GDP Up 3.5%

Gross Domestic Product has been reported to be an unexpectedly high 3.5% in the third quarter (on an annual basis). However the growth was led by a “surprisingly” high increase in defense spending and a reduction in the trade deficit (which accounts for 2% of the 3.5%). The last time defense spending had a surprising increase was the third quarter of 2012 (also a quarter leading up to an election) there was a sharp fall off in defense spending the next quarter. The GDP deflator was 1.3% for the quarter on an annual basis.

Roy Cordato Explains Obamacare

6839833657_c7b0ecf372_bRoy Cordato has written an insightful piece on Obamacare at the Carolina Journaldemonstrating that the “right” to health care granted by Obamacare is really a “legal obligation” to purchase health care insurance:

For decades pundits have been debating whether people have a “right” to health care. The notion of rights that is typically invoked is distinct from the question of whether people have a right to enter the market for health care services and engage in exchange activity in order to obtain health care.

“Rights,” in the view of the president and those who believe in a specific “right to health care,” imply a guarantee that the right holder can obtain health care services either without charge or at prices that are “affordable,” hence the official title of Obamacare: the Affordable Care Act. (See this previous “Economics & Environment Update” newsletter for a more detailed discussion of different conceptions of rights.)

This notion of rights therefore implies an obligation on the part of others. There are two possibilities. The first, typically not invoked, is that health care providers have an obligation either to provide their services for free or to adjust the prices of their services according to the incomes of their clients. There is a reason why this kind of obligation is not advocated by anyone, although Medicaid reimbursement schemes do attempt to invoke this approach to a limited extent. It is a form of price control that would dramatically curtail the supply of heath care services, as occurs in the Medicaid system.

The other, and more typical, scenario is that the obligation to sustain this right falls on taxpayers. That is, the cost of health care to the health care rights holder is made affordable through taxpayer subsidies. This is the single-payer model in which the government, within limits defined by the government, picks up everyone’s health care tab.

So how does Obamacre fit into this picture? The fact is, it doesn’t. The centerpiece of Obamacare is not a universal right to health care but a universal obligation to obtain health insurance. Because of this, it does not recognize or grant rights of any kind but denies them while mischaracterizing obligations as rights.

What distinguishes all rights from obligations is the ability to refuse to exercise the right. If someone is not legally allowed to refrain from engaging in an activity, then there is no right, only an obligation.

Allegedly Obamacare guarantees a right to access health care by guaranteeing a right to obtain health insurance, either by purchasing a plan through the Obamacare exchanges, through an employer plan, or, if income-qualified, through Medicaid. But since it is illegal to refuse to exercise this so-called right, it is not a right at all but a legal obligation.

It cannot be both. The right to say no is an implication of the right to say yes.

In examining Obamacare’s so-called right to health insurance, the farce of using the language of rights can be exposed easily. This point is made quite obvious with the individual mandate, which imposes a fine on any person who does not purchase a government-approved health insurance policy. Obamacare guarantees a right to health insurance only in the way that the draft guarantees a right to serve in the military.

Read the full article. 

Image credit. 

Yellen Wants Austrians on Fed’s Board

6269797026_7936c8edc9_bAccording to a Wall Street Journal article posted online this morning, the Federal Reserve chair(wo)man Janet Yellen expressed that the “economics profession … could benefit from a more diverse range of views.” Delivering introductory remarks at a conference, Yellen stated:

Did the economics profession recruit and promote the individuals best able to bring the energy, the fresh insights, and the renewal that every field and every body of knowledge needs to remain healthy?

Her answer to the rhetorical question is “no.” The Federal Reserve suffers from a discussion that lacks dissenting views. In fact, she specifically noted how the Fed would benefit from a “range of views and perspectives”:

There has been a fair amount of public debate in recent years about the health of the economics profession, prompted in part by the failure of many economists to comprehend the dire threats and foresee the damage of the financial crisis.

