So Now Our "Economy" has "Regions"...

In the article posted above the author inquires which of the "regions" of the United States "economy" needs or warrants more quantitative easing. Although I think the idea of quantitative easing is just as effective of a fix as putting a Band-Aid on Louis XVI's neck wound, this is not the point I want to bring up. I want to point to the mindset that the author uses when writing this article. Buttonwood seems to think that he can decided when and where QE would be effective by looking at all of this graphs. Showing correlations between QE, unemployment rate, and projected growth is only slightly more useful than a Colorado weatherman. These numbers that are "projected" and the data that is "collected" are based on a moment's glance. These numbers give us less real information than a stop sign. All of the aggregates and measurables are trying to describe a single moment in time when in reality all the variables that were assumed in those previous calculations have now changed. The dynamic world we live in has changed while the graphs trying to describe what the world looked like 2 months ago are now being published. The author seems to think that his graphs and numbers have something to do with now but in reality things have changed and the graphs haven't, which renders them useless.

My second thought when reading this article is the fact that the author is able to split things up into very nice subsections. The "region" of the "United States economy" that needs a "round" of quantitative easing can be seen through the graphs. From what I know about Austrian economics, however limited that knowledge may be, I do not believe there is such thing as the "United States" economy, much less "regions", because the world is network of exchange. The network of exchange that occurs in the United States is not just contained on our soil. Imagine this; all the exchanges that occur in the world are shown by a line connecting the origins of the interactions, now in order to isolate the "economy" of the United States drawn a line around the area we know as the United States. Look at all the lines you just drew a line around! These lines, or exchanges, are not looked at as part of the United States economy even though economic activity in and around the US depends on those interactions just as much as any interaction. Trying to analyze the United States economy as a separate entity even though it is really just a part of the this huge world network is like trying to view the human body as separate individual parts even though they are all dependent on other parts of the body to function.

The last comment I have to make is that the author uses the term "rounds" to describe a session of QE. Although this policy may only be in effect for a period of time, the economy keeps going. I try to think of the changes in variables that would occur during the QE time, but when the QE stops what will happen? All the variables that the Fed is trying to manipulate will change again and then the outcome of the QE policy will become even more foggy. Buttonwood, the author, clearly sees the economy as his Econo-car where if he puts in a bigger motor it will go faster and gain horsepower. The economy is clearly not a machine because the world wide network is made up of people and we are not machines.

I, Prosperity

One of our beloved professor's favorite questions is "Why are we prosperous?" and our discussion last week opened the door, I believed, during our discussion on the rule of law to finding some sort of a path to walk down to find that answer. This weeks reading enlightened me even further, and the pieces of the puzzle are falling into place.....

In this weeks readings by Hayek, I think he makes a PROFOUND argument for liberty that is especially prescient given the blah blah blah on the TV going on between the Republican presidential candidates..but the argument underlines the answer to the our question..'Why do we prosper?" Knowledge....and the freedom to exercise it.....

Hayek wrote in The Use of Knowledge, speaking about economics, but an argument that I believe speaks to a political philosophy as well. He wrote that in society today, it is assumed that those utilizing scientific knowledge and expertise in the area of economic planning are considered virtually sacrosanct in terms of authority on whatever matter is under discussion. "...a body of suitably chosen experts may be in the best position to command all the best knowledge available..." Interestingly, this is EXACTLY what Woodrow Wilson wrote in The Study of Administration, which he published before becoming President. If you are interested, I included a link to the article. This thought process is what the modern Administrative State, the Bureaucracy, was founded on. The Administrative State places limits on the free flow on resources, as well as limits the productivity of those resources within a legal framework the restricts their utilization according to a proscribed course of regulation. Just think....EPA!

Hayek goes on in the next paragraph to write the best argument for liberty I have heard "It is with respect to this that practically every individual has some advantage over all others because he possess unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation"

Sowell wrote "Yet the vastly greater mundane knowledge brought to bear by millions of ordinary people making their own mutual accommodations among themselves almost invariably produced higher economic growth rates and higher standards of living after central planning was jettisoned.......These innumerable interactions and mutual accommodations are what bring the other 99% of knowledge into play - and generate new knowledge in the process of back and forth bids- reflecting changes in supply and demand"

So why do we prosper?...In large part...the knowledge that neither you nor I individually posses, but that combined as a whole, creates an emergent economy that leaves us all better off.

The Transparency of the Fed

A common understanding of the economic term inflation is that it is synonymous with a general rise in prices. Closely associated with inflation is the notion of low interest rates. On the Federal Reserve’s website the reader is given the chance to experience a concise and highly ineffective argument for the economy-restoring quality of these low interest rates. According to the website it is important to keep interest rates low when the economy is having trouble. Second, the Federal Reserve should purchase ‘high-quality securities’ to keep long term interest rates low as well. This helps people finance new spending and keeps prices steady. It is the Federal Reserve’s goal to have high employment and prices steady. According to their website, having low interest rates has helped the economy’s situation. The situation could be better. The website informs its reader that the Fed will therefore continue to keep interest rates low.

