Meanwhile, Hillary’s actual policies on women are a disaster waiting to happen. Consider her support for “equal pay for equal work.” What effect will this have on women in the workforce? It not only puts government in charge of micromanaging every aspect of payroll and personnel of every business in America. It also incentivizes managers to keep women in lower positions in a firm in order to comply with the wage mandates, and disincentivizes advancing women up the ladder by making the costs of ascending too high. The result will be the very “glass ceiling” that mainstream feminism abhors.
An intelligent friend, who shall remain nameless, replied:
I feel like this runs on the same logic that if you raise minimum wage to a livable wage, jobs will be destroyed and small business will crumble, when in fact the opposite has been shown to be true.
Now, this friend is not an economist. What I suspect is that the news sources he typically reads report heavily on the few studies that show positive employment effects of minimum wage increases, and ignore the rest of the literature. This isn’t exclusively the territory of the left, I’m sure people who read only right-wing or libertarian news sources overestimate the disemployment effects in the other direction.
But look at the conclusion he drew! Since he got the false impression that raising the minimum wage has positive employment effects, he concluded that there is essentially no tradeoff in government artificially boosting any wage; in this case the wages of half (!) the population. But given the initial error, this extreme conclusion naturally follows. Continue reading It All Comes Back to the Minimum Wage Debate→
As a Canadian, it’s very strange hearing Americans talk about the Great Depression. The American public education system apparently has a monolithic view on the subject. Based purely on my interactions with people who have passed through that system, I imagine their kindergarten classes must be something like this:
TEACHER: Alright students, what’s 1 + 1?
STUDENTS: 2!
TEACHER: What’s 2 + 2?
STUDENTS: 4!
TEACHER: What do you call someone who doubts the efficacy of FDR’s policies in bringing an end to the Great Depression?
STUDENTS: Insane!
The Great Depression is a complex historical event, so the level of confidence I see from American laymen certainly makes it seem like they’ve been brainwashed from a young age. Maybe it’s just the sort of Americans who make internet comments.
If you believe that it is clearly and obviously true that (1) the New Deal ended the Great Depression or that (2) World War 2 ended the Great Depression, this article is for you. I’m not going to make a slam-dunk case against these notions; if you’re looking for one, you’ll need to read something far longer than a blog post. I recommend Robert Higgs or Bob Murphy. My goal here is to make the case that these ideas, far from being obvious, are actually very counter intuitive given the facts. Continue reading The Prima Facie Case that Great Depression Policy was Really Really Bad→
JIMMY: Ever since Alan Greenspan became the Federal Reserve Chairman in the mid-80s, he’s just been bailing out Wall Street every chance he can get: the S&L crisis, the Tequila crisis in Mexico in the early 90’s, and the dot com bubble. You know, whenever there’s a problem he just prints and prints and prints, and so over the course of twenty years, Wall Street realized this. They took the risk out of the situation because they could make money when things were good and then when things were bad, bailouts would be there.
GARRETT: Greenspan…had a reputation as a free-market guy. Some people got the wrong idea that Greenspan’s policies were somehow free market.
JIMMY: It’s funny, Greenspan wrote an article in favour of the gold standard in the 60s, and a lot of people point to that and talk about it, but when you look at somebody’s life, what matters is what their actual policies were and the things that they did. And the fact was that this is a guy that created bubble after bubble, and at the end he was creating a billion dollars a day just to keep everything going.
Jimmy Morrison is an independent filmmaker who is currently directing two films: The Housing Bubble and The Bigger Bubble. The Housing Bubble deals with the history of business cycles in America, spanning from the First World War to the 2008 crash. The Bigger Bubble deals with the aftermath of the 2008 crash. These films began as a single project, but Jimmy chose to split it into two films in order to tell the full story.
The Bubble is coming out at a crucial time in American history. Numerous films have blamed the free market for the economic woes of the country. Uniquely, Tom Woods has teamed up with experts such as Ron Paul, Peter Schiff, Jim Rogers, Marc Faber and Doug Casey to explain the economic problems America is facing and what is needed to restore prosperity.
You can’t watch the news today without hearing more calls for regulation. Deregulation is consistently the boogey man when it comes to sound bite explanations of this economic crisis. The public currently believes the government saved us during the Great Depression and that it will save us again today. America needs a simple economics lesson on this recession and Tom Woods has done just that in his book Meltdown. The Bubble successfully adapts Meltdown into a feature-length documentary.
