Archive for December 2013

11 Good Things for Liberty in 2013

9093113920_79c4a78d01

Credit: Mike Herbst

by Llewellyn H. Rockwell, Jr.

As 2013 draws to a close, let’s pause to recall some important developments for the cause of liberty – some of which you already know well, and others you’ll be hearing about for the first time.

Edward Snowden. After sitting on the Bush-era warrantless wiretapping story for 18 months, the New York Times revealed a portion of the surveillance activities of the US government in 2005. Thanks to Edward Snowden, we now know that the National Security Agency’s spying activities vastly exceeded anything we heard about in the media.

The Snowden revelations served two functions from the point of view of public enlightenment. First, the regime in DC was once again exposed as untruthful, even sinister. But second, the bipartisan condemnation of Snowden on the part of the political establishment – both Nancy Pelosi and John McCain denounced him, unsurprisingly – reminds us that there is, after all, one party: the state party. Whatever cosmetic differences separate politicians otherwise, when push comes to shove, they rally to one another in the face of a truth-teller.

New President for the Mises Institute. At the end of 2013 the Mises Institute named Jeff Deist, former as chief of staff to Ron Paul, as its new president. Jeff is a significant  figure in so many ways – smart, well spoken, principled, and knowledgeable about money, banking, the Fed, and indeed the entire edifice of Austrian economics.

“Ron Paul’s congressional staff viewed the Mises Institute as our intellectual home,” Jeff recalls. “We applied Austrian principles and scholarship to virtually everything Ron did as a member of Congress. I’m honored to join an organization Ron has enthusiastically supported from the very beginning, and excited about dedicating myself to furthering the Austrian message.”

Ron, for his part, says he’s thrilled that Jeff “is fighting for liberty again.”

Obamacare. Everybody knows about the Obamacare fiascoes – the useless website and “if you like your plan, you can keep it” chief among them. But what a disaster the rollout of this program has been for the regime, which hates nothing more than looking ridiculous and incompetent, and being the butt of the people’s jokes. Meanwhile, supporters of the president think they’re helping matters by casually pointing out that of course the president knew he was lying when he said people could keep health plans they liked; he had to lie to them in order to get this program passed.

It’s rare to encounter such refreshing candor from the political and media classes.

The Austrian School. Meanwhile, interest in the Austrian School continues to grow, and demands for our resources and services have never been greater. Our Austrian Economics Research Conference, which attracts the best scholars from around the world working in the Austrian tradition, promises to be among our best ever, with an illustrious list of named lecturers and scores of papers advancing the Austrian School in new and exciting ways.

The Great Deformation. David Stockman’s gripping book The Great Deformation: The Corruption of Capitalism in America is more than a devastating blow to the conventional narrative of the financial crisis and the geniuses who supposedly put things right. It is a sweeping, revisionist account of 20th-century US history, bristling with insights and little-known history. Imagine reading a book on 20th-century America without a systematic pro-Fed bias, and without the usual deference to the “great presidents.” I reviewed it for LRC. I urge you to read it. [Here is a Mises Institute Q and A with David Stockman.]

Read More→

New German-Language Book on Monetary Policy

51j3Yyq07VL._Philipp Bagus and Andreas Marquart have co-authored a new introductory text on monetary policy for German-language readers.

Here’s a brief description:

In Warum anderen auf Ihre Kosten immer reicher werden – und welche Rolle Staat und Papiergield dabei spielen (transl. Why You Pay For Others to Get Richer – And What the Government and Paper Money Have to do with It) A. Marquart and P. Bagus offer an introduction to the perverse consequences of our present fiat money system directed toward a popular audience. Throughout the book Marquart and Bagus compare good or private money and a society based on it with society based on bad or state money. They explain how money arises on the free market and how and why governments got involved into the monetary system. They show how business cycles distort the economy, how the government and the financial sector benefit from the current monetary system, how the fiat money system allows for an unjust redistribution impoverishing the middle and lower classes benefiting the super rich, how regulations interact with the monetary system to strangulate the economy, and how fiat money destroys traditional values and the family.

Advancing Pharmaceutical and Medical Technology Does Not Depend on Patents

6625Writes Nathan Nicolaisen in today’s Mises Daily:

The notion that unpatented medical technologies are not feasible is historically false. Surveys of important medical breakthroughs provide insight into whether patents are absolutely necessary and conducive to innovation in medicine. In 2006, the British Medical Journal challenged its readership to submit a list of the most noteworthy medical and pharmaceutical inventions throughout history. The original list contained over 70 different discoveries before being narrowed down to 15. The list goes as follows in no particular order: penicillin, x-rays, tissue culture, ether anesthetic, chlorpromazine, public sanitation, germ theory, evidence-based medicine, vaccines, the pill, computers, oral rehydration therapy, DNA structure, monoclonal antibody technology, and smoking health risk. Of these discoveries, only two of them have remotely anything to do with patents, chlorpromazine and the pill. In another survey conducted by the United States Centers for Disease Control the results are strikingly similar. Of the ten most important medical discoveries of the twentieth century, none of them had anything to do with patents.

