We’ll be regularly updating you on upcoming talks and events all week during Mises University beginning Sunday evening. See here for the free live video feeds, and the Twitter feed, and the Instagram feed.
We’ll be regularly updating you on upcoming talks and events all week during Mises University beginning Sunday evening. See here for the free live video feeds, and the Twitter feed, and the Instagram feed.
Mark Thornton discusses his article “How the Drug War Drives Child Migrants to the US Border.”
Audio file, 22 minutes.
John Lott writes in Barron’s that we should be sceptical of the populist economics trend that’s been prevalent in the past few years. Specifically, Lott criticizes Steven Levitt and Stephen Dubner, authors of Freakonomics, for peddling a kind of “naïve economics” that fascinates readers, but doesn’t hold up to serious scrutiny (rather than “naïve economics,” maybe “economics for the naïve” would be better).
I’ve been working through some similar ideas myself, especially in a new paper criticizing aspects of the pop econ literature. I should point out that these books—including Freakonomics and its many imitators—do have a reasonable goal, namely, to bring the economic point of view to the general public. Now, the fact that economics needs a special literature to explain its ideas to the public is telling, and to some extent an indictment of how the profession has developed (e.g. into an abstract and often excessively technical discipline). Still, as writers like Hazlitt show, it’s a great advantage to be able to communicate economic ideas simply and powerfully. But while in general we should welcome economic writing for non-economists, too often pop econ forgets to stop when descending the ivory tower, and ends up on the intellectual parking sublevel.
Ronald H. Coase was one of the few very influential economists of the 20th century, and was awarded the “Nobel Prize” in economics in 1991. He was hardly an Austrian economist. On the contrary, he was a self-declared socialist – at least in his youth. But there is reason to believe he was well aware of Austrian theories while an undergraduate student at LSE in the 1930s (which was when he wrote one of his most influential articles, “The Nature of the Firm” published in 1937). This is when Hayek gave a series of lectures on capital theory and business cycles at LSE, and later the same year was made part of the faculty.
Coase notes in his reflective work that the whole department was affected by Hayek’s lectures and the content of the latter were part of the discussion among faculty and students for months. At the same time, it would be strange to assume that the leading figure in the department – Lionel Robbins, at the time somewhat of a Misesian – had no impact on Coase. We know that Arnold Plant, head-hunted and employed by Robbins (and mentioned as an Austrian in Hülsmann’s Mises biography), was the faculty member that influenced Coase’s thinking most. So there are several obvious “touch points” between Coasean thought and Austrian economics.
But there is more. Coase was obviously well aware of Mises’s argument against socialism, which he refers to in his 1937 article noting that “economists in the West were engaged in a grand debate on the subject of [economic] planning” (Coase, 1988, p. 8). This (and related) statements in Coase’s lauded 1937 article have been quite overlooked by scholars, but they may very well be important. In fact, as I elaborate on in an article in the September 2014 issue of the Journal of the History of Economic Thought, there is good reason to read Coase’s “The Nature of the Firm” as not primarily a treatise on economic organization in general – but a discussion on economic planning intended to support the market socialist argument in the Socialist Calculation Debate.
Coase not only positions his article in the great debate, but refers to Austrian arguments while seemingly relying on insights borrowed from Hayek’s lectures (but misunderstood). This apparent relationship between Coasean thought and the Austrian framework sheds new light on the modern theory of economic organization, which is often based on or even ”starts with” Coase. (The probably most influential theory is Transaction Cost Economics, developed by Oliver E. Williamson but based on Coase’s contributions.)
My article is here: Ronald Coase’s “Nature of the Firm” and the Argument for Economic Planning (2014, gated). An ungated working paper version, Mises Working Paper #0001/14, is here.
Mises U 2014 begins Monday!
Judge Andrew Napolitano, Tom Woods, Robert Higgs, and Bob Murphy are among the speakers.
Live streaming is free throughout the week, and if you can’t watch live we will archive speeches on our YouTube page, Mises.org, and iTunesU.
