Archive for December 2012

Austrian Economics in the Indian Journal of Economics and Business

The Indian Journal of Economics and Business recently published a revised version of my testimony to Congress in Vol 11, no. 3, December 2012 with the title “Fractional Reserve Banking and Central Banking As Sources of Economic Instability: The Sound Money Alternative.” An early version appeared as a Mises Daily.

Thanks to the Mises Institute for permission for use. I thank my friend, a founding editor of the journal, Kishore Kulkarni, for inviting me to submit a revised version for publication in this refereed outlet. The Journal has been receptive to Austrian contributions. In 2007 the Journal published an issue devoted to Austrian analysis, edited by Alex Padilla and myself, “Special Issue Symposium on Economic Development, Transition Economics, and Globalization: Austrian and Public Choice Perspectives” with contributions by Shenoy (perhaps her last refereed journal contributions), Block, Salerno, Powell, Leeson, Coyne, and Boettke among others. Block and Barnett (2008) published in the journal on a return to gold with no government gold and I with Glahe and Yetter (2004) had a paper in IJEB on ABCT applied to Japan and U.S.

For Austrian Scholars looking for an outlet to present in the eastern part of the world, you might consider the IJEB sponsored conference December 2013, the INTERNATIONAL CONFERENCE ON ECONOMIC AND BUSINESS ISSUES in Pune, India.

See the call for papers at: First Call for Papers for December 2013 Conference. Organized sessions are encouraged and welcome. Contact Dr. Kulkarni at

Today is Ronald Coase’s 102nd Birthday

Not only is he still alive but the Nobel Laurette is working on a new book and is starting a new journal. He recently published an article in the Harvard Business Review criticizing modern economics for not being realistic.

Here is Murray Rothbard’s comments on Coase’s lectures. Go to page 253.

Austrian School of Economics in India’s Economic Times

“Austrian School of economic thought gaining influence as nations tackle debt.” Mark Thornton, GP Manish, and Malavika Nair are quoted.


Who are these people? These men and women, separated by geographies, living disparate lives and practising different professions, have been sharing mails, exchanging notes, meeting whenever they can afford to and trying to put across their point to whoever cares to listen to them. Among other things, all of them are sold on the principles of small government, small taxes and free market. 2012 was a year when they made up jokes and sharpened jibes at bankrupt governments of rich countries as they tried to wriggle out of the mess by promising to print more and more money.

The Cliff: A Rothbarian Policy Alternative

Last Wednesday (Dec 26, 2012), I posted the following comment on The Amazingly Popular Bush Tax Cuts by Randall Holcombe:

No original expiration date, no current ‘crisis’ and no or little impact on policy and regime uncertainty attributed to this part of tax code which has hampered economic planning since the shift in Congress to Dems in 2006.

 Real Housewives of the Beltway: How the script for the fiscal cliff melodrama was written” in the Wall Street Journal (Sat. December 29, 2012) provides a more comprehensive discussion of how this on-going “melodrama was written.” The first item they mention is the one I highlighted above:

The first mistake goes back to the original compromises to pass the Bush tax cuts of 2001 and 2003. Those lower tax rates are expiring now because they weren’t made permanent then.

But for the Journal the primary culprit underpinning these continuing bad policy choices is the ‘vampire’ like Keynesian influence on “mostly Democrats but increasingly many Republican and conservative intellectuals─who think that growth derives from government spending … .” Though, as argued by Block and Barnett (“Involuntary Unemployment,” Dialogue, Vol. 1, 2008, pp. 10-22), “one would have thought that Keynesianism would have been stopped dead in its tracks by the phenomenon of stagflation.” Too bad the stake was never completely drive through the heart of teh vampire. Thus the vampire lives and as a result of this underlying fallacious view of how the economy operates, The Journal argues:

The third and biggest blunder is the Keynesian mantra of “timely, targeted and temporary” tax cuts and spending. We thought this had been buried by the Reagan years. But it made a comeback in 2008 with Nancy Pelosi and Harvard economist Larry Summers.

The economic theory is that Congress can, in its ever-present wisdom, calculate precisely the right amount and timing of temporary tax cuts and spending increases to stimulate the economy. But the tax cut must be temporary so as not to add to the “long-term” deficit. And the tax cut must be targeted, lest it benefit someone who makes more money than Ms. Pelosi and Mr. Summers like.