“Some people mistake this illusory prosperity [early inflation, when people feel richer and spend more than they normally would] for real growth and recommend constant inflation as a means to continuing prosperity. They call their policy “low interest rates.” Since, when the Fed sets rates artificially low, it must increase the money supply to keep them low, it comes to the same thing. But inflation cannot really make society as a whole wealthier. Every transaction that is an income for person A is an expense for person B. If we try to use a rise in prices to universally boost incomes, we must, simply by definition, also universally (and to the same extent) boost expenses.”

This is a quote by Callahan in his book called Economics for Real People. Now consider another quote from a different source, an internet article on CNNMoney. After discussing some of the Federal Bank’s recent actions and relating some different opinions prominent economists have regarding the Fed’s behavior, the author ends with:

“All those policies are geared toward a common goal: reduce interest rates even further than their current historic lows, thereby making borrowing cheaper for businesses, consumers and homebuyers.”

I am probably more likely to borrow $10,000 at a low interest rate than I would be if the interest rate was high. I am also likely to spend that $10,000. If it is the case that an aggregate increase in dollars spent is an increase in aggregate prosperity, then by providing easier access to loans the Federal Reserve has in fact increased prosperity (i.e. productivity or increased standard of living). Unfortunately, a result of increasing the money supply through low interest rates/inflation is higher prices. The purchasing power of money remains the same and there has been no real economic growth. What I found most interesting in the article was that while people disagreed about whether or not the Fed should let the public know that it plans on keeping its interest rates low, no one questioned the initial premise; that low interest rates will increase general prosperity.

Issue Avoided. (Economic Freedom)

I stumbled upon this article while procrastinating of facebook a couple of weeks ago, and at first didn’t think of it for a blog until I read the comments. The article is about a girl who wore a shirt that said ‘Marriage is so Gay’ on it to her public school one day and was forced to change. She went to the news and explained she just wanted to show her support for the gay community. The ACLU got involved, and it became a big deal. Majority of the comments are people explaining how they think that being gay is the equivalent to being a child rapist, somewhere criticizing the school, some criticizing her parents, and other saying that they supported her but felt that the shirt was inappropriate for school.

It was these last kinds of comments that got me to thinking about economic freedom, and freedom of speech and such. Regardless of how you feel on the subject of gay marriage, the real question at hand here has to do with ‘freedom of speech’ or rather it even more so has to do with private property. Many people will say it is her right to wear that shirt because of free speech, other will say it is the right of the students to not be distracted. The question that came up a lot was where do you draw the line? The example used most frequently was what if she had worn a shirt that said ‘Marriage is so Christian’? These people who asked these kinds of questions will probably never realize that they were questioning the entire right to free speech. But as we established in class because there is nowhere to draw the line, the right to free speech is rubbish.

Instead of trying to figure out whether or not this young girl was within her rights to wear the shirt or not, why not just enforce property rights? If the school was privately owned, the owner gets to make the rules, and say yes you can wear that shirt to school or no, you can’t wear that shirt. If the girl and her parents don’t like it, they can go to another school, and the same extends for other students and parents.

Who are you? And why are you saying these terrible things?

I found this blog by some guy that I have never heard of, Graeme Maxton, telling everyone that we are at the end of progress. He says that we no longer follow ‘modern economics’ and how we more or less doomed for failure without some massive revisions. He very obviously bases everything he knows on what Adam Smith had to say are he talks about him frequently, and how he would be disappointed by today. Throughout reading this, all I could think was ‘You’re missing the point’. He even bolds his text when he states “But Smith was also a moral man.” But as we have discovered, moral is not a part of progress.

One of the most impressive things that this Graeme Maxton said (based on Smith’s beliefs) was that profits should not be too high, and the rich should be taxed more than the poor. However, profits should not be too high is the equivalent of saying, you’re doing too well, so we’re going to take some away. This is just bad economic policy. As a waitress I expect to walk out with my tips every night no matter what they are, however if management said, if you make over $100 then you are doing too well and so we will take everything over $100, I would be furious. I would then either quit or I would stop working once I reached $100. This is the same for the idea that the rich should be taxed more than the poor, at some point in time it is no longer worth it to continue working and make more money because you have to pay too much in taxes.

So with an Austrian roar, I say do away with these ideas. These ideas do not make sense. Allow companies to profit as much as they want, and allow the people to make as much money as they want. Morals are not for government to decide, but rather for people to decide among themselves. Perhaps one day we will be able to tell our grandchildren the story of how ‘back in the day’ there was a saying that the only two things for certain in life were death and taxes, and after we explain what taxes are, they will giggle thinking we have made the whole thing up.