[...] I believe decisions by the Federal Reserve Board and the Federal Open Market Committee are better because of the range of views and perspectives brought to the table by my fellow policymakers, and I have encouraged this approach to decision making at all levels and throughout the Fed system.

It seems the system is about to change. So when will we see Austrians take place on the Federal Reserve Board? Not any time soon, the “range of views and perspectives” Ms. Yellen calls for is not “views” or “perspectives” at all – but gender. She is simply working hard to find female Keynesians to take place on the Board. How that could possibly change anything is not entirely clear.

QE’s Seeds are Already Sown

rsz_badseedThe Federal Reserve has finally ended its quantitative easing programs. Since the financial crisis of 2008, the Fed has pursued what seemed like an endless policy of asset purchases. As recently as September 2008 the monetary base in the US was just a hair over $800 bn. Today this figure is just shy of $4.2 trillion, for a total increase of 425%.

For its part Janet Yellen and her gang of Fed economists are probably pretty pleased with themselves. Unemployment is down, headline inflation remains muted, and the word on Wall Street is that a worse crisis has been averted. The stock market is at record highs, and banks (and bankers) are back to their pre-crisis eminence.

One of the true marks of a great economist is an ability to see past the obvious outcomes and into the veiled results of policies. Friedrich Bastiat’s great essay on “that which is seen, and that which is not seen” provides a cautionary parable that disastrous analyses result when people don’t bother looking further than the immediate results of an action.

Nowhere is this lesson more instructive than with the Fed’s QE policies of the past 6 years.

Consider the Austrian business cycle theory. The nub of the theory is that changes in the money market have broader results on the greater economy. In its most succinct form, when a central bank pushes interest rates lower than they should be (by buying assets, for example), the greater economy gets distorted. Some of these distortions are immediately apparent, as consumers buy more goods and everyone takes on more debt as a result of lower interest rates. Some of the distortions are not immediately apparent. The investment decision of firms gets skewed as interest rates no longer reflect savings preferences, and the whole economy becomes fragile over time as erroneous investments add up (what Mises’ coined “malinvestments”).

When a financial crisis or economic recession hits, it’s almost never because of some event that apparently happened at the same time. The crisis of 2008 did not occur because of the collapse of Lehman Brothers. It happened because the whole financial system and greater economy were fragile following years of cheap credit at the hands of the Greenspan Fed. If anything, Lehman was a result of this and a great (if unfortunate) example of the type of bad business decisions firms are lured into by loose money. It wasn’t the cause of the troubles but a result of them. And if Lehman didn’t go under to spark the credit crunch, some other fragile financial institution would have.

The Great Depression is a similar case in point. It wasn’t the stock market crash in 1929 that “created” the Great Depression. It was a decade of loose money policies by the Fed that created a shaky economy. Again, if anything the stock market crash was the result of stock prices being too buoyant and in need of a repricing to reflect economic fundamentals. Just like today, stocks rose to such storied heights as a result of cheap credit, not because of the seemingly “great” investments funded by it.

The Fed has lowered interest rates since July 2006. We have just come off the the period with the most rapid and extreme increase in the money supply ever recorded in American history. The seeds of the next Austrian business cycle have been sown. In fact, they are probably especially fertile seeds when one considers that the monetary policy has been so loose by historical standards. Just as cheap credit of the 1920s beget the Great Depression, that of the 1990s beget the dot-com bust and that of the mid-2000s beget the crisis of 2008, this most recent period will also give birth to a financial crisis.

When the next crisis comes there will no doubt be economists and commentators who blame it on some proximal event, like the failure of a large important financial institution. Don’t be fooled. The seeds of the next crisis are already sown. Fed policy under Ben Bernanke and Janet Yellen has distorted the economy in a way that makes it precariously fragile, and susceptible to collapse.

(Cross posted at Mises Canada.)

Nobel Winner Jean Tirole’s Faulty Views on Monopoly

6942Mises Daily Wednesday by Frank Shostak:

Economics Nobel Prize winner Jean Tirole still clings to the old neoclassical model “perfect competition” and monopoly, in which there is no place for entrepreneurship, and which fails to grasp that consumers benefit more from a diversity of goods than a diversity of firms.

