A Lesson in Economic Analysis from the Minimum Wage Debate

Magician holding a magic wandMises Daily Tuesday by Ken Zahringer:

Supporters of government interventions like minimum wages often pretend the economy is far less complex than it really is, and then conjure up a statistic as evidence of success. Careful analysis reveals another story, however.

How the Private Sector Might Colonize the Red Planet

Der Spiegel reports on the Mars One project to colonize Mars with funding coming from an 1440expected $6 billion in broadcasting rights in what would be a sort of interplanetary Truman Show.  Over 700 people are competing for four slots to make the trip 10 years from now, even though “a return ticket is not part of the deal.”

I don’t know who these 700 people are, but they provide a nice illustration of the subjectivity of value, given that

Mars is not a destination that sounds particularly attractive. It is bitterly cold and dust storms sometimes envelope the entire planet for weeks at a time. Its sights are also limited to gorges that are several kilometers deep and enormous volcanoes, one of which is the size of Poland and stretches 26 kilometers (16 miles) into the Martian sky.  For settlers there, though, the Earth would be but a tiny point in the heavens and if something happened, there would be no help available. The flight takes at least six months — and the two planets are close enough to each other for such a trip only once every two years.

That some might choose to live in such an environment is easily understood within the Austrian framework which argues that “the incentive of human activity is always some uneasiness and its aim always to remove such uneasiness as far as possible, that is, to make the acting men feel happier….”  How much better are such projects given that they do not rely on coercive redistributions of wealth, as is the case with NASA, the Russian Federal Space Agency, and all other state organizations that view space as simply an untapped area of potential control.

So go for it, colonizers, even though I may be cheering you back here on earth, poolside with gin-and-tonic in hand, wondering if, someday, there might actually be a Mises Institute Mars explaining homesteading to a distant generation.

I am on Twitter.

Why Isn’t Monetary Pumping Helping the Economy?

slow2Mises Daily Monday by Frank Shostak:

The longer central banks world wide persist with their loose monetary policies the greater the risk of severely damaging the wealth-generating process is. This in turn raises the likelihood of a prolonged stagnation.

 

 

Trouble at Jackson Hole

Central bankers and their economists had their annual retreat to Jackson Hole Wyoming this past week. Given all of their self-proclaimed success in curing the economic crisis with their Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE). You would think that the event would have been a big celebration.

However, as we got closer and closer to the Fed’s target unemployment rate of 6.5% the more we have been hearing from Janet Yellen about “labor market imperfections.” She has changed her tune and instead of touting the decreases in the unemployment rate, she is talking about all the people working part-time when they would prefer to work full time and the decline in the labor participation rate. In truth the Fed did not fix the economy. In other words, she is searching for a justification to continue the money printing if the bubbles start leaking again. Several papers were presented about the problems of labor markets.

In contrast, others were concerned about the emerging price inflation:

• Martin Feldstein, Harvard economics professor, chairman of the Council of Economic Advisers under President Ronald Reagan:

“I wish the Fed would be more explicit about being concerned about inflation. They were slow to communicate about inflation. Yellen gave a speech at the (International Monetary Fund) a few weeks ago in which she acknowledged that there were risks of financial instabilities but said that’s not going to change our monetary policy.

“My sense is there’s probably more inflation in the pipeline and closer (than Yellen thinks).

MORE: Yellen talks labor market slack at Jackson Hole

“Her eyes are on the underutilized labor resources. She’d like to be able to continue to bring that down.

“We may see inflation sooner than she thinks we’re going to see, and I think if that happens, then I think they’ll move the date (to raise rates) forward.”

Others, like Yellen, were less concerned with price inflation and more concerned with unemployment:

• William Spriggs, chief economist for the AFL-CIO, Howard University economics professor, former assistant labor secretary under President Barack Obama:

“I think (the Fed is) still thinking too much in the framework of, ‘We’re waiting for inflation.’ I think they have to re-configure this. The cost of unemployment has gone up, and so in making that choice between whether I raise interest rates to stir the economy or whether I pursue full employment, we just have to say: ‘You know what? Inflation doesn’t cost as much as unemployment.’

“(Yellen) is forcing them to be nuanced, so they can’t get out of talking about this in a more nuanced way.

