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Posts Tagged ‘Economics’

To Understand Economics, First Understand Private Property | Mises Wire

Posted by M. C. on March 10, 2021

https://mises.org/wire/understand-economics-first-understand-private-property

Chris Calton

In Man, Economy, and State, Murray Rothbard expounds the principles of economics by reconstructing an economy from the ground up. Following the practice of classical economists, he opens the book by imagining Robinson Crusoe alone on an island. After identifying the operative laws that apply even to isolated individuals, Rothbard’s second chapter considers Crusoe on an island with one other person, introducing the concept of direct exchange, or the barter economy. In the third and fourth chapters, Rothbard considers the origins of money and prices in an economy of indirect exchange.

For a treatise on price theory, Rothbard recognizes the need to explain the origins of money prices, as Carl Menger and Ludwig von Mises did before him. In The Theory of Money and Credit, Mises built on Menger’s original explanation for the origin of money by formulating the regression theorem. When considering price changes back through time, Mises theorized, we must naturally come to points of origin and departure. Paper dollars today have no commodity foundation, but we can easily identify the point at which they were disconnected from specie. Going further back, we may not be able to identify empirically the moment at which specie, or any other commodity, was first used as a medium of indirect exchange, but we can logically deduce that such a moment must have occurred as primitive economies grew increasingly complex.

Mises’s theorem offered a number of important insights for price theorists. Perhaps the chief insight is that even though modern money may have no commodity base, the origins of any money could only have been a commodity with some original value in use. No new media of exchange can undermine this history. Even cryptocurrencies, such as bitcoin, can be traced back to a point at which they were first exchanged for dollars. Dollar prices then trace back to a point of disconnect from a commodity foundation, and those prices trace further to a point of original indirect exchange. Another insight derived from the regression theorem is that money prices depend on exchange. This may seem like an obvious truism, but in the early twentieth-century debates over socialism, the necessity of market exchange highlighted the crucial distinction between technical calculation (What do we need to build a given item?) and economic calculation (What should we build given the resources available?).

In chapter 2 of Man, Economy, and State, before Rothbard summarizes Mises’s insights about the origins of money prices, he considers the origins of property rights. With a citation of John Locke, Rothbard asserts the principle of self-ownership and argues that the original appropriation of property comes from mixing labor with yet-unowned resources, such as clearing land for cultivation. Only after establishing a basis for property rights, does Rothbard turn to considerations of exchange and money prices.

Even friendly scholars, happy to acknowledge the value of Rothbard’s treatise, often consider this passage an unwarranted deviation from value-free economic analysis. Rothbard, they claim, is importing libertarian ethical theory into his economic analysis. John Egger, for example, accuses Rothbard of putting on his “political scientist hat,” arguing that “the ethics adopted by . . . Rothbard cannot be derived from Austrian-school principles and are not necessary to Austrian economic analysis.”1

Even sympathetic Austrians rarely pay much attention to Rothbard’s explanation for the origin of property rights except to occasionally dismiss it as a libertarian deviation from scientific analysis, but I believe Rothbard is offering underappreciated economic insights. Mises recognized that money prices depended on exchange, and he saw the need to explain the origins of monetary exchange. Rothbard took Mises’s idea a step further, recognizing that the prerequisite for market exchange is private property and the origin of property norms is therefore just as relevant to economic analysis as the origins of money and monetary exchange. “Before we examine the exchange process,” Rothbard writes in no unclear terms, “it must be considered that, in order for a person to exchange anything, he must first possess it, or own it.”2

Critical readers might object that we cannot take it for granted that property rights originate in the way that Rothbard describes. Governments, of course, can establish property rights, even if in violation of Lockean ethics, that suffice to provide the conditions for market exchange. But such considerations would be inappropriate for Rothbard’s second chapter, as he is considering an unhampered market economy—one in which governments, as yet, play no role. For markets to exist sans government, then, private property norms must emerge spontaneously.

To this last point, Rothbard never asserts that the Lockean rule of first appropriation is the proper means of establishing property rights (though he certainly believed that and made genuinely ethical arguments along those lines in other works, such as The Ethics of Liberty). In Man, Economy, and State, he simply considers the way property norms could logically emerge in an unhampered market.

Man in a “free, unhampered market … may exchange any type of factor … for any type of factor,” Rothbard writes, but “it is clear that gifts and exchanges as a source of property must eventually be resolved into: self-ownership, appropriation of unused nature-given factors, and production of capital and consumers’ goods, as the ultimate sources of acquiring property in a free economic system” (emphasis in original).3

Rothbard’s argument follows a similar logical structure to Mises’s regression theorem, and in fact even extends the continuum of exchange that Mises outlines. When constructing his theorem, Mises views the end point of his analysis as modern monetary prices, and his point of origin is that moment when a commodity was first used as a medium for indirect exchange. Rothbard has the same end point in mind, but realizing that property rights are (1) necessary for exchange and (2) not a given for any society and therefore warrant explaining, he finds the origins of money prices in the original emergence of private property norms.

Of course, people can provide alternative theories for the origin of private property, but the mere fact that Rothbard recognizes the need to explain property norms is itself a valuable contribution to economics that continues to go unappreciated. The most obvious objection people might offer to counter Rothbard’s theory is no different than the alternative explanation to Mises’s and Menger’s theories for the origins of money: the state must construct property rights and introduce money, thus creating markets.

