Citizen Economists » Austrian economics

Keynes vs. Hayek

Doug Gentry — Fri, 29 Apr 2011 21:10:44 +0000

Freidrich Hayek and the Austrian school of economic policy argue for a laissez faire approach to the economy – emphasizing individual actions and criticizing government intervention. John Maynard Keynes acknowledged that economies could, over time, correct themselves, but argued that government had a responsibility to intervene and stimulate demand when the economy is in a slump. This video is a sequel to Fear the Boom and Bust, also produced by Econstories.tv

For my students, see how many of today’s economic issues you can find in this video and compare them to our look at the Great Depression.

Austrian Tautologies: Altruism

Simon Grey — Thu, 31 Mar 2011 17:04:24 +0000

Here’s a fun argument:

As far as I can tell, we are left exactly where we were after that first essay. No altruism to be found. If you made a “sacrifice” it was, by direct virtue of your action, “worth it to you” (at the time of the action) or you would not have taken that action. It is really just that simple. (By the way, this does nothing the render the action more, or less noble, whichever the case may be in the eyes of an observer.) As a fellow anarchist buddy of mine puts it, “altruism is praxeologically impossible.” Agreed, still.

The basic argument is that the only way one would make a “sacrifice” is if one valued the results of one’s sacrifice to worth more than the costs of the sacrifice. More simply, altruism doesn’t exist because people only act if they believe they will profit. This is simply tautological reductionism based on Misesian rationality.

But this begs a question for Christians: If that which is considered altruistic is actually greed, then what is the spiritual value of giving?

Accepting the definitional impossibility of altruism, I would argue that giving still has spiritual value in that it still teaches sacrifice. Some people make sacrifices in order to afford nice cars; Christians make sacrifices in order to help others. And even if one truly does want to help another person, it doesn’t change the fact that there are opportunity costs, so there is always sacrifice in that sense as well.

Furthermore, there is virtue in in training one’s mind to value helping others over satisfying one’s personal desires. Even if helping others is inherently selfish, as the Austrian school of economics would define it, it is still virtuous to train one’s mind to desire to help others.

Thus, as a Christian who subscribes to Austrian economic analysis, I have little worries about the inherent spirituality of this tautological trick. Even if I am being self-interested by helping others, it doesn’t change the fact that a) I am helping others and b) doing so willingly. That’s what God demands of me, and that’s what I’m going to do.

How to Argue Poorly

Simon Grey — Mon, 28 Mar 2011 19:03:34 +0000

In which John Case critiques the Austrian School of economics:

Its principles are as follows:

1. The business cycle is a completely virtuous cycle. Slumps are the price we pay for booms. Recessions are the just punishment for the excesses of previous expansions. The fact that the rich reap the rewards regardless, and the poor are the ones punished regardless, is of no importance to the Austrian school. Every graph of the financial crises showing crashes and bubbles is just God’s continuing morality play. Government intervention in this “virtuous” cycle prevents God and/or nature from rendering justice with the “tough love” everyone needs – and thus is evil. The Austrians are always in a state of continual frustration because no nation in the world seems to be willing to wait out financial crises and depressions trusting in the “magic of the market” to fix everything – that mirable dictu, keeps crashing and suffering from persistent instability. Instead of waiting for God’s judgement, people – to the amazement of the “Austrians” – still resist walking calmly to the grave from starvation or homelessness!! They say: “if this is virtue, then the Devil has ascended Heaven.” Nonetheless, the “virtuous business cycle of capitalism” has a certain seductive power. Not because it offers any solutions, but because it explicitly offers nothing: Welcome to God’s Plan.

I have never heard any Austrian economist ever say at any time that the boom-bust cycle is a “virtuous cycle.” It has been described as a natural cycle, where an artificial boom always leads to a bust. And history has demonstrated that interference tends to be much, much worse than letting simply waiting for the free market to run its course (cf. FDR’s Folly).