Hayek’s Rule and the Productivity Norm

My replacement at Metro State, Nicolas Cachanosky, continues to write interesting, challenging papers in the Austrian tradition faster than those of us used to the slower pace of retirement can read them. His most recent is “Hayek’s Rule, NGDP Targeting, and the Productivity Norm: Theory and Application.” Cachanosky notes:

The 2008 crisis demonstrated that serious economic imbalances can take place even in the absence of inflationary problems. An important consensus regards monetary policy that kept interest rates too low for too long as a major driver of the financial crisis (Borio & Disyatat, 2011; Diamond & Rajan, 2009a; Hume & Sentance, 2009; Lal, 2010; Leijonhufvud, 2009; Meltzer, 2009; O’Driscoll, 2009; Schwartz, 2009; Taylor, 2009; White, 2008; Young, 2012). The absence of inflation introduces the question of whether price level stability is in fact a good guide to monetary policy.

I have argued elsewhere (Hayek and the 21st Century Boom-Bust and Recession-Recovery) this lesson should have been learned from the dot.com bust:

The first boom-bust of the period, 1995–2000, should have provided evidence that Hayek was premature in de-emphasizing the empirical importance of distortions in the structure of production caused by money and credit creation in a growing economy with relatively stable prices (Cochran, Yetter, and Glahe, 2004, pp. 13–14). A monetary shock which accommodated a produc­tivity shock generated a significant boom as exhibited by real GDP above potential GDP (see figure 1). The resulting malinvestment during this period and its effect on employment are illustrated in figures 2 and 3. The resulting “bust,” at least measured in terms of the cycle impact on GDP, was relatively mild.

The significance of this cycle for the role of monetary policy was perhaps missed because it occurred at the end of the relatively long period of growth and stability known as the “Great Moderation.” This period was a time of better—at least compared to monetary policy of the 1960s and 1970s—but not necessarily good policy (Garrison, 2009). During this period, central banks were heavily influenced by macroeconomic events of the 1970s which seemed to discredit the prevailing neo-classical synthesis/Keynesian consensus. A vast economic literature from the consequent policy effectiveness debate emphasized central bank policies that—at least in the long run—aimed at price stabilization as a dominant policy goal. The Fed, while not explicitly inflation targeting, followed a policy that mimicked a Taylor Rule policy. Garrison (2009) characterizes this as a “learning by doing policy” which based on events post-2003, would be better classified as “so far so good” or “whistling in the dark.”

Never the less, Austrian theory consistently argues that the best way to deal with a crisis would be to prevent the crisis in the first place. Prevention requires monetary institutions that limit—or better yet, prevent—monetary policy caused misdi­rections of production.  Most Austrians would favor monetary reform that would eliminate central banking as did Hayek in the 1970s when called for denationalization of money. But it is also important, like Hayek of the 1970s, to consider, especially given that it is highly unlikely that major central banks will be eliminated anytime soon, how ‘best’ to conduct monetary policy given the existence of such political institutions. Hayek, based on an empirical misjudgment that greatly underestimated the harm from malinvestments in a stable inflation environment, argued, absent significant institutional monetary reform, “Though monetary policy must prevent wide fluctuations in the quantity of money or the volume of the income stream …[t]he primary aim must again become stability of the value of money.” To paraphrase, in normal times there is a need to get back, a la Friedman, to a more or less automatic monetary framework. Where policy deviated and generated a boom-bust, then, to prevent “liquidity crises or panics” there is a need “to ensure convertibility of all kinds of near-money into real money” For this, “the monetary authorities must be given some discretion”

Cachanosky’s new paper fits nicely into this important niche in the literature. Right now the discussion is being dominated by the market monetarists and their call for nominal gdp targeting. Cachanosky places an emphasis on a productivity norm as a leading candidate for a policy ‘rule’ most likely to provide a policy norm more likely to prevent major boom-busts. Cachanosky concludes:

The productivity norm offers superior guidance for monetary policy compared to the principle of price stability. Still, the application of a rule informed by the insights of the productivity norm is not an easy matter. Notwithstanding the important challenges, the potential shortcomings of an application of such rules are present in other rules, such as price stability. Although the productivity norm is not part of the core of monetary policy today, there was a time when its consideration was important.

The revision of macroeconomic business cycle models and monetary policy in light of the 2008 crisis offers a convenient opportunity to revisit the insights of the productivity norm.

See Table 2: Reforms retaining central banking at the end of Fractional Reserves and Economic Instability for an assessment of various reforms from another Austrian perspective.