But as historians and anthropologists learn more about prehistory (the history of man prior to documentary evidence), the statist theories for both property rights and money crumble. Yale political scientist James C. Scott, for example, notes that evidence for the domestication of plants precedes the formation of the earliest states, arguing that states could not exist without a taxable base (grain, most commonly), and the domestication of plants and primitive commerce preceded state formation. Although he doesn’t address property rights directly, Scott notes that the formation of early states “required a host of products that originated in other ecological zones: timber, firewood, leather, obsidian, copper, tin, gold and silver, and honey,” which they obtained through long-distance trade of “pottery, cloth, grain, and artisanal products.”4

Recognizing that economic exchange preceded the state, both Rothbard and Mises raised valid considerations for the origins of money, exchange, and property norms. In offering their theories, they were in fact engaging in a common exercise among classical economists known as “conjectural history.” In the absence of empirical historical evidence, classical thinkers such as Adam Smith and Turgot speculated on the origins of observable, modern institutions based on assumptions about human nature. Although speculative, this method of history was not unscientific. The test of a good theory was that it explained more of what we can observe (both in terms of present society and extant evidence) and omitted less. Historians today who deal with areas of history that have scant documentary evidence, such as Africanists, still engage in conjectural history (even if they may not be aware of its roots in classical political economy).

In this light, Rothbard’s explication for the origins of property norms is not a value-laden prescription for how societies should establish private property rights. Instead, Rothbard is recognizing that early societies must have established some system of private property rights, which individuals recognized reciprocally with respect to each other, and he provides a theory for how this system most likely emerged. It is not an uncontestable idea (no scientific theory is), but scholars dismissing it as a libertarian sidestep from proper economic analysis fail to understand the important economic contribution Rothbard was actually making.

  • 1. John B. Egger, “Comment: Efficiency Is Not a Substitute for Ethics,” in Time, Uncertainty, and Disequilibrium: Exploration of Austrian Themes (Lexington, MA: Lexington Books, 1979), p. 119.
  • 2. Murray N. Rothbard, Man, Economy and State, with Power and Market, 2d scholar’s ed. (Auburn, AL: Ludwig von Mises Institute, 2009), p. 91.
  • 3. Rothbard, pp. 92–93.
  • 4. James C. Scott, Against the Grain: A Deep History of the Earliest States (New Haven, CT: Yale University Press, 2017), pp. 68–92, 125. Although Scott does not address the question of property rights or exchange, he does reference the role of exchange prior to the establishment of the state

Author:

Chris Calton

Chris Calton is a 2018 Mises Institute Research Fellow and an economic historian. He is writer and host of the Historical Controversies podcast.

See also his YouTube channel here.

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Biden Seeks to Finish off Struggling Business Owners | Mises Wire

Posted by M. C. on February 3, 2021

Back in January of 2019, an article on the U.S. News website made this very point:

MORE THAN three-quarters of restaurants in New York City have reduced employee hours since the minimum wage was increased to $15 per hour.

In a survey by The NYC Hospitality Alliance, 76.5 percent of full-service restaurant respondents said they had to reduce employee hours and 36 percent said they eliminated jobs in 2018 in response to the mandated wage increase.

The minimum wage debate, although having been refuted time and time again, continues to be brought up by progressives and those who tend to lack a basic understanding of economics. While there’s nothing wrong about lacking any knowledge in economics, Rothbard put it best,

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.1

https://mises.org/wire/biden-seeks-finish-struggling-business-owners

David R. Iglesias

If business owners were hoping to catch a break in 2021 after having been completely victimized by government lockdown procedures and left-wing rioting, they may want to brace themselves for another turbulent year as the Biden administration begins its reign in the White House. While revealing his new $1.9 trillion plan for combatting covid-19, Biden included raising the federal minimum wage to $15 an hour—one of the oldest and most debated topics in the subject of economics.

The minimum wage debate, although having been refuted time and time again, continues to be brought up by progressives and those who tend to lack a basic understanding of economics. While there’s nothing wrong about lacking any knowledge in economics, Rothbard put it best,

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.1

It becomes even more irresponsible when we are talking about attempting to force business owners to raise their costs of production after having seen the enormous hit they took last year. The Washington Post reported that more than a hundred thousand small businesses closed forever back in May of 2020. In September, Yelp provided data showing that 60 percent of business closures were permanent—60 percent meaning 97,966 businesses. There’s no doubt that the remaining small businesses saw a major hit in both revenue and profits as they were forced by government officials to scale back operating capacity, increase costs for sanitization equipment, adapt to changes in consumer behavior during the covid-19 outbreak, or simply remain closed for extended periods of time. Now, many of those same politicians want to significantly raise the total cost of production for these struggling businesses by increasing their cost of labor to a minimum of $15 an hour.

Trust the Science

Even on its face, this is a bad idea. In fact, since everybody now believes in “following the science,” over 70 percent of economists surveyed in 2019 agreed that the federal minimum wage should not be raised to $15. Only 6 percent believe that “is a very efficient means to target individuals in poverty.” However, we don’t need to only rely on popular opinion to understand that this is a terrible idea. If one were to imagine a supply and demand curve, one could easily see that as the cost of labor increases, the quantity demanded decreases while the quantity supplied (or those seeking a job) increases. The equilibrium point is where the two curves cross. Placing a price floor doesn’t change the curves themselves but simply creates a new point at which the supply of labor does not meet the demand for labor: the gap between those points is the unemployment created by the wage policy. Anybody who has taken an econ 101 course has seen this.

It is frequently argued that minimum wage laws raise wages—this may be true for some, i.e., those who keep their jobs, but it is untrue for those who either become unemployed or are never able to be employed in the first place. In other words, the workers for whom the wage increase applies gain at the cost of those who lose out on their wages entirely. Another common scenario that the untrained eye misses is the change in hours that employees work. While they may get a raise in hourly wages, there is no guarantee that workers will still see an increase in total wages earned, i.e., in their actual paychecks. Back in January of 2019, an article on the U.S. News website made this very point:

MORE THAN three-quarters of restaurants in New York City have reduced employee hours since the minimum wage was increased to $15 per hour.

In a survey by The NYC Hospitality Alliance, 76.5 percent of full-service restaurant respondents said they had to reduce employee hours and 36 percent said they eliminated jobs in 2018 in response to the mandated wage increase.