Ben Bernanke and Interest Rates

In early August of this year, Ben Bernanke and the Fed decided that they would artificially keep interest rates at or near zero percent for the next two years. Why would he do that?

The reason he is doing this is because he wants to maintain the rate of inflation. Or in other words, he wants to avoid deflation. I think deflation is exactly what this country needs. We need to get back to a system of savings. We need to under consume at the present so that we can allow for future consumption. We need to stop keeping interest rates at zero percent, and allow the market to establish a real rate of interest. You know what happens when interest rates are set below their natural rate? It encourages malinvestment; say for example, the housing bubble.

I am no expert on the matter but I feel that I have a strong grasp of the situation, and the main culprit is the Fed. Do people realize that the housing bubble was created because the Federal Reserve artificially lowered interest rates after 9/11 in an effort to increase the flow of capital? Well, it did just that, and when money was pushed into the economy, a large percentage of it was being pushed into the real estate market, and these low interest rates increased the demand in housing. Couple this with the fact that Fannie Mae and Freddie Mac were being sponsored by the government, and you have the formation of a bubble. Fannie and Freddie were able to take on risk because of their government sponsorship, and so they started selling their mortgages within a secondary market. Whoever chose to invest in these mortgages then took on all the risk, while Fannie and Freddie soaked up the profit. (And by the way, the people that were forced to take on the risk were the taxpayers)

Because there was no longer a risk for Fannie and Freddie to give out loans, the rates to do so were extremely low, enticing people to have a further increase in demand for buying a home. This caused subprime borrowers to take out loans that they couldn’t afford. People with no income and no assets to speak of were given the ability to buy houses. That’s like being able to buy a brand new Mercedes with a horrible credit rating and a lousy job. It doesn’t make any sense.

Well, then the economy started to turn bad and these subprime borrowers could no longer make their house payments, and no one wanted to buy these homes from those borrowers so they were forced to default. They couldn’t even haggle with their banks because mortgage-backed securities left people going on wild goose chases to find the original lender of the money. It was a total mess and it is all because of government interventionism. If we had a free market, then a subprime borrower would have to pay huge interest rates in order to buy a house, not the 1% interest with no money down. Or they would simply be turned away, which would have been better for the rest of us. There is a reason certain people do not own homes … it is because they cannot afford to do so!

I’ve said all of that so that I can say this; Ben Bernanke keeping interest rates at an artificially low rate will no solve our problems. It is interventionism. It is government regulation of a market that should be free-standing. He is destroying the value of our currency with these “easing” protocols. I think it is ridiculous that after two failed attempts he is going to do it again. The Federal Reserve is a large reason why our economy tanked in the first place, and by printing more and more money, Bernanke and the Fed are killing the value of our currency. How does printing more money and then spending it encourage savings? It doesn’t. And that is exactly what we need to be doing. We need to start living more within our means so that we can promote future consumption. We need to stop keeping interest rates at zero percent. And we need to stop printing money as if there are no consequences of doing so.

Take a look at this article below. It talks about a new plan that the Fed is implementing. The article states that “the central bank will sell $400 billion of its U.S. Treasury securities maturing in the next three years and replace them with longer-term bonds maturing in six to 30 years. The program is meant to drive down long-term interest rates to make borrowing cheaper.” My argument is that we need to stop borrowing money. All this plan will accomplish is increasing the incentive to do just that, borrow.

Does anyone agree with me that the government needs to stop keeping interest rates at an artificially low rate and that saving, not borrowing, needs to be encouraged? The argument appears sound, but then again, maybe I’m watching too many Peter Schiff videos on YouTube.

http://online.wsj.com/article/SB10001424052970204226204576600622017811888.html

Dear Brazil, Thanks for going on strike this week so I could write about inflation. -Sarah

Bank workers in Brazil went on strike on Tuesday demanding 12.8% pay increases because of an inflation rate of 7.33%. In August, Brazil lowered its equivalent of a Federal Funds Rate (Selic interest rate) from 12.5 to 12%. They were hoping that the struggling economic climate would bring the prices of imports and commodities down enough to lower their inflation rate to 6.5%. Over the past month postal workers and metal workers have demanded higher wages due to inflation. Now the bank workers are asking for wages that are much higher than the inflation rate. This could possibly worsen the problem and increase inflation even further.

What would Austrian Economics say about this? The inflation rate is creating unfairness in the economy. People who receive the inflation money first will benefit by being able to afford the higher prices. Their income will increase, while most pre-inflation prices still exist. However, the rest of economy, whose incomes remain constant, will have to make sacrifices and buy less because of the new, higher prices. This has sparked the wave of strikes by metal workers, postal workers, and now bank workers.