Click here for the lineup and the schedule:
Mises Daily Friday by Logan Albright
Many free-market advocates approve of right-to-work laws because they diminish the power of monopolist labor unions. Right-to-work laws, however, prohibit employers from dealing with unions in whatever way the employer chooses, and thus just substitute one government mandate for another.
Without mentioning it, Michael Boskin provides supports Robert Higgs’s contention the Regime Uncertainty is a, if not the, major contributing factor to the current stagnating economy. Per Higgs, regime uncertainty is a “pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights.” Michael Boskin in “How Washington Whittles Away Property Rights” makes a similar argument. He states what should be obvious, but is too often neglected in Washington and state capitals, “Property rights and the rule of law are essential foundations for a vibrant economy. When they are threatened, or uncertain, the result is inefficiency, rent-seeking, a larger underground economy and capital flight.”
Boskin then provides ample reasons for why worried investors would eliminate, postpone, or reduce investments necessary for recovery and sustained prosperity creating economic growth such as:
1. A Supreme Court decision which “gutted the Constitution’s “public use” restriction on eminent domain (Kelo v. City of New London, 2005), allowing local governments to take the property of some individuals for the benefit of others, especially private developers.”
2. President Obama’s decision to trample “the legal rights of secured Chrysler bondholders to transfer billions of dollars to unions.”
3. EPA wetlands compliance freezing land use.
4. With the “biggest future threat” coming from unfunded entitlements coupled with massive government spending which places the right to “the fruits of one’s labor” at great risk.
5. “Taxes explicitly designed for redistribution—instead of revenue”… .
He then argues, “Ultimately, behind this and other attacks on property rights is the notion that the government owns all income, leaving to you only what it doesn’t demand.”
I argued elsewhere, even before it was apparent that the stagnation would stretch over 5 years, the correct road to a “free and prosperous commonwealth” would include a return to sound money, competitive markets, and the rule of law with a total level of government spending and tax burden that, as suggested by Gwartney, Holcombe, and Lawson (The Scope of Government and the Wealth of Nations) is no more than 15% of GDP. Mises would most likely go even lower. As Adam Smith put it many years ago in a 1755 paper,
Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about the natural course of things. All governments which thwart this natural course, which force things into another channel or which endeavor to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.
We’re very happy to have another great group of international young scholars with us this summer. Mises Fellows are graduate students and faculty who come to the Mises Institute during the summer to spend more time working on research in the field of Austrian economics with our senior faculty.
This year’s Fellows:
Front Row: Ludvig Levasseur, Matei Apavaloaei, Peter Klein (faculty), Jeff Deist (Mises President)
Second Row: Joseph Salerno (faculty), Audrey Redford, Jingjing Wang, Arkadiusz Sieron
Third Row: Dante Bayona, Kyle Marchini, Peter St. Onge
Back Row: Jonathan Newman, Mark Thornton (faculty)
Keynesians are fond of overstating both the magnitude of the trade deficit and its alleged negative effects. In spite of the fact that trade deficits are not an actual problem for our economy, Keynesians propose to “fix” the problem by devaluing the dollar.
Mises Daily Tuesday by by Stewart Dompe and Adam C. Smith
Joesph Stiglitz, 2001 Nobel laureate in economics, wants to revitalize industrial policy through greater government intervention to favor certain technologies over others. He says it’s not about picking winners, but about positive externalities. Either way, it all comes down to central planning.
You may have noticed that we publish a lot of new, original content in Mises Daily these days. Happily, I receive quite a few submissions, so to make sure that your submission does not get lost among them, here are some ways you can make sure your article goes to the right place:
Here are the basic guidelines.
1. Please use the phrase “Mises Daily submission” in your subject line. Feel free to add a few words about the topic, but be sure the phrase “Mises Daily submission” is in there.
2. Please do not include more than one article per email. If you have more than one article to submit, send them all in separate emails.