The result has been continuing bad fiscal policy, expansion of government (See Robert Higgs’s excellent discussion here), and an ever accommodative Fed with no permanent benefits (and few if any temporary benefits) but with significant costs both current and future.

Recovery and renewed economic growth depend on decreasing, not increasing government involvement in the economy. Per Rothbard (America’s Great Depression, p. 22)”

There is one thing the government can do positively, however: it can drastically lower its relative role in the economy, slashing its own expenditures and taxes, particularly taxes that interfere with saving and investment. Reducing its tax-spending level will automatically shift the societal saving-investment–consumption ratio in favor of saving and investment, thus greatly lowering the time required for returning to a prosperous economy. Reducing taxes that bear most heavily on savings and investment will further lower social time preferences. Furthermore, depression is a time of economic strain. Any reduction of taxes, or of any regulations interfering with the free market, will stimulate healthy economic activity; any increase in taxes or other intervention will depress the economy further.

In this environment, a truly Rothbardian policy would be a win-win policy for both the short and the long run.

Chances of such a policy – slim to none with 99.99999 … %  odds on none.

Given the actual problem is the spending, the size of the government relative to the economy, then the sad thing is that going over ‘cliff’ may actually cause less long run harm than any likely compromise.

Walter and Bill on Keynesianism

I love Walter Block and Bill Bennett.  In their paper, “Involuntary Unemployment” (Dialogue, Vol. 1, 2008, pp. 10-22), they write on the persistence of Keynesian theory despite its failures to explain real-world economic phenomenon:

Keynesianism has played a virulent role in the economics profession. Its central idea, that there could be an underemployment equilibrium, is a hard one, evidently, to jettison. Like a vampire, intellectually shooting this economic philosophy is not good enough: one must employ garlic, or a silver bullet, or some such, lest it arise from its “killing,” ghoul-like. Keynes (1936) has been “killed” over and over; yet it marches on, oblivious to its own death.

To wit, one would have thought that Keynesianism would have been stopped dead in its tracks by the phenomenon of stagflation. For, the Keynesian remedy for inflation was to reduce aggregate demand; for deflation, or depression, to increase. What, then, when not one but both of these phenomena present themselves at the same time? Any economic philosophy with but a modicum of respect would have vanished into the woodwork in the face of so obvious a rejection of its basic tenets. But not, of course, Keynesianism, which has a life of its own despite being blatantly contradicted by real world experience.

This refusal to contemplate an equilibrium situation at other than full employment stems from this “dead from the neck up, but not below,” phenomenon.

In a footnote, they add:  ”The authors of the present article are located in New Orleans, the vampire capital of the universe. We brook no disagreement with our claims in this regard. Although we usually eschew argument from authority, in this one case we stand ready to employ it.”

Read the full paper here.

No doubt building on the Keynesianism-as-vampire analogy, The Onion last year offered this spoof of a Paul Krugman column that captures the essence of the Block-Barnett argument.  What was (sadly) not a spoof was Guenter Reimann’s 1939 description of the German economy in his book The Vampire Economy, which readers of this blog know Keynes lauded in his introduction to the German-language edition of the General Theory.  In it, Reimann explained how the National Socialists manipulated German economic activity through its regulatory and tax regimes, inflation and its resulting price controls, and violations of property rights.  The Mises Institute offers a zero-price PDF download of Guenter’s remarkable book, as well as the ability to purchase a hard copy, here.

Sweden’s War on Cash Runs Into a Wall — and a Heroic Bank

The war on cash in Sweden may be stalling. The anti-cash movement has been  vigorously promoted by major Swedish commercial banks as well as the Riksbank, the Swedish central bank. In fact, for  three of the four major Swedish banks combined, 530 of their 780 office no longer accept or pay out cash. In the case of the Nordea Bank, 200 of its 300 branches are now cashless, and three-quarters of Swedbank’s branches no longer handle cash. As Peter Borsos, a spokesman for Swedbank, freely admits, his bank is working “actively to reduce the [amount] of cash in society.” The reasons for this push toward a cashless society, of course, have nothing to do with pumping up earnings from bank card fees or, more important, freeing fractional-reserve banks from the constraints of bank runs. No, according to Borsos, the reasons are the environment, cost, and security: ”We ourselves emit 700 tons of carbon dioxide by cash transport. It costs society 11 billion per year. And cash helps robberies everywhere.” Hans Jacobson, head of Nordea Bank, argues similarly: “Our mission is to make people understand the point of cards, cards are more secure than cash.”