The Austrian solution would be for the government to tax more instead of inflation, “There can be no secret way to the solution of the financial problems of a government; if it needs money, it has to obtain the money by taxing its citizens” (57). Taxes do not create a rise in prices. When taxes increase, consumers have less income to spend, which the government spends instead. There is no increase in prices, but the government can still get its money and achieve its goals.


http://www.washingtonpost.com/business/brazil-bank-workers-on-nationwide-strike-for-higher-pay/2011/09/27/gIQALiZ51K_story.html

http://money.msn.com/investing/look-overseas-for-stock-bargains-jubak.aspx

Has the Affordable Care Act raised costs paid by the consumer?

The Government’s well intentioned Affordable Care Act, must now come to grips with a survey done by the Kaiser Family Foundation that reveals that the Act may have been counter productive in the aim to reduce the average cost of welfare across the nation.

The survey found that insurance premiums rose by 9 percent in 2011. Healthcare costs for a single worker went up on average from $5,049 to $5,429, and for a family, costs rose from $13,770 to $15,073, on average.

When confronted with damage from the report, the White House dismissed the report accusing it of, "looking backwards". Nancy- Ann DeParle, the White House Deputy Chief of Staff elaborated on the dismissal declaring  "When we look to the future we know that The Affordable Care Act will help make insurance more affordable for families and businesses across the country".

The act seems to have only changed whose name appears on the check. Instead of Joe employee paying for his own healthcare it is now Joe employer paying not only for Joe’s but all of his coworkers. This essentially serves as an intrusive wage increase not all that dissimilar from a minimum wage. The government in an effort to provide healthcare to all, just made it more expensive to hire workers and at a time when employment is at an all time high this could not have come at a worse moment.

Employers are now cutting back on existing workers and also hiring less workers because they simply cannot afford it. Since healthcare plans have gone up by nearly $400 per worker that reduces not only the number of workers they can employ but also the amount of hours existing employees can work.

It is not only interference with the relationship of employee and employer that has driven up the cost of healthcare either. As the act increases the amount of provision it will give for prescription drug plans such as medicare the ability to function with government financial support. I find this puzzling because I have always seen price as something that is prohibitive by nature. If the main reason of pricing a medicine at $10 exists so that the market will clear and that only x amount of people will purchase it, then won’t additional money necessitate a rise in price so that the price can remain prohibitive in nature?

Really all a government does by subsidizing anything is provide increase the money supply. This of course leads to inflation which does nothing to change the real price of the good but increases the nominal price paid by the consumer. The government has done nothing to increase the amount of product being produced or provisioned a more efficient means by which to produce the product at a cheaper price so really all they could hope to do is change how many pieces of paper are handed over in order for the average consumer to purchase the good.

It is a natural part of life that the most high tech drugs are often paid for by the people of society that are considered “rich or elite” this is just because it is these types of people that can afford a product at a high price that is charged for a drug that took millions to develop. What is wrong with allowing drug prices to stay high for a few years while the rich folks pay for them and being content to take part in the payoff when the price is at a level that can be more easily afforded? 

Since the government can really only be characterized by the use force, everything they are doing with this act involves forcing people to interact with each other in a certain way. While one could say that government is assisting its citizens with acting in an efficient way, seldom is this actually the case. Since the primary means of government intervention is subsidy or mandate, it seems to me that these practices are merely a means to make people feel like their being taken care of, while rampant inflation and cost increases occur in the background.

All of the mandates on how care is rendered constrains economic liberty, and hinders the market from working properly. Instead of telling me who should pay for my healthcare and how it should be payed for, shouldn’t the government focus on enforcing legal contracts that are established by me, my provider and my insurance company so that I can seek out what combination offers me the most competitive combination of price and quality?

The governments role in healthcare should be protecting the free market, allowing new methods and technologies to arise so that the price can come down through competition.

Read more: http://www.foxnews.com/politics/2011/09/28/survey-says-obamas-health-care-act-partially-rose-costs-for-americans/?test=latestnews#ixzz1ZMCGvcnN

Who Protects the American Consumer?

In these troubling economic times of unemployment and stagnation, Americans are looking for answers. Why is the economy so bad? Who can fix it and how? And who's looking out for us, the little guy, the consumer? President Obama's new jobs bill and protesters' continuation of operation Occupy Wall Street in opposition of what they view as an unfair economic environment that favors corporations at the expense of consumers reinforce such questions. So how can we protect consumers from the evil, exploitative corporations who seek only to profit at our expense?

It's a sad fact of life that the answer these days is so counter-intuitive to most folk. But in fact the greatest protection we consumers have in a capitalist economic system is capitalism. Capitalism is what allows consumers to choose among the best and cheapest products available. If I don't like a product or the practices of the corporation who make that product, I don't have to buy from them. In a truly capitalist system, no one is forced at the end of a gun to buy one product over another. Corporations rely on consumers. If businesses do not sell products that consumers want and need at a price competitive with other firms, that business will go broke. Corporations are ultimately subject to the wants of consumers, and in a true capitalist market consumers may choose to stop spending their money on one business's product because they either dislike the product or dislike the business, and take their money to another business that better suits their desires. We, the consumers, have the final check on corporate power.

