Archive for December 2012 – Page 2

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?