Archive for February 2014

Restaurants Charge Customers for Obama Care

Obamacare surchargeSome restaurants in Florida and California have tacked on a surcharge to their diners’ food and beverage bills to help defray the looming costs of the Affordable Care Act.  The Gator’s Dockside chain of restaurants  in Florida has  added  a 1 percent surcharge while Republique, a trendy restaurant in Los Angeles, is increasing patrons’ tabs by 3 percent.  A sign in a Gator’s Dockside restaurant advises customers:

The costs associated with ACA compliance could ultimately close our doors.  Instead of raising prices on our products to generate the additional revenue needed to cover the costs of ACA compliance, certain Gator’s Dockside locations have implemented a 1% surcharge on all food and beverage purchases only.

Half of the Gator Group’s 500 employees work full time and the company opted for  the surcharge in lieu of avoiding the costs of Obamacare by reducing the hours of these employees so that they qualify as part-time.  The company estimates the costs of extending Obamacare to their full-time hourly employees, who currently do not receive any health benefits,  to be $500,000.  The surcharge is expected to to raise $160,000.

 

 

The Fed: Blame It On The Weather

The economy is lackluster at best, as anyone who isn’t a beltway politico or hedge fund manager can plainly see.  But Janet Yellen says there’s an easy explanation for why things aren’t even better than the official numbers show: cold weather.

In tomorrow’s Weekend Edition of Mises Daily, Frank Shostak will neatly dispose of the weather “argument.”

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Funny Attack on Mises

I usually ignore attacks on Mises from low-traffic web sites (and it’s a little old), but this one is just too inane to ignore. At IFA Magazine, which bills itself a magazine for “today’s discerning financial and investment professional,” there’s a small attack piece on Mises which would be funny if I didn’t know that some people might actually believe the stuff repeated here.

This sentence tells you all you need to know:

Philosopher, economist, sociologist, classical liberal and founder of the Austrian School which later produced Friedrich Hayek, the ‘father of monetarism’.

Actually, I’m not entirely sure that first sentence is in fact a sentence.  But whatever. The important thing here is that I just learned from the sentence fragment that Hayek is the “father of monetarism.” Fascinating.

For a good time, read the rest of this devastating attack at the heart of Austrian economics, which also asserts that Mises was wrong about economic calculation and Soviet-style socialism.

Say’s Law and the Permanent Recession

Flatline Heart Monitor - AlertRobert Blumen writes in today’s Mises Daily:

It is acknowledged by both sides that, if Say’s Law is true, then Keynes’s entire system is wrong. Keynes knew this, so he took upon himself the task of refuting Say’s Law as the very first thing in his General Theory. Keynes’s argument was that Say’s Law is only valid under the conditions of full employment, but that it does not hold when there are unemployed resources; in that case we are in the Keynesian Zone where the laws of economics are turned upside down.

But, as Stephen Kates explains in his book Say’s Law and the Keynesian Revolution (subtitled How Economics Lost its Way), Keynes failed in his attempt to overturn Say’s Law. Kates shows beyond any dispute that Say and his fellow classical economists were well aware that there could be unemployed resources, and that Say’s Law was still valid in that case.

Repair, Replacement, and the Division of Labor

6677Jason Maxham writes in today’s Mises Daily:

The second step, fixing something, is often a recreation of the manufacturing process. Getting a machine back to working, you tread the same steps that were done at the factory. The troubleshooter’s role as a de facto manufacturer becomes clearer when you think about how many times a machine can be re-built over its lifetime.

The problem is, the manufacturer will always be better at putting together machines. That’s the whole point of their existence: to efficiently turn raw materials into finished products! To that end, they have many advantages over the jack-of-all-trades you become when troubleshooting: wherever the problem lies within a machine, you must go there and be prepared to fix it. Contrast that with the highly specialized labor used in manufacturing. In general, the troubleshooter must know much more about a machine than an individual worker in an assembly line; however, that knowledge will be shallow compared to the deep expertise of a worker who performs the same operation, day in and day out, on a specific part of a machine.