3. It is my intent to respond to every submission, even if to just reject it. If you suspect your article has been missed (give me 2 business days), I won’t be mad if you follow up.
When I read it, I ask myself the following questions:
1. Is this newsworthy and relevant to some timely issue? (Book and movie reviews of new books and movies are automatically newsworthy, even if the subject matter of the book or movie itself is not “newsy.”). Not every article needs to be newsworthy, but it helps.
2. Is it easy to read and can a person without a degree in economics understand it? Will someone who is not a hard-core 24/7 libertarian-Austrian activist understand it?
3. Are there good examples and interesting facts in it? Perhaps new facts that have come to light in new books or other research?
4. Is it organized in such a way that people can read it quickly and easily without having to labor over it to figure out your point?
We publish a range of topics and difficulty levels so your article need not be a clone of other articles, but you should consult the Mises Daily archives over the past year to get a sense of what we’re publishing right now. Nor do articles need to address every single objection under the sun that could possibly be raised against your arguments. You can only do so much with a 900-word article, and your more reasonable readers will understand this. If you want to say more on the topic, feel free to write another article. I’d rather have two good short articles from you than one long one.
All articles need to be informative and interesting, however.
Although libertarians and Austrian economists have been interested for a long time in the relationship between art and liberty, there’s been relatively little effort to develop a distinctly liberty- or market-oriented form of literary theory; critical theory is a playground for myriad “isms,” but libertarianism isn’t often counted among them. Fortunately, this situation is beginning to change, as there’s a lot of exciting work being done in the field of literary studies, which isn’t usually known for its sound economics or liberal political philosophy.
Much of the creative energy behind this new research can be attributed to Paul Cantor, who has devoted an impressive career to exploring the relation between markets, art, and popular culture. If you want an overview of the topic, you can listen to Cantor’s fascinating lecture series from 2006 on Commerce and Culture. Especially important is the book he edited with Stephen Cox, Literature and the Economics of Liberty: Spontaneous Order in Culture, which helped lay the foundations of a libertarian literary criticism.
There are many other writers who are pushing the boundaries as well, especially those at the Austrian Economics and Literature blog. To name only one contributor, Sarah Skwire frequently covers neglected classics like the operettas of Gilbert and Sullivan, along with unfairly-maligned works like Thoreau’s Walden.
Steve Forbes, speaking recently in Las Vegas, continued to advocate a gold standard of sorts– i.e. pegging the US dollar to gold at (say) $1200 per ounce. If gold rises to $1300, the Fed decreases the supply of dollars. It it falls to $1100, the Fed inflates.
He should be commended (as a representative of mainstream politics and the mainstream financial press) for talking about gold, money, and monetary policy generally. Plus he makes some very good points about the moral hazards engendered by today’s Fed policy:
“People feel that the link between effort and reward has been eroded,” Forbes said.
Inflation, which is nudging upward in the United States, is a “tax,” Forbes said. He questioned how Fed policies that are causing rising inflation and boosting the cost of living for a typical American by $1,000 a year are helping the economy.
With the current quantitative-easing policies, the Fed will keep its bloated balance sheet, Forbes said. The Fed’s action is taking money out of economy and giving it to a wasteful federal government – hurting small businesses that need to be healthy to create jobs, he added.
“The big banks are now simply hand maidens of the federal government,” Forbes said.
“When we had a gold standard, there was little currency trading,” Forbes said. “Now, volume in currency trading is high.”
Fundamentally, however, Forbes’s plan cannot work for the same reason monopoly political institutions cannot work. No central bank can operate independent of financial and political pressure. Do we expect Congress to insure the Fed adheres to the proposed gold peg rule? Will Congress mandate this statutorily? Will the Fed relax or abandon the rule for wars, depressions, and other government-created calamities?
If Forbes really wants to end crony capitalism, why not simply join Ron Paul and advocate free competition in currency? Then the grand Fed experiment known as the US Dollar can sink or swim based on the preferences of consumers.
