Archive for October 2012

War, What is it Good For? Certainly not Innovation.

So says Peter Klein.

The James M. Rodney Lecture, presented at the 2012 Mises Institute Supporters Summit: “The Truth About War: A Revisionist Approach”. Recorded at Callaway Gardens, Georgia, on 26 October 2012. Includes an introduction by Llewellyn H. Rockwell, Jr.

War History and America’s Court Intellectuals

Gary North on how Rockefeller-financed Federal spooks established the mainstream academic narrative on American involvement in the World Wars.  If you’re short on time, he gets down to brass tacks at 11:33.

The Carl Davis Lecture, presented at the 2012 Mises Institute Supporters Summit: “The Truth About War: A Revisionist Approach”. Recorded at Callaway Gardens, Georgia, on 26 October 2012. Includes an introduction by Llewellyn H. Rockwell, Jr.

Bastiat and “Full Employment”

Matthew Yglesias makes the same mistake as Brad DeLong, thinking that Bastiat’s argument against breaking windows applies only in conditions of “full employment.” Bastiat “doesn’t counter any Keynesian or monetarist points about the viability of stimulus during a recession induced by nominal shocks, it involves assuming that no such recessions can occur even though they plainly do . . . . [T]hat’s no excuse for people sitting around in 2012 to be pounding the table with an old book that’s non-responsive to modern issues professing to be baffled why people don’t find it more persuasive.”

Of course, Bastiat’s brilliant demonstration of hidden costs and the fallacy of spending one’s way into prosperity assumes nothing of the sort. But Yglesias, inadvertently, makes an important point, namely that Bastiat’s defenders should spend more time on “full employment,” a concept that isn’t even coherent, given that efficiency in resource employment makes sense only with regard to the subjective production plan of the entrepreneur (cf. Penrose, 1959Kirzner, 1966).

W. H. Hutt’s powerful and underappreciated critique of Keynes, The Theory of Idle Resources (1939) attacks this core Keynesian concept. As Hutt explains, all resources have alternative uses, and even “idleness” is a use, in the sense that the resource owner prefers to hold the resource for a future, as-yet-unavailable or unimagined use — a real option, if you like. Dragooning such resources into some random use, outside the price mechanism, serves no productive purpose. Even outside the mythical world of “full employment,” there are no free lunches. The modern Keynesian and monetarist approaches that impress Yglesias have yet to confront this basic problem.

See also Sheldon Richman.

The Folly of Anti-Gouging Laws: WSJ or Mises Daily?

HOLMAN W. JENKINS, JR. of the Wall Street Journal channels David M. Brown at Mises Daily:

Hug a Price Gouger

“The public doesn’t want to hear it, but the public also doesn’t like empty shelves.”

Sounding like Bastiat, Jenkins concludes, “Crackdowns on gouging are plausible only because the advantages of not prosecuting price gougers belong to the category of the unseen—the public can’t see the supplies that would be available but for price-gouging laws. A good statewide New Jersey gasoline panic might correct that myopia, at least for a while.”

Judge Napolitano’s Rip-Roaring Lecture on Natural Law and Just War Theory

The Louis E. Carabini Distinguished Lecture:  Reflections on the Loss of Liberty, at the 2012 Mises Institute Supporters Summit, on October 26.

My favorite moment is at 49:33:

“I guess I’ll reveal my anarchistic bona fides by saying that I agree with Lysander Spooner. As the country had the right to secede from Great Britain, we have the right to secede from the government!”

Available: QJAE vol. 15, no. 3 (Butos, Prusa and Ryska, Zahringer, Lindemans, Howden, Bylund, Kaza, Polleit)

Volume 15, no. 3 of the Quarterly Journal of Austrian Economics was made available online last week. Articles are:

William N. Butos, “Monetary Orders and Institutions: A Hayekian Perspective,”

Jan Pruša and Pavel Ryska, “Efficiency Wages and Involuntary Unemployment Revisited,”

Kenneth A. Zahringer, “Monetary Disequilibrium Theory and Business Cycles: An Austrian Critique,”

Jan Willem Lindemans, “Methodological Individualism and Cultural Evolution: Ontogenetic and Phylogenetic Approaches to Social Order,”

David Howden, Review of Thinking, Fast and Slow, by Daniel Kahneman

Per L. Bylund, Review of Capital in Disequilibrium: The Role of Capital in a Changing World, 2nd ed., by Peter Lewin

Greg Kaza, Review of A History of the Federal Reserve, Vol. 2: Book 1 (1951-1969), Book 2 (1970-1986), by Allan Meltzer

Thorsten Polleit, Review of Institutions in Crisis: European Perspectives on the Recession, David Howden, ed.

The Quarterly Journal of Austrian Economics was nominally founded in 1998, but, in terms of its mission and guiding spirit, it is a continuation, in an expanded and improved form, of the first ten volumes of the semi-annual Review of Austrian Economics, whose founding editor was the late Murray N. Rothbard.

The mission now, as it was when it was adopted from Rothbard, is “to promote the development and extension of Austrian economics and to promote the analysis of contemporary issues in the mainstream of economics from an Austrian perspective.”