The Cost of Regulation

In my Mises Daily “A End to Austerity” I refer to a study that estimates that eliminating the job of one regulator causes a surprising large number of job to be created and a large increase in GDP. Here is a link to that study.

REGULATORY EXPENDITURES, ECONOMIC GROWTH AND JOBS: AN EMPIRICAL STUDY

Abstract: With a sluggish economy, high unemployment, and unprecedented
deficit spending, growing the economy and curbing federal spending are top
priorities in Washington. A now-popular target for reform is regulation, which
even President Obama claims to have “stifled innovation” and to have had “a
chilling effect on growth and jobs.” In this POLICY BULLETIN, we use fifty years
of data and modern econometric methods to provide an estimate of the
relationship between government spending on regulatory activity and economic
growth and job recovery. We estimate that reducing the size of the regulatory
bureaucracy may grow the economy and invigorate the labor market. Even a
small 5% reduction in the regulatory budget (about $2.8 billion) is estimated to
result in about $75 billion in expanded private-sector GDP each year, with an
increase in employment by 1.2 million jobs annually. On average, eliminating
the job of a single regulator grows the American economy by $6.2 million and
nearly 100 private sector jobs annually. Conversely, each million dollar increase
in the regulatory budget costs the economy 420 private sector jobs. Accordingly,
as Congress and the President struggle with the difficult decisions of how to
shrink federal spending, an excellent place to start would be to investigate
responsible cuts in the size of the federal regulatory budget. That said, while
regulation imposes costs, regulation may also have social benefits, and this fact
should be considered.

An End to Austerity?

6675Mark Thornton writes in today’s Mises Daily: 

Austrian School economists reject both the Keynesian stimulus approach and the IMF-style high-tax, pro-bankster approach as counterproductive. Although “Austrians” are often lumped in with “Austerians,” Austrian School economists support real austerity. Real austerity involves cutting government budgets by reducing salaries, employee benefits, and retirement benefits. It also involves selling government assets and even repudiating government debt. Instead of increasing taxes, the Austrian approach advocates decreasing taxes.

Despite all the hoopla in countries like Greece, there is no real austerity except in the countries of Eastern Europe. For example, Latvia is Europe’s most austere country and also one of the fastest growing economies.

Venezuela’s Ongoing Economic Crisis

download (1)A few months ago, Carmen Dorobăţ and I wrote an article discussing Venezuela’s rapidly deteriorating economic situation. Since then, conditions in Venezuela have worsened, and in the last week political unrest has escalated quickly, with large protests of the Maduro government taking place in Caracas and elsewhere around the country. Maduro and his supporters have responded by violently cracking down on the protests and censoring media outlets covering the events.

The protests do not appear to be guided by a specific ideological movement or set of political goals, but are instead a more general reaction to the country’s economic turmoil. As one protester explained, “I’m here because I’m tired of the crime, of the shortages, tired of having to stand on line to buy anything. I’m tired of the politicians of both sides.” In the last few years, Venezuela has become a classic and tragic case of Mises’ argument that systematic government intervention leads to socialism. The country has had a pseudo-socialist government for some time, but the logic of economic planning has gradually eroded what few economic freedoms there once were. In particular, the current system of price controls (which Maduro has expanded) has caused shortages of sugar, toilet paper, and many other essential goods. It is always easier and more tempting for government to increase control than relinquish it, and the increasing economic disorder resulting from the initial shortages has only resulted in more price controls, just as Mises predicted.

Venezuela’s monetary policy has also played an important role in this process. Its rate of inflation has been rising rapidly, and is now 56% per year. Mises emphasized that price controls are governments’ natural response to inflationary price increases. When faced with the choice of stopping the printing press or expanding price controls, governments tend to choose the latter. As is often the case, bad monetary policy is driving the broader increase in socialist policies.

