18 Oct 2008

Your Presidential Choice: Two Names for More of the Same

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Dick Clark ruffles some feathers at Suffolk University Law School in this editorial. I know my student newspapers didn’t have articles this cool…except maybe for the ones I wrote.

17 Oct 2008

Those Who Fail to Understand Past Booms Are Doomed to Repeat Busts

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If you understand Austrian business cycle theory–which says that recessions are the necessary consequence of malinvestments made during a government-induced boom–then this comment by a “strategist” is hilarious:

“I’m not talking about 50 basis points … we really have to take rates down to effectively zero,” Nightingale said, pointing out that U.S. rates “got down to one percent in the last recession and that wasn’t a bad one.”

Our modern macroeconomic paradigm, where the central bankers simply face a tradeoff between price inflation and economic growth, is bankrupt. It should have died with the stagflation of the 1970s, but instead it was only mostly dead.

I am going to have a very thorough discussion of this in a forthcoming Mises.org article; right now it’s supposed to run on Monday. Suffice it to say, our current mess was caused by Greenspan’s desire to limit the last recession. If we print our way out of this, we will simply cause Americans to erode more of the capital structure. The hole will be deeper, and another crisis will suddenly pop up “out of nowhere” to catch these CNBC strategists by surprise. “Whoa, looks like another productivity shock! Take the rates down, Ben!”

17 Oct 2008

Schiff vs. Siegel

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This is great. Siegel actually implies that the gold standard caused the Great Depression.

The debate starts at 2:20. (HT2LRC.) Siegel lays down the gauntlet and says he will be vindicated in six months. Let’s wait and see!

17 Oct 2008

Is the Current Mess a Sign of "Market Failure"? Stealing from Myself

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I realize this is lazy, but oh well. I just wrote a fairly comprehensive email to some colleagues, complaining about the ease with which people are throwing around the term “market failure” to describe our current mess. Besides the fact that (in my opinion) there were all sorts of government policies that caused/exacerbated the situation, there is also the fact that the charge is a sloppy use of terminology. And now we go to the email–and I’ve even left in the asterisks, rather than switching it to italics, to retain the authentic “email feel”:

“Market failure” has a very specific meaning in economics. It means that people in the market aren’t taking full account of the social benefits and costs of their actions, and so aren’t producing the optimal amount. E.g. if a car manufacturer is dumping chemicals in the river, and yet doesn’t have to pay fines for it, then it will produce too many cars. Or if a vaccine producer only counts the revenues it gets from people who buy the product, and not the benefits of people who don’t get infected by the customers of the vaccine company, then not enough vaccine doses are produced. So a government fine can address the former, and a government subsidy can address the latter. (I’m not endorsing this analysis, just reminding us what “market failure” means in economic theory.)

Now if an entrepreneur thinks people will like polka dot cars and so he produces 10,000, but can only sell 2,000 profitably and has to unload the rest as scrap metal, he has wasted resources but it’s not a “market failure” in the technical sense. It’s a failure, and it happened in the market, but it’s due to poor foresight. A bureaucrat controlling the economy could make the same mistaken forecast. It’s not because of some systemic problem with incentives.

So back to the current mess: Just because some firms screwed up is not per se evidence of “market failure.” If it were, you could point to every bankrupt business and say, “See? The free market doesn’t work, let’s elect Obama.”

Now obviously, the fact that *so many* major firms all screwed up royally *at the same time* leads us to suspect there is some systemic bias involved. But my point is that “market failure” is not synonymous with “failure in the market.”

16 Oct 2008

That’s Not My King

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Warning to agnostic / atheist readers: This post will involve the J-word, but you’ll see why. I am not going out of my way to make you feel uncomfortable.

Over at the Austrian Economists blog, Pete Leeson directs readers to a cool survey in the Freakonomics column, asking four experts (one of whom is Leeson) about outlaws. It’s well worth reading, but Graham Seal, professor of folklore at Curtin University of Technology in Australia, invoked Jesus improperly:

The Robin Hood principle states that wherever groups of people feel themselves oppressed in some way they are highly likely to produce their own outlaw hero.

Research across 2,000 years of global history and myth identifies at least 200 individuals who have been celebrated as “noble robbers.” From Robin Hood to Dick Turpin, from Jesus Christ to Jesse James, from Pancho Villa to Ned Kelly, these friends of the poor are said to rob the rich and powerful, to right wrongs, to treat the weak with respect, and to offer violence only in justified defense.