So why the anti-business climate in America today? Well, the American political system and expanding government has merged with what used to be our free, capitalist economic system so that it has become difficult to tell when one ends and the other begins. Businesses and entrepreneurs respond to incentive. The incentive to produce goods that satisfy the wants and needs of consumers is what brings us cheap, quality products from a number of competitors. But when the government steps into the economic process, it creates a whole new set of incentives for the entrepreneur and business owner to respond to. If a government creates a number of new regulations in an industry in hopes of "protecting" the consumer, it creates incentives for large businesses to put their foot into the door of government. They pay off elected officials to waive these regulations specifically for them, and to win contracts for all the big public projects the growing government funds. Government also creates the environment which brings about unnatural monopolies. As regulations increase, so too do barriers to entry into many industries, and it becomes harder for new firms to compete with the corporate giants who already have the officials in their pockets and have collected all the market power. Why should a corporation care about sound financial practices and protecting the interests of their shareholders when the government will bail them out when they're in financial trouble? They wouldn't when the government has created an incentive for irresponsibility. And who could blame GE and others for jumping at the opportunity to pay 0% corporate income taxes when our intervening government presented them that opportunity?

We must not forget that in our dynamic economy, we do not assume only one economic role for the rest of our lifetime. A consumer is a producer, and a producer is a consumer. We are all "workers" and without the entrepreneurs who have invested their time and capital into the businesses we work for, we would have no income to buy goods from other producers, who then pay workers so they may be consumers as well. The market has an uncanny ability to regulate itself and capitalism is the best means of ensuring that we all prosper and that wealth and resources are allocated fairly and productively so that our economy may continue to grow. It is intervention from the government and the unholy marriage between it and businesses that offsets that balance which true capitalism instills. The state hurts the consumer despite its best efforts to protect him. If we really want to see economic prosperity and employment we need only leave the economy alone and allow the plans of many individuals to again trump the larger plan of the bureaucratic few.

How many ways can we get the Solyndra Scandal Wrong?

I'll admit it, I am a news junky. I have been watching the news about Solyndra with a chuckle at how foolish the current Administration was for it's actions in regards to this company. But as I look at the issue through a pair of Austrian eyeglasses....I see a few things becoming clear so I would like to take a moment to examine this issue from a bit different perspective....

We have one planet ( for now), and it is in every humans best interest to preserve and protect it for future generations. On that fundamental principle I think all people would agree in theory. But when it comes to the "green job" hype, I have some concerns and the Solyndra scandal has brought it forefront to my mind.

The political hype about "green jobs" and investment of tax dollars into it has a few problems. Entrepreneurs have to bid away resources from other production functions and relocate them to produce a new product. In the case of Solyndra and other "green jobs"..this presents us with a couple of different issues. Relocating these resources within the economy carries with it risk. Clearly the entrepreneurs at Solyndra thought the risk would pay off at profitable rate of return. But I question why they thought this. We all know the current political prevalence for subsidizing "green jobs"...but I wonder how this governmental involvement is incentivize entrepreneurs to take risks that in an uninhibited and free market they may evaluate differently.

While bidding away the resources from production of energy via fossil fuels to solar power is making the economy move in a different direction, is the political power (force) via subsidies to cause the reallocation of these resources what would naturally happen in an unhindered market? I do not think so. Of course the entrepreneur is free to make his mistakes and learn from them, such is the nature of liberty and economic processes. But it begs the questions; Are we better off for this reallocation of resources, or would we be better off if those same resources were freed to be invested elsewhere...perhaps somewhere that the entrepreneur was free to make the judgment about the profitability and risk of his/her venture without the interventionism of the government. In THAT case I believe we would all be better off.

The second issue that tickled my fancy was this article in particular about the protectionist expressions by members of Congress about China's investment into American companies. Based on what we just read in Mises Lecture 5...I think they have it all wrong. But again, I do not believe the free market was at work in either the decision to take a risk by the entrepreneur OR by the foreign investment made by China. It appears as though these actions were prompted by interventionist policies of the government. Where would the foreign capital have flowed to barring the governmental support for green company investment? We can't know. But we can believe based on Austrian principles that it would have been allocated to a circumstance that may have made us better off rather than worse. I am sure we will have more to discuss on this point after class tomorrow. :)

As Mises wrote about the problems we perceive with our economic reality being caused by bad policy, I think this is a perfect example. The interventionist actions of the governments, while they may be well intentioned, in the end, make us all worse off in the end.