2. The Austrian School rejects a scientific foundation to economics. The failure of any political regime to endorse the virtuous business cycle theory of the Libertarians gives rise to all sorts of political backwardness and numbness to reality in its supporters – listening to them frequently arouses a generous desire to help them with a wake-up “dope slap,” after such tortured jewels as: “the people are too stupid to understand,” or “the people are entitled to nothing,” and other too-vulgar-or-racist-to-repeat sentiments. So few believe them, in fact, that they have become hostile to any group or government or institutional level of analysis at all. Instead they advocate strict adherence to “methodological individualism” – analyzing human action exclusively from the perspective of individual agents. Austrian economists also argue that mathematical models and statistics are an unreliable means of analyzing and testing economic theory, and advocate deriving economic theory logically from “basic principles” – read “divinely inspired principles” – of human action. They have even given their methodology a name, “praxeology.” Additionally, renouncing science altogether, the Austrians reject experimental and empirical research altogether. They reject testability and falsification en toto. The great virtue (not!) of a theory that rejects testing and falsification is, of course, that it cannot be disproved!

Actually, the complaint with the mathematical models used by mainstream economics isn’t the math; it’s the assumptions and definitions. Also, you seem to ignore the fact that all scientific disciplines are inherently axiomatic. This is also true for mathematics. Anyone who has done a precursory examination of “official” statistics can easily see how Orwellian the system has become. As such, analysis based on the official statistics is bunk, because the underlying assumptions are bunk. Besides which, economic phenomena is simply too complex to be perfectly and completely explained by simplistic models.

3. The role of the state in Austrian and now Libertarian theory is more confused than its transparently false propositions on the business cycle. The first Austrian, von Hayek, was actually a social democrat and strongly supported standard social democratic policy on the key role of the state in providing services that were market failures. He differed only on whether the post office should be public or private. But latter day Austrians at the Von Mises Institute take this notion for a ride off the sanity cliff, calling for the end of public schools, roads, post offices, Internet, media of any kind, health care, retirement, fire stations, etc, etc, etc.

Actually, the Austrian school was founded by Menger, Bahm-Bawerk, and Wieser, so 0 for 1 there. Also, private schools out-perform public schools, private highways out-perform public highways, private delivery (e.g. UPS, FedEx, DHL) outperforms the USPS (in fact, FedEx subcontracts for USPS because they’re so much more efficient), private providers of internet and media are superior to public-provided alternatives, private health care is measurably superior to public health care (and that’s with all the expensive regulation and taxation in place), private retirement aren’t effectively bankrupt (unlike, say, social security), and the few private fire stations that exist are superior to their public alternatives. The Austrian argument is that the state is inferior to the market at providing pretty much any and every service and good imaginable, which is why it is unnecessary.

4. Like many cultish theories, libertarian economics rise in popularity reflects public dissatisfaction with the performance of large institutions in many areas of economic and public life. They often correctly identify corporate corruption as a source of the decay of these institutions, but rather than reform the corruption, they become captured by an attractive, but ultimately doomed, ideology that – due to its futility as a guide to leadership – strengthens the very corruption they decry.

That a theory’s devotees are cultish has no actual bearing on its validity.This use of ad hominem argumentation is reprehensible, and does not suffice as a logically valid argument.

If, as noted before, public goods (indeed, the state itself) are vastly inferior to privately provided goods, then what, exactly, is the point of reform? Particularly since abolition is not only cheaper, but more equitably?

And why the emphasis on leadership? People are quite capable of deciding for themselves. And if they aren’t, it still does not follow that the state need exist. Perhaps someone needs to study private charity in America during the 19^th century (by which I mean read de Tocqueville).

In all, this attack is simply ludicrous. It is full of falsities and half-truths, and is riddled with logical errors. The lesson to be taken from this display of blatant stupidity is that one is should spend more time reading than writing, particularly when one is ignorant and devoid of the ability to string together a logical, coherent thought.

A Monetary Policy that Encourages Malinvestment

Richard Daughty — Fri, 18 Mar 2011 16:09:41 +0000

Thorsten Polleit, of the Frankfurt School of Finance & Management, penned an article in The Free Market newsletter of the Ludwig von Mises Institute titled “The Many Names for Money Creation.”

It starts off almost humorous, reading more like an interesting, mood-lightening sidebar to a banner article titled “We’re Freaking Doomed (WFD)!” as he notes that the dire economic conditions are such that “euphemisms have risen to great prominence. This holds true in particular for monetary policy experts, who are at great pains to advertise a variety of policy measures as being in the interest of the greater good, because they are supposed to ‘fight’ the credit crisis.”

He then illustrates how the term “unconventional monetary policy” is meant to convey the happy virtues of “courageous and innovative”, as opposed to the bad old “conventional” monetary policy, which is now “outdated.”