Price controls and inflationary policy are both recipes for social disintegration, which is what the protests in Venezuela seem to be struggling against. It’s not clear to what extent Maduro’s government is actually threatened by these events, but we can only hope that the protests will help set Venezuela on the path to peace and economic and social freedom.

The High Price of Delaying the Default

Politician kicking the can down the roadThorsten Polleit writes in today’s Mises Daily:

Running the electronic printing press will be perceived as the policy of the least evil — a reaction that could be observed many times throughout the troubled history of unbacked paper money. Since the end of 2008, many central banks have successfully kept their commercial banks afloat by providing them with new credit at virtually zero interest rates.

This policy is actually meant to make banks churn out even more credit and fiat money. More credit and money, provided at record low interest rates, is seen as a remedy of the problems caused by an expansion of credit and money, provided at low interest rates, in the first place. This is hardly a confidence-inspiring route to take.

It was Ludwig von Mises who understood that a fiat money boom will, and actually must, ultimately end in a collapse of the economic system. The only open question would be whether such an outcome will be preceded by a debasement of the currency or not:

Read the full article.

The New York Times and the ‘Stimulus’: Keynesian Anti-Logic

5826333455_688152b3ef_bAmerican political culture always seems to be “celebrating” the anniversary of something, be it JFK’s assassination (we just passed the 50th anniversary of that sad event) or the signing of some (mostly bad) legislation. The latest political activity to be enshrined with an anniversary is the so-called Stimulus, the $800 billion monstrosity passed five years ago ostensibly to “put America back to work.”

Not surprisingly, the New York Times has editorialized that any criticism of the spending bill — at least any criticism which says “too much” was spent — is a Republican “myth and falsehood.” Not only was the “Stimulus” a legitimate piece of legislation, sniffed the NYT, but it also:

…prevented a second recession that could have turned into a depression. It created or saved an average of 1.6 million jobs a year for four years. (There are the jobs, Mr. Boehner.) It raised the nation’s economic output by 2 to 3 percent from 2009 to 2011. It prevented a significant increase in poverty — without it, 5.3 million additional people would have become poor in 2010.

Like all examples of the Broken Window Fallacy, the spirited defense of this spending bill is based upon “accounting” methods that count the people hired through “Stimulus” spending as “new jobs” but fail to note how others might have lost their own means of employment. Now, this was a bill that, among other things, had workers rolling sod into the grass median of I-68 (which is near my home) in an area where runoff from tons of salt thrown onto roads by state highway crews (our area receives a lot of snowfall). Not surprisingly, within a year, all of the new grass was dead.

I liken the “Stimulus” to throwing a bit of lighter fluid onto a pile of soaking wet wood. The flames pop up for a few seconds, but then disappear as the effects from the fluid go away. (No, repeated douses of “Stimulus” fluid do not ultimately gain traction and then lead to a miraculous economic recovery.)

If Beltway political culture permits any criticism of the Holy Stimulus, it is this: “The Stimulus wasn’t big enough.” Intones the NYT: “The stimulus could have done more good had it been bigger and more carefully constructed.”

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The AERC Is Less Than a Month Away

AERC2014The Austrian Economics Research Conference, the international, interdisciplinary meeting of the Austrian School, begins on March 20th and lasts for three days of lectures, break-out sessions, and discussion.

If you’re looking to get up-to-date on the latest research and scholarship in the Austrian school, this is the place to be. The AERC brings together more Austrians in one place than any other event, so whether you’re working on a new book or article in the Austrian tradition, looking for new research ideas, needing to meet with some Austrian scholars and writers, or just wanting to learn more about the Austrian school, the AERC will get you connected.

The Mises Institute is 90 minutes from the world’s busiest airport (more than 260,000 passengers per day), so it’s pretty easy to get here.

Register now.