Fortunately, it seems that the Swedish people are not falling for the anti-cash propaganda spewed by private bankers and Riksbank officials and are resisting the trend toward a cashless economy. It is reported that last year the value of cash transactions in Sweden were 99 billion krona  which represented only a marginal decrease from ten years ago. And small shops continue to do one-third to one-half of their business in cash. Furthermore a study of bank customers satisfaction released by  the Swedish Quality Index in October 2012, indicated that the satisfaction index was pulled down among customers of Swedbank, Nordea and SEB by their policy of eliminating cash transactions at their bank branches. Even more heartening is the fact that Handelsbanken, the largest bank in Sweden, is committed to serving consumers who demand cash. As Kai Jokitulppo, head of private services at Handelsbanken, puts it:

“As long as we know that our customers are asking for cash, it is important that we as a bank [are] providing it. . . . We see places where other banks are taking other decisions, we get customers from them and positive response.”

Fewer then 10 of Handelsbanken’s 461 branches currently do not handle cash and the bank’s goal is to have cash in every branch by the first quarter of 2013.

HT to Per Bylund.

Garrison on Housing Policy and ABCT

In ABCT and the Community Reinvestment Act (CRA), Peter Klein makes readers aware of new evidence, contra Krugman, that Federal housing policy, and especially the CRA, significantly contributed to the financial crisis.

Peter concludes, “Raghu Rajan [author of the new NBER paper Klein is highlighting] puts it in a very Austrian-sounding way” and then argues, “I’d reverse the order of emphasis — credit expansion first, housing policy second — but Rajan is right that government intervention gets the blame all around.” Klein is correct to reverse the emphasis.

Roger W. Garrison in Alchemy Leveraged: The Federal Reserve and Modern Finance  (pp. 445-446) as he often does, very clearly lays out this Austrian argument concerning the relationship between the interaction of central banking policy and housing policy in creating this most policy driven bubble/boom/bust cycle and crisis.

Putting housing policy in the right perspective, Garrison writes:

Unsound as these policies were, they were not the principal cause of the financial crisis. Again, Dowd and Hutchinson are right in identifying the expansion-prone Federal Reserve as the principal institutional cause. Had the Fed provided no fuel for the boom, federal housing policy, though perverse, would not have been unsustainable [emphasis mine]. The mortgage market would have had to compete with all other markets for the funds that savers provided. There would have been a continuing bias in favor of the mortgage market, and the ongoing rate of foreclosures would have been higher. House prices would have been higher (because houses and mortgage loans are complements), but they would not have been high and rising. Practitioners of modern finance would have paid due attention to the higher VaR, which would have reflected the expectation of an ongoing higher foreclosure rate.

Thus given Fed policy but without the housing policy there would still have been a boom and a bust with a bubble in some other interest rate sensitive sector.

In Garrison’s words:

… had the federal government not enacted legislation and created institutions that rigged mortgage markets so as to increase home ownership, credit expansion by the Fed would nonetheless have created an artificial boom, which inevitably would have ended in a bust.

In conclusion, Garrison adds:

The housing crisis in 2008 occurred because a credit expansion took place during a time when the federal government was pushing hard for increased home ownership for low-income families. We understandably identify these different cyclical episodes (the dot-com crisis, the housing crisis) with “what was going on at the time.” The common denominator, however, is the Fed’s propensity to expand credit.

Business cycles are complex but a critical factor in almost all cyclic, rather than shock driven macroeconomic crisis, is the Fed (or any central bank) feeding (turbo charging or piggy-backing on) whatever is going on elsewhere in the economy. Without the created credit and the associated lower (relative to the natural rate) interest rate accompanied by less risk adverse credit environment generated by monetary policy, distortions in the economy are more easily discovered and corrected before they can become unsustainable with economy wide repercussions.