In a similar vein, he notes that “Aggressive monetary policy” is meant to signify “bold and daring action for the greater good,” and “quantitative easing” is just a confusing term used to make it difficult for people to see “what such a monetary policy really is – namely, a policy of increasing the money supply (out of thin air), which, in turn, is equal to a monetary policy of inflation.”

A policy of inflation! Yikes! What was in that article “We’re Freaking Doomed (WFD)!”?

From the perspective of the Austrian school of economics (the only true economic theory!), this is not going to be the ordinary kind of inflation, either, but the really nasty, evil kind, where “monetary policy pushes the market rate of interest below the natural rate of interest (the societal time-preference rate), thereby necessarily causing malinvestment rather than ushering in an economic recovery.”

In other words, the Fed and the government are making it worse.

And if you want to know about malinvestment, then ask my boss, who never tires of telling me that I am the only employee, alone, apparently in the whole freaking history of employees, that has a consistent negative value to the company, meaning that the bottom-line of the company would be immediately improved if I was, to coin a rhyme, removed.

So I asked her, “What’s with that ‘improved if I was removed’ stuff?” to which she asked, “What are you talking about? You are the one that said that in the previous paragraph, you moron!” to which I asked, “What?” and then she asked, “What?” and then we just looked at each other, confused as hell.

There was an awkward silence, as I struggled as if I was in some weird parallel universe, since her point was that she is, only now, realizing that I am, as an employee, a huge mal-investment, but I can’t be fired since I am too old and too savvy not to sue the hell out of all of them for my termination, even though their case is air-tight and I should have been fired long ago.

And, as I never cease saying, some other, much worse mal-investments, such as the stock market bubbles, and the bond market bubbles, and the derivatives bubbles, and the debt bubbles, and the housing bubbles, and the bubbles in the sheer, staggering size of governments, were NOT my fault, but are all the fault of the Federal Reserve creating the money that made it all possible

Now, as if playing right into my hands, Mr. Polleit writes, “Sooner or later the dependence of the people on government handouts reaches, and then surpasses, a critical level,” which I assume we have reached.

The worse news is that he figures that “People will then view a monetary policy of ever-greater increases in the money supply as being more favorable than government defaulting on its debt, which would wipe out any hope of receiving benefits from government in the future.”

The terrifying point of all of this is when he writes, ominously, “In other words, a policy of inflation, even hyperinflation, will be seen as the policy of lesser evil.” Hyperinflation! Gaaahhh!

Hyperinflation! Immediately, I go into We’re Freaking Doomed (WFD) mode, which usually involves a lot of hyperventilating and a feeling of panic until I realize that all I have to do is buy gold and silver to keep what is going to happen to everyone else from happening to me, and make a lot of dollars in the process, which always makes me feel better, leading to euphoria, as in, “Whee! This investing stuff is easy!”

A Monetary Policy that Encourages Malinvestment originally appeared in the Daily Reckoning.

Mannkal Economic Education Foundation

Bron Suchecki — Thu, 24 Jun 2010 18:55:52 +0000

For those goldbugs of a libertrian/Austrian economics bent (most seem to be, funnily enough) this organisation is likely to be of interest. Their mission:

We aim to strengthen the free market system in Western Australia and Australia, by promoting ideals of voluntary co-operation, choice, personal rights, limited government and responsible resourcefulness of individuals.

The Liberal Democratic Party may also be of interest. How can you argue with this Econ 101 on the WA branch’s site:

9. Prices Rise When the Government Prints Too Much Money. When a government creates large quantities of the nation’s money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services.

10. Government Manipulation of Interest Rates and Money Quantity Causes Booms & Busts. Making money cheap (low interest rates) and abundant leads to excessive short term consumption which leads entrepreneurs to over invest in non-productive assets. Excessive demand for goods from consumers and entrepreneurs then raises the price of goods and money (higher interest rates) which results in the liquidation of non-profitable investments (mal-investments). The destroyed capital and associated production dislocation is the recession.

Gold As The Truest Measure Of Value – Interview With Anthem Blanchard

Trace Mayer — Mon, 21 Jun 2010 19:16:53 +0000

Welcome to the RunToGold Podcast. This is Trace Mayer. I have a special guest with us, Anthem Blanchard.

Trace: Welcome, Anthem.

Anthem: Hi, Trace.

Trace: Now Anthem is currently CEO of nuMetra, which is a federated CDN (a content delivery network) and they are working on a new, innovative approach to transferring bandwidth, particularly for streaming video, through the Internet.