“If, for a little while, you have 3% or 4% inflation or maybe even 4.5% inflation, that’s fine. Because we are so far away from full unemployment.

“But if you (raise interest rates), it’s going to be arbitrary. It’s going to be very broad. It’s going to hurt managers, it’s going to hurt professionals, it’s going to hurt everyone.”

“This is real damage to real people. You have to factor that cost. This is not free.”

It would seem that the rosy picture of the Fed fixing the economy does not look as rosy to central bankers themselves once they have supposedly fixed the economy!

As quotes in the USA Today.

Mises Weekends: Marc Victor, Attorney For Freedom

Jeff Deist and Marc J. Victor discuss what’s happening in Ferguson, our disappearing legal rights, and how having Butler Shaffer as a law professor radicalized him and shaped his libertarian views.

Police States and Private Markets

BMises Daily weekend by Jeff Deist:

We know that state monopolies invariably provide worse and worse services for more and more money. Police services are no exception. When it comes to your local police, there is no shopping around, there is no customer service, and there is no choice.

State Monopolists Don’t Work for You

1280px-US_Customs_and_Border_Protection_officersI see that some people have become a bit upset with how the police are conducting themselves recently. They declare that the police need to be reminded that “they work for us, not the other way around.” This statement expresses an utterly naive and untutored idea.

The police don’t work for us, if by “us” we mean you, me, and at least 95 percent of the rest of the population. On the contrary: we work for them, literally; we work to earn money and acquire wealth that they take forcibly from us for their own support, either by taxation or by outright confiscation (civil forfeiture). The cops don’t work for us; they never worked for us. They work now, as they have always worked, for the government, which is to say, for the small part of the population that has any nonnegligible control over the government at any level — federal, state, or local. Certainly no more than 5 percent of the population has any such control. More likely the percentage is 1 percent or less of the population.

The Mythical “Wealth Effect”

Seeking Alpha has a nice article debunking the tired “wealth effect” concept. We see this phony phrase trotted out endlessly, but it’s helpful to understand it as combining both Keynesian and Monetarist elements:

bernanke

Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending. — Ben Bernanke, 2010

Across all financial media, between both political parties, and among most mainstream economists, the “wealth effect” is noted, promoted, and touted. The refrain is constant and the message seemingly simple: by increasing people wealth through rising stock and housing prices, the populace will increase their consumer spending which will spur economic growth. Its acceptance is as widespread as its justification is important, for it provides the rationale for the Federal Reserve’s unprecedented monetary expansion since 2008. While critics may dispute the wealth effect’s magnitude, few have challenged its conceptual soundness. Such is the purpose of this article. The wealth effect is but a mantra without merit.

The overarching pervasiveness of wealth effect acceptance is not wholly surprising, for it is a perfect blend of the Monetarist and Keynesian Schools.While its exact parentage and origin appears uncertain, its godfather is surely Milton Friedman who published his permanent income theory of consumption in 1957. In bifurcating disposable income into “transitory” and “permanent” income, Friedman argued the latter dictates our spending and consists of our expected income in perpetuity. If consumer spending is generated by expected income, then surely it must also be supported by current wealth?

How to Help the Mises Institute on Facebook

As you probably know, Facebook is constantly changing its methods of deciding which posts you see and which you don’t see. Privacy settings change constantly as do settings for your news feed. It difficult to say exactly how these changes affect the number of people who see our Mises Institute Facebook posts, but you can help us extend our reach and the number of posts you see from us. A little known fact is that Ludwig von Mises himself pioneered the “thumbs up” gesture (see photo below), which was in turn adopted by hard-core Misesian Mark Zuckerberg for use on Facebook. Well, that remains unconfirmed, but what is definitely true is that one of the easiest things you can do to make sure more people see our posts is to simply like and share our posts as you see them in your news feed. But there’s more you can do as well.  This graphic below shows you two ways you can help us on Facebook. First, go to our Facebook page at https://www.facebook.com/mises.institute, and then:

facebook_post

A Free Market Case for Independence: Let’s Make Scotland Like Hong Kong

200px-Map_of_Scotland_within_the_United_Kingdom.svgAlasdair Macleod makes a sensible recommendation. This article originally appeared on City A.M.:

“A free market case for independence: Let’s make Scotland like Hong Kong”

by Alasdair Macleod

In September, Scottish residents will vote in the independence referendum, following months of intense political debate between the Yes and No campaigns. Even statements presented as purely financial or economic in nature have not been based on proper facts or sound analysis. The Scottish National Party is pursuing an inherently emotional case, while the Westminster establishment is employing scare tactics: Scotland should hold on to nurse for fear of something worse.

