Public High School Is A Failure

Over at Mises Canada, I address the question of why college tuition has increased by so much over the past few years. Turns out it might not have anything to do with the University system itself, but is the result of an increasingly failing public school system leaving its graduates with few options.

Long story short, University degrees don’t cost so much because the

salary earned from a job available to University graduates is particularly great. It’s mainly because the alternative is so much worse.

The failing of the public high school system, which accounts for 90% of high school graduates (and the vast majority of people who don’t even make it out of high school), has reduced the opportunity cost of going to University. Since high school diplomas no longer open any doors, students are “forced” to continue their education further if they want a better life. This increases the price that Universities charge in tuition, partly in response to the increased number of students willing to pursue a degree, and partly in response to a greater willingness to pay.

If someone is upset that University costs so much, they really don’t have to look any further than the failure that is the public high school system. If you want lower tuition rates, the best solution is to shore up the quality of high schools. Of course, with public school teachers now perennially striking any time someone tries to do just that, this task is easier said than done.

Read more here.

Rizzo on Cochrane

Mario Rizzo

Mario Rizzo

Several days ago I highlighted John H. Cochrane’s critique of modern macroeconomics.

In today’s Wall Street Journal Austrian Economist Mario J. Rizzo provides an excellent comment on Cochrane’s defense of modern modeling techiniques.

“Mr. Cochrane’s excessive scientism is on display when he pooh-poohs Paul Krugman’s critique regarding the “haze of equations” that has become standard in this field. Apparently Mr. Cochrane is worried that economics might become “ephemeral” like philosophy. I would welcome the ephemerality of Plato, Aristotle, Aquinas, Hume, Kant, Wittgenstein and so on.”

Prof. Mario J. Rizzo

New York University

New York

Bubbles Everywhere: Krugman Wrong Again; Austrians and the BIS Are Correct

BankIntZahlungsausgleichPaul Krugman is at it again – distorting or misinterpreting work by other economists to attack critics of  today’s central bank driven low interest rate environment and to defend policy status quo or to push for even more stimulus. This time the economist is Knut Wicksell whose work in both monetary theory and capital theory was part of foundation for Mises’s development of Austrian business cycle theory (ABCT). Krugman’s rant is in response to Neil Irwin’s  commentary on booms and bubbles in asset prices driven by central bank policy and his target is Austrian influenced economists and Wall Street analysts and pundits with a pointed jab at recent work from the Bank for International Settlements (BIS).  From Krugman:

The proximate cause is obvious: policy interest rates are very low, and expected to remain low, so money is pouring into alternative assets, driving their yields down too. The question is what you think about this situation.

Quite a few people — including a lot of people on Wall Street, at the BIS, and so on — look at this and say that it’s terrible: the Fed is keeping interest rates “artificially low” and thereby distorting asset prices across the board, and it will all end in grief.

But for Krugman there is no reason to panic, rates are not too low and there are no asset price bubbles:

Mainly, though, there simply isn’t any macroeconomic case for claiming that interest rates are wildly depressed relative to fundamentals, and not much reason to believe that assets in general are overvalued.

Robert Murphy at Mises Canada exposes the fallacy of Krugman’s argument:

Krugman is supposed to be a technical wizard who throws up an impressive array of mathematical models to justify his policy conclusions. Well, in this case he tries to get his readers to accept first derivatives in place of levels. Nope: However you slice it, central banks have pushed interest rates artificially low. That’s why their balance sheets have exploded. It is astonishing that Krugman is trying to justify this outcome as “natural.”

What I find interesting here is Krugman’s explicit attempt to discredit the recent BIS warning, based on the work of Mises and Hayek, of Central bank excesses. As reported by the Wall Street Journal, (“Stop Us before We Kill Again”):

The Bank for International Settlements issued a report warning that global monetary policies are reaching their useful limit and may be contributing to financial excesses that could turn out badly if central bankers aren’t careful.