Named lectures include:
Ludwig von Mises Memorial Lecture, Sponsored by James Walker: J. Huston McCulloch “Misesian Insights for Modern Macroeconomics”
Murray N. Rothbard Memorial Lecture, Sponsored by Helio Beltrao: Peter Klein
F.A. Hayek Memorial Lecture, Sponsored by Butler Shaffer: Ed Dolan
Henry Hazlitt Memorial Lecture, Sponsored by James Rodney: James Grant
Lou Church Memorial Lecture, Sponsored by the Lou Church Foundation: Andrew P. Napolitano

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The War Against Truth

by Butler Shaffer

If you shut up truth, and bury it underground, it will but grow.

                                                                                                   -   Emile Zola

February 22nd was the 71st anniversary of the murder of Sophie and Hans Scholl and their friend Christopher Probst. They were young people, in their early twenties, who lived in Munich, Germany. They, along with other members of a peaceful, anti-war group known as White Rose, published leaflets informing fellow-Germans of the wrongs being engaged in by the Nazi regime. The three were caught with such leaflets, quickly tried for the crime of “high-treason” and immediately executed by guillotine.

At her trial, Sophie testified: “Somebody, after all, had to make a start.” Her final words were: “How can we expect righteousness to prevail when there is hardly anyone willing to give himself up individually to a righteous cause.” When, in 2003, a nation-wide poll asked Germans to select the most important people in the history of Germany, Sophie and Hans Scholl finished in fourth place. They came out ahead of such men as Bach, Goethe, Gutenberg, Bismarck, Brandt, and Einstein!

Sophie_Scholl_timbre

Every political system is firmly grounded in lies, deceit, fraud, distortions, corruption, and other falsehoods and acts of dishonesty. Accordingly, it is the nature of such agencies to  propagandize lies as truth, and to control the revelation of demonstrable truths by classifying otherwise embarrassing documents as “secret;” as well as using censorship and the threat of trials for treason. Like insects that prefer to live in the protective darkness beneath rocks, sunlight is most disruptive.

The American nation-state is firmly entrenched in this interconnected war against truth and insistence upon propagandized perversions of reality. Through mechanisms beyond the imagination of George Orwell, the NSA is now able to gather the most micro-detailed information about each of us. In order to maintain and extend its control over us, the state presumes itself entitled to know everything it wants to know about each person. At the same time, we are allowed to know only that which serves the state’s interests to have us know, employing its media sycophants to impart the party line.

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Mises Explains the Ukraine Conundrum

Tory_Refugees_by_Howard_Pyle

Loyalists exiled by American revolutionaries

Obviously, Mises could not anticipate the specific conflict now at work in the Ukraine, but here we see the sorts of conflics we have witnessed time and time again within multiethnic countries, in two or more groups fight over control of the central state which enables one ethnic or linguistic group the ability to crush another.

We’ve certainly seen similar conflicts in the United States (sometimes along ethnic lines and sometimes not), and we see it today in the Ukraine. Anywhere a strong state exists, different factions will battle to control that state. As Mises noted, as long as states exist, the only way to deal with this reality is to lessen the need and desire to control the central state, and this is done by making the state weak.

In Liberalism (1929),  Mises wrote:

Modern imperialism is distinguished from the expansionist tendencies of the absolute principalities by the fact that its moving spirits are not the members of the ruling dynasty, nor even of the nobility, the bureaucracy, or the officers’ corps of the army bent on personal enrichment and aggrandizement by plundering the resources of conquered territories, but the mass of the people, who look upon it as the most appropriate means for the preservation of national independence. In the complex network of antiliberal policies, which have so far expanded the functions of the state as to leave hardly any field of human activity free of government interference, it is futile to hope for even a moderately satisfactory solution of the political problems of the areas in which members of several nationalities live side by side. If the government of these territories is not conducted along completely liberal lines, there can be no question of even an approach to equality of rights in the treatment of the various national groups.There can then be only rulers and those ruled. The only choice is whether one will be hammer or anvil. Thus, the striving, for as strong a national state as possible, one that can extend its control to all territories of mixed nationality, becomes an indispensable requirement of national self-preservation. [Emphasis added.]