Mark Thornton Speaking Tonight in Orlando

Tonight from 7 pm to 8:30 pm in Orlando, Florida: Mises Senior Fellow Mark Thornton is back in Orlando and will be speaking on “Living in Bernanke’s World of Bubbles.”

Click here for full event information. 

Don’t Fear Deflation; Fear Central Banks

The always interesting and informative Richard Ebeling is doing regular commentary at EPICTiMES. His most recent is “Don’t fear Deflation, Unless Caused by Government.” Here Ebeling effectively refutes arguments made by Bernanke and Yellen that the Fed’s massive monetary base expansion was necessary to fight recession and prevent deflation.

Highlights:

Rather than assisting a post-recession recovery, these policies – plus other market-harming government interventions, regulations, and manipulations including ObamaCare – have made this the most sluggish recovery, especially in terms of employment, in the entire period since the end of World War II in 1945.

And

A free, competitive market economy is always rewarding successful entrepreneurs with profits for having made new, better and less expensive goods to earn consumer business. Thus, the normal trend in a free, competitive market is a world of gently falling prices as innovative businessmen bring improved and less expensive goods to consumers.

A truly free market economy, therefore, is one that tends to have the “good deflation,” and we should look forward to it, if only government intervention and central banking would get out of the way.

An archive of Ebeling’s contributions can be accessed here and is well worth bookmarking.

For the best available presentation of the Austrian view of deflation see Joe Salerno’s An Austrian Taxonomy of Deflation—With Applications to the U.S.. Also useful is pp. 37-40 in Salerno’s A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis.

Audio: Walter Block Explains Austrian Economics

This interview with Walter Block is a little old (May 2013), but we haven’t linked to it before.

Some highlights of the interview include:

  • Block contrasts Austrian economists as philosophers compared to “normative” economists which he characterizes as ethicists and empiricists.
  • He highlights praxeology, the study of human interactions, as a central tenet of the Austrian school.
  • He emphasizes that there are areas where libertarians and Austrian economists do not have overlapping thinking.
  • Block says there is inflation at present, just not in what the official statistics are measuring.  He mentions several classes of assets that have experienced (are experiencing) inflation.
  • In an extended discussion about unions, Block said there are justifiable activities for unions.  But he feels many unions (and specifically public sector unions) are “legal and ethical monstrosities“.  He suggests they are “vicious, depraved and immoral” and “deny the right of free association“.

(Radio Interview, approx. 35 minutes)

Walter Block Is Still Defending the Undefendable

6624Mark Thornton reviews Walter Block’s new book in today’s Mises Daily:

Walter Block is at his finest when he subjects the most loathsome jobs and nastiest behaviors to a logical and libertarian scrutiny. Block’s Defending the Undefendable has needled and irritated an entire generation of readers and compelled many to re-examine long-held beliefs in favor of the logic of libertarianism. Now comes volume 2,Defending the Undefendable: Freedom in All Realms (with a foreword by Ron Paul) that promises more such irritation for future generations.

The introduction is a short course in libertarianism. Block explains that libertarianism is a political philosophy that shows when the use of coercion is justified or not justified. The book examines 30 cases that are often seen as illegal, immoral, or unethical. Block analyzes each case by subjecting it to a libertarian standard, and ultimately exonerates each from punishment by government.

 

 

Mendacious NYT Reporter Smears Economists on Speculation

Thanks to Felix Salmon for quoting me in his take-down of this embarrassing NYT piece on Craig Pirrong and Scott Irwin, two well-known economists who study commodity-market speculation. Basically, the reporter dislikes speculation (which he clearly doesn’t understand), so he assumes any expert with a different view must be a hired gun for various commodity-market firms and groups. The result is a preposterous article riddled with “jaw-on-the-floor” errors, mendaciously edited so the unfounded accusations come first, and the self-contradictions revealed only at the end of the piece. (E.g., the professors are paid consultants for these groups — oh, but they say the opposite of what these groups want, and are actually paid to work on entirely different things.)

As one commentator on my blog described it: “NYT reporter dutifully caters to its dwindling readership’s biases in an attempt to sell newspapers.”

Top 10 Marijuana Stories for 2013

10. New polls indicate that 83% of Americans are in favor of legalized medical marijuana, 58% are in favor of legalized recreational marijuana.

9. Study shows that pot smokers are skinnier.

8. It was scientifically confirmed that chemicals in marijuana kill certain deadly cancer cells.

7. Low potency marijuana helps kids with debilitating epileptic seizures.

6. Hemp was legally grown in the US for the first time since 1957.

5. Arrests for marijuana have fallen over the couple of years from 900,000 per year to 750,000.

4. First license to sell recreational marijuana was issued to go into effect January 1, 2014.

3. Colorado and Washington vote to legalize marijuana.

2. The Justice Department backed down on its threats to enforce marijuana laws in Colorado and Washington.

1. Uruguay becomes the first nation to legalize marijuana.

Click here to see these stories and more.