ABCT and the Community Reinvestment Act

Austrian business cycle theory explains the general pattern of the boom-bust cycle — credit expansion, lowered interest rates, malinvestment, crash, liquidation — but the particulars differ in each historical case. (Austrians sometimes distinguish “typical” from “unique” features of each cycle.) To explain particular episodes, we appeal to specific technological, regulatory, political, legal, or other conditions. For example, in the 1990s, much of the malinvestment was channeled into the IT sector, where uncertainty driven by rapid technological change made entrepreneurs particularly susceptible to forecasting errors. In the 2000s, of course, malinvestment appeared largely in real estate, the result of government programs designed to relax underwriting standards and otherwise increase investment in particularly risky real-estate assets. In other words, ABCT tells us to look for malinvestment during the boom, but not where that malinvestment will show up.

Regarding the latter example, however, there has been a persistent dispute among mainstream economists about the role of government housing policy, particularly the Community Reinvestment Act which was used, in the 1990s, to make banks increase their lending to particular low-income neighborhoods. Paul Krugman asserts, for example, that the “Community Reinvestment Act of 1977 was irrelevant to the subprime boom.” Actually, no. A new NBER paper (gated) on the CRA is causing quite a stir. Authored by four economists from NYU, MIT, Northwestern, and Chicago, the paper is the first to use instrumental-variables regression to distinguish changes in bank lending caused by the CRA from changes that would likely have happened anyway. (The authors use the timing of loan decisions relative to the dates of CRA audits to identify the effect of the CRA on lending.) The results suggest that CRA enforcement did, contra Krugman, lead banks to make substantially riskier loans than otherwise. Raghu Rajan puts it in a very Austrian-sounding way:

The key then to understanding the recent crisis is to see why markets offered inordinate rewards for poor and risky decisions. Irrational exuberance played a part, but perhaps more important were the political forces distorting the markets. The tsunami of money directed by a US Congress, worried about growing income inequality, towards expanding low income housing, joined with the flood of foreign capital inflows to remove any discipline on home loans. And the willingness of the Fed to stay on hold until jobs came back, and indeed to infuse plentiful liquidity if ever the system got into trouble, eliminated any perceived cost to having an illiquid balance sheet.

I’d reverse the order of emphasis — credit expansion first, housing policy second — but Rajan is right that government intervention gets the blame all around.

Generous Georgians and Miserly Maineans

Neil deMause writes in Slate of “Georgia’s Hunger Games“:

“Fewer than 4,000 adults in the southern state receive welfare, even as poverty is soaring. How Georgia declared war on its poorest citizens—leaving them to fight for themselves.”

He compares Georgia unfavorably with other states, specifically California and Maine.

“In states like California and Maine, which have focused on getting their poor citizens into jobs programs, about two-thirds of those eligible still receive welfare. On the opposite end of the spectrum is Georgia, which over the past decade has set itself up as the poster child for the ongoing war on welfare. …the number receiving cash benefits has all but evaporated…”

He blames discrepancy on the red state/blue state divide, pointing to Georgia’s “all-Republican state government.” He bemoans:

“What this has created is a land that welfare forgot, where a collection of private charities struggle to fill the resulting holes. For the Atlanta Community Food Bank, that means sending out more than 3 million pounds of canned goods, bread, and other groceries each month to churches in and around Atlanta to help feed the state’s growing number of poor and near-poor.”

First of all, what is wrong with private charity stepping in to fill the gap? With the present economy as bad as it is, providing succor to the swelling ranks of the needy will inevitably be a “struggle”. What is wrong with that struggle being voluntarily borne by donors and competently administered by private charities instead of involuntarily borne by taxpayers and incompetently administered by bureaucrats?

Furthermore, it is interesting that, according to the Chronicle of Philanthropy’s ranking of the states according to charitable giving, 9 of the top 10 are deMause’s dreaded red states, and 8 of the bottom 10 are blue.

Georgia ranks way up at #8.

Maine, deMause’s “model state”, scrapes the bottom at #49.

And in terms of the median contribution of its residents, Maine is dead last.