People aren’t like blocks of wood that can simply be chipped away at by certain policies. They respond and react to situations as they happen. Whether the jobs become automated or hours are decreased, businesses will adapt so they can keep from operating at a loss and going under.

Biden’s plan to raise the federal minimum wage to $15 across the country is also treating the entire nation as if it were one homogenous entity. It treats states like California the same as states like Idaho. One-size-fits-all policies tend to be disastrous and dangerous, because they fail to take into account the countless factors that distinguish one individual or culture from another. Politicians in Washington, DC, are so disconnected with those living in states on the other side of the country. Trying to dictate how people do business with each other in a place that you spend little to no time in is absurd.

The Minimum Wage Law is Antithetical to Current Left-Wing Rhetoric

Additionally, the minimum wage law goes against some major points of concern that are found within current left-wing rhetoric. With the recent purging of Donald Trump along with many who fall even slightly to the right of Bernie Sanders or Alexandria Ocasio-Cortez from social media, it’s become fashionable for progressives and left-wing types to argue that Facebook and Twitter are “private companies so they can do what they want” against those who have been outraged by such deplatforming. It’s safe to say that nobody should expect this newly adopted principle of private property to be truly embraced by the Left and those who are happy to see the silencing of their enemies. However, despite the insincerity of those who are wielding this point, it does stand true that if we really believe in private property and self-ownership, it must therefore be acceptable for business owners to set the wages and rules for employment with their businesses. Just like Facebook can remove somebody from their platform, an employer should be allowed to hire whomever at whatever wage they both agree to.

Another rhetorical point is that of institutional racism. Justification for the left-wing destruction of cities and private businesses came from it being an act of antiracism. If we want to really stamp out racism and racist policies set forth by the government, minimum wage laws have to go. Thanks to the work of two indispensable economists, Thomas Sowell and the late, great Walter E. Williams, minimum wage laws have been exposed as some of the most racist and sinister policies. A popular tool used by white labor unions, minimum wage laws once helped keep black laborers out of jobs, protecting white workers. Those who have been the most negatively impacted by minimum wage laws—whether unintentionally or not—are young black teens.

A third issue that is continually brought up by progressives is the growing disparity between the rich and the poor. It is constantly pointed out that wealth is being transferred from the working class to the power elites. Ironically, they miss who really stands to benefit from raising the minimum wage: big businesses like Amazon and Google who can afford to pay such high wages. Massively successful firms are oftentimes at a greater advantage over smaller ones, because they are more capable of paying higher wages or offering more benefits. If the government demands that all employees be legally guaranteed a $15 minimum wage, small businesses like restaurants are going to take more of a blow than corporations like Amazon. This will put small businesses out of the marketplace, leaving only the big corporations to reap all the profits. If Biden goes through with his plan to federally mandate a minimum wage of $15, he will be showing small business owners that he either doesn’t have the slightest idea how disastrous his policies will be for them or that he simply doesn’t care.

Author:

David R. Iglesias

David Iglesias is a writer and undergraduate student majoring in Economics in Utah.

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Media Analysts

Posted by M. C. on October 22, 2020

When I was a teen who knew nothin’ about nothin’ I remember watching the NBC economics editor (NBC’s expert!) talk about the then current situation. Even I could see he wasn’t telling us anything.


The NBC’s economics editor’s inciteful final analysis was “no one really knows what will happen, but it could get worse before it gets better”.


Media analysts have maintained their well deserved stature.

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EconomicPolicyJournal.com: What is the Single Most Important Lesson a Person Can Learn From Economics?

Posted by M. C. on July 26, 2020

…each of these phenomena is a tiny tip of a colossal, churning, globe-spanning mountain of human choices and actions.

This ‘mountain’ is unobservable in its entirety.

https://www.economicpolicyjournal.com/2020/07/what-is-single-most-important-lesson.html

A Don Boudreaux letter:

Mr. O’Grady:

Thanks for your e-mail and congratulations on your graduation from high school.

You ask “what single lesson of economics” I’d impart to people of your generation if I could impart only one lesson.

Your question is challenging. There are so very many lessons from economics that ought to be more widely learned. Prices and wages set on markets are not arbitrary. There’s no such thing as a free lunch. Government officials are no better informed or motivated than are private citizens. Wealth, not poverty, has causes. This list is long.

But if I’m compelled to choose one lesson from economics above all it’s this one: Economic reality is inconceivably more complex than it appears to our senses and to our intellects. All economic phenomena that you’re cognizant of – the prices you paid for a bagel and orange juice; the incomes earned by your parents; the assortment of goods that you see in supermarkets; the gasoline pumped into your car’s fuel tank; your home’s flush toilets; pencils – each of these phenomena is a tiny tip of a colossal, churning, globe-spanning mountain of human choices and actions.

This ‘mountain’ is unobservable in its entirety. And we are too easily blinded to the economy’s massiveness and complexity by the words, categories, and statistics that we’re stuck with using to describe it. It’s easy, for example, to say “the health-care industry” and then to collect data – prescription-drug prices, nurses’ wages, hospitalization rates, etc. – that convey the impression that we are thereby grasping the full complexity of all the human activities that affect the provision of medical care. We then get the utterly false impression and fatal conceit that we can consciously engineer economic reality more to our liking by manipulating the phenomena that we observe or for which we have statistical measurements.

Politicians, pundits, and professors are forever offering up schemes that would makes sense only if economic reality were categorically different – only if it were fundamentally simpler – than what it really is. Admitting ignorance of the vast details of this complexity and thus humbly accepting perceived deviations from imagined states of perfection strikes many people (wrongly) as unscientific. Worse, any such admission practically guarantees defeat for those seeking political office. It also is no formula that causes one to be summoned to advise those who occupy seats of power.