Anthem, you’ve been involved in the gold industry for a long time haven’t you?

Anthem: I have, I have. Since I was born, actually, as I was raised by a gold-bug, James U. Blanchard, and it was a case of really being indoctrinated into the Austrian school of economics, and understanding what real money is, and also I went to the traditional school of finance at Emory and I am actually going back into the gold industry. So, I am very familiar with gold, as well as the traditionalist-type mentality for monetary policy.

Trace: We are very grateful to your dad, he was involved in this sound money fight back when gold was illegal, and there were criminal penalties for holding this most dangerous of all controlled substances, this inert yellow metal! He actually campaigned quite a bit in the public sphere to get gold re-legalized, so we are very grateful for your family’s work in that regard.

Anthem: As am I.

Trace: Now, Ben Bernanke last week on Capitol Hill testified “I don’t fully understand movements in the gold price”.

And so, I’m trying to figure out which is more frightening: that investors worldwide are losing confidence in these little paper coupons, or that the shepherds of these major world reserve currencies like the dollar, the evaporating Euro, these colored coupons; that they don’t understand what’s going on with money.

I was wondering if you could speak about that?

Anthem: Sure, I think that really it draws from a deeper conclusion and understanding that quite simply, one is never educated at all throughout the educational processes, (at least the ones I had and pretty much the one that everyone I’ve spoken with has had), in actually learning about gold as being the truest money and the truest measure.

Some of the ways that you can actually look at gold, and the reason why it is one of the truest measures, if not the truest measure, is that it can, comparatively speaking, valuing one asset class versus another, you can distinctly tell that gold holds its value, because it is valued.

And so therefore, it makes comparative ratio-type exercises, puts on, so to speak, x-ray glasses, and it is a secret decoder of sorts. So once you know that secret of looking at comparative value, then price in terms of a national currency, becomes irrelevant.

Trace: Yeah, I mean I wrote an article on it, the Numeraire.

Anthem: Yes, I love that article!

Trace: Yeah, we use gold as our unit of account. We don’t necessarily need to use it in ordinary, daily transactions (although that has some wonderful uses when we do use it) but even without that we can still keep our financial statements, our income statements, our balance sheets, our cash flow statements, keep them denominated in gold, and then as you say we are able to more accurately calculate prices, which are really just a ratio between two different assets.

And so, when we use these synthetic commodities, these little colored coupons that have no value in themselves, well how do we get a reliable measure? As you say, we have to use an asset which is in effect nobody’s liability.

Anthem: Exactly, and as you very well know any fractional reserve banking system by nature, issues liability currencies.

Again it’s the right to pay, the right to bear actually, (to pay is what we originally had back in the gold standard days), but today it really is just a fiat decree of a debtor, in particular the governments, having to accept, or having to get paid in these national currencies.

So, it’s very difficult to get comparative value off of a liability, off of any sustainable long-term period, so it makes it very difficult to make wise choices.

Trace: Yeah, exactly. We’ve moved from money, to money substitutes, from money substitutes to these little fiat currency illusions, these little coupons. They say the dollar is an “IOU nothing” and the Euro is a “who owes you nothing”! So when you do look at these fiat currencies, in effect they are just common stock, the common stock of the various institutions or organizations that they represent. Whether it’s this entity known as the United States or this entity known as the Euro or as Iceland, since all of them are declining relative to gold, it does portend some turbulence in the future, like we are seeing politically, too.

So, it’s kind of a scary time we are moving into, but at the same time for those of us who are able to put on those x-ray glasses, I think that there are a lot of potential deals to be made, and to be had if we are able to accurately discern what is going on.

Anthem: There’s no doubt, and again I know that I’ve been able to use it quite successfully for myself, personally, to make choices about value, where to invest or where to save my value. It’s been quite good for me. So I think that the charts really speak for themselves. You have a lot of great charts in your website, and it’s really just that once you’re able to see over a long-term, multi-decade period.

One asset, specifically gold in this case, we are able to look at the price of oil in terms of numbers of grams of gold, or the Dow, it paints a whole different picture.

Trace: Yeah, because actually on my website there’s a link called key ratios, and I’ve got some of the various key ratios. You mentioned one of them, the Dow to gold ratio, and everybody it is all happy that the Dow is doing better it’s over 10 000 and “oh, there’s a recovery!” . But really, when you look at the Dow pricing of gold, we are currently in at 8.38 ounces of gold for the Dow, which is lower than we had several months ago.