Galbraith Was Right About Advertising

6673Robert Batemarco writes in today’s Mises Daily

Rest assured that even when John Kenneth Galbraith got something right, he got it wrong. One of the signature ideas for which Galbraith is known is the Dependence Effect, which states that advertising convinces people that they need things that they don’t really need. In Galbraith’s own words, “If the individual’s wants are urgent, they must be original with himself. They cannot be urgent if they must be contrived for him. … One cannot defend production as satisfying wants if that production creates the wants. … The even more direct link between production and wants is provided by the institutions of modern advertising and salesmanship.” Galbraith uses this concept to undermine the foundations of microeconomics in the personal preferences of individuals.

Where Galbraith is right is that such salesmanship does indeed get people to demand things that are not in their best interests. Where he goes terribly wrong is in finding producers in the marketplace as the primary perpetrators of this effect. In fact, it is the State that makes greatest use of salesmanship to obtain the consent of people for things that do not only not make them better off, but usually do them harm. What makes the State’s behavior even worse is that when the State’s salesmanship fails, the State can fall back on the use of force to get people to satisfy the wants “that production creates.” Private firms, unless they are in league with the State, do not have that ability.

Dishonesty and Selection into Government Service

Dick Langlois points us to an interesting NBER paper on self-selection into government service, the results of which will surprise few readers of this blog:

In this paper, we demonstrate that university students who cheat on a simple task in a laboratory setting are more likely to state a preference for entering public service. Importantly, we also show that cheating on this task is predictive of corrupt behavior by real government workers, implying that this measure captures a meaningful propensity towards corruption. Students who demonstrate lower levels of prosocial preferences in the laboratory games are also more likely to prefer to enter the government, while outcomes on explicit, two-player games to measure cheating and attitudinal measures of corruption do not systematically predict job preferences. We find that a screening process that chooses the highest ability applicants would not alter the average propensity for corruption among the applicant pool. Our findings imply that differential selection into government may contribute, in part, to corruption. They also emphasize that screening characteristics other than ability may be useful in reducing corruption, but caution that more explicit measures may offer little predictive power.

Fred Sheehan: Mises was Right

Fred Sheehan discusses whether the Fed has passed the point of no return with respect to credit expansion:

The central teachings of Austrian economics are commonly understood. It is the hieroglyphics called “economics” at colleges today that is rubbish. It will join the ash heap of history.

The Austrians taught – and do teach, on isolated campuses – that an accumulation of debt in excess of what can be paid back has consequences, either in default or inflation. To someone dropping in from 1910, that might seem so fundamental, it isn’t even worth mentioning. Oh, what that out-of-date relic has missed.

Second, Ludwig von Mises was right: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” (Chapter XX: Interest, Credit Expansion, The Trade Cycle, § 8 , The Monetary or Circulation Theory of the Trade Cycle)

We may not have passed that point of no return in 2008, even though our recently retired Fed chairman, Simple Ben Bernanke, saved his skin by making that claim over and over. If not for his nationalizing America, he continually reminded us, “the world would have ended.” I think we have passed that point today. The central bank balance sheets absorbed enough bad paper (bonds, mortgages, CDOs, Maiden Lane) to assert the solvency of the world’s banking system by 2009. Having done nothing to restore the foundations of banking over the past five years, the central banks are in no position to absorb the “final and total catastrophe.” Their credit-ability is on borrowed time.

‘Raising Hope’ Writers Understand Monetary Policy

Fox comedy Raising Hope explains Bernankism (from “Burt’s Bucks“, S04E02):

Needless to say, it doesn’t end well. The episode even features wheelbarrows of worthless money.

Also in this subgenre of money-creation-leads-to-hyper-inflation stories is this classic Duck Tales episode:

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