You are 18 years old. You were born into an astonishingly wonderful world – a world whose wonders would be impossible – not unlikely, not improbable, but literally impossible – without the undesigned and unplanned economic complexity that daily keeps your belly full, your clothes clean, your body bathed, and your lights and wi-fi on. Over the next seven or eight decades of your likely lifespan you’ll encounter countless schemes for using government power to improve economic reality, almost all of which ignore economic complexity. Please exercise great skepticism when evaluating these schemes.

Much good luck to you.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

The above originally appeared at Cafe Hayek.

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Thomas Sowell Turns 90: The Greatest Living Economist (Still)

Posted by M. C. on July 4, 2020

He began with the simplest theorem of economics, scarcity — “at zero price, there is greater demand than supply” — and applied it to a key economic resource, which is arguably the central economic resource: accurate knowledge. For 400 pages, he mined his unregistered claim for all it was worth. It turned out to be the mother lode. Why? Because knowledge is widely regarded as a free good. Even when it is not so regarded, it is regarded as a good that ought to be free. Sowell showed in ten cogent, carefully argued chapters that accurate knowledge is never free.

https://www.garynorth.com/public/21054.cfm

Thomas Sowell turned 90 on June 30.

He received a wonderful birthday present. His publisher released his latest book, Charter Schools and Their Enemies. If you want to treat him to a nice present — book royalties — order a copy here. Think of it as a gift to yourself.

I first encountered his name in 1967, when I was writing the chapter on Marx’s economics in my first book, Marx’s Religion of Revolution (1968).

Sowell had written an article for the American Economic Review in 1960. I did not know at the time that he had written it while he was in graduate school, which is unheard of for any author of an AER article. He received his Ph.D. in 1968, the year my book was published. I also did not know that Sowell was a Marxist. In 1960, the year the article was published, he got a job as a summer intern in a federal bureaucracy. He began to abandon his Marxism.

I was not overly impressed by the article. I cited it in a footnote:

Thomas Sowell, “Marx’s ‘Increasing Misery Doctrine’,” American Economic Review, L (1960), pp. 111-20. Sowell argues that Marx did hold to the absolute increasing misery doctrine before 1850 or so, but in the context of this chapter, I have tried to indicate that he also wrote in terms of it after 1850.

Little did I suspect what was to come.

There is no Sowell theorem in economic theory. There is no Sowell movement. Nobody has publicly identified himself as a Sowellist. Then why do I regard him as the greatest living economist? This:

1. He applies simple but fundamental concepts of economics to real-world problems, which are often problems that are not widely perceived as being heavily influenced by economic categories.2. He relies exclusively on verbal communications, not graphs or equations, to explain these concepts and their applications. This keeps his expositions firmly within the realm of historical cause and effect.

3. He never begins his economic analyses with this phrase: “Let us assume. . . .” The only time he ever uses “let us assume,” is when it is followed by “for the sake of argument,” which is in preparation for a lambasting of some conventional political assumption.

4. He writes in well-honed English that is the product of over 30 years of writing newspaper columns: clear, precise, and rhetorically persuasive — in short, efficient.

5. He is the most creative economist in our era — or perhaps in any era — in implementing the division of labor in his writing. He hires astoundingly productive research assistants, and then he incorporates their remarkable but diverse discoveries into a single coherent narrative.

6. He is a better historian than he is an economist. Other economists have made observations similar to his. But no other historian matches him in his chosen specialty: economic motivations that have prompted the international migration and subsequent economic successes of modern racial, national, and religious groups.

7. His commitment to discovering historical applications of economic theory, which keeps his theories from straying into the realm of irrelevant mathematical precision, where most academic economists prefer to dwell in safety — preferably tenured safety.

8. He does not suffer fools gladly. He takes no prisoners.

9. He writes editorials with such regularity that he warrants a permanent Drudge Report link. This volume of output, written under the pressure of deadlines, gives him ample opportunities to make wrong-headed, off-the-cuff statements. He has kept these to a minimum, usually confined to areas in which he claims no expertise.

Features 1-7 are guaranteed to keep him from winning a Nobel Prize.

He was not an overnight sensation. It was two decades between that article on Marx and his breakthrough book. In 1974, he hit conceptual pay dirt. He began working on a project that resulted in a specialized monograph. He began with the simplest theorem of economics, scarcity — “at zero price, there is greater demand than supply” — and applied it to a key economic resource, which is arguably the central economic resource: accurate knowledge. For 400 pages, he mined his unregistered claim for all it was worth. It turned out to be the mother lode. Why? Because knowledge is widely regarded as a free good. Even when it is not so regarded, it is regarded as a good that ought to be free. Sowell showed in ten cogent, carefully argued chapters that accurate knowledge is never free. Any attempt by the state to make knowledge free will backfire, he argued. The digital counter-culture’s slogan — “information wants to be free” — is nonsense. It is a variant of the ancient quest of something for nothing, which always ends badly.

Then he hit publishing pay dirt. The manuscript was accepted by Basic Books, the leading publisher of academic books on the Right. It published Knowledge and Decisions in 1980. I regard that book as the most important one-volume monograph in economics that I have ever read. I thought so in 1980, and I still do. Why? Because there are so many areas of life in which we have ignored or discounted the cost of accurate and applicable information. Unless you have given a great deal of thought to this, you have missed most of them.

Also in 1980, he went on the payroll of the Hoover Institution. Hoover decided to trade a guaranteed salary in exchange for Sowell’s future output. This was a deal for Hoover comparable to Red Auerbach’s trade in 1956 of Cliff Hagen and “Easy” Ed McCauley for a newly drafted and untried rookie, Bill Russell.