A paper written by two staff members of the Federal Reserve Bank of Atlanta tried to quantify what all the Fed’s new money creation and related measures have accomplished. They conclude that unemployment today would be 0.13% higher without the radical measures and 1.0% higher if nothing at all had been done.
For some time, the Fed has been trying to demonstrate what its massive interventions have accomplished. This has not been easy. In the first place, the results have been poor, far below what the Fed hoped for. In the second place, the Fed does not even have a theory about it that can be modeled.
After many false starts, a few papers have emerged arguing that the Fed’s actions helped. But even these papers don’t argue that they helped much. And the story isn’t yet over.
Economist John Hussman has likened the Fed’s current financial policies to a Roach Motel, easy to get into, impossible to get out of. It will be interesting to see how the Fed tries to get out.
The Atlanta Journal-Constitution wrote about the new Fed paper: “Without the Fed and its low interest rates, the jobless rate would have been higher these past few years—pretty much all economists agree on that.” This will be news not only to Austrian economists, but to others as well.
If the Fed and federal government had not intervened in 2008 to arrest the crash which their own policies had created, unemployment would no doubt have been higher in 2008 or 2009. But by now, almost six years later, our economy might have long since recovered.
This is the difference between short term and long term thinking. Environmentalists are always reminding us that we need to consider long term results of how we treat our planet. We also try to teach our children to consider the long term, not just the short term, but the government always seems oblivious to anything but the next election.
The Fed’s chairman, Janet Yellen, will be testifying today in Congress. Perhaps some senator or representative will ask her how she plans to conduct monetary policy in the future, since the Fed Funds rate, the key tool of past Fed policy, has been rendered increasingly irrelevant by recent Fed policy excesses.
We know that the Fed plans to lean heavily on the interest it pays on bank reserves, a new tool that was slipped into the TARP bill in 2008 without most members of Congress knowing. It might also be useful to ask how much of this interest is now being paid to foreign banks, which we are in effect subsidizing.
Another, related issue is whether the federal home-loan banks, which are not supposed to be eligible to “earn” this money, are evading the rule by lending to foreign banks who then “earn” it for them.
What all this illustrates is that the Fed operates in secrecy, and not even Congress has much of a clue what is going on.
Mises Daily Tuesday by Ryan McMaken:
Contrary to what proponents of government-controlled health care would have us believe, employer-provided health insurance has nothing to do with religion and everything to do with the free exchange of labor for wages.
Forbes columnist Ralph Benko offers interesting speculation on this question.
The so-called “peer review process” is supposed to be the unimpeachable guarantee that publications in academic journals have been chosen in accordance with the highest standards of scientific integrity and quality. The number of papers that an academic publishes in peer-reviewed journals and the number of times his or her articles are cited in other peer-reviewed articles are the main factors determining whether or not he or she is promoted and awarded tenure. Recently there occurred a particularly egregious abuse of the process.
The Journal of Vibration and Control (JVC) is a respected scientific journal in the highly technical field of acoustics and a part of the reputable SAGE Group of academic publications. JVC has recently retracted 60 published articles after uncovering the operation of a “peer review ring” among its authors and reviewers (“referees”) Although is is not exactly clear how the scam worked, it appears to have been run by Peter Chen of the National Pingtung University of Education (NPUE) in Taiwan and probably involved other scientists at NPUE. As best as can be determined, the ring posted up to 130 fabricated names and fake email addresses on an online reviewing system called SAGE Track. These bogus identities were used by the members of the ring to write favorable reviews of one another’s submissions and send them to Ali H. Nayfeh, the Editor-in-Chief of JVC. In at least one instance, it is believed, Peter Chen reviewed one of his own papers under an alias.
In May NPUE informed SAGE and JVC that Peter Chen had resigned from its faculty in February. In the same month JVC announced that Nayfeh had “retired” as editor of the journal. Nayfeh had initiated investigation of the ring in 2013. A full report on the incident including the titles of all the retracted articles can be found here.