So the Dow has actually been falling, losing more of its value pricing gold. We are currently seeing the same thing with barrels of oil, right now it’s at 1.73 gold grams per barrel of oil. So, I’d like you to speak a little bit more about how exactly do use these ratios with each other to make better investment choices.

Anthem: Well for myself personally, I like to look at what I called the ultimate savings and investment cycle barometer in that Dow gold ratio and the reason why like it so much is that gold, as a relic of the end of World War II’s the Bretton Woods Treaty, is priced on all the major exchanges and specifically the London Bullion market, it’s primarily set in dollars in terms of receiving payment, yet they are also set in other currencies but the vast majority of the clearing gets done in dollars, so when you’ve got the Dow and all of the earnings, the unit of account for the Dow 30, irrespective of what those companies are, and those are meant to represent the industry, the big industry players obviously being in the US, it also is the dollar.

So by canceling out that dollar in the numerator and the denominator of the ratio, one all of a sudden it’s able to take the most variant of all variables, when it comes to finance, given the foreign exchange market is the largest in the world and the dollar is by far the most circulated currency, national currency, that all of a sudden it illuminates the picture to really be able to see how expensive or cheap our investment is, relative to savings, and how long left to have to go roughly until we get to the investment cycle.

Trace: It really makes me wonder, does Bernanke really not “fully understand the gold price movement” or is he just feigning ignorance. Because it really boggles the mind to think that people who are in charge of these institutions, that are moving trillions of dollars around, the value that they don’t understand, the role that this monetary metal plays as captured in the spot gold price. Because the LBMA you mentioned, I think that their actual daily transactions were up something like 40% year-over-year, so there’s a lot more gold changing hands this year on the LBMA than there was last year and so gold is functioning as a major currency with tens of billions of dollars changing hands every day. So, I think that there’s a lot that we as investors can gain from being able to use it to perform the calculation value.

Anthem: Absolutely, absolutely.

Trace: I think we’ve used up about most of our time. Do you have any recommendations or tips for the listeners of run to gold?

Anthem: Well, I would suggest to focus on saving-type investments and obviously in terms of the ultimate form of savings, being able to look at gold as being the ultimate form of savings. But also looking at cost-cutting saving cycle-type plays. So whether that’s media, whether it’s a form of escapism… unfortunately that’s what happens in saving cycles, is people have to save and not spend as much. Anything that people can get distracted from their, unfortunately, more difficult financial situations. I think that that’s a real growth industry, and history has been a very good indicator of that.

So those are my passing thoughts.

Trace: So things like the five dollars Starbucks every day is not so much a good play in the saving cycle?

Anthem: Seems to be pretty easily substitutable products and I guess you could look at McDonald’s at that specific example, so it’s garnering a lot of market share.

Thank you very much for this discussion and we’ll have you on again just like we’ve had you on before.

Money Supply Flood to Drown US Economy

Richard Daughty — Tue, 23 Feb 2010 18:50:07 +0000

I can tell you the exact date (Saturday, February 13, 2010) that I saw that TheDailyBell.com had a “guest Editorial” by Dr. Ron Paul, who I admire because he is the only Senator in Congress whose economic philosophy is the Austrian school of economics, which, in fractured German, is “ein Austrian economischer”, which I purposely use to paraphrase John Kennedy, who famously said, “Ich bin ein Berliner”, which actually translates from German as “I am a cream-filled pastry”, but everybody knew what he meant, which was that he was just another clueless American Democrat who wanted to save the whole world by taking over the whole world so that they could change the whole world, and who had the majority of American voters and Congress behind him, all of whom have heads that, for all apparent intents and purposes, are cream-filled, and that is why Kennedy said that he, too, behaved as if he had a head filled with whipped cream.

Oh, I am sure that there are those who disagree with my interpretation of what a dead president meant when he said he was a “cream-filled pastry”, and there are those who dispute my understanding of the vital role of the taco (“The prefect snack, any time!”) and the candy bar (“Perfect for times between tacos!”) in today’s modern, health-conscious world, too, so go figure. Idiots!