In 1986, I offered to pay him $3,500 to fly an hour to Los Angeles, give a speech, and fly back to Palo Alto. That was worth about $7,300 in today’s money. That was over three times what I had ever offered anyone to speak at one of my conferences. I knew that he normally asked $10,000 per speech. So, I tried the old trick I use when dealing with used car salesmen. I sent him the check. He sent it back, but he thanked me for making the offer. He thereby proved to me that his time was an economic good. At zero price, there was way too much demand for my budget. He clearly placed a high price on his time. Over the next quarter century, he justified this price in terms of the value of his output.

I must now issue a warning. Four of his books, which were written for his academic peers, are second rate. Why do I say this? Because they violated the criteria that I apply to his later work. They are unclear, without rhetorical power, dishwater dull, made no impact on the economics profession, and sank without a trace. First is his monograph, Say’s Law, published by Princeton University Press in 1972. Second is Classical Economics Reconsidered (1974), also published by Princeton University Press. It was much better than Say’s Law, because it was 90 pages shorter. Third, there is his book on Marxism, published in 1985. As of today, you can buy a hardcover used copy of his book on Marxism on Amazon. You can pay $191.37, $318.18, or $318.20, plus $3.99 for shipping. Don’t.

His original economic textbook, Economics (1971), was unmemorable. It had a lot of graphs, which conveyed no useful theoretical knowledge beyond the text, and which made reading the book far more laborious. It was a conventional textbook. It was therefore boring. Its main benefit was that it was short: 340 pages, not the standard 1,000 pages of a college-level textbook. It therefore had this advantage: it is better to bore captive collegiate readers out of their skulls for 340 pages than for 1,000. The proof of how mediocre his textbook was is this: his 2004 non-textbook, Basic Economics: A Citizen’s Guide to the Economy. It was written for a non-captive audience: readers who are not enrolled in college. It contains no graphs or equations. It is intensely real-world focused, as are all of the books that he wrote for the general public.

This is his great contribution. With a few exceptions, which I regard as youthful indiscretions, he has written for the general public. No Nobel Prize for him!

There is one other thing. Sowell, in his dust jacket photos, has always looked at least ten years younger than he is. I like to think they were Photoshopped, but Photoshop is too recent. This has annoyed me for over three decades. (My solution: I never put my photo on my dust jackets. I don’t want to be reminded.)

[I published this on March 9, 2013.]

If you want evidence of my evaluation, watch this interview. It was recorded in December 2018, when Sowell was 88. It is on a topic that is a hot topic these days: economic inequality. He talks about his youthful dalliance with Marxism, and what cured him.

For an assessment of his career written by an Austrian School economist and a mainstream free market economist, go here.

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Why It’s Rational to Fear Cops | Mises Wire

Posted by M. C. on June 6, 2020

This example also illustrates Sowell’s observation that brands are substitutes for specific knowledge. We do not know whether any individual is trustworthy or not, but, ideally, a police uniform should be a consistent marker of trustworthiness. But the converse may also be true. Just as I avoid the McDonald’s arches because I don’t like their food, the information conveyed by a police uniform is not always consistent with the idealized vision of police.

https://mises.org/wire/why-its-rational-fear-cops?utm_source=Mises+Institute+Subscriptions&utm_campaign=dd4114620d-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-dd4114620d-228343965

In economics, branding serves an important purpose. Brands allow people to economize on knowledge, a scarce resource. We make decisions with imperfect information, and brand labeling and trademarks help us navigate these decisions. As Thomas Sowell writes:

When you drive into a town you have never seen before and want to get some gasoline for your car or to eat a hamburger, you have no direct way of knowing what is in the gasoline that some stranger at the filling station is putting into your tank or what is in the hamburger that another stranger is cooking for you to eat at a roadside stand that you have never seen before. But, if the filling station’s sign says Chevron and the restaurant’s sign says McDonald’s, then you don’t worry about it.

He goes on to add that “brand names are substitutes for specific knowledge.”1

You don’t know much about the particular bottle of ketchup you may be buying—the quality of the factory it was produced in, the farmer who grew the tomatoes, or the recipe used—but if it says Heinz on the label, you have a good idea of what you’re going to get. The need to economize on knowledge is so important that in the Soviet Union, people began to learn how to read barcodes to know whether or not they were getting products from reliable factories.2

In customer service industries, this is also the purpose of a uniform. Customers can quickly identify the person they need to talk to in a retail environment, and the uniform conveys certain expectations. The electronic retailer Best Buy dresses its computer technicians, called the “Geek Squad,” in comically cliché “geek” uniforms—white shirts and black clip-on ties—in an attempt to help customers distinguish the employees with specialized computer knowledge from those who sell televisions.

But brand names, trademarks, and uniforms don’t always convey the information that companies want them to convey. For instance, if a customer had a bad experience with an incompetent Geek Squad agent, they may see the uniform as an indicator of somebody whose computer advice should not be trusted. Similarly, McDonald’s famous golden arches may inform a potential customer about the consistent quality of their hamburgers, as Sowell points out, but some consumers may see this as a sign of where not to eat. People always economize on information, but not necessarily in the way that companies hope.

This is why companies are so protective of their brand and trademarks. Any dilution of their reputation hurts the value of their product in the eyes of the consumer, not because the quality itself is lowered, but because when consumers face greater uncertainty in their economic decisions they are less likely to buy a given product.

As in the customer service industry, a police officer’s uniform conveys information to civilians. In the idealized vision of police, the uniform should convey security. Most of us were taught as children that if we get separated from our parents, we should avoid strangers but find a police officer. Even though the officer is also a stranger, children are taught to see the police uniform as an indicator of trustworthiness in the potentially dangerous uncertainty of human interaction.

This example also illustrates Sowell’s observation that brands are substitutes for specific knowledge. We do not know whether any individual is trustworthy or not, but, ideally, a police uniform should be a consistent marker of trustworthiness. But the converse may also be true. Just as I avoid the McDonald’s arches because I don’t like their food, the information conveyed by a police uniform is not always consistent with the idealized vision of police.