But then, who can blame them? Surely they think they’ve fulfilled their role by funding Maine’s copious welfare rolls with their taxes. True, state welfare harms much more than it helps. But the point is, regardless of the results, they’ve already paid their part in their minds.

With this effect in mind, plus Obama’s repeated proposals to limit tax deductions for charitable giving (echoed recently by Cato Institute Fellow Daniel Mitchell), it is more apt to speak of a “war on charity” than a “war on welfare.”

I Want to Be a Consumer

If you enjoyed the video in Hark, I Hear a Christmas Fallacy,  you should enjoy this poem by Patrick Barrington, “I Want to be a Consumer,” originally published in Punch two years prior to the publication of Keynes’s General Theory (issue April 25, 1934) and reprinted in Hazlitt’s The Failure of the “New Economics”, pp. 133-134.

I Want to be a Consumer
“And what do you mean to be?”
The kind old Bishop said
As he took the boy on his ample knee
And patted his curly head.
“We should all of us choose a calling
To help Society’s plan;
Then what to you mean to be, my boy,
When you grow to be a man?”

“I want to be a Consumer,”
The bright-haired lad replied
As he gazed into the Bishop’s face
In innocence open-eyed.
“I’ve never had aims of a selfish sort,
For that, as I know, is wrong.
I want to be a Consumer, Sir,
And help the world along.”

“I want to be a Consumer
And work both night and day,
For that is the thing that’s needed most,
I’ve heard Economists say,
I won’t just be a Producer,
Like Bobby and James and John;
I want to be a Consumer, Sir,
And help the nation on.”

“But what do you want to be?”
The Bishop said again,
“For we all of us have to work,” said he,
“As must, I think, be plain.
Are you thinking of studying medicine
Or taking a Bar exam?”
“Why, no!” the bright-haired lad replied
As he helped himself to jam.

“I want to be a Consumer
And live in a useful way;
For that is the thing that is needed most,
I’ve heard Economists say.
There are too many people working
And too many things are made.
I want to be a Consumer, Sir,
And help to further trade.”

“I want to be a Consumer
And do my duty well;
For that is the thing that is needed most,
I’ve heard Economists tell.
I’ve made up my mind,” the lad was heard,
As he lit a cigar, to say;
“I want to be a Consumer, Sir,
And I want to begin today.”

Thanks, and Happy Holidays!

Warmest holiday wishes, and a hearty thank you, to our bloggers, commenters, and readers for making this a great year for the Circle Bastiat! Enjoy the holiday season, and look forward to more timely, provocative, and informative commentary in the new year.

Hayek: Social Justice is a Meaningless Conception

For Hayek, ”Justice is an attribute of individual action. I can be just or unjust toward my fellow man.” But  ”social justice” is a “meaningless conception.”

Bork’s Paradox

Robert Bork, who died yesterday, is remembered largely as a Constitutional scholar, but his most important contributions dealt with antitrust. He was sharply critical of the modern application of US antitrust law, while remaining wedded to the Knight-Friedman-Stigler idea of perfect competition as a welfare benchmark, leading to a number of confusions and contradictions. One of the best treatments of Bork’s approach to competition is Jack High’s 1984 article, “Bork’s Paradox: Static vs. Dynamic Efficiency in Antitrust Analysis” (Contemporary Economic Policy 3: 21–34). Writes High:

Judge Robert Bork holds two opposing attitudes towards perfect competition. It is a highly useful economic model for illustrating allocative efficiency, but it is a defective policy model because it deliberately omits productive efficiency. He reconciles these attitudes by combining perfectly competitive allocative efficiency with dynamically competitive productive efficiency in his analysis.

However, these two kinds of competition do not readily mix. One is a static equilibrium concept, the other a dynamic disequilibrium concept. One assumes perfect knowledge and the absence of change; the other assumes imperfect knowledge, learning, and continual flux. Each kind of competition is built on assumptions which, if true, would preclude the existence of the other.

Bork’s policy conclusions require the simultaneous existence of both kinds of competition. If he drops dynamic competition from the analysis, a much more stringent antitrust policy is called for. If he drops static competition, economic theory does not justify even his strictures against mergers and cartels.