The Bubble features interviews with numerous economists and financial analysts who actually predicted the housing crisis and recession. The people we are trusting to solve this problem claim no one saw it coming. The fact is Austrian economists predicted this recession years ago, and they are the only ones with the insight necessary to bring us out of this economic slide. This film asks them why this crisis happened, how we recover, and what America is facing.
Yes. Murray Rothbard was a prolific thinker whose contributions to economics were numerous, original, and significant.
His magnum opus, Man, Economy, and State, was the first complete treatise on economics in a half century. The book was originally meant to be a textbook version of Mises’ Human Action, but Rothbard built on Mises’ work to create a more complete body of thought. He contributed his own theory of production and supply, while critiquing Mises’ theory of monopoly as a static conception that did not fit with his generally dynamic view of the economy. Rothbard argued persuasively for a return to the original definition of a monopoly as a government grant of exclusive privilege.
His work in economic history is excellent. His book, The Panic of 1819: Reactions and Policies is the definitive work on the titular panic. America’s Great Depression applied Mises’ theory of the business cycle to the Great Depression, showing how the Fed under Benjamin Strong pumped up an inflationary bubble in the 1920’s, which led to the 1929 crash. He also demonstrated that Herbert Hoover was not a laissez faire President but a big-state interventionist, in opposition to what was commonly (and wrongly) believed at the time.
An Austrian Perspective on the History of Economic Thought, Rothbard’s two-volume work on the history of thought, is by far the most exhaustive history of economic thought up to 1870 (he tragically died before he could write a third volume covering the developments after 1870). While most histories of economic thought focus on a few key figures, maybe Smith, Ricardo, John Stuart Mill, Marx, and Keynes, Rothbard covers everyone. If someone had a passing thought about economics before 1870, and it came down to us in print somehow, Rothbard probably discusses it. While most histories of economic thought will treat Adam Smith as the inventor of the discipline (maybe with a passing nod to the French Physiocrats), Rothbard spends over 500 pages discussing the economic thinkers who preceded Smith, beginning with Aristotle. It turns out that economics had a rich history before Smith, and some earlier thinkers (Turgot and Cantillon) even surpassed Smith in many respects. Even if you disagree with Rothbard on absolutely everything else, he deserves credit for being an outstanding historian of economic thought.
My latest article on Mises Canada takes on the Price Transparency Act, a piece of legislation that would allow the Competition Bureau to investigate alleged “price gouging” of Canadians. Here’s a bit of it:
The price transparency act aims to seek out firms that sell profitably in Canadian markets and shame them into charging lower prices for their outputs. I’ve seen complaints that, since the legislation doesn’t grant the Competition Bureau the power to set prices, the investigations will create costs for the government and for compliant firms without having any real impact on prices. Actually, that would be the best possible outcome. The legislation would be far more disastrous if it succeeded in its goal of putting downward pressure on prices. To do so would remove the incentive for entrepreneurs to efficiently employ their knowledge and insight in allocating resources. While bailouts famously socialize losses while privatizing gains, antitrust actions to reduce “gouging” effectively socialize gains while privatizing losses. We all know how privatized gains and socialized losses led investors to take excessive risks in the lead up to the financial crisis. If the antitrust authority steps in to force profitable firms to reduce prices, effectively socializing gains, then entrepreneurs will be excessively averse to risk taking. Entrepreneurs will not seek out opportunities for high profit if they anticipate that government officials will order them to reduce their prices if they succeed.
High profits are what motivate entrepreneurs to zealously pursue opportunities. Whether they achieve those profits or not, in pursuing them they bring their best knowledge and insight to bear on the problem of allocating scarce resources. High profits motivate entrepreneurs the same way a carrot can motivate a donkey. Mainstream economists are too worried about losing the occasional carrot to realize that taking away the carrot would seriously impair the donkey’s motivation to walk. Taking away the carrot would save a carrot, but it would forfeit something far more valuable. Similarly, while pushing down prices that far exceed marginal costs could reduce the deadweight loss in a particular time, place, and industry, doing so would hamper the entire entrepreneurial process.
This episode of Economics Detective Radio features George Bragues, professor of business at the University of Guelph-Humber, discussing his work developing a distinctly Austrian theory of finance. While there have been forays into finance by Austrians such as Mark Skousen and Peter Boettke, Austrians have not yet fully developed a complete and distinctly Austrian theory of finance.
George names five pillars of modern finance theory: (1) The capital asset pricing model (CAPM), (2) the Black-Scholes option pricing model, (3) the efficient markets hypothesis (EMH), (4) behavioural finance, and (5) the Modigliani-Miller theorem.