There is no reason why 5m Scots cannot do far better as an independent nation, but it will require that they ditch both welfare dependency and subsidies, and embrace reality. Get it right and Scotland’s diaspora, many of whom have abandoned Scotland’s parochial, socialistic shores for free markets elsewhere, would be back like a shot.

In leaving the UK, Scotland would establish its own constitution. The country could give greater protection to property rights, while reducing the scope for political intervention in economic and business affairs. Its own legal system gives Scotland a head start in this process. Contrary to the threats from Westminster about not keeping the pound, an independent Scotland could run a currency board pegging the new local currency to sterling or even the euro, providing the restraints for monetary stability. The prize for the taking is that Scotland could become an entrepot centre in its own right.

This is the basic formula behind Hong Kong’s success. Remember that Hong Kong emerged from the rubble of Japanese occupation in 1945, and has climbed a far higher mountain than that faced by Scotland. There’s no reason (from a purely economic point of view) why Scotland cannot be a roaring success as an independent nation, as long as it embraces free markets, rejects state intervention and provides legal security.

Unfortunately, the majority of Scottish voters view things very differently. They believe North Sea oil will be part of the independence settlement, and that oil and whisky revenue will pay for welfare and pensions. They hanker after increased socialisation of the means of production, providing an intellectual gloss for the unthinking majority that simply wants more for less. But independence means giving up the security of the Union, and (under the Barnett formula) the subsidy of English taxes.

Read More→

Ron Paul, the Gateway Drug

 Jessica Pavoni explains how she came to know Mises, Rothbard, and the rest:

At that point, Hubby and I had more than six deployments between us, so we were credible listeners. Even more impressive: here was a guy [Ron Paul] who wasn’t toeing the party line, wasn’t kowtowing to pressure, and was actually speaking common sense! Look up any video of any presidential debate in which Dr. Paul takes part, and it’s abundantly clear that he is no politician (this is a compliment in my book). It’s safe to say that listening to his position on foreign policy was the first step down the rabbit hole; I didn’t fully understand every issue that he spoke about, but his words came through like a clear bell. Who was this guy? Where did he come from? What did he know? I was hooked.

We bought a book – Liberty Defined (highly recommend it – short, sweet, and easy to understand). I felt myself being pulled out of the apathetic, unconscious masses, and started to wake up. I started to care, I wanted to learn, and I needed to understand how the United States had found itself in the position of being mired in warfare, welfare, and eroding individual liberties. I had seen warfare; I had lost friends. These things mattered. This was real life happening. Dr. Paul was the first person to shed light on the root causes and offer an alternative system.

We began to research the great thinkers, writers, and economists that Dr. Paul referenced. We discovered Murray Rothbard (For a New Liberty and Ethics of Liberty), Ludwig von Mises (Human Action, LvMI), Lysander Spooner (Vices Are Not Crimes and No Treason), Frederic Bastiat (The Law), Peter Schiff, Ivan Eland, Lew Rockwell, and countless others. Over the course of 18 months, I progressed slowly but steadily from conservative neocon (I joined the military in the first place, right?) to limited-government proponent, to minarchism, and then finally the logically-deduced, well-researched, sound philosophy of anarcho-capitalism (self-ownership and non-aggression).

 

You Can’t Run an Economy with Spreadsheets

6739Mises Daily Friday by Nicolás Cachanosky:

Some politicians still seem to be under the impression that an economy can be successfully planned with computers and technicians as long as the right data is entered into spreadsheets. Mises and Hayek proved this idea wrong many decades ago.