Any given police officer may be a kind, helpful person who only wants to serve and protect, as the police mantra claims, or he may be a scoundrel who enjoys asserting violent authority over others. This is the uncertainty that people face every time they interact with a police officer. But the uniform does convey some consistent, reliable knowledge that helps people know whether to feel safe or threatened.

For instance, thanks to the doctrine of qualified immunity, all police officers are immune from the consequences of excessive and unnecessary force, even in cases that result in the death of unarmed, nonresisting civilians. Certainly not all police take advantage of this immunity. Social media loves heartwarming stories of cops helping people or simply showing kindness. Many cops are not needlessly violent—in fact, it’s likely that the vast majority of them are not. But the uniform does not inform civilians of whether or not a cop will be gracious or abusive; it merely informs us that if they want to commit violence they can do so without fearing the consequences that the rest of us would face.

The result is that, in contradistinction to what we are taught as children, many people rationally feel unsafe interacting with a police officer than they do with a random civilian stranger. I stress the word “rationally” because their feeling of insecurity is not the product of a delusional prejudice or false propaganda, but rather of the reasonable weighing of possibilities in the face of uncertainty. They do not have knowledge of the specific officer’s temperament and character, but they do have knowledge of the legal immunity that will protect the cop if he abuses his authority.

Similarly, practices such as civil asset forfeiture become attached to the police uniform in the minds of civilians. Many cops, I’m sure, would never steal a person’s life savings or confiscate their legally owned property just because the law allows them to do so—but the law does allow them to. In the face of uncertainty, this is the knowledge that people have. If somebody has cash on their person or in their vehicle, as people often do when buying a used car off the internet or conducting a similar legitimate transaction, they don’t know whether a given cop will steal their money—they only know that the officer can.

And just as when a company hurts their brand by consistently providing poor service or a disappointing product, the frequent stories of police brutality and extrajudicial killings re-create the image of police conveyed by the uniform. The lack of accountability in these stories amplifies the effect. The actions of individual officers, even if we accept that they are anecdotal and not representative of the majority, convey information that people rationally attach to the uniform of all cops.

In short, people increasingly feel unsafe around police, because, frankly, it would be irrational to feel otherwise. It is impossible for anybody to know what a given cop will do, but thanks to the perverse incentive structures created by courts and tough-on-crime legislators, as well as the poor behavior of individual officers, who are virtually never brought to justice, people make their judgments of the police based on what officers can do. As long as we live in a world of imperfect information, it would be silly to expect people to make assumptions about police according to any other standard.

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Trump and Pelosi Ready to Spend Another $2 Trillion on Infrastructure

Posted by M. C. on April 7, 2020

Sadly, a large quantity of Americans seem eager to take the fast lane on this road to serfdom, even as the economic and civil liberties restrictions pile up under the guise of a public health emergency.

https://www.theadvocates.org/2020/04/trump-and-pelosi-ready-to-spend-another-2-trillion-on-infrastructure/

Who says there’s not enough bipartisanship in Washington? President Donald Trump is praising House Speaker Nancy Pelosi and urging Congress to follow her lead by passing yet another $2 trillion coronavirus bill that would “invest” in infrastructure.

privacy coronavirus south korea 

What a sight to behold, a country in crisis inspires its leaders to come together for the common good. Even better, by forcing more debt and inflation on Americans, the economy can finally get roaring again!

That demented logic prevails in Washington, D.C., and the swamp-drainer-in-chief is no exception.

Fresh off signing the most expensive bill in American history, more than twice the cost of FDR’s New Deal, Trump is ready for whatever Pelosi throws at him next, as long as it also costs at least $2 trillion.

On Monday, Pelosi unveiled her wishlist for what she called “Phase 4” of Congress’s response to COVID-19. This fourth bill could very well be bigger than the previous three, setting a new price tag record.

The San Francisco Democrat listed “more direct payments,” “more opportunity for family and medical leave,” and an infrastructure megaproject.

“She wasn’t bad,” Trump tweeted after watching Pelosi’s press conference.

“With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4,” Trump wrote, adopting Pelosi’s term for the forthcoming proposal.

Sadly, a large quantity of Americans seem eager to take the fast lane on this road to serfdom, even as the economic and civil liberties restrictions pile up under the guise of a public health emergency.

Economist Peter Schiff, who predicted the 2008 financial crisis, has been sounding the alarm that another crash is imminent since the Federal Reserve dropped interest rates to zero, promising to monetize debt without restraint or limit.

“President @realDonaldTrump thinks it’s the perfect time for the government to borrow trillions more to improve our infrastructure. That’s like a guy who just lost his job deciding it’s the perfect time to take out a second mortgage to put in the swimming pool he’s always wanted,” Schiff tweeted.

To extend the analogy, Trump is gaining support for the project by promising the biggest pool party ever. All politicians and special interests are invited.

There is no opposition to this profligate spending. Senate Majority Leader Mitch McConnell just wants to wait “a few weeks” to see how the other $2.2 trillion stimulus bill plays out first.

It doesn’t actually matter what happens in a few weeks though. When government policies go horribly wrong, a bureaucrat knows that just means the policy wasn’t enacted with enough gusto.

The coronavirus pandemic remains the sole focus of the country to the detriment of the people. Worse than the disease is the government’s cure.

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EconomicPolicyJournal.com: Warren Buffet Just Proved That He is an Ignoramus When It Comes to Economics …And then There Is His Secretary

Posted by M. C. on February 28, 2020

3 comments:

  1. Of course he understands. Do you think these billionaires are coming on air to give the masses actual knowledge or information? These guys tow the line. They know what time it is. The serfs don’t need to hear anything other than government knows best.