Regardless, the state of my mental faculties or the fact that I sound, look and act exactly like an idiot is not the point. The point is about the importance of owning gold, silver and oil when the truly idiotic Federal Reserve keeps increasing the supply of credit and money, especially as it is used mainly to buy an avalanche of new government debt (monetizing the debt! Gaaaah! We’re freaking doomed!), and how the title of his article, “More Spending is Always the Answer”, is so ludicrously ridiculous that I could not believe my eyes that Senator Ron Paul, of all the people in the world, is saying that “more spending is always the answer”, because nothing could be farther from the truth, and it is, instead, waaaAAAaaay out there past the outermost, frigid fringes of Truth, a place where we find “The promise of True Love” and “The check’s in the mail.”

It turns out that he was being sarcastic, as I should have known, and he says, “Continually increasing the debt is one of the logical outcomes of Keynesianism, since more government spending is always their answer. It is claimed that government must not stop spending when the economy is so fragile. Government must act.”

The problem is that “when times are good, government also increases in size and scope, because we can afford it, it is claimed.” Exactly!

In short, the blockheads in Congress, the Federal Reserve, the majority of the laughably-incompetent university economics professors in the country, the morons of the President’s council of economic advisors, and all Democrats, all believe that “There is never a good time to rein in government spending according to Keynesian economists and the proponents of big government.”

As a case in point, “Last week, the House approved another increase in the national debt ceiling”, he says, meaning that the idiotic American government can now legally borrow $1.9 trillion more, on top of the $12 trillion already borrowed and owed, “to stay afloat and avoid default”, although he did not mention that this monstrous new load of debt is only expected to last until just after the mid-term elections this year, at which point Congress will take us farther and farther into a deadly financial quicksand with another extension of the debt limit! Hahaha!

In this regard, Junior Mogambo Ranger (JMR) Alan L. writes, “Call one drop of water a dollar. Five drops equals one milliliter. Question: What is the volume of water of $14 trillion?”

Instantly, I am back in high school, feeling panicked and trapped because the teacher has asked me a question that not only do I NOT know the answer to, or how to figure it out, but I don’t even care, and I never WILL care about it because if I was ever actually on a train that was leaving Chicago towards Los Angeles, 2,000 miles away, going 60 miles an hour, and I knew that another train was leaving Los Angeles going to Chicago at 70 miles an hour, I wouldn’t get on the damn train! It’s that simple!

So I don’t freaking CARE how long it would be before they met and they crashed into each other with a big explosion and there are bodies everywhere and what a mess, because I won’t be there! I’ll read about it!

Apparently, JMR Alan saw the panic in my eyes, or perhaps it was the way I was reaching under my jacket preparing to shoot my way out of here if necessary, but either way, he was pretty quick coming up with the answer: “Twenty times the volume of the Great Lakes. That puts the entire area of the United States 50 meters underwater.”

Wow! I seem to remember some handsome rascal and clever bon vivant, with a twinkle in his dazzling blue eyes and a roughish grin on his boyish-yet-rugged face, say “We’re freaking doomed!” as a result of the abject stupidity of Congress and the Federal Reserve in the last 90 years or so since the Fed was created, and especially as a result of the stupidity of the last 40 years when Nixon refused to exchange dollars for gold, and doubly especially since 1997 when Alan Greenspan really started getting insane with monetary policy, and triply especially since 2008 when the unbelievably preposterous Ben Bernanke and his loathsome Federal Reserve doubled the money supply at a stroke! At A Freaking Stroke (AFS)! Doubled!

This – THIS! – is the worst thing that could happen for those of us whose fear of hyperinflation, which is guaranteed after a hyperinflation in the money supply, makes us buy gold, silver and oil with a fearful, frantic frenzy that precludes even thinking about spouses and children, except maybe about how they are a big, heavy weight around my aching neck and my only hope is to get more gold, silver and oil, which, when I do, make the whole problem worse and worse! I can’t win!

And don’t get me started on the hassles of having a few defensive fortifications in the backyard to further protect yourself against the massive social unrest that inflation causes. Neighbors are always whining about something, like maybe a couple of accidental shots, probably less than a hundred rounds all told, allegedly emanating from the Mogambo Bunker Of Trembling Terror (MBOTT), that didn’t even hit anybody, and the only real damage was Carl’s stupid barbeque grill, which was old, rusty and ugly to start with, and I didn’t think he would even mind, and there was some collateral damage to his stupid water heater, too, which was ditto on the old, rusty and ugly.