See also these remarks by Dominick Armentano (whose 1982 book will be celebrated in a special session of the upcoming Austrian Economics Research Conference):

Many of the Chicago people have been helpful in the empirical research they’ve done on some of these cases. Scholars like Robert Bork, Yale Brozen, William Bowman, Harold Demsetz and others, have performed valuable services by showing, for example, that just because markets are concentrated doesn’t mean the leading companies earn exorbitant rates of return. They’ve shown what big business has really done: innovated and kept prices low. They’ve shown that mergers make economic sense.

Where you get a dramatic divergence is on the theoretical level, and that plays itself out in some aspects of policy. The Chicago School is still married to neoclassical price theory. It is still married to equilibrium theory and to a version of the perfect competition as a model, or a benchmark against which you compare performance in the real world. And Chicago School economists still hold an incorrect theory of monopoly power. They still want to talk about market share and concentration ratios. They still haven’t adopted the view that so long as markets are legally open, they are necessarily competitive and rivalrous, and they ought not to be regulated.

The consequence is this: Chicago School economists will not argue that we should abolish the antitrust laws. I remember spending hours upon hours trying to persuade Yale Brozen that we should get rid of the antitrust laws. He would go 99 percent of the way, and suddenly say: “well, Dominick, what about price fixing?”

For the Chicago School, nothing is more offensive and anticompetitive than firms getting together to fix prices. Even if you review the literature showing that price fixing usually doesn’t work (and even George Stigler recognizes that), they still argue that it is unproductive activity and that it doesn’t accomplish a social purpose.

The Chicago School does not have an Austrian-style coordination theory of efficiency that recognizes that markets are in a continual process of development. These economists do not recognize that it is impossible to freeze the market in place and declare this arrangement or that arrangement to be efficient according to some extra-market criteria.

Therefore, they will never go all the way and support abolition. Instead, they adopt what appears to be an ad hoc approach to antitrust. It is important to somehow convince the Chicago people that they should give up their equilibrium models and adopt the Austrian theory. I somehow doubt that will ever happen.

Time Preference and the Mayan Calendar

From Rothbard’s, Man, Economy, and State:

“There are other elements that enter into the determination of the time-preference schedules. Suppose, for example, that people were certain that the world would end on a definite date in the near future. What would happen to time preferences and to the rate of interest? Men would then stop providing for future needs and stop investing in all processes of production longer than the shortest. Future goods would become almost valueless compared to present goods, time preferences for present goods would zoom, and the pure interest rate would rise almost to infinity.”

From recent news:

“A Hong Kong man who formerly worked in the information technology sector is preparing for December 21 – which the Mayan calendar had marked as Doomsday – by living it up as if there’s no more tomorrow.

The 40-year-old man sold his flat and possessions last June and has gone on a spending spree since, a report on Hong Kong’s The Standard quoted his psychologist as saying.

“He quit his job, sold his flat and traveled everywhere, eating at high-end restaurants and living in hotel rooms in anticipation of December 21,” psychologist Ng Siu-sun said of the man.

Ng pointed out the man isn’t alone: the psychologist said he is treating up to eight other people in a similar situation.”

Thanks for the Enthusiastic Response!

We’ve had a terrific response to our advertisement for a Chief Technology Officer. It’s been encouraging to hear from so many of you and to learn how many brilliant and experienced technical folks are in our circles. A hearty thanks to all those who’ve applied. If you’re considering it, please send me your materials right away, as the ad is coming down tomorrow.

The Fortieth Anniversary of the The Myths of Antitrust

This year marks the fortieth anniversary of the publication of Dominick  Armentano’s The Myths of Antitrust, later revised and  published as Antitrust and Monopoly: Anatomy of a Policy Failure.  This is a classic work published at the outset of the modern revival of Austrian economics.  Indeed it was the first  book to be written by a member of the generation of younger Austrians that succeeded the generation of Murray Rothbard and Israel Kirzner, and it demonstrated that Austrian economics was a living body of analysis that could be applied to current policy issues.    The book was a favorite of Rothbard’s, who was bubbling over with anticipation when I joined him at a libertarian conference  in Philadelphia in the early 1970s  to meet and hear its young author speak for the first time.

