investment that are truly desired by the consumers. The depression is the painful but necessary process by which the free market sloughs off the excesses and errors of the boom and reestablishes the market economy in its function of efficient service to the mass of consumers. Since prices of factors of production have been bid too high in the boom, this means that prices of labor and goods in these capital goods industries must be allowed to fall until proper market relations are resumed. ….. The government must not try to inflate again, in order to get out of the depression.

However, Government does not allow natural forces to do its work to liquidate its unsound, uneconomic investments of the boom and to bring down the prices for factors of production. Government is afraid that public will recognize such a healthy process as “depression,” which is unacceptable. However, according to Austrian school of economics, there is no way to avoid this painful, healthy process forever. Sooner or later it will have to take place. The economy can go through the correction (“depression”) phase right now and then grow organically, or, with the help of politicians, it will go through the inflation/stagflation period, due to further money supply expansion, before it will go through the corrective (“depressive”) phase. The only problem is that the longer government reinflates, the greater the magnitude of depression and consequently of the pain will be. Since the government cannot lower interest rates any further, looks like it has chosen to expand money supply through government borrowing and spending.

Unlike Mr. Summer, Mises told that once a depression arrives, a government should do nothing to stimulate the demand, and to stop inflationary policies as soon as possible , to cut its spending, and not to prop up unsound business. We need Margaret Thatcher to help the US government to get back on the fiscally responsible (Austrian) way of running the government. The Catallaxy will fix itself.

October 25, 2011

Money Expansion the Root of all Evils

While looking around for our weekly readings the other week I came across this article on the website. It gets it main points from our recent readings on Rothbard and inflation, but it also brings up some interesting points that may not be so obvious. It re establishes the fact that has been brought up in the past readings such as inflation being the cause of boom and bust cycles. It also shows that it has political implications that gives ever more power to a government that actually deters and destroys wealth. It is shown how without inflation programs that redistribute wealth need inflation to "pay" for their programs. Yet they really do not pay but transfer the cost via taxes and indirect taxation otherwise known as inflation. These implications tend to cater to the conservative side of the spectrum as much of Austrian Economics often does.
However in this article there seems to be ideas that would appeal to the progressive or liberal crowd if only it was recognized that there goals require action the opposite of more government control or printing of money. While this may seem an impossible task I think the only explanation needed is how successful government has been so far in delivering these goals. One of the goals left wing tends to seek is reduction in the use of resources or being green. Through Inflation we get increased levels of consumption through increased money/credit, and not enough saving and investment which could lead to a much brighter future with better technologies. Another goal they seem to have is controlling costs so there is better access for all, yet with inflation there will be ever increasing costs in health care and many other industries so this creates a cycle of ever increasing price restrictions. Without inflation there would be a constant cost if not decreasing cost as technology improved from the increasing investment. Lastly yet very importantly the lack of inflation promotes the idea of peace, toward the end of the article Barron mentions how without inflation and in the presence of free trade people in a marketplace result in cooperation rather than confrontation in seeking to better themselves. So without inflation many of the problems that progressives tend to want to alleviate would be lessened if not all together disappear. Austrian economics when viewed through an open mind provides something for all interested in political economy as an alternative to what has been practiced for many years with Neo Classical, and seemed to present ever increasing problems.

October 24, 2011

A Question for Mr. Rothbard

If I may make a brief commentary of Murray N. Rothbard’s Economic Depressions: Their Cause and Cure, I would like to say this, first and foremost. I don’t think that he’s wrong with the things that he says concerning how government interventionism can cause problems to become worse, and the story he weaves about how the government can easily fuel false growth does seem quite plausible. Indeed, if I am remembering my history right, there was a time in the mid to late 1930s that saw artificially boosted prices fall because businesses tried to engage in some competitive actions, rather than the prices that the government had managed to push up. Some more history to back this up: I notice that the essay was originally published in 1969, just a few years before the US economy, still hopping quite well from WWII, finally died down and saw real wages and wealth plateau.

The place that I am having my issue with Rothbard’s logic is in his discussion of what exactly the government intervention does to the economy. As I understand it, wealth comes from the saving and buildup of capital, of tools that enable the entrepreneur and businessman to produce the products that make money and create jobs. What Rothbard says is that the government intervening in the economy will lower rates and cause overinvestment in capital goods, rather than in the production of consumer goods. The specific problem that I have is this: is Rothbard proposing that we consume our capital now rather than keep building it up?