“Financial markets are euphoric, in the grip of an aggressive search for yield,” Claudio Borio, head of the monetary and economic department at the BIS in Basel, Switzerland, said as the club issued its annual report. “And yet investment in the real economy remains weak while the macroeconomic and geopolitical outlook is still highly uncertain.”

Austrian influenced work by current BIS economist Claudio Borio and former Head of Monetary and Economic Department of the BIS, William R. White is highlighted here. As a side note, I would like to think work by Fred Glahe and I perhaps planted a seed for some of this work as White often cites our Keynes-Hayek Debate when he introduces Hayek.  A more detailed list and discussion of recent mainstream work on ABCT is developed Nicolas Cachanosky can be accessed from links provided here.

Andreas Hoffmann, co-winner of the 2014 Lawrence W. Fertig Prize in Austrian Economics for Monetary Nationalism and International Economic Instability, has had his paper “Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets” has been accepted for publication in The World Economy (pdf upon request). The abstract:

 Since 2009, central banks in the major advanced economies have held interest rates at very low levels to stabilize financial markets and support the recovery of their economies. This paper outlines the unintended consequences of the prolonged period of very low world funding interest rates in emerging markets. The paper is informed by a Mises-Hayek-BIS view on credit booms and Mises’ law of unintended consequences. Consistent with the presented credit boom view, the paper shows that the period of low world funding interest rates is associated with a rise in volatile capital flows and asset market bubbles in fast-growing emerging markets. As suggested by Mises’ law, the unintended consequences give rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows.

Interesting and perhaps a little troubling is an editorial insistence of referring to this view on credit booms as Mises-Hayek-BIS view.

The Economics of Scottish Secession

scotNot all secessionist movements are created equal, because some secessionist regions are more economically independent than others. In the case of Venice and its region, secession in the medium- to long-term appears rather plausible because of Venice’s long history of economic success, political independence, and its current status as a wealthier region of Italy.

People laugh at Texas when it hints at forming its own republic (again), but the truth is that economically speaking, Texas would be just fine by itself. It’s already a net taxpaying state, which means it pays more to the feds than it gets back (much like the case with Venice and the Italian government). Secession would mean it just keeps more of its own money.

Similar things might also be said of Basque country and Catalonia in Spain, which are among the more wealthy and economically-sound regions.

If the economic points raised by many critics of Scottish secession are correct, however, then the situation with Scotland appears to be different.

In an unsigned editorial, The Economist opines:

On economics, the nationalists say that Scots will be £1,000 a year better-off per head if they go it alone. That number, however, is based on implausible assumptions about the oil price, Scotland’s debt burden, demography and productivity. The British government’s estimate that Scots would be £1,400 a year better off per head if they stay in is based on more realistic assumptions. Scotland’s population is older and sicker than the British average, and productivity 11% lower than that of the rest of Britain. As a result, the state spends around £1,200 more per head on Scots than on the average Briton. Depending on what happens to the oil price, North Sea oil could more or less cover those costs in the short term, but the oil is running out.

It is, of course, possible that independence would cure Scotland’s entitlement culture and revive its entrepreneurial side. If either of its two dominant parties—the SNP and Labour—were disciples of Adam Smith that would be plausible. But their statist philosophies are more likely to drive Edinburgh’s fund managers, Aberdeen’s oil-services engineers and other talented Scots south. Independence would also impose one-off costs: a new Scottish state would have to set up an army, a welfare system, a currency and much else.

If it is indeed true that Scotland is a net tax receiver, then secession appears far less likely. Voters, and especially older voters, often know who butters their bread and vote accordingly.

The whole affair serves as a nice illustration of the political usefulness of welfare states. Once upon a time, states relied on occupying armies to maintain control of territories. In modern times, many states have figured out they can buy a state monopoly in a region and also buy even citizen loyalty by simply handing out freebies to the population. The taxpayers in the wealthier regions may be on the hook to keep the money flowing, but the added territory with its pro-welfare voters provide a nice base of support for the central state.