Submissions and Editorial Board

Ron Paul: “Let me tell you, the work of the Mises Institute is crucial. This is important. This is more important than all political action.”

Ron Paul: “I’m delighted to be here for the 30th anniversary of the Mises Institute. I was delighted to help start this Institute with Lew Rockwell many years ago.  Let me tell you, the work of the Mises Institute is crucial. This is important. This is more important than all political action. We have to change people’s hearts and minds, and their understanding of free markets and individual liberty. That’s how we can change the world. I’m very optimistic about the spreading of this message, especially in this computer age.”

Also see The Real Ron Paul Revolution.

Causes of Slow and/or Unsustainable Recovery

Causes of Slow and/or Unsustainable Recovery

In a comment on Malinvestment and Regime Uncertainty, Dick Fox wrote:

“Professor, I am a little confused. The first part of your paper concentrates on the fact that policies have hindered investment, but then at the end of the paper you imply that artificially low interest rates are artificially directing spending to the early stages of production. It seems to me that your description of the impact of government policies attacking business are hindering investment more at the early stages of production. Are these forces working against one another?”

I’ll try to clarify some below:

Factors that contribute to slow recovery:

1. Boom-bust cycle creates malinvestments:

Microeconomic problem – resources need to be moved from where they are less intensely needed to where they are more intensely needed:  Solution is flexible prices with resource mobility.

Complications: Non-homogenous capital goods and labor services – some resources may not be easily transferable across stages of production of location.

Significant malinvestment and over consumption can cause capital destruction and/or waste – reducing production possibilities below what they might have been sans boom.

2. Reaction to bust could create “secondary deflation’ or secondary depression:

Hayek 1970s (See Hayek 1979) recommend preventing  the secondary deflation, however Salerno (2012 A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis) argues:

My third refinement of ABCT is to link the so-called “secondary deflation” to the pervasive malaise and waning of “animal spirits” among the mass of entrepreneurs that occurs when the recession reveals their cluster of miscalculations and errors and saps their confidence in their ability to identify and calculate profitable investments. I argue that the secondary deflation is not the result of an incidental monetary contraction that depresses some arbitrary price level; rather it is a reaction to and correction of the relative price distortion caused by the extreme overbidding of factor and asset prices during the euphoria of the boom. When allowed to run its course, this relative price adjustment inevitably re-establishes a natural interest rate sufficiently high to stimulate capitalists and entrepreneurs to dishoard cash and actively seek out investment opportunities. When stunted by “quantitative easing” and fiscal deficits driven by stimulus programs, the entrepreneurial malaise becomes chronic, and economic stagnation ensues.

These are issues of recovery from any boom-bust cycle and there is a third contributing factor to a slow recovery – a poor policy reaction to the crisis which creates:

3. Higgs’s Regime Uncertainity – Inappropriate policy reaction and/or rhetoric which creates uncertainty about the future of property rights and returns on investment. Hinders recovery even if relative prices are adjusting. Affects all stages, but probably more impact on earlier stages.

There is a second issue, related to your question on low interest is where  I should have been more clear about a shift of emphasis in the discussion. The shift is toward factors impeding a healthy recovery and sustained growth – a growth path consistent with tastes, preferences and resource availability.

  1. Regime uncertainty also operates here.
  2. Stimulus- both monetary and fiscal which misdirect production – see Especially Hayek 1979 and Ravier Rethinking Capital-Based Macroeconomics. Artificially low rates, may even in the face of regime uncertainty, marginally increase investment relative to what it would have been sans low rates, but while such spending may like fiscal stimulus, especially stimulus which has more impact on consumption and later stage investment (Garrison’s induced investment), appear to increase employment,but it will do so at the cost of increased instability and potentially higher employment later.

As described in Cochran (2011 Capital in Disequilibrium: Understanding the “Great Recession” and the Potential for Recovery): “Recovery must be driven by a revival of investment, but to return to real stability and sustained growth the new pattern of investment must be in line with resource availability and time preferences. According to Hayek (1979, p. 42), this is not likely to be achieved by “subsidi­zation of investment” or “artificially low interest rates.” Hayek (1939) argued that while such a policy may result in a temporary increase in production and employment, the ultimate result is a new period of boom and then bust.”

Reference

Hayek, Friedrich A. 1979. Unemployment and Monetary Policy: Government as Generator of the “Business Cycle.” San Francisco, CA: Cato Institute.

Encounter Magazine Online

Rafe reminds us that the entire archive of Encounter magazine is online. While Encounter, like the Congress on Cultural Freedom, was a CIA project, it still managed to publish a number of important and influential essays by Hayek, Popper, Polanyi, and other classical liberal scholars. (Use the search box.) A few highlights:

Weakness in Recent GDP Numbers

On target commentary on recent GDP numbers by Shawn Ritenour. As long as investment stays weak, job growth will be weak.

More detailed discussion is here.

For data on the relationship between real gross private domestic private investment and employment see below (HT to Danny Sanchez).

 

RGPDI and private non-farm employment