This incident should not be surprising, however. Knowledge that the peer review process is gravely flawed and easily abused is well known. Richard Smith, the former editor of the respected British Medical Journal (BMJ), the Journal of the Royal Society of Medicine, characterized the “classic” peer review system as follows:
The editor looks at the title of the paper and sends it to two friends whom the editor thinks know something about the subject. If both advise publication the editor sends it to the printers. If both advise against publication the editor rejects the paper. If the reviewers disagree the editor sends it to a third reviewer and does whatever he or she advises. This pastiche—which is not far from systems I have seen used—is little better than tossing a coin,
But one would think that peer review would at least be useful for detecting fraud and major error. Not so, says Smith:
Peer review might also be useful for detecting errors or fraud. At the BMJ we did several studies where we inserted major errors into papers that we then sent to many reviewers. Nobody ever spotted all of the errors. Some reviewers did not spot any, and most reviewers spotted only about a quarter. Peer review sometimes picks up fraud by chance, but generally it is not a reliable method for detecting fraud because it works on trust.
Now if this is the case in a “hard science” like medical research whose experimental results can, at least in principle be checked, imagine the situation in an social science like economics where controlled experiments are impossible and most “researchers” have strong ideological predispositions. Smith concludes that, despite its many defects, the peer review process
is likely to remain central to science and journals because there is no obvious alternative, and scientists and editors have a continuing belief in peer review. How odd that science should be rooted in belief.
Certainly we should rethink the public funding of an institution that depends so heavily on such a defective process for discovering scientific truth.
Everything valuable that economics textbooks describe as a “public good” has, at one time or another, been provided on the market by individuals and private firms. Even today, capitalists and entrepreneurs are rebuilding public spaces in Detroit, positive externalitites be damned:
Whether or not they’re expecting to profit, Gilbert and other capitalists — large and small — are trying to rebuild the city, even stepping in and picking up some duties that were once handled by the public sector. Shop owners around the city are cleaning up the blighted storefronts and public spaces around them. Only 35,000 of Detroit’s 88,000 streetlights actually work, so some owners are buying and installing their own. In Gilbert’s downtown, a Rock Ventures security force patrols the city center 24 hours a day, monitoring 300 surveillance cameras from a control center. Gilbert is proposing to pay $50 million for the land beneath the county courthouse and a partly built jail near his center-city casino, with the intention of moving the municipal buildings to a far-off neighborhood; his goal is to clear the way for an entertainment district that flows south, without interruption, from the sports arenas past his casino and into downtown. Detroit’s new mayor, Mike Duggan, told me he had no problem with the private sector doing so much to shape his city: Other metropolises had their entrepreneurs and deep-pocketed magnates who built and bought and financed things. With a state-appointed emergency manager overseeing various aspects of Detroit’s operations, with many civic services inoperable for years and with a dire need for investment, Duggan said he felt lucky that his town was getting its turn.
Thanks to Craig Newmark for the pointer.
Mises Daily Monday by Mark Thornton
An increasing percentage of migrants to the US-Mexican border are from Central American countries. It is not merely a coincidence that these same areas have been devastated by the American war on drugs, which has destroyed economies and increased crime in much of the region.
In a recent Bloomberg Views piece, mainstream economist Noah Smith accused his Austrian critics of having “brain worms” and even “anti-semitic overtones.” He then mischaracterized what his critics were saying so that he could ridicule it.
This wasn’t very conducive to a dialogue. His last Bloomberg piece, out on July 10, is better. It offers a specific proposal: don’t raise today’s ultra low interest rates. Unfortunately it doesn’t say whether this advice is forever, or for now. But it is a specific proposal.
This is all the more helpful because it is difficult to tease specific proposals out of mainstream ( usually Keynesian) economists. For example, during and after the Crash the best known Keynesian economists ( Krugman, Shiller, Romer, Yellen etc.) kept saying we needed more government stimulus of the economy, but refused to give us the exact prescription.
