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.