Relative economic backwardness doesn’t always prevent secession, of course. The proto-United States in the 1770s was an economic backwater (although it had a high standard of living for the time), and Ireland seceded from the UK in spite of its poverty. Maybe Scotland can live off its oil, as many proponents of secession suggest. But the comfy status quo of the welfare state there may be a hard habit to break.

Mises Weekends: Brian Doherty Talks to Jeff Deist About Reporting the Revolution

Jeff Deist and Brian Doherty discuss Brian’s role as both a participant in—and observer of—libertarian circles, the impact of Austrian economics on today’s intellectual debate, Ron Paul’s lasting legacy, and why for the first time ever it’s cool to be a young libertarian.

Thomas Piketty and Mises’s ‘The Anti-Capitalistic Mentality’

Money balanceMises Daily Friday:

In his short book The Anti-Capitalistic Mentality, first published in 1954, Ludwig von Mises explains why Piketty’s new anti-capitalist tome is popular among a certain class of people, and why much of Piketty’s book relies on a re-telling of old myths about capitalism.

Fiat Money: ‘A Large-Scale Fraud System’

Euro_coins_and_banknotesThe Center for Financial Studies in Frankfurt reports on a recent talk given by Thorsten Polleit:  

Thorsten Polleit on the “planned chaos” of money

What are the reasons for economic booms and busts and which reforms are necessary to create an economically viable monetary order? On 2 April, Thorsten Polleit addressed these questions in his lecture “Boom & Bust, or: Planned Chaos” referring to the Austrian school of economics. Polleit is Chief Economist of Degussa Goldhandel, President of the Ludwig von Mises Institut Deutschland and Honorary Professor at the Frankfurt School of Finance & Management.

Polleit identified the state-controlled fiat money system as a main cause of the international financial and economic crisis. This system, he said, is based on the ability of banks to create money literally out of nothing. It is, in principle, a “large-scale fraud system” because today’s money is “intrinsically worthless and not redeemable”. This has damaging consequences for the overall economic development.

Circulation credit reason for economic fluctuations

To prove this fundamental critique, Polleit referred to the theoretical principles of the Austrian School of Economics, in particular to Ludwig von Mises. According to Mises, the circulation credit is the cause of economic fluctuations. Circulation credit means that banks lend money, and thereby expand money supply, without backing them by real savings (or reduction of consumption). This circulation credit is creation of money “ex nihilo”. Booms as well as busts are damaging because they slow down long-term investments with the consequence that resources in fluctuating economies are lacking. According to Mises, the problem is not low consumption but low savings. This means that the countercyclical policy in the manner of Keynes is based on a wrong diagnosis. This policy prevents an early market-driven correction with the result of an even bigger bust.

Fiat money system creates failures

Polleit explained, on the basis of the interest theory of Mises, that the market interest rate in a fiat money system was chronically below the natural interest rate. The consequence of adherence to such a system with its too low interest rates is that economic and political mistakes during the bust phase are not completely corrected – and, thus, new failures will arise. One current example for the failure of the low interest rate policy in the industrial countries is the flow of foreign capital into the emerging markets with all its harming effects. Especially since the US Federal Reserve has announced to reduce bond purchases, many investors have withdrawn their money from the emerging markets. As a result, the exchange rates of the emerging market currencies strongly depreciated – with negative consequences for their previously booming economies.

This destabilization in emerging markets will, according to Polleit, result in an even closer cooperation among national central banks – with the objective to counteract the remaining currency competition. Central banks of emerging economies could be forced to join the network of liquidity-swap-agreements in order to receive credits from other central banks more easily. Thereby, they would basically give up their sovereignty over the national money supply. The result would be a world cartel of central banks led by the US Fed. This cartel would extend the boom phases, which are caused by the credit money system, and, as a consequence, amplify the inevitably following busts.