Regulation through taxation

One lesson from the United States’ Obamacare debacle has been that if Congress can’t get its way through regulation, it can always resort to taxes. At least that’s the Supreme Court’s view, after it declared the Affordable Care Act constitutional because it amounted to a tax, something that falls under the domain (apparently) of Congress.

So now why all the commotion with Hungary using the same tack with the internet?

The Eastern European country has just implemented a new tax on bandwidth. Roughly 60 cents will be charged per gigabyte of internet transfers. The tax comes at a time when the government of Hungarian Prime Minister Viktor Oban has been cracking down on the media. Since the internet is now the most popular platform for information sharing, I’m sure the new tax will serve to limit the competitive capabilities of alternative news sources – bloggers, for example!

(Cross posted at Mises Canada.)

NJ Political Heavyweights Debate Gold Standard

599px-1857_gold_dollar_obverseDuring the past two weeks, James Florio, a former Democratic governor of New Jersey, and Steve Lonegan, the 2013 Republican nominee for U.S. Senate  wrote opposing op ed pieces on the gold standard for New Jersey’s leading newspaper.   That the gold standard is now being seriously debated by state-level pols in a mainstream media outlet is a remarkable and welcome development.

The piece by Florio–whose signature act as  governor was significantly raising State taxes during the throes of the 1990-91 recession–is predictably inane, reiterating the tired old litany of misconceptions about the gold standard.  Florio even conjures up two new ones.  He bemoans  unspecified “environmental harm”  associated with seeking new gold supplies and cites the potential health hazards in disposing of arsenic trioxide, a  toxic byproduct of the gold-mining process.  Florio does not tell us if we should discontinue the large-scale use of this chemical compound in forestry products, colorless glass production, and electronics.  Nor does he call for rescinding the FDA’s approval in 2000 of the use of  arsenic trioxide (Trisenox) for treating certain forms of acute leukemia.

In his response , Mr. Lonegan does a good job of rebutting Florio’s spurious charges against the gold standard.  Unfortunately, Lonegan gets himself into difficulties by his failure to recognize the difference between the pre-1914 genuine “classical” gold standard and the post-World War 2 Bretton Woods system, which was an intergovernmental price-fixing scheme masquerading as a gold standard.  Lonegan laments the collapse of the Bretton Woods phony gold standard  in 1971, which was inevitable and long foretold by leading advocates of the classical gold standard like Jacques Rueff, Henry Hazlitt, Michael Heilperin, and Ludwig von Mises.  Even more worrisome is the fact that Lonegan accepts the view promoted by proponents  of restoring a Bretton Woods-type monetary system like Nathan Lewis and Steve Forbes that a mystical property of gold somehow ensures a stable value of money without limiting its supply.  Writes Lonegan:

 The gold standard insures the quality, i.e. buying power, of the dollar. It doesn’t limit the quantity of money. As economist Nathan Lewis has calculated, from 1775 to 1900 the money supply increased by 163 times while gold reserves rose only 3.4 times. The gold standard defines, rather than restricts, money.

In fact, it is precisely by  strictly limiting the supply of money that governments and central banks were able to create  that the classical gold standard enabled the value of money to increase, i.e., the level of prices to gently decline,  for over a century leading up to World War 1.  This deflation of prices , especially after the Civil War,  was a necessary complement to the tremendous growth in productivity and living standards that occurred in the U.S.  This experience directly contradicts the alarmist contentions of Lewis, Forbes et al.  that falling prices lead to depression and unemployment.

For those who are interested in a critique of the monetary doctrines of the advocates of fixing or “targeting’ the price of gold while maintaining our current fiat dollar,  I have recently written two short pieces on the topic (here and here).


My Upcoming Speech at Columbia University


Adam Smith, F.A. Hayek, Ludwig von Mises.