In the book,  Armentano clearly and systematically sets out the Austrian approach to the theory of monopoly and competition.  Perhaps the greatest strength of the book, however, is the mountain of case evidence that Armentano marshals to demonstrate that the firms that were charged with violations in classic  antitrust cases were hardly “monopolizing” or “restricting trade” by any reasonable definition of those terms.  In fact, he shows that the trial records themselves provide indisputable evidence that these firms were expanding output, lowering costs and prices, and creating efficiencies, all to the benefit of consumers.  Also, unlike other critics of antitrust who want to moderate or more narrowly target the enforcement of antitrust laws,  Armentano makes the case that antitrust laws are completely inconsistent with free-market capitalism on both efficiency and ethical grounds.

The anniversary of the publication of Myths will be honored at the Austrian Economics Research Conference to held March 21-23 on the Mises Institute campus in Auburn, Alabama.  Professor Armentano will present a lecture and there will be a round table discussion of the enduring influence of his book by contemporary  Austrian scholars.  In the meantime I highly recommend a wonderful video in which Professor Armentano presents the case for repealing antitrust laws.


Three Cheers for Emory University

Emory University in Atlanta Georgia has stirred up student and faculty protests with its plan to cut revenue losing academic programs. The plan includes suspending admission to its Graduate Institute of Liberal Arts and to graduate programs in Spanish and economics. Mothballing graduate programs is a magnificent development for a number of reasons and we can only hope that it signals the beginning of a trend among cash-strapped universities.

Graduate programs are enormously costly to maintain because graduate students receive huge subsidies in the form of a tuition waiver plus graduate or teaching assistantships that pay stipends that reportedly can run as high as $30,000 per year. In most cases, the taxpayer is footing a large part of the bill. Not only are most large research universities with graduate programs state-owned institutions, but the Federal government also subsidizes low cost loans to graduate students and bestows huge grants on faculty at research universities that are used to hire graduate assistants. Not surprisingly this massive government subsidy leads to artificially prolonged stays in graduate school, which cause an enormous misallocation of resources and loss of productivity in the economy as many students who will never complete their doctorates delay the start of productive careers for many years. According to a recent study, only 25 percent of Ph.D. students complete their doctorates in 5 years and only 45 percent in 7 years. Completion rates are even lower in the social sciences and the humanities.

The government subsidization of graduate education also explains why many who do complete their doctorates and have aspirations to work in higher education confront markets glutted with job seekers, especially in the humanities and social sciences. If they persist in pursuing an academic career, they then face the prospect of earning a precarious living as an “untenured” adjunct professor, hectically shuttling between teaching assignments at different universities and earning a meager living for their trouble. They, and society at large, would be better off if they had never been lured into enrolling in graduate school and had chosen a different career path, for instance, in the insurance business.

The main reason for welcoming the demise of graduate education, however, is that most “professional” social scientists, including economists, are apologists for state intervention into society and the economy, and have been since the origin of formal graduate education  in mid-19th century Germany. Economics by its very nature is a vocation and most prominent economists in the 18th and much of the 19th centuries had a “day job” and no doctorate. Not coincidentally, these “vocational” economists generally tended to support laissez-faire policies. The professionalization of economics and other social sciences via graduate programs, which spread from Germany to France, Great Britain and the United States in the late 19th century, was driven by the increasing demands of interventionist and militarist governments for experts and specialists to advise on and plan the expanding programs of the emerging Welfare-Warfare States of the twentieth century. For their part, social scientists, most of whom faced  a precarious existence on the free market, were all too eager to accept the prestige, power and the steady income offered by government positions. Ludwig von Mises eloquently depicted the connection between professional economists and government interventionism in 1949:

The early economists devoted themselves to the study of the problems of economics. In lecturing and writing books they were eager to communicate to their fellow citizens the results of their thinking. They tried to influence public opinion in order to make sound policies prevail in the conduct of civic affairs. They never conceived of economics as a profession.

The development of a profession of economists is an offshoot of interventionism. The professional economist is the specialist who is instrumental in designing various measures of government interference with business. He is an expert in the field of economic legislation, which today invariably aims at hindering the operation of the market economy. . . .

[Economists] rival the legal profession in the supreme conduct of political affairs.  The eminent role they play is one of the most characteristic features of our age of interventionism.