For the 27th

September 27th has some quite interesting reading. Particularly interesting was Mises' remark that bad ideas can be fought by good ones; I can't criticize that. Really, I can't criticize anything that he has to say. Any criticism that I could point to could easily be brought down by the fact that the government has applied force to influence the market's course. I recall asking about if intervention in what are called natural monopolies, suppliers of those goods and services that gravitate towards a single producer, with utilities being the classic example. When I think of utilities, I think primarily of electricity and water. In the late 19th century, I probably would have thought of the railroads, because they were the most economical way to travel across the width of the United States. However, in the 20th century, the advent of affordable cars and air travel shattered that monopoly. Similar events are happening to water and electricity, with the advent of more efficient water using technologies, and electricity may be generated by private solar panels. Amazing what innovation can do in the absence of force.

It is also amazing what inflation can do in the absence of force. Or is that "with the backing of force"? The example that Mises lists of inter-war Germany having to completely change its currency because inflation was so bad that even the most perishable good held its value better is horrifying. It's interesting how this unique example makes for the first good argument that I have ever heard in favor of the gold standard for backed currency, because backed currency checks inflation. It makes me wonder, why is it that rapid deflation is what is called a currency crisis? Aside from the cynic's answer that it gives the World Bank an excuse to intervene, that it's all politics in its definition.

I really have no answer for any of these charges that Mises levels at policies that influence the market. Everything can, it seems, and I am forced to agree in the absence of evidence indicating otherwise, be traced to policy. Mises' lighting of the dark with new ideas depends on there being no force to oppose them. Free markets for all!

Fixing the Global Economy

A recent article I saw online caught my attention with its doom and gloom title "World economy enters 'dangerous new phase'. The article goes on to say what is needed to "fix" the global economy. Strong policies ranging from tax cuts to improving infrastructure should provide the stimulus needed to get the economy back on track. Well this article is clearly written with the mindset of the economy being an old clunker or rusty bolt. All that is needed is a little WD 40 to loosen it up or a little more gas and it will be up and running again. Oh by the way all this spending or decreasing of revenue is supposed to happen while the looming U.S. deficit and debt needs to be reduced according to the IMF to return the economy to health. However what I think is needed to return to health is not more injections but to allow healing to occur. While infrastructure may be key to any economy it should not be done at increasing debt. Allowing the economy to move on its own according to a plethora of plans rather than one might allow for growth. Many entrepreneurs working on many individual projects would seemingly outpace one plan by the government for jobs and ultimately growth. This would require no further spending and increased sales would bring in tax revenue. Perhaps not fixing the economy, maybe letting it recover would be a better course of action.

European Economy vs. the US Economy

Recently, a meeting of European finance ministers and international financial institutions took place in Poland. They were trying to decide whether or not to provide additional tranche of bailout money to Greece. Europeans, unlike Americans, are very conservative about their economic decisions. However, first time in the history of those meetings, the US sec. of treasury Tim Geithner was present at that meeting. Guess what his message was to the EU: "BAILOUT EVERYBODY" and do it as soon as possible. He encouraged them to print more money and "jump start" the economy like they did in the US in 2008-09. Lo and behold, the US economy is very far from being anywhere close to stability, and the future of the economy is not bright for sure. Nevertheless, Geithner is proclaiming that printing more money and bailing everybody out is the best way to artificially "stimulate" the economy, which is the "natural" ecosystem and cannot be artificially stimulated without causing pain somewhere else. Thanks God, Germans are wiser and more conservative people who will not be swayed by Geithner so easily because they lived through hyperinflation before and know what that means. I've lived through it myself. I don't think that it's any better than depression. However, since most of the US economists and politicians have no clue about Austrian Economics, I think that US is destined to repeat German path of hyper inflation. Europe, on the other hand will go through this pain now and emerge as a much stronger Economy.

$447B-$239B+$10B-Constitution+Obama=Job Creation...duh

Obviously if you add fiscal stimulus to the economy society's aggregate demand curve will shift to the right increasing the demand for foreign trade which will shift the IS curve to the left which means that net imports will increase which means that the LM curve will shift three growth units to the right which clearly results in job creation and an increase in GDP...wait, WHAT!? This clear as mud explanation is what many politicians use to justify passing legislation. If you read the article I attached to this blog post, the tone of the article is as if the economy is a mathematical equation. If you add two parts here then you'll increase by two parts in another area, but in our model of Austrian economics this explanation does not fly. The mainstream media talk about our economy as a machine or an engine, but our job is to analyze the economy as an organism or ecosystem. The President is so sure that his job creation plan will work because his image of the economy is a machine that can be tweaked and primed to perform better. I have a few points that people should think about when considering this article from an Austrian school of thought: 1) In what time frame will these jobs be "created" 2) What is "creating jobs?" 3) How is additional money being distributed throughout the economy going to create additional opportunities for employees and employers to agree to exchange labor for compensation? (aka jobs). The President's plan for "creating jobs" seems to tell me that President Obama and his advisors see the economy as more of a stationary machine rather than a living, growing organism. This is dangerous because dangerous assumptions are made about the behavior of our nation's economy. Instead of thinking about the economy as a bunch of "jobs" and GDP's and IS/LM/BP curves, we should instead try to think of the economy as a market consisting of buyers and sellers who are interested in bettering their own interests. Instead of trying to "stimulate" the economy, with our Austrian school of thought we should be more concerned about preserving the future prosperity of our nation by thinking of the world as an ever changing and adapting organism that is not subject to the mathematics that we often apply to it.