Against the background of this grim scenario, Polleit demanded a reform of the monetary system towards a market-oriented monetary order. This should include, inter alia, disempowering central banks and privatizing money supply.

The True Purpose of “Competition” Policy

Ad_apple_1984“Competition policy” is one of those great Orwellian terms that means the opposite of what it seems to mean. In most countries, antitrust policy is designed not to enhance competition, but to stifle it, by protecting privileged incumbents from upstarts or from their established rivals. A great example of the latter comes from today’s headlines: “Apple Invites FTC To Probe Google.” Having recently settled a case brought by the FTC about in-app purchases on iOS, Apple is now urging the FTC to investigate Google’s policies on in-app purchases on Android. All in the name of “leveling the playing field,” of course. In the tech sector in particular, many of the most important antitrust and regulatory actions against leading firms are initiated by rivals, using whatever means necessary to bash competing firms.

Ron Paul Was Dead Right about the Export-Import “Bank”

Just as certain conservatives have attempted to latch on to Ron Paul’s anti-Fed movement (purely for populist political gain), some also recently discovered that the non-bank known as the Export-Import Bank represents (gasp) a form of corporate welfare!


Who knew that Boeing needed a little help from taxpayers like you to sell those beautiful new 737-800s (and they are beautiful) to EgyptAir, for instance? According to the GAO, the Ex-Im Bank finances or guarantees financing for about 25% of Boeing’s sales of wide-body aircraft.

Here’s Dr. Ron Paul arguing against Export-Import Bank reauthorization back in 2002:

In conclusion, Mr. Chairman, Eximbank distorts the market by allowing government bureaucrats to make economic decisions in place of individual consumers. Eximbank also violates basic principles of morality, by forcing working Americans to subsidize the trade of wealthy companies that could easily afford to subsidize their own trade, as well as subsidizing brutal governments like Red China and the Sudan. Eximbank also violates the limitations on congressional power to take the property of individual citizens and use it to benefit powerful special interests. It is for these reasons that I urge my colleagues to reject H.R. 2871, the Export-Import Bank Reauthorization Act.

Read the entire statement (which is excellent) here.

Jean-Baptiste Say: An Underrated Revolutionary

6802Mises Daily Thursday by Carmen Dorobăț

Jean-Baptiste Say was no mere French popularizer of the ideas of Adam Smith. As a forerunner of the Austrian School and a father of laissez-faire in France, Say’s insights continue to challenge interventionist economists to this day. Everl Schoorl’s new biography sheds new light on Say’s life and works.

Brazilians Learn About the Law of Opportunity Cost

Some 40,000 of them cursed their president in a most vulgar way because she spent $11 billion on soccer stadia when it could have been spent on things that actually benefited at least a few citizens instead, they explained.

Block on CNBC: Privatize the Roads

Walter Block explains road privatization on CNBC:

Web site link:

Can Higher Ed Really Be This Clueless?

Readers of the Mises Economics Blog will be glad to know of a job opening: Detroit’s Wayne State University is seeking “a nationally prominent academic leader for the Coleman A. Young Endowed Chair in Urban Affairs.”  Coleman Young was, of course, the corrupt mayor of Detroit from 1974 to 1994 and is seen today as one of the most destructive and divisive mayors in all of U.S. history.

Although hardly the sole player causing a troubled city to become the textbook case for municipal catastrophe that it is today, Young and his policies helped set the stage for it by overseeing and extending Detroit’s welfare-ization in order to pacify and/or 3552608buy off otherwise angry segments of Detroit’s population in the decades following the 1967 riots.  What were once low-income neighborhoods became low-income and dangerous neighborhoods that scared away productive labor and capital already overburdened by Great Society overreach, and wealth-creating Detroiters escaped to safer and more bourgeois suburbs and states.