“From Conservative to Anarchist”

Ron-Paul-cured-my-apathySteve Patterson explains how he evolved “from conservative to anarchist”:

[Ron Paul] was consistent, and he kept coming back to the following principle: what is the proper role of government? Before we argue about cutting 10% of the Department of Education’s budget, shouldn’t we discuss whether or not it should exist in the first place? Is it appropriate, or even Constitutional, for the Executive Branch to send troops into foreign counties for an extended amount of time without Congressional declaration? Before we nibble around the edges of government spending, we need to talk about what government should do in the first place.

To me, he was precisely correct, but it revealed an unsavory truth: Republicans and Democrats aren’t so different from each other. One party might want to raise spending 5%; the other might want to cut spending 5%, but both favor the status quo and support big government in their respective areas. Liberals and conservatives are like two sides of the same coin. Constitutional conservatism, I thought, represented a real alternative.

But my journey didn’t stop there, because Ron implanted a little seed in my head. When he spoke, he often mentioned the “Austrian School of Economics”. I never heard of it, but eventually, I decided to Google around. What I discovered changed my life. I came across the Mises Institute, which had a number of free books and lectures online about Austrian Economics. I was immediately enamored. The explanatory power of Economics was breathtaking. After diving into the literature, I didn’t simply believe government was inefficient, I understood why. This had an enormous impact on my political philosophy, and it started my transition to radical libertarianism.

I now believe it’s impossible to have a clear understanding about how the world works without Economics. The coordination of prices, profits, and losses in a market is awe-inspiring. No exaggeration – it is almost miraculous. I will write extensively about this at a later time. But suffice to say, Economics became a pillar around which I would develop my other political beliefs.

The further I learned – the further I went down the rabbit hole of Austrian Economics – the more “radical” I became. Not only was government inefficient at delivering mail, but they were inefficient everywhere they intervened. The same economic principles apply to the Post Office as apply to the Patent Office. Of course, this wasn’t radicalism for the sake of radicalism, it was just consistency. And if you apply economic principles consistently across the board, you are left with a very grim perspective of government. however, I was no anarchist…

My first interaction with an anarchist, ironically enough, was as an intern in Ron Paul’s congressional office. I was given the opportunity to be his intern in DC for a semester, and one of his staffers considered himself an anarchist. He was a nice guy, but I didn’t take his ideas too seriously.

But that changed in the summer of 2010. I was fortunate enough to attend a conference for students at the Mises Institute – the organization I held in such high regard. The conference was called “Mises University”, and it would be a week long, focusing solely on Austrian Economics. I was elated, and it turned out to be one of the most intellectually stimulating weeks of my life. I was surrounded with the smartest peers I’ve ever met.

A few lectures hinted at the possibility of complete statelessness – the idea that private entrepreneurs could better provide all the services of government, including courts, military, and police. Supposedly, for the same reasons we don’t want government to monopolize the production of shoes, we don’t want them to monopolize the court system or the production of national defense. I wasn’t convinced. Read More→

Video: Panel Discussion on Fractional Reserve Banking

Scholarly discussion about fractional reserve free banking between proponents of free banking and advocates for 100% reserve banking. from the 2013 Summer Austrian Seminar sponsored by Mises Institute Poland.

Hosted by Mateusz Machaj

From L to R: Maciej Bitner, Michał Gamrot,Mateusz Machaj, David Howden, Nikolay Gertchev

Thanks to Mateusz Machaj

Imposing Costs on Russia: How About a Food Embargo?

PutinPresident Obama has threatened to impose costs on Russia for their intervention in Ukraine, but so far, his involvement has been high on rhetoric but low on action. Here’s a proposal that ought to hit Russia where it hurts: impose a food embargo on them.

Americans and Europeans of a certain age can remember the costs they felt due to the OPEC oil embargo of 1973. People need food more than they need energy. Think of how much more we could pressure Russia with a food embargo.

Of course, there would be objections to a food embargo, because it would impose costs and hunger on ordinary Russians, penalizing them for the actions of their political leader. It does sound potentially inhumane.

But, in this case, Putin has beaten us to it, and imposed an embargo of food from the US and EU on his own people!

Putin seems to be saying, if you keep up this pressure on us, we will deprive ourselves of food. Is this really a sensible tactic? Apparently, Putin thinks so, and is threatening not only to deprive Russians of food but also automobiles.