Smith, Hayek and Mises are not only important figures in economics, but in ethics and political philosophy too. The former would have won the Nobel Prize in economics, if this award were given during his lifetime. The middle mentioned one actually did have this honor bestowed upon him, in 1974. The latter should have won this too, but, scandalously, did not. These three are very important for students in that modern economics courses, and economists, tend to ignore all of them, particularly the latter two, who were members of the Austrian School of economics. Block’s lecture will attempt to right this imbalance.


Dr. Walter Block
Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics
Joseph A. Butt, S.J. College of Business, Loyola University New Orleans

Time and Location:

Monday, November 10, 2014, 7:30pm.
702 Hamilton Hall, Columbia University (entrance at 116th and Broadway or Amsterdam)
Free and open to the public

Hosted by the Columbia College Libertarians (

More Politics Means More Conflict

kids2Mises Daily Tuesday by Ryan McMaken:

A recent study shows that one’s political views are now the most widespread source of discrimination and conflict in American society. Politics is now more important than ever because the state is now more powerful than ever.


Could the ‘Taylor Rule’ Have Prevented the Housing Bubble?

broken measureMises Daily Tuesday:

Tom Woods and Mateusz Machaj discuss the problem with John Taylor’s rule for monetary policy.

Sweden Hits the Zero Bound

NeutroisThe Swedish central bank Riksbanken has just lowered the interest rate to zero (yes, zero) percent, which was reported at a press conference in Stockholm today. This is a response to a couple of months of deflation, and with it enormous pressure from both politicians and Keynesian know-it-alls to quickly and massively lower interest rates. Of course, the interest rate was already very low and at zero it can get no lower. In other words, we’ve reached the zero bound. Why? Depression phobia.

According to the Riksbanken, they do not expect to raise the interest rate until mid 2016. The decision means, according to media reports, that the central bank now “pays” a negative 0.75 % on banks’ funds held at Riksbanken.

The immediate effect in the financial and money markets was an expected fall of the krona’s (the Swedish currency) exchange rate. To the central banksters, journalists, and pundits this is great news, since this means a booming export sector, more expensive exports, and therefore price inflation to relieve the country from the horror of a possible deflation spiral.

I guess we’ll see. Sweden has a history of manipulating its currency, a standard “solution” in the 1970s and 1980s that led to the country suffering a depression in 1992. During the past two decades, there has been political consensus around cutting down expenditure through rolling back the welfare state, paying back public debt, and lowering taxes – partly to regain the lost confidence. Today’s decision by the Riksbanken is not an outright devaluation of the krona, the preferred measure of “old” Sweden, but has a similar effect.

Update: In an official statement, the Riksbanken notes that the Swedish economy is “relatively strong” and that the economic outlook is “improving,” but that inflation is “too low” (the central bank’s target is 2% price inflation). The only major potential problem is the public’s debt level, which is too high. (Especially mortgages, in a real estate market that is generally considered to be a bubble.) The debt level will not, of course, get lower with lower interest rates. For this reason, many “experts” expect a legal amortization requirement on mortgages in the near future to lower the public’s debt as well as “cool off” the real estate market.

Update 2: In the Q&A following the press conference, Riksbanken chairman Stefan Ingves makes it very clear that there are “no technical limitations” to lowering the interest rate (way) below zero. But this is not necessary at present and is not a measure included in the central bank’s prognosis. It is possible and may be a preferred course of action should the economic situation deteriorate, states Ingves.

The Great Deformation Is Now in Polish

299486-352x500David Stockman’s huge volume on the background of the 2008 financial crisis, and on the role of the fed and government bailouts in the continuing crisis, is now available in Polish.

The Polish edition, Wielka deformacja, czyli jak skorumpowano amerykański kapitalizm, appears to be available for purchase at It’s also available directly from the publisher.

We’ve covered the English version of the book extensively here at Here is a Q and A with David Stockman about it, and Stockman’s author page features several selections from the book.

Robert Wenzel has posted the introduction from the new book (in English.)