Under Young, Detroit became known as both the arson and murder capital of America, an accomplishment that’s somehow not found on his gravestone.  Its metro population fell by a third from 1970 to 1990 (and by more than a half from 1970 to 2010).  Although the mayors who succeeded him wrought more fiscal harm, some say Young’s severe racial rhetoric was cynically calculated to create a majority black city that would provide a more electorally secure environment for himself.

One concedes that if the University of Missouri still has its endowed economics chair named for former Enron CEO Ken Lay, then Wayne State should possibly be granted some slack in maintaining a Coleman Young Chair in Urban Affairs.  The contrast is interesting.  The Enron saga reminds us that when firms fail in the market, they at least are shut down before incurring any more damage, while their capital is transferred to others who might use it more efficiently (and, in Enron’s case, more ethically too).  Young’s legacy should remind us that when entities operating outside of market forces fail, their destruction is demonstrably more deep and persistent and can continue in that vein for decades—at least until they become relatively less aggressive against the natural rights of person and property.  

It is no accident that Detroit’s remarkable implosion since 2008 has been followed by several exciting entrepreneurial developments in that city.  Bankruptcy has its upsides, especially when it means municipalities can no longer pay bureaucrats to hinder businesses, workers, and consumers from freely associating with each other.

Nonetheless, in a spirit of good will, might I suggest some more believable uses of scarce resources for Wayne State’s administrators to consider?  The Hillary Rodham Clinton Center for Tenth Amendment Studies comes to mind, as does the George W. Bush Just War Institute.  If these are unacceptable, then perhaps we can agree on establishing a Luis Suárez School for Orthodontics instead.  I think Mayor Young would agree since he, like the notorious Uruguayan footballer, looks like someone who liked to bite into an Italian sub now and then.

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Grudging Nod to ABCT from The Economist

The Economist is often wrong about economics and world affairs.  Worse still, it is almost uniformly tedious and overbearing in tone: its writers generally sound like exasperated parents having to explain for the hundredth time what everybody knows.


But here an Economist blogger gets one thing right, in a piece otherwise riddled with errors (everybody knows that Austrians are wrong about QE and hyperinflation, everybody knows that Austrians favor a dystopian, selfish world, etc).

The insight of Austrian economics that seemed pertinent to me is that credit cycles can be hugely destructive, as the credit often does not find its way into productive uses; just drive around Ireland and see the abandoned houses built a decade ago if you want an illustration. Before 2007, most economists seemed to think that credit didn’t matter, except when it caused inflation; that is clearly wrong.

Clearly the central bank apologists are getting nervous, and they should be.  Even the high priestess of the US Fed is warning that “Monetary policy faces significant limitations as a tool to promote financial stability.”

SIR: Perhaps she can push harder on the string.


The Magic of Mises University

We hope you’ll consider sponsoring a student today: Your generosity will help make the next generation of Austrian economists possible.

The Mises University is the world’s leading instructional program in the Austrian School of economics. Since 1986, it has been the essential training ground for economics students who are looking beyond the mainstream.

The program offers courses, seminars, and reading groups on the whole range of the discipline. A core curriculum presents economic foundations, and more than fifty elective classes explore the entire range of economics, in all levels of advancement.

This program is entirely supported by private donors, and thanks to Mises Institute Supporters, there is no registration fee at Mises University for students who are accepted. The selection process is highly competitive.


