The May issue of The Free Market is now available at Mises.org. This month: Judge Andrew Napolitano, who will be teaching at Mises University this summer, talks with us about Constitutional Law:

The Free Market: When it comes to Supreme Court cases, what do you think were some of the most damaging to the cause of liberty?

Judge Napolitano: …Almost all of them.

Meanwhile, Christopher Westley builds on Walter Blocks’s work on the so-called “pay gap.”

Moreover, the economics literature strongly suggests that, corrected for productivity, the differences between male and female compensation shrink considerably. As Loyola University economist Walter Block often points out, if wages of certain classes of workers (such as women) were actually less than the revenues generated by those workers, employers would be foolish not to have employment biases in favor of those workers in the first place.

In addition, David Gordon provides a sneak peek into Ralph Raico’s commentary on the libertarian movement for the Oral History Project at the Mises Institute:

While still in high school, Raico and Reisman became interested in Mises, and Raico describes their hilarious attempt to meet Mises, in the guise of door-to-door salesmen for The Freeman. The attempt failed, but they soon were able to join Mises’s famous seminar at New York University. Here Raico met someone who became one of the dominant intellectual influences on his life—Murray Rothbard.

See May’s issue for the latest in news and events at The Ludwig von Mises Institute and other Mises Institutes across the globe.

By the way, you can get these in your mailbox every month by donating to the Mises Institute.

It Isn’t Capitalism That Has Caused the Crisis!
Interview with Thorsten Polleit by Lars Schall

Reinhart-Rogoff Revisited

The recent release of GDP data continues to show a weak recovery which many who contribute here have attributed regime uncertainty and inappropriate policy. The Wall Street Journal (“A Jobs Fillip”) comes to a similar conclusion:

Left to its own devices, the U.S. economy will grow as individuals and businesses try to improve their lot and expand. The tragedy of the last four years is that Washington tried to supplant or interfere with those decisions with a wave of regulation, spending and taxation.

John B. Taylor also sees the slow recovery as caused by “ineffective policy interventions” in this comment on the data (“Another Take on Reinhart-Rogoff Controversy”) :

The updated charts below incorporate last Friday’s release of the first quarter GDP data. They continue to tell the story of a weak recovery which, in my view, is largely due to ineffective government policy interventions. There is, of course, an alternative view: that the recovery is weak because the recession and the financial crisis were severe.

This view takes the onus off bad policy as the cause of the slow recovery and bolsters the argument (erroneous in my view) that without stimulus things would have been worse. This alternative view is based on empirical work by Reinhart-Rogoff (This Time Is Different). Reinhart and Rogoff have been in the news recently because of errors in their empirical work on the impact on economic growth from large debt/GDP ratios (see here and here). This error has received lots of press lately, as Taylor points out, because the correction of the error provides data that can be used to “support more fiscal stimulus and less consolidation.”

Michael Bordo has provided strong evidence that Reinhart-Rogoff were also mistaken in their empirical research in This Time Is Different. U. S. data does not support the Reinhart-Rogoff conclusion that that slow recovery following a financial crisis is the norm. Despite the fact that “Bordo wrote about his findings (which are based on his joint research with Joe Haubrich of the Cleveland Fed) in a September 27, 2012 Wall Street Journal article, ‘Financial Recessions Don’t Lead to Weak Recoveries’”, this error has received minimal coverage in the press and the blogosphere especially compared to mountains of positive press of covering the exposure of errors in their work on debt and growth.

Bordo’s correction is, as Taylor speculates, largely ignored because it lends support to the bad policy–slow recovery causal link.

For those following Bitcoin, this interview with Gavin Andresen, the 46-year-old lead software developer for the Bitcoin project in today’s Wall Street Journal should be of interest.

Bitcoin vs. Ben Bernanke

“The chief scientist for the digital currency talks about its appeal—and pitfalls—in a world of fiat money.”

Highlights:

As for the upside, small online merchants would welcome a global payment standard. For this reason Bitcoin or a similar technology could threaten the power of not just central banks, but banks, period. Unlike online payment services that give people with credit cards easier ways to transact business, Bitcoin works best when avoiding the traditional financial system completely.

And

Politicians and their appointees are entirely cut out of Bitcoin’s monetary loop. This is a significant difference between Bitcoin and government-issued fiat currencies. Federal Reserve Bank of Dallas President Richard Fisher calls the U.S. dollar a “faith-based currency.” In other words, its value rests on the belief that the government will not print so many dollars that each one becomes nearly worthless.

And

This [deflation that is predicted to be a consequence of Bitcoin’s fixed nature ] is  portrayed as a recipe for economic disaster by those who like to inflate currencies to relieve the burden on borrowers, including spendthrift governments.

It’s true that deflations have sometimes accompanied economic disaster, but also economic triumphs. For example, in “Money, Markets & Sovereignty,” Benn Steil and Manuel Hinds describe the second phase of the Industrial Revolution in the U.S. between 1870 and 1896. Prices fell by 32% over the period, but real income soared 110% amid robust economic growth, expanded trade and enormous innovation in telecommunications and other industries.

The conclusion:

It’s almost time for Mr. Andresen to get back to work. He shares some useful advice about Bitcoin: “I tell people it’s still an experiment and only invest time or money you could afford to lose.” If only investors could as easily follow that advice with fiat currencies.

David Stockman is interviewed here on the Austro-friendly Power Trading Radio by John O’Donnell.

Reservations are required for the David Stockman book signing event in New York on May 21st.

Joseph Salerno’s recent post on The Libertarian Case for Corporate Social Responsibility reminded me of a similar argument about a free market based ethic for business by Richard W. Wilcke in the Independent Review (2004).