This was very convenient when the stimulus failed; they could just claim that there hadn’t been enough. Never mind that they had refused to tell us in the first place how much was needed or for how long.
In his latest piece, Noah Smith not only says that short term interest rates should stay where they are, close to zero, and well below even reported inflation. He further argues that these giveaway interest rates ( made available to Wall Street, not to Main Street) are not creating a stock market or other asset bubble like the dot com or housing bubbles.
Smith then gives us what he calls Finance 101. Here is what he says: “The value of a financial asset is the discounted present value of its future payoffs, and when the discount rate — of which the Fed interest rate is a component — goes down, the true fundamental value of risky assets goes up mechanically and automatically. That’s rational price appreciation, not a bubble.”
Let’s see. The Fed artificially represses interest rates for now, with no guarantee that they won’t go bounding back up anytime in the future, even the near future, but stocks should be valued as if the artificially repressed rates are permanent. Sorry, this isn’t “rational” and it certainly isn’t Finance 101.
Smith further notes that “bubbles form when people think they can find some greater fool to sell to.” Hm. Why do people expect to find “greater fools” at some times and not other times?
George W. Bush famously said that “Wall Street got drunk” before the 2008 crash. But where did the cheap alcohol come from, if not from the rivers of new cash created by the Fed and delivered to the bars in Manhattan and around the world?
Even Smith admits that “there’s laboratory evidence for bubbles, too — it’s by far the most-researched phenomenon in experimental finance. And it’s true that when you give traders in the lab more cash, you get more and bigger bubbles.” Exactly. More cash, cheap cash, and the promise of bail-outs. It’s a deadly combination.
Smith even argues against his position when he thinks he is arguing for it. He says that “the Fed has been regulating the monetary base for many decades, and for a lot of that time there were no big bubbles.” Right again. The Fed isn’t operating as it did in the pre-Greenspan era. Far from following a “cautious, middle-of-the-road policy, It has embraced radical and recklessly untested new methods of money creation and interest rate repression that would have horrified earlier Fed boards and chairmen.
The main thrust of Smith’s piece is that interest rates should not be raised. For reasons he does not give, repressing interest rates and driving up stock prices are entirely rational while increasing rates is “irrational.” Rate reductions are wise policy; rate increases are a “blunt hammer.“
This echoes Keynes’s argument in the General Theory that the way to create a boom is to lower interest rates and the way to keep it going is to lower them further. Unfortunately history reveals that this doesn’t work; it just feeds bubbles. And even Keynes did not argue for forcing interest rates below inflation.
Smith has at least a glimpse of what his critics find troubling. He asks: “ what good is a crash to prevent a crash?,” but acknowledges that the critics have a “mental model …[of]… a little pain now to prevent a lot of pain later.” That’s it. They don’t want a crash at all; but they certainly don’t want an even bigger crash than the last one in 2008.
Smith rejoinder is curious: “If the rise in prices has been a rational response to Fed easing, then there’s no need for such medicine; causing a crash today will just cause a crash today, period.” But, as we have already noted, this only makes sense if the Fed will hold rates down forever and never bring them back up.
If the Fed will at some point bring them back up or perhaps even lose control of them, there will have to an adjustment. The only question is whether it would be healthier to have it now, or later, after even more new money has flooded the economy and created even more mal-investment and unrepayable debts.
Solving these problems for the long run requires abolishing the Fed and restoring honest money and banking practices. But, for now, maintaining giveaway rates for favored special interests just makes everything worse.
William Anderson Walter Block Per Bylund John Cochran Jeff Deist Thomas DiLorenzo Gary Galles David Gordon Jeffrey Herbener Robert Higgs Randall Holcombe David Howden Jörg Guido Hülsmann Peter Klein Hunter Lewis Matt McCaffrey Ryan McMaken Thorsten Polleit Joseph Salerno Timothy Terrell Mark Thornton Hunt Tooley Christopher Westley