Austrian Economics, Anarchy, Liberty Leaders & Socio Biology

Summary by Luis Rivera III:

What constitutes theft? Do governments steal? If someone takes something from someone is it necessarily theft? How free market were Milton Friedman, Ayn Rand, F.A. Hayek and Ron Paul? The Austrian School of economics and socio biology is talked about in this lecture. The Austrian’s view on minimum wage. Empirical research illustrates not tests what Austrian’s have been saying: The higher the minimum wage ceteris paribus the higher the unemployment. Albeit not exact, good correlation exists among different states. This lecture from Block is complimented with questions from the inquisitive attendees. In one of these questions Block answers how would he donate his money within the school system to expose the youth to libertarian ideas! Below are all parts of this lecture. Listen in it will be worth it:

Video: Jesús Huerta de Soto & The Spanish Scholastics

On the occasion of the fifth centenary celebration of Diego Covarrubias y Leyva the economics professor Jesús Huerta de Soto, points out the importance of this Austrian Economics School´s forefather. During the conference celebrated on 8th of November of 2013 in Segovia, the professor Huerta de Soto refers to todays economics crisis that could have been avoided.

The Jeffersonian Secessionist Tradition

hartfordMises Daily Wednesday by Thomas DiLorenzo

In examining newspaper editorials of the nineteenth century and Jefferson’s own views of secession, Thomas DiLorenzo explores the once-widespread belief, both North and South, that the American states were part of a voluntary union

Ron Paul on the Hobby Lobby Decision

it__s_not_free_meme_by_nesukurosu-d5c7iqqRon Paul writes on the Hobby Lobby decision: 

Hobby Lobby Decision Creates Small Island of Freedom in Ocean of Statism

by Ron Paul

This week, supporters of religious freedom cheered the Supreme Court’s ruling in the Hobby Lobby case. The Court was correct to protect business owners from being forced to violate their religious beliefs by paying for contraceptives. However, the decision was very limited in scope and application.

The Court’s decision only applies to certain types of businesses, for example, “closely-held corporations” that have a “sincere” religious objection to paying for contraceptive coverage. Presumably, federal courts or bureaucrats will determine if a business’s religious objection to the mandate is “sincere” or not and therefore eligible for an opt-out from one Obamacare mandate.

Opponents of the Court’s decision are correct that a religious objection does not justify a special exemption from the Obamacare contraception mandate, but that is because all businesses should be exempt from all federal mandates. Federal laws imposing mandates on private businesses violate the business owners’ rights of property and contract.

Mandated benefits such as those in Obamacare also harm those employees who do not need or want them. Benefit packages resulting from negotiations between employers and employees are much more likely to satisfy both the employer and employee than benefit packages imposed by politicians and bureaucrats.

Opponents of the Court’s decision argue that Obamacare gives employees a “right” to free birth control that trumps the employers’ property rights. This argument confuses rights with desires. Successfully lobbying the government to force someone else to grant your wishes does not magically transform a desire into a “right.”

Read More→

Walter Block: Regulations Contributed To And Worsened The BP Oil Spill

downloadSummary By Luis Rivera III:

Many people are under the false impression that the oil spill that occurred in April of 2010 was due to a lack of regulations. One of these individuals is Thomas Frank, a journalist from The Wall Street Journal. In this lecture Walter Block offers a rebuttal to this absurd claim. He sheds light on the fact that the regulations in place at the time prevented drilling or mining at the Alaska Artic National Wildlife Reserve, Oil Sands in Alberta (mining), National Petroleum Reserve in Alaska and Shallow Offshore off The Gulf of Mexico. The drilling could have been done in much more shallow water, instead of the 6,000 feet the government forced BP to drill. Common sense dictates that in 20 something feet stopping a leaking would have been much easier. However, the state has no such common sense and the leakage persisted for months causing significant damage to so many.

An example of a law that increased the negative impact of the oil spill is the Jone’s Act. The Jones’ Act as Dr. Block talks about in this lecture actually prevented the experts in the field of cleaning up oil, from helping and thus lessening the devastion. Block, offers a solution, he says allow oceans to be managed with proper incentives and repercussions – allow for oceans to be (“privately”) owned. This erases the problem that comes with the tragedy of the commons which is a direct result of un owned mass (which is not abundant).
Click the link below to see Block’s entire speech on the matter:
Walter Block On The Deep Horizon Oil Spill

Note: Dr. Walter Block is currently working on a book about privatizing the oceans.