Price Shopping with Phone

Seems the way we are shopping is starting to change. No longer are shoppers only using brick and mortar stores for their shopping needs. Consumers are now able to access prices on mobile devices such as smartphones, this allows them the ability to comparison shop. Stores are no longer able to just bring in a consumer with the hopes of finding the customer leaving with more than they planned on taking home in the first place. The economic down fall is this is making the market once mildly competitive now highly competitive. Consumers are able to go to a store start up an app such as The Find and comparison shop with other retailers that have the same product almost instantly. What does this spell for the small stores well there is no longer going to be as many small Ma and Pa stores unless they can separate themselves from the others. There are things such as warranties and personally service which can still draw a loyal customer but will it be enough. When those who used the apps available were surveyed, most stated they were used for big ticket items. Will this mean that there will be less employees at the Best Buy when you visit to buy a Blu-ray who knows but it is something to consider. The market is becoming very hard to enter knowing that the prices that are low are from big suppliers such as Amazon who can allow for competitive pricing. Will we be able to see a lowering of the use of apps to shop with; no as technology advances so does how we manage our finances. Penny saved is a penny earned and this will allow those who do comparison shop to feel less guilty, though in the long run they might be aiding in the loss of some employees lively-hood their job.

Chinese Iphone Made in America

The economy in China likes to lay claim to many things that are just not there's one such thing is the economic benefits of laying claim to exports. China claims exports that are produced and exported in the final stage of production as part of their GDP. Is the claiming of items only produced and exported as part of their GDP, an honest look at the real GDP of China? No the actual GDP of China should reflect the percentage of the final price of the export added to it. Things will not change though the unseen adjustment to the GDP of China's other contributors to their GDP are left in the dust. For example the Iphone is conceived in the United States 6%, and account for the aforementioned labor and components of the device. Other countries such as Japan, Germany, South Korea and other account for 34% ,17% ,13% and 27% of the production while China accounts for only 3.6% all numbers are rounded and for use of approximation as minute changes are possible in margin of error. With China only accounting for 3.6% of the product how are they able to add it to there GDP, answer, by the current standard of who exports the products is how. If we were to only allow the use of those items who are solely produced to be accounted for this would not be evenly distributed. It should be taken into account the percentage of the product produced in the process and where to be accounted in the country of said work to be included in the correct country for use in GDP determination. China does lay claim though to many products which help its GDP look better than the actual real GDP should be realized. Changing the way it is seen though is a political battle as we are in debt to China seems the United States does not seem it is necessary to act upon these discrepances in real GDP. The debt we owe to China seems to have an adverse affect on our economic outlook but things could always be worse right?

When Will China Overtake the U.S.?

Even though the China's GDP is sitting at 2/5 the size of America's, some economists hypothesize that China will have the largest economy by 2012. It used to be thought by Goldman Sachs, that if China was to overtake us, it would happen no sooner than 2041. Some recent studies done by Goldman Sachs have shown that they could overtake us by 2041. This economic downturn we have experienced in the U.S. has weakened our economy a great deal. This, combined with China's rapidly growing population, and industrailization, has granted them the ability to quickly make up lost ground that we previously held. In fact, China's economy has grown by an annual average of 10.5%, While America has a mere 1.7% average annual growth. This paints a relatively dim picture of our economy in America, and views China as nearly divine, but this fact alone does not provide enough data to make accurate assumptions. It seems obvious, based on past experiences, that the growth rate in China will slow, but with such a large rate of growth, they can afford to slow down a little.

These statistics show that the U.S. has lost much of its economic power, but it does not show why. Inflation rates in China are rising at a rate that is nearly half of their growth rate, which means that the Chinese yuan is not worth nearly as much as the U.S. dollar. The previous statistcs also do not provide the information about the populations of the two countries. The GDP per head in America is four times as large as China's, because China's population is so much larger than ours; the prosperity experienced in America will be far greater than that of China's, because the wealth per person in the United States is fmuch larger than China's.