Embargoes have been used against adversaries throughout history. The US has maintained an embargo on Cuba for more than half a century and is pressuring Iran the same way. But it makes little sense for a country to impose an embargo on itself.

If the US and EU had imposed a food embargo on Russia, many would view it as a cruel and inhumane hostile act. For Putin to impose this embargo on his own people appears to be an act of stupidity. No wonder there has been barely any reaction to it in the West.

Putin has heard our empty threats, and appears to be saying that if we won’t follow through and impose costs on Russia, Putin will do it for us.

New Translations of ‘Mises Daily’ Articles

download (4)One from Mises Poland:

Hodowcy bydła a imperium na amerykańskim Zachodzie (orig: “Ranchers and Empire in the American West“)

And four new ones from Mises Hispano:

Los datos son claros: Los mercados libres reducen la pobreza by DW MacKenzie (orig: “The Data Is Clear: Free Markets Reduce Poverty“)

La regla de oro frente al alegato católico contra los mercados libres by Randy England (orig: “The Golden Rule vs. Catholic Case Against Free Markets“)

La Primera Guerra Mundial y el fin del siglo de la burguesía by Ryan McMaken (orig: “World War One and the End of the Bourgeois Century“)

Cuando atacan las industrias subvencionadas por el estado by Dave Albin (orig: “When State-Subsidized Industries Attack“)

VIDEO: Austrian Economics versus Mainstream Economics

Presented at the Ludwig von Mises Institute in Auburn, Alabama, on 24 June 2011.

Six Myths About Money and Inflation

6849Mises Daily Thursday by Patrick Barron:

Politicians and the mainstream media have a lot of faith in the ability of central banks to manipulate, manage, cajole, energize, and tame the global economy. Unfortunately, things are not so easy in actual fact.

Being a State Means Never Having to Pay Your Debts

Flag_map_of_Argentina.svg_Nicolas Cachanosky follows up his Mises Daily article on the legal history of Argentina’s default with a look at the recent effort to blame the default on everyone but the Argentinian government:

Joseph Stiglitz and Martin Guzman have a recent piece at Project Syndicateabout the implications of Argentina’s default, or what they call “Griesafault.” In a nutshell, the piece blames U.S. Judge Griesa (Southern District of New York), rather than Argentine Republic (the debtor), for the default and argues that the court’s ruling “encourages usurious behavior, threatens the functioning of international financial markets, and defies the basic tenets of modern capitalism: insolvent debtors need a fresh start.”

Basically, the contract with the creditors is crystal clear. It does not allow for the Argentine state to weasel out of paying some creditors by striking new deals with some other creditors. It’s as simple as that. Now, I agree with Chris Westley that the Argentine government should just honestly announce that it has no plans to pay anyone back, and to make a clean default. That was a risk the creditors took. Indeed, while Stiglitz and Gusman claim that Griesa’s decision prevents a “fresh start” the only true “fresh start” here for the taxpayers of Argentina is a default.

Anything else is a twisting of a very simple legal contract to favor a relatively-powerful government over the interests of private investors. Argentina wants to get out of paying its debts either way, but if it honestly defaults, there will be a downside to its credit rating. On the other hand,  if it can game the legal system so that it can avoid making good on its debts while still not legally be in default, then that’s so much better. And, of course, that’s what Stiglitz et al want. Endless spending with no consequences, ever.

Ridesharing and Government Efforts to Kill More Jobs

Mises Institute Associated Scholar Jacob Huebert speaks on the war against ridesharing programs and just how damaging the anti-ridesharing crusade is to ordinary people. For those who are unfamiliar with ridesharing, it is nothing more than private individuals providing rides to people in exchange for money. It’s a free-market taxi service, not to be confused with traditional taxi services which are regulated and controlled by state utilities commissions for the benefit of monopolist taxi corporations. Thanks to smart phone apps, it is now simple and easy for people to arrange rides for themselves using these free-market taxi services using services like Uber. Naturally, state governments, eager to please the army of lobbyists dispatched by taxi companies, have been busy finding ways to outlaw ridesharing. Huebert is speaking specifically of anti-ridesharing efforts in Illinois, but nearly-identical debates on going on not just nationwide, but globally.