  2. Pragmatist maybe, ignoramus unlikely. I am no fan of Buffet’s expressed investment strategy nor his policy proscriptions. His policy proscriptions to tax the wealthy and give money to the less wealthy is not necessarily based on economic ignorance. He seems fully aware of the power of capitalism and doesn’t want that destroyed and he might also understand the power of the free market. But he is also probably aware of the power of might makes right. As long as people sanctify theft by their political activity might makes right is a serious risk to the wealthy. And free market policy proscriptions offer little protection. So his offer to share some of his wealth might be his best chance to keep all of it from being stolen. Very pragmatic and it can work. The wealthy of Rome survived for hundreds of years with a policy of bread and circuses.

  3. You don’t have to understand how cows work to know who butters your bread

    Recall when Buffet’s secretary became famous for either paying more personal tax or paying a higher rate than Buffet.

    Buffet’s solution was to raise his tax. No thought of of lowering his secretary’s tax.

https://www.economicpolicyjournal.com/2020/02/warren-buffet-just-proved-that-he-is.html

Billionaire Warren Buffett appeared Monday on CNBC.

At one point, he stated that some of the points made by socialist presidential candidate Bernie Sanders made sense because “too many people are being left behind.”

Of course, he never focused on the many ways government regulations and taxes are hurting so many.

Though at one point he did point out the power of production, he quickly returned to advocating government interference and a give away program to lower incomes rather than freeing up individuals.

In other words, while an investment savant, Buffett does not appear to understand the power of free markets and incentives. He said, “We need more regulation.” He has a shallow central planning mentality like so many. When it comes to economics he is just one of the masses in his thinking.

RW

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The Difference Between Ecology and Economics | Mises Wire

Posted by M. C. on October 17, 2019

Ecologists, despite the current mania washing over the world’s media , understand complex spontaneous orders and bottom-up systems. They realize that meddling with an unpredictable and complicated system can destroy the qualities that made the system flourish. For some reason, they just fail to apply that insight to where it matters most – the economy.

https://mises.org/wire/difference-between-ecology-and-economics?utm_source=Mises+Institute+Subscriptions&utm_campaign=7b9642e828-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-7b9642e828-228343965

The words ‘economy’ and ‘ecology’ have shared roots, both stemming from the Greek word oikos (οἶκος) for “house”. ‘Economy’ adds the suffix ‘nemein’ (νέμειν), for “manage”, creating ‘oikonomia’ for “household management”, or more commonly the “ the management of material resources ”, whereas ‘logia’ (λόγια) at the end of ‘ecology’ means “the study of”.

Despite these common linguistic roots, the convictions of their respective proponents have grown far, far apart. For anybody who has (un)willingly engaged in discussions with today’s environmentalists , this hardly comes as a surprise; they’re vicious , totalitarian , and entirely unwilling to consider benefits that come with, say, fossil fuels . Where those concerned with the ‘economy’ – economists – emphasize efficiency, trade-offs, and decentralized knowledge, those concerned with ‘ecology’ – ecologists or environmentalists – stress preservation, purity and top-down planning.

What’s striking about comparing the two is how environmentalists do apply proper economic insights – but very selectively and almost never about the economy.

The Origin of Ecology

Ecology’s origin as an intellectual movement was always deeply anti-capitalistic. Through Malthus, Rachel Carlson, Al Gore and more recently Greta Thunberg (or, as we should properly refer to her, “St Greta”), extreme hostility towards capitalism remains a core value of today’s environmentalists. What threatens our pristine and vulnerable nature was always consumption, population increases and economic growth.

Charles Mann, in his recent The Wizard and the Prophet shows how William Vogt – the most influential 20th century environmentalist you have never heard of – viewed capitalism as “the ultimate cause of most of the world’s ecological problems.”

Leaving his main biological theories aside, Vogt was all about humility before complex and uncertain processes that we do not fully comprehend – when considering ecosystems, that is. For improving eco-systems, Vogt and his modern-day disciplines espouse the limits of top-down intervention and the manipulations of natural outputs through fertilizers or genetic modifications. What is divinely provided by nature cannot be improved upon by humans. Their reasoning is that we cannot fully foresee or control the ecological responses; we might be doing more harm than good.

A myriad of ecological examples exist to support this point: rabbits introduced to Australia have condemned various tree species to extinction and greatly contributed to soil erosion across the continent – foxes introduced , either for hunting purposes or to deal with the rabbits, killed off defenseless mammals unaccustomed to such predators. Also in Australia, the cane toad – native to South America – was introduced to control insects, but ended up killing vast numbers of reptiles and crocodiles. Lionfish , probably from aquariums, have wreaked havoc in the Atlantic and Caribbean seas, gobbling up native fish and destroying reefs . The Small Indian Mongoose, introduced to islands in the Western Pacific and Hawaii in order to control rats, backfired and caused local extinction of birds and reptiles.

On the very same precautionary principle, more recent proposals such as eradicating disease-carrying mosquitos are opposed as they may threaten the world’s cocoa trees or have other unintended consequences – allegedly even more severe than the Malaria disease they intend to solve.

But Don’t Worry, We Can Manage the Economy

Nobody is really disputing that we don’t fully grasp ecological processes; they’re molecular, they’re global, they involve millions of species and microscopic chemical reactions that together create delicate outcomes that are often unforeseeable. Weather forecasting , while much improved in recent decades, is a case in point.

The thing is, economic processes are even more complicated than ecological ones. Why? Beyond the myriad of millions of millions of interactions, human beings – in contrast to rocks and atmospheres and bees – act. Unlike ants unyieldingly attracted by sugar or sharks by blood, human beings are endowed with frequently changing value scales – the same influences that work on animals work on us, plus our ability to restrict and limit them at will. We may abstain from eating, doing, pursuing or completing anything on cultural or societal or religious grounds. We choose , which makes us even more complicated than animals or trees or carbon dioxide molecules.