Japan Outsourcing to China

Many companies within the mainland China are now starting to see further utilization of their workers by Japan. Originally Japanese companies would hire Chinese workers at a rate not very competitive with what would be paid to workers of the same skill set native to Japan. In the past five year the number of Chinese workers in the business class has doubled. This spells deeper relationships between the two nations which are now beginning to help one another on a scale set to a brisk pace. There are even companies within Japan that are now owned by Chinese investors this would have been troubling previously but now is of little concern. The idea of intermixing the two countries in a way that they are now able to help one another prosper is fresh considering the history of the two nations relations amongst one another. The idea of considering the firm as a whole instead of just individuals is one leading reason they are outsourcing as well as starting to use mainland China as operative fronts for new business ventures. The profitability of the two nations will soar compared to previous decades especially knowing that China is one of the fastest growing countries and will be on the steady course for many years. What is not seen though is the idea that though it will be of benefit for both the effects on Japan considered to be the second leading economy in the world by many is that they are actually helping China more then themselves. The ideas are on the right path though with China becoming more involved with the Japanese economy it seems that the symbiosis relationship is not one that Japan needs to become successful. Outsourcing is good though the dependency of other nations to the point that they are now involved with game changing information could become disastrous. Time being a factor may Japan realize that not always is it better to use cheap labor.

Ireland's Minimum Wage

You may or may not have heard that Ireland is in serious financial trouble. With sky high debt and a rising unemployment rate some fear that Ireland is headed for bankruptcy. Recently, both the EU and the Irish government have been taking steps to right these problems. One of these steps is to decrease the minimum wage of Ireland by 1 Euro. In the article “Cowen Defends Minimum Wage” Taoiseach (Prime Minister) Brian Cowen is defending the plan to reduce the minimum wage and Labour leader Eamon Gilmore disagreement with the plan.
Eamon Gilmore argues that this reduction of the minimum wage will result in more borrowing from banks. Brian Cowen says that “the whole idea is to keep as many people in work at a time when the trading environment is very difficult.” So who is right? As we all know a minimum wage results in employers having to pay more than the market equilibrium price for labor. This results in employers must reduce the amount of labor they employ so there becomes a surplus of labor. Ireland has above a 17% unemployment rate. What Eamon Gilmore is concerned about is that this reduction in wages will cause a economic strain on the poor and people earning the minimum wage which will result in these people borrowing more money. This is not the case, the reduction of the minimum wage means that it moves the price of labor closer to the equilibrium. It will reduce the surplus of labor. This means that it will not only help reduce the unemployment rate which reduces the amount of people drawing unemployment benefits from the government, saving the Irish government money which it desperately needs. But it also means that companies can offer more hours to employees. So across the board anyone who is affected by this decrease of minimum wage is better off. They can either find a job or work more and earn more money. So this increase in pay means that they will borrow less money to pay their bills and maybe even begin to pay back the loans they currently have.


Web Site: http://businessandleadership.com/economy/item/27036-cowen-defends-minimum-wage/

Are Intellectual Property Laws Harmful?

Are Intellectual Property Laws Harmful?

Intellectual property laws have long been the backbone of innovation. Intellectual properties are the so-called ‘creations of the mind;’ that is, inventions, artistic works, trademarks, copyrights etc. In essence, then, intellectual property rights laws serve to grant the owner or creator of the invention/idea/patent etc. exclusive rights for using and benefiting from such intangible goods. But are these laws right? Let us take a look from an economics standpoint.

On one hand, it can be argued that intellectual property laws are a necessity in promoting innovation and creation in the first place. Without intellectual property laws to protect his patents, copyrights and trademarks, a creator could potentially lose his ideas to others who find them appealing. What motivation – save for purely altruistic motive or creative passion - would a designer have to invest his time, his brainpower, and potentially millions if not billions of dollars into something that he may ultimately reap no reward from? Assuming the invention is any good, there would be massive demand for an invention at 0 cost. In this case, though, it would stand to reason that the producer would be unmotivated to produce if he won’t gain any benefit, and ultimately, the good would go unproduced. This extreme case of excess demand thwarts the idea of abolishing intellectual property laws, and the notion surely is that of a socialist mindset that everyone must share equally.

However, not everyone buys this logic. The other side of the argument cries that intellectual property laws dissuade competition, reduce maximum innovation, and lead to monopolies. This is the position the article’s author seems to take. He appeals that, especially in biotechnology and medication industries, that vital information is being purposefully restricted. It is not entering the marketplace at all, so not only can nobody compete, those who could benefit from the goods cannot and people are dying as a result. Furthermore, as information is often hoarded rather than allowed to enter the marketplace, free market competition is not allowed to thrive. In the instances of software rights and other goods being shared (eg. open source software), the industries boon on the free ability of different producers to share ideas and create better products. This not only benefits the consumer, but the producers are selling more, and it stands as a triumph of free market capitalism and is hardly a ‘socialistic mindset.’ Lastly, from intellectual property laws arise monopolies. The government empowering the bearers of intellectual property with unlimited control of their goods – no matter how much or how little of it is used – allows certain businesses to conquer entire industries (eg. Microsoft). Good ideas will flourish whether or not the government is sticking its nose in the business, and everyone would be better off if intellectual property laws were simply abolished.

This issue is certainly a complex one with strong points for both sides. Would abolishing intellectual property rights be a boost to a free market system and be better for everyone as the author and other proponents of this idea suggest? Or is protecting the intellectual property of innovators the only way to encourage production? What do you think?