Author Archive for Mark Thornton

Mark Thornton on Power Trading Radio

Here is my recent interview on Power Trading Radio with John O’Donnell and Merlin Rothfeld. We discuss, among other things, for a look at the growing currency war as well as the battle for natural resources around the world. They regularly interview Austrian economists on Friday afternoons at 6:00 pm Eastern and give away a gold coin to listeners. Listeners can also submit questions to the experts.

GDP Forecast based on TMS

Here is a forecast of Gross Domestic Product based on the Austrian notion of the money supply and its growth rate. Jeffrey Peshut shows that Real GDP peaks with a variable lag to the growth rate of the True Money Supply. In other words we should expect Real GDP growth to peak from 1 to 3 years after the True Money Supply growth rate peaks. He writes:

On February 28th, the Commerce Department released its revised estimate of real Gross Domestic Product growth for the fourth quarter of 2013, reducing it from January’s original estimate of 3.2% to 2.4%. Both are down from the third quarter’s GDP growth of 4.1%. For the entire year, real GDP grew by only 1.9% after expanding by 2.8% in 2012.

Because this writer lacks the meteorological skills ostensibly possessed by Ms. Yellen and others at the Fed, will limit its analysis to data associated with GDP and the money supply.

Real Gross Domestic Product YOY% vs. True Money Supply YOY%

Although TMS has been increasing over the past two years, it’s been increasing at a decreasing rate, which is what really matters. The Fed’s reduction of bond purchases will likely decelerate the growth of TMS even further, setting the stage for the next credit crisis.

Extrapolating the TMS’s current trajectory into the future, TMS growth should approach zero in early 2015, setting the stage for a credit crisis near the end of 2015 or the beginning of 2016. Based upon a one-year lag between the TMS growth rate and the GDP growth rate since 2009, the growth rate of GDP is expected to approach zero in early 2016.

Medical Marijauna and Prosperity

Gallop has just released its report on Prosperity and Well Being in the 50 States. North Dakota jumped 18 places to take the number one spot, thanks to the oil discoveries there. What stuck me was the relationship between high well being and medical marijuana laws. There are about 20 states that have passed medical marijuana laws, permitting the use of marijuana for medical purposes. Thirteen of the twenty are in the top 20 states and there are no medical marijuana freedoms in the ten worst states (i.e. the South). I’m not saying that medical marijuana laws cause prosperity, but it is the case that people who have a classical liberal, or libertarian ideology will tend to pass better economic laws and to approve of medical marijuana.

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.


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.

Economists in the Dark

How many economists does it take to change a light bulb? None. When the one they used in graduate school goes out, they sit in the dark.

Robert Samuelson writes here about how mainstream economists have done such a poor job of forecasting the economic crisis and that they have been consistently overestimating economic growth. Keynesian economics and monetarism are both under a cloud, but there does not appear to him there is any easy answer. How about a new light bulb, a good idea, Austrian economics?


Hayek on Keynes’s Ignorance of Economics

Here is an amazing video in which Hayek is interviewed about his knowledge of Keynes. He makes very strong claims that Keynes was blissfully ignorant of economic theory, monetary theory, economic history, and the history of economic thought. Unlike some other interviews of Hayek, the audio is clear and this clip is only 5 minutes long.

Examining The House of Cards

Dr. Mark Thornton, John O’Donnell and Merlin Rothfeld take a look at the current market situation (January 24th) and offer suggestions as to where we may be headed going forward. The trio also take a look at the gloomy unemployment scene in the US, and solutions to getting jobs back in America.

Dionne Admits Austrians Winning

E.J. Dionne admits here that the Austrian school is winning. The theories of the Austrian school of economics are leading to “gridlock” in Washington DC. Well, that is a good first step. Unfortunately, the column is filled with underhanded attacks on the Austrians and more misguided thinking than I care to report.


Drugs: The Documentary of the Week

Over at the Global Economic Intersection my lecture on the economics of the war on drugs is the documentary of the week. This is fitting given the horrible news of Philip Seymour Hoffman dying this week of an apparent drug overdose.

Dr. Mark Thornton

‘Taper’ Proceeds Apace?

I was recently interviewed by Thomas Ressler for the industry publication Inside MBS @ ABS on the recent change in the Fed’s tapering of its Quantitative Easy program:

Economist Mark Thornton, a senior fellow at the Ludwig von Mises Institute, an economic think
tank in Auburn, AL, said he was “a little bit surprised that the Fed upped the ante on the taper because
they’ve been so skittish and so reluctant. Last year, of course, we had the famous ‘tampering with the
taper’ debacle.

“In the mortgage market, there’s been a pretty steep decline in the amount of new mortgages and
mortgage refinancing,” particularly at the nation’s largest mortgage lenders, he added, “so the amount
of supply on that side of the market is drying up.”

Going forward, as mortgage rates and interest rates rise to meet the challenges of this tapering,
“that should shrink that market even more, so that there shouldn’t be much difficulty adjusting to going
from $35 billion to $30 billion per month in purchases on the MBS side of this policy,” Thornton
added. “So there’s somewhat of an equilibrium process underway, at least in the early steps and stages
of the Fed’s tapering.”

Should the taper have been even larger to make more room for private capital to return this year?
“Well, yes, as a general rule. I wasn’t for this policy to begin with,” the economist said. “I think the
quicker we get rid of it and the quicker we get real private-sector capital in all of these markets, the
better. But I know the Fed knows that as they do taper, it is going to cause some problems, so they’re
playing it very cautiously. I’m a little surprised they’re going at this as quickly as they are.”

Reprinted with permission of Inside Mortgage Finance Publications, Inc., an excerpt from Inside MBS & ABS, January 31, 2014. Copyright 2014.