Whether these characteristics are true or not is hotly disputed wherever outlaw heroes are found. Nevertheless, ambivalent figures like Billy the Kid, Salvatore Giuliano, Stenka Razin, and India’s “bandit queen,” Phoolan Devi, among many others, can be identified in history and in folklore. They continue to appear wherever political, cultural, and economic conflicts tear the fabric of society.

Now it’s true, technically it’s not Seal who is describing Jesus. But in context, when Seal says “[w]hether these characteristics are true or not is hotly disputed,” he clearly means that maybe these outlaws sometimes used violence when it wasn’t justified.

Not only did Jesus refrain from using violence in unjustified cases, He refrained even when it would have been justified (in any secular legal system), even when He was being tortured and nailed to a tree. He rebuked Peter for violently defending Him. And when in the heck did Jesus ever rob from the rich?! He said the rich man who stored up earthly treasures was a fool, because he could die that very night. He told a man who loved his possessions to sell them. give the proceeds to the poor, and come follow Him. But Jesus never forced anybody to do anything, nor did He steal from anyone. The only episode even remotely approaching property violations that I can think of was overturning the tables of the moneychangers, and that was a very nuanced situation.

Yes, Jesus fed the poor, but that’s because He multiplied loaves and fishes. No redistribution of wealth going on there. That’s why Jesus is not simply a really cool guy, who’s fun to read about. He was without flaw, literally. Any other “hero” you might have, there would always be something to make it inappropriate for you to actually worship the person, for crying out loud. But not Jesus. With Him, you don’t have to hold back, because He never did anything wrong.

That’s MY KING. I wonder Dr. Seal…do you know Him?

16 Oct 2008

"Credit Cards May Be Next Trouble Spot in Crisis"

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So warns CNBC. Jeez, I could have told them that ever since my first semester in grad school!

On a more serious note, I actually advise in this article that paying down your credit card debts might be the wrong play in the present environment. NOTE, I am NOT saying, “Go charge a bunch of electronics because the dollar is tanking.” Rather, I am saying that instead of paying down your balances–which you should be able to shift to a card with a very low APR, for a 3% transfer fee–it might make sense to use your current surplus to buy gold and silver coins, or some other asset not denominated in US dollars.

Keep in mind, however, that for this strategy to work, you will need to be able to pay off your credit card balances once the introductory APR expires (probably in 9 or 12 months, depending on the offer you get). Because a year from now, interest rates might be sky-high, and you definitely don’t want to be stuck with $20,000 in credit card debt at that time.

So for example, let’s say that today you buy $2,000 worth of gold and silver–and we’re talking physical coins, remember–instead of paying down your credit card balance. Then in 10 months you sell $2,100 worth* of the coins back, which you will be able to do if precious metals go up 10% or more. Then you pay down your credit card balances, and you’re better on that front than if you had paid them down today. Plus, depending on how much gold and silver go up in the meantime, you are left with some coins even after selling $2,100 worth.

Naturally, if gold and silver go down, then the above strategy stinks.

* By phrasing it in terms of how much money you are raising, I’m taking into account the bid/ask spread, i.e. the fact you pay more for the coin than the dealer pays you. But if gold and silver rise a lot, then even accounting for the spread, you can end up with coins left over even after getting your credit card balance down to where it would have been had you paid $2,000 off today.

16 Oct 2008

Lew Rockwell Has Short Interview With Bob Murphy

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These LRC podcasts are pretty convenient; you don’t need to download anything. And note how much better a radio voice I have when I’m not calling in! (Of course, LR’s voice is better.)

16 Oct 2008

Official Yr/Yr CPI Inflation: 4.9%

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Well, the headlines are all telling us that there was no rise in prices from August to September. Maybe, but here I explain why I’m skeptical. What this CNBC story doesn’t say is that from September 07 to September 08, even the government’s official CPI (for all urban consumers) rose 4.9%.* So keep that in mind if you get the sense from the papers that we have had stable prices.

* And John Williams over at “ShadowStats” would of course say that even this official figure of 4.9% is a joke. Before I was a “grown up” (in quotation marks because it is still debatable), I wouldn’t have been in a position to say. But c’mon, do you think the prices you pay–not just for gas and electricity, but also for milk, bread, and meat–have only risen about 5 percent over the last twelve months? As Dr. Evil would say, “How bout, no.”