Even when the policy relevance for the two fields overlap, as in climate change debates and environmental policy making, the very ecologists who minutes before emphasized the complex and unpredictable nature of the system are happy to make oddly specific proposals:

· Tax or ban everything that moves ( meat , airfares , wealth , energy ); subsidize everything that doesn’t. That couldn’t possibly affect the economy, could it?

We can mention other areas where the broadly left-progressive position on complex systems is surprisingly upside-down.

On religion, progressives are happy to ridicule some conservatives for their skepticism towards evolution. Believing that remarkably well-adapted designs imply a designer is a failure of understanding selection in complex systems and is obviously wrong, they say. On correcting undesired outcomes of capitalist markets, an even more complicated system than human biology, the very same progressives are happy to empower, endorse and expand benign governments’ power to intervene. The same bottom-up spontaneous order that ecologists identify in nature somehow doesn’t translate over to the economic sphere; previously very scientific and Enlightened leftists suddenly flip and finds top-down interventions not just feasible but desirable.

On the riches of natural wonders (Hawaiian rainforests, Grand Canyon riverbeds, Icelandic volcanoes or Amazon rainforests ), conservationist ecologists oppose development in every shape or form. The reason? To protect the pristine environment from hard-to-predict human impacts. Fair enough, but that limits the number and kind of people that can access these our planet’s wonders – restricting them from the very poor and underprivileged groups left-leaning people generally claim to represent. Shouldn’t we share – redistribute – that natural wealth as widely as possible?

No, they say, since the ecosystem is vulnerable and human meddling would damage and destroy it. Now, replace “natural wonders” with economic wonders (products and fortunes built by the Jeff Bezos and Steve Jobs and Francoise Meyers of the world), ought not the system that created them – free market capitalism – be similarly protected? No, objects the naive ecologist; we ought to share this wealth as widely as possible, impacts to the system be damned.

Ecologists, despite the current mania washing over the world’s media , understand complex spontaneous orders and bottom-up systems. They realize that meddling with an unpredictable and complicated system can destroy the qualities that made the system flourish. For some reason, they just fail to apply that insight to where it matters most – the economy.

 

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Doug Casey on the Nobel Prize in Economics – Casey Research

Posted by M. C. on August 4, 2019

A combination of hysteria, ignorance of science, and where the money is coming from. Almost all the money for research comes from grants. If you want a grant you have to display the right political attitude. The whole idea of global warming is completely corrupting the science community. If you deny AGW, it’s like denying the Jewish Holocaust in Europe. They won’t even talk to you. You’re certainly not going to get a government grant. Government and foundation grants are what drive science today.

https://www.caseyresearch.com/doug-casey-on-the-nobel-prize-in-economics/

By  October 26, 2018

Justin’s note: Two Americans just won this year’s Nobel Prize in Economics.

William Nordhaus, one of the recipients, was awarded the prize for his work on climate change. Paul Romer, the other recipient, won for research on how regulations and policies can encourage new ideas and long-term prosperity.

The Royal Swedish Academy of Sciences, which selects the recipients, called these the “basic and pressing” economic issues of our time. And I believe many people would agree with that statement.

But Doug Casey isn’t one of them. I know because I recently spoke with Doug about this topic. And, as usual, he had some interesting things to say. See for yourself in today’s Conversations With Casey.


Justin: Doug, what do you think of the latest Nobel Prize in Economics winners? Do they deserve the award?

Doug: The Nobel Prize in Economics should be abolished, along with those for Literature and Peace. All three are passed out arbitrarily, to whomever is currently in fashion, or has the best political connections.

It’s all about Cultural Marxist and socialist intellectuals patting each other on the back. The prestige associated with everything from favorable book reviews to the Nobel Prize legitimizes these people in the eyes of the public. There have been exceptions—but very few, and only enough to keep the Nobels from being total laughing stocks. Left-wing intellectuals talking to left-wing intellectuals about topics of interest to nobody but left-wing intellectuals. All reported on glowingly by their minions in the lickspittle media.

These prizes have about zero relationship to those for Chemistry, Physics, or Medicine—where the achievement is quantifiable, and of objective benefit to humanity.

This year’s winners of the Economics Prize, Romer and Nordhaus, are typical. Neither is a real economist. An economist is someone who describes the way the world works, how men go about producing and consuming in a voluntary marketplace.

These guys aren’t economists. They’re political apologists, who prescribe the way they think the world ought to work, and try to enforce their notions on society. The whole study of economics is quite degraded. It’s now viewed as a subdivision of mathematics, with all kinds of arcane and irrelevant formulae. In fact, economics is a division of philosophy.

Romer, the son of a former Colorado governor, basically puts forward the notion that governments should encourage, or direct, spending to speed up progress. It’s a ridiculous notion, assuming bureaucrats are wiser and smarter than the people who actually created the wealth. It’s an idiotic and destructive view that underlies all socialist and fascist systems. The USSR was an archetype of this thinking. I’m genuinely surprised people don’t laugh and roll their eyes when they encounter these nostrums.

Justin: How about Nordhaus?

Doug: Well, his hobbyhorse is anthropogenic global warming [AGW], and what governments should do about it. This opens up several cans of worms. Number one, does AGW exist? And if it does, should the government do something about it?

Despite everything said in the popular press and in some scientific papers, my belief is that AGW is completely trivial. And what is there is going to drop as improvements in technology make all industrial and consumer processes vastly more efficient. The current hysteria has very little to do with physics, and almost all to do with aberrant psychology.

Can humans change the environment? Of course they can. We do it all the time. Humans have wiped out various species over time—everything from the dodo bird to the passenger pigeon to almost all of the North American buffalo. Humans can have a huge effect on the environment. But does that mean humans are causing AGW?

Contrary to what you hear in the popular media, the proposition is completely unproven. The temperature of the earth has varied radically throughout history, going back 4.5 billion years. This includes an epoch about 500 million years ago when