Be Sure to Tune In for Mises Circle November 8

The West Coast Regional Mises Circle in Costa Mesa is sold out, but be sure and mark your calendars so you can join us live via On November 8 —one week from Saturday— we’ll be broadcasting all the lectures and speeches from Costa Mesa. I’ll provide you exact links as the event draws nearer.

Here’s the schedule:

Tentative Schedule (all times Pacific)
Grand Ballroom

10:20 a.m. Welcome
10:30 a.m. Jeff Deist “The Case for Optimism”
10:50 a.m. David Gordon “Thinkers Who Challenged the State”
11:10 a.m. Lew Rockwell “Against the State”
11:30 a.m. Presentation of the 2014 Mises Entrepreneurship Award to Louis E. Carabini
11:40 a.m. – 1:00 p.m. Lunch and discussion, bookstore open
1:00 p.m. Judge Andrew P. Napolitano “The Natural Law as a Restraint Against Tyranny”
1:30 p.m. Ron Paul “Freedom Doesn’t Come from Government”
2:00 p.m. break, bookstore open (final opportunity to purchase books for speakers to autograph)
2:20 p.m. Speaker Panel Q&A
3:00 p.m. Closing remarks
3:10 p.m. Adjourn


The Many Ways the State Taxes the Poor

6938Mises Daily Monday by Julian Adorney:

Contrary to the political myth, poor people do indeed pay taxes, and they pay into a system that robs them of control over how they can spend, save, or invest their own property. In addition, the poor are taxed by a perverse incentive structure that punishes their financial success

Why People Trade

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Obamacare Is Not a Revolution, It Is Mere Evolution

healthMises Daily Weekend by Roger McKinney

Liberty-loving people are right to be appalled by the Patient Protection and Affordable Care Act. However, just about every evil in the legislation has already been inflicted on the market through 50 years of state destruction of the healthcare market.

Looking for Introductory Materials on Austrian Business Cycle Theory?

SS466Michael Pollaro, Mark Thornton, and I went looking for some good introductory materials to help newcomers understand Austrian Business Cycle Theory.

Pollaro posted this helpful article over at Forbes, noting:

Indeed, we would say that without ABCT investors are at a competitive disadvantage, for it is only through ABCT that one can truly understand what is underpinning the economies and financial markets of today.

And he links to several resources including this journal article by Joseph Salerno, and this very easy breakdown by John Cochran.

There are many other resources, Mark and I might point you to as well.

For starters, there is Rothbard’s Economic Depressions: Their Cause and Cure, and Richard Ebeling’s collection of essays, including works by Hayek, Mises and Garrison.

Other resources include:

This survey of ABCT on the Mises Wiki.

Manipulating the Interest Rate: a Recipe for Disaster by Thorsten Polleit

Austrian Business Cycle Theory: A Brief Explanation by Dan Mahoney.

Explaining Malinvestment and Overinvestment by Larry J. Sechrest.

And several videos including:

Read More→

Why Money Doesn’t Measure Value

gold2Mises Daily Friday by Robert Murphy:

Robert Murphy, contra Real Clear Markets and Forbes, explains why money is not like a ruler and doesn’t measure value.


Patrick Barron: The End of the US Dollar Imperium

Jeff Deist and Patrick Barron address the issue of monetary imperialism. How does the US use the dollar as a weapon of economic and cultural power? How long can it last? What might the unprecedented collapse of a worldwide reserve currency look like? And how do the BRIC nations and Asian central banks fight back?

Patrick Barron is a private consultant in the banking industry. He teaches in the Graduate School of Banking at the University of Wisconsin, Madison, and teaches Austrian economics at the University of Iowa, in Iowa City, where he lives with his wife of 40 years.

Also available at Stitcher and

Public Accommodation and Social Engineering

6936Mises Daily Friday by Nicholas Freiling:

Public accommodation laws that prohibit discrimination render property rights moot and create a legal system designed to force agreement with the state’s official moral code.