There He Goes Again

We now have the announcement that Ben Bernanke’s Fed will buy $45 billion a month in treasuries, QE4, until unemployment reaches 6.5% or his version of inflation exceeds 2.5%. What a surprise!

Last September, when Bernanke announced the third phase of the government’s program of borrowing from itself by creating new money and using it to buy government bonds, I wrote:

Bernanke says that the new announced round of money printing (QE3 plus more Twist) is intended to reduce unemployment. Does he believe that? It is possible that Bernanke really drinks his own Cool Aid, but I doubt it. Does he think that stock market gains will boost confidence and somehow help employment indirectly? Perhaps. He has in the past claimed credit for spiking the stock market, although he must know that the empirical evidence does not show a link to employment gains.

Why then this dramatic move only two months before a presidential election?…

The most likely explanation is that Bernanke is worried about the treasury auction market. He wants to be able to use his printed money at will to support it…. Ostensibly the QE3 purchases will be mortgages…. The program can always shift into treasuries at any time….

Well, it does appear now that Bernanke was just easing his toe in by announcing the purchase of agency mortgages last September, and is really focused on treasuries. In all probability, he is afraid that the market for treasuries will falter. He can now support it anytime he wants without causing panic.

The next announcement may well remove the $45 billion monthly limit. Then he will be able to finance the government with as much fairy dust money as he likes.

There is always the chance that the foreign buyers will eventually be spooked and it will all come crashing down. But right now the foreign buyers do not have a lot of options and anyway Bernanke retires in a year.

It would be interesting ( and helpful) if Alan Greenspan suddenly had a Saul of Tarsus/ Paul experience and spoke out against his protege Bernanke. Or perhaps Paul Volcker, who admitted that the Fed might be violating the Fed statute in 2008 ( there was really no doubt about it) might speak up? Unfortunately none of this is likely. And we will continue on down the rabbit hole.

Help Wanted!

Know an IT professional with a passion for liberty? The Mises Institute is looking for a Chief Technology Officer. See the ad below (html) and here (jpg), and please share with potentially interested parties.

Chief Technology Officer

The Ludwig von Mises Institute, a research and educational organization promoting free markets, individual liberty, and peace, seeks a Chief Technology Officer.

About the Institute

The Mises Institute is the world’s leading center of research, teaching, and outreach in the tradition of the Austrian school of economics. The Austrian school emphasizes individual choice, voluntary cooperation, and decentralized approaches to social and organizational problems. Through its website, – consistently ranked among the world’s most important economics sites – the Mises Institute distributes freely a wide range of materials to researchers, students, policymakers, and the general public, most available free of charge via Creative Commons. These include books, essays, research reports, videos and audios from conferences, interviews, and other events, blogs, wikis, discussion forums, and online courses.

About the Position

The Institute seeks to leverage its existing content, develop new content, and manage its internal systems more effectively in spreading the message of free markets, individual choice, and peaceful cooperation. The Chief Technology Officer will oversee all aspects of the Institute’s external and internal technology platforms. The CTO will partner with the Institute’s authors, editors, content strategists, and other personnel to develop and implement new and improved procedures for delivering content, facilitating the creation of new content, maintaining and protecting data, managing internal systems, and other technology functions appropriate for a nonprofit organization. The CTO will report to the Executive Director and work closely with the Institute’s senior staff.

The successful candidate will have a strong technology background, excellent leadership and management skills, and a commitment to the ideas of personal and economic liberty and the free and open exchange of ideas. Relevant experiences and skills include, but are not limited, to:

  • mastery of content management systems
  • experience leading teams of employees and contractors and managing relationships with external vendors and volunteers
  • ability to envision new technical opportunities and create new technical solutions
  • experience with enterprise resource management applications
  • familiarity with information security and risk management

Applicants with a variety of formal qualifications and experiences are welcome.

The Institute is located in the university town of Auburn, Alabama, less than two hours from downtown Atlanta. It is expected that the CTO will spend significant time onsite. Salary and benefits are competitive.


To apply, or for more information, write Peter Klein, Executive Director,

Paul Krugman Explained?

How much of Paul Krugman does this explain?