But the point is that the Federal Reserve is going to kill us with inflation in prices as a result of their relentless inflation in creation of money and credit as a result of the federal government deficit-spending so incredibly much money, and you should get some gold, silver and oil right away!

You will be glad you did, and you can fit a surprising lot of them in even the most modest-sized bunker, yet still have lots of room for supplies of ammunition, frozen pizzas and pornography. So, whee! This investing stuff is easy!

Money Supply Flood to Drown US Economy originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Walter Block at Columbia

Thersites — Wed, 03 Feb 2010 16:09:11 +0000

It’s not every evening that you are able to pack a room full of a hundred libertarians on the Upper West Side of Manhattan, let alone at the bastion of leftism that is Columbia University. But tonight was different, as Loyola Professor and Columbia alum Walter Block was on campus, leading a spirited lecture on all things Austrian.

During the first part of his discussion, he spoke to his encounters with a variety of notable economists including Milton Friedman, Murray Rothbard, Ludwig von Mises and Gary Becker amongst others. With his characteristic Brooklyn sense of humor, Block had the audience laughing as he recounted stories like that of his defense of his dissertation on rent control against one of his judges, a rent control commissioner, and his meeting with Nathaniel Branden and Ayn Rand back when he was a rabid young socialist and subsequent conversion to libertarianism.

He then dealt with more substantive issues across the spectrum of political economy with aplomb. Block tackled the mainstream economists’ failures in their dealing with welfare economics, in which as Block argues there is a lack of recognition of each individual’s unique subjective utility with regard to various products proving amongst other reasons why marginal utility as justification for wealth redistribution fails, and in dealing with the absurdity of antitrust laws that are either used to prosecute companies for evil price gouging, ruthless undercutting or dastardly collusion.

Block also tackled fractional-reserve banking. Now we can all agree that fractional-reserve banking is an evil and fraudulent system that is the principle mechanism for inflating the money supply. However, my view had been that if two parties agreed to a contract that allowed demand deposits to be lent out, this was fine as both parties did so at their own risk. Block argues that two parties agreeing to a contract based upon fractional reserve proves illegitimate because a contract has to be consonant with property rights. In Block’s view, fractional reserve creates a system where multiple titles are given to a single piece of property (money); the obligations to the parties are greater than the assets involved, so the system is thus not Kosher.

Block also tackled social issues such as immigration, where he made a couple of interesting arguments. First, he rightly pointed out that those who wish to restrict immigration because of the belief that immigrants would take advantage of the welfare state were dealing with the symptoms rather than the root cause of the problem which is the welfare state. Second, he argued that being against immigration meant being against babies, since they both represent new additions to the population. I would differ with Block in that I don’t believe babies born into a certain society are equivalent in their socialization to those coming from societies with differing values. This is not to say I am against legal immigration, but that I do not believe newborns and immigrants are necessarily equivalent in terms of their effect on society. I also have not sufficiently examined my immigration views with respect to defense. If a certain group clearly poses an existential threat to your society, then should you invite them over the border and deal with them only when mass murder has been committed? This may be dealing with a symptom of immigration rather than a root cause of the militancy of a foreigner or group of foreigners, but nevertheless these issues amongst many others must be reconciled.

He also argued against intellectual property, as in Block’s eyes ideas are not scarce and can’t be owned. The argument goes that if ideas were property, then one would not be able to speak because someone else would have laid claim to each word. Again, IP is an issue which I have yet to study enough to firmly pick a side on, but at face value to me the issue seems to deal on the one hand with incentivizing people to produce things (by granting them a monopoly right to that product for a limited time), and on the other trying to ensure a free market in which competition amongst producers is robust, driving down costs while increasing quality for the consumer. I know the Boldrin book addresses a variety of discoveries that occurred without the incentive of a patent or copyright, but again I have not settled on this issue.

Block also put forth the view that man is not naturally predisposed towards liberty because while he initially developed explicit cooperation in helping out his fellow hunter-gatherers, he was never hardwired for implicit cooperation through the price system of the market. The argument goes that this spontaneous system coordinating the wants of individuals is foreign to us inherently because back in the days of hunting and gathering, we were not dealing with voluntary transactions with people from all over the world. We simply worked together in small traveling groups. To this argument, he also added that the ruling class has brainwashed the people and quashed perceived “radical” voices like that of Ron Paul. I don’t believe these reasons are sufficient to explain why collective tyranny continues to trump individual liberty, especially when many people support legalized plunder because they benefit from it, and because there are certain Judeo-Christian values some construe as supporting socialism, amongst many other reasons.