While I served as dean of business at Metro State, we invited Richard in for a presentation of his thoughts on an anti-crony capitalism/anti-mercantilism business ethic. The lecture was well attended and well received by students with lots of good questions. Not so much so by business faculty.

For those interested here is the abstract and a link.

The Abstract:

Economist Milton Friedman drew the wrath of anti-market business ethicists for his controversial 1970 essay “The Social Responsibility of Business Is to Increase Its Profits.” Business leaders seeking an ethical standard consistent with the free market should look elsewhere, however, because Friedman’s essay seems to exculpate a practice antithetical to the free market—corporate lobbying for special government favors.

“An Appropriate Ethical Model for Business and a Critique of Milton Friedman’s Thesis”

The AEI, a centrist-establishment think tank, published a compelling policy study this week by Timothy P. Carney. The Case against Cronies: Libertarians Must Stand Up to Corporate Greed is a hard-hitting critique of crony capitalism that goes beyond merely recounting the ubiquitous and shameful instances of gigantic U.S corporations seeking and obtaining subsidies and monopoly privileges from Big Government at the expense of taxpayers, consumers and more efficient competitors. Indeed, Carney calls into question the conservative mantra as classically enunciated by Milton Friedman: ‘The social responsibility of business is to increase its profits.” Not so fast, Carney says. For what if investing in lobbying for a government subsidy or political barrier to entry is the best way for a corporation to increases its profits? Isn’t such behavior not only ethically dubious, but also inconsistent with the free market? While Carney does not formulate a libertarian standard of corporate responsibility to replace Friedman’s, he does make a powerful case that it should include explicit prohibitions against violating the principles of the free market. As Carney concludes:

Conservatives are good at criticizing the government for picking winners and losers — and they’re right to do so. Politicians and bureaucrats cannot allocate resources as efficiently as the market. The free market is the greatest welfare program ever invented.

But if the free market is worth protecting, conservatives must do a better job calling out corporations that participate in cronyism, as well. Doing so will raise tricky questions for conservatives. To what standard must we hold companies? What is ethically acceptable and what is not? . . .

When the ethanol industry writes an ethanol mandate, or H&R Block hatches a policy that crushes its small competitors, it’s legal. But it’s also a naked attempt to extract money from unwilling payers, restrict the freedom of competitors, and deny options to customers. This is the sort of behavior conservatives and libertarians need to denounce.

While Carney concedes that there is a grey area in practically judging corporate behavior in a mixed economy that raises some tough questions, he insists “these are questions free-market folks need to start discussing. . . . even if it means using the language of corporate social responsibility.”

“The seeds of this moral defense of free markets were planted by John Locke, Adam Smith and Ludwig von Mises,” writes Steven Pearlstein in the Washington Post. He emphasizes the work of Ayn Rand in popularizing the moral case for the market, but could have also mentioned Hazlitt, Hayek, Baldy Harper, Edmund Opitz, Rothbard, and other Austrians and libertarians who justified free markets on ethical grounds, both consequentionalist and natural-rights based.

Detlev Schlichter reviews David Stockman’s new book The Great Deformation. It provides a nice summery of the book.

The New York book signing event is May 21st.

It appears that the Fed’s zero-interest-rate and QE policies have finally achieved its insane goal of re-igniting a housing bubble.

The Case-Schiller 20-City Index shows that housing prices increased by 1.2 percent in February and 9.3 percent year-over-year. All cities included in the index experienced substantial gains, which have been driven by staggeringly large increases in the bottom tier of the market. In Phoenix housing prices rose by 23 percent over the past year, but by 39 percent in the bottom third of the housing market. Las Vegas home prices were up by 17.6 percent in the past year while prices for houses in the bottom tier rose by 34.2 percent, and at an annual rate of 56.2 percent in the last three months. In Atlanta, bottom-tier home prices rose 36 percent year-over-year and at an annual rate of 70 percent in the past three months.

In light of the current data, Dean Baker, one of the few left-of-center economists to issue an early warning about the last housing bubble, sees signs of a renewed housing bubble on the horizon:

This rapid increase in house prices should be prompting serious concern among regulators. At the moment, it is not driving the economy in the same way as the housing bubble did in the last decade. Construction is still at very low levels, so a plunge in prices could not have impact on the economy through this channel. While saving rates are again low, possibly due in part to increasing home equity, it is likely that the data are somewhat distorted by the large dividend payouts of the fourth quarter. If the saving rate remains below 3.0 percent into the second half of the year (the post-World War II average is more than 8.0 percent) then this would suggest that inflated house prices are playing a role. If that is the case, a decline in house prices would lead to another hit to consumption.

However the main reason that the rapid run-up in prices in the bottom tier should be a cause for a concern is that moderate-income homebuyers may again take a big hit if these prices plunge in a correction.

For some compelling anecdotal evidence on the high-end market, consider this. Crain’s reports on the sale of three condos sold in the Gretsch Building, a former guitar factory in Williamsburg, Brooklyn:

Two of the condos, adjacent two-bedrooms on the ninth floor, closed this week for $1.4 million and $1.5 million, while a larger two-bedroom on the 10th floor will close next week for $2.5 million.
The units averaged $1,150 per square foot. That compares to a building-wide average of $750 a foot, though recent listings have topped out around $900 per square foot, according to StreetEasy—a clear sign of the soaring local market.

“It’s unbelievable, what’s going on out there,” declared the real estate agent involved in these deals.

Commenting on this story at Zero Hedge, Tyler Durden writes:

Great job Bernanke & Co. You have succeeded at rolling up the housing, credit, bond, tech and equity bubbles all into one. Watching the glorious unwind of all this unprecedented academic-created stupidity will be worth the hyperinflated price of admission alone.

Right on, Tyler.