CAPM is a model that derives the value of assets based on the risk-free rate and market risk, that is, risk that cannot be diversified away. The Austrian response to this model is that there is no such thing as a risk-free asset, as risk is inherent to human action. An Austrian alternative to CAPM would incorporate the Austrian theory of a natural interest rate derived from time preference. Continue reading Finance and the Austrian School with George Bragues→
I answered this question over at Quora. Just about all the other answers were wrong, so I thought I’d set things straight.
No. Value is not a quantity. It cannot be compared across individuals, so we cannot say that $50 is more valuable to person A than to person B.
To understand value, you must understand action. To act is to select one thing and set aside another. Thus, an ability to evaluate one thing over another is a necessary prerequisite to action, one that all mentally functioning humans possess. Valuation is always a comparison between two alternatives. It is a comparison made in the mind of an acting human.
Because the high income person and the low income person are different individuals, their valuations cannot be compared. We could say something like, “the low income person values an hour of his time less than $50, while the high income person values an hour of his time more than $50.” But this does not mean the low income person values $50 more than the high income person does in any absolute sense, because an hour of time is not the same to different individuals.
Some people have said that the answer is yes because marginal utility decreases with quantity. This is a misinterpretation. It is true that people tend to value additional units of a stock of interchangeable consumer goods less with each additional unit. This is because a person will use the first unit of the good to satisfy his highest unmet need, the second unit to satisfy his second highest unmet need, the third unit to satisfy his third highest unmet need, and so on. Thus, marginal utility does decrease with quantity. But it only meaningfully decreases with respect to other goods! If I have five dumplings, I might value an additional dumpling more than a battery, but if I have six or more dumplings I might value the battery more than an additional dumpling.
While I value things less with each additional unit, we can’t take this to mean my valuation of my total wealth must decrease as I grow wealthier. Total wealth comprises everything, leaving nothing to compare it against, so valuation is meaningless.
Ludwig von Mises wrote that, “[d]emocratic control is budgetary control. The government has but one source of revenue—taxes. … But if the government has other sources of income it can free itself from this control.”[1] This principle is particularly important for understanding the internal politics of Canadian Native tribes, whose governments are the recipients of large transfers from the Canadian federal government.
A recent scandal involving the Squamish Nation, a Vancouver-area tribe with a population of about 4,000, is a case in point. Two political officials of the band spent $1.5 million from an emergency fund for their personal ends. According to the investigation that eventually exposed them, “it was clear they handed out funds to develop political support from members.” [2] The scandal derives from the fact that funds earmarked for one purpose, emergencies, were used for a different purpose. But the interesting economic story would nonetheless hold if the funds had been used only for their intended purposes.
According to its most recent financial statements,[3] the Squamish Nation earned $11.3 million from Aboriginal Affairs and Northern Development Canada, i.e. the Canadian Federal Government, and only $8.4 million from taxation in 2014. As Mises suggests in the quote above, a government with alternative sources of income besides taxation can use this income to free itself from democratic control. Robbing Peter to pay Paul is a favourite activity of all governments, but when the robbery occurs through taxation, it is at least limited by Paul’s awareness that he is being robbed.
The world is full of snobs. There are music snobs who complain that most people prefer Lady Gaga to Stravinsky, film snobs who complain that most people prefer action movies to art films, and food snobs who complain that most people prefer pizza to fine sashimi. Whatever one’s area of interest, it is tempting to pass judgement on others’ preferences.
In learning economics, and in absorbing its lessons, one learns to be less of a snob. Economic analysis always begins by taking people’s preferences as given. The economist sees someone choosing pizza over sashimi and sees only a person acting towards the highest attainment of his ends. The economist trains himself to leave his personal biases and any inclination towards snobbery behind so that he can keep his analysis value free.
Even common terms like “responsible” and “irresponsible” are value-laden. Activities we recognize as responsible, such as saving for retirement, avoiding risks to life and limb, and living a healthy lifestyle are consistent with a specific set of preferences. Someone who values future experience highly against present experience (i.e. someone with a low rate of time preference) will favour all of these behaviours. Activities we recognize as irresponsible, such as profligate spending, risk-taking, and indulging in junk food, alcohol, or illicit drugs are consistent with a different set of preferences. Valuing present experience highly over future experience (i.e. having a high rate of time preference) makes all these activities more appealing. Economics permits us to understand these different preferences but it never permits us to judge one set of preferences to be superior to another.