Finally, Block addressed one of my questions on the private provision of defense. Since I find the defense as private insurance companies argument interesting, I asked Block what happens if one’s enemies buy out their defense company. Block admitted there would be a problem here, but made the case that a government military could be bought out by enemies as well. This was a fair though in my view somewhat tenuous response, and there are numerous other arguments as a practical matter that can be made against private defense. Briefly, in my view, defense is not about economic efficiency, but defending a group of people with common values. And too, in our society we have allowed for the proliferation of private defense forces to assist our public defense — in other words we allow our military to yield the benefits of free market institutions. I believe that defense and the courts are the proper realms of government, problem-riddled as they may be. I believe in our Constitution when read in its plain language. To expound upon this debate will be left for another occasion.

Overall, Block’s arguments were welcome banter for this writer so infrequently exposed to anarcho-capitalist ideas promulgated by a real person in the flesh. The evening made for great entertainment and deep reflection on a plethora of issues. It was a pleasure to hear Professor Block’s unique perspective on the world. To be exposed to radical arguments on either side of the issues certainly helps one to check one’s principles and grow intellectually. Without challenges to our beliefs and constant intellectual criticism, we become complacent. Luckily, as I have found on my intellectual journey of the past few years, the libertarian community keeps its members constantly on their toes.

Crash Course in Sound Economics

Bron Suchecki — Tue, 11 Aug 2009 18:46:11 +0000

Amusing read from Unqualified Reservations (UR) blog. Introduction comments:

Here at UR, “economics” is not the study of how real economies work. It is the study of how economies should work – in other words, of how sound economies work. Sound economies, as we’ll see, are also stable economies.

Since there are no economies on the planet which are even remotely sound, nor is there any prospect of any such thing appearing, this discipline cannot conceivably be empirical, quantitative, or worst of all predictive.

Readers familiar with Austrian economics will find much to skim, especially at the start, but should also watch out for nontrivial differences in the origin of money and the structure of the loan market.

Why Most “Respected” Economists are Pro-Fed and Anti-Gold

J.D. Seagraves — Wed, 14 Jan 2009 11:34:10 +0000

To partisans of the Austrian theory of the business cycle, the cause of the current financial crisis is as plain as day — and that’s why we’ve been predicting it for years. You would think that the neo-Keynesians, monetarists, and Marxists who made fun of us Austrians in 2006 and 2007, and said we’d never have a housing meltdown and financial crisis exactly like the one we’re having now, would come over to our way of thinking — or at least acknowledge that we were right in this one case. But instead, they continue to make fun of us and deride the gold standard as “quackery.” Have they no shame?

Apparently not. And it shouldn’t be surprising. After all, followers of non-Austrian schools are practitioners of non-reality based economics. To them, economics is a religious faith. Since everything is make-believe, they can just pretend that the Austrian school didn’t predict this crisis years ago and that they weren’t poo-pooing those predictions. They can pretend that the Phillips Curve has validity and that stagflation is impossible. They can even delude themselves into thinking that Herbert Hoover was a laissez-faire “do-nothing” and FDR’s New Deal “got us out of the Depression” — or worse yet, that war is good for the economy!

Believing in any of these bogus ideas is akin to medieval doctors practicing the humoural theory of medicine. It was the official doctrine of the church, and therefore, it was accepted even when it was clearly false. Today, the state has replaced the church and Keynesianism is the official state religion.

Why don’t more economists recognize the reality staring them in the face? Well, for one, they’re educated in government-controlled schools. Only two universities in the entire United States do not accept federal money, and as central banking and fiat money are vital tools of Big Government, little else is going to be taught. What’s more, over 50 percent of professional economists in the United States work for the government, with 32 percent working directly for the feds. How can we expect economists to be objective on the question of central banking when their paychecks are monetized by the Federal Reserve? Heck, a huge share of the world’s economists are employed directly by central banks!

So it’s no surprise that “respected” economists — propagandists, really — are pro-Fed. Only one central-banking critic has ever won the Nobel prize: F.A. Hayek of the Austrian school. The greatest economists of the 20th century — Ludwig von Mises and Murray Rothbard — never got the recognition they deserved. But as the predictions they made continue to come true, one has to wonder how long the general public will maintain its faith in the high-priests of economic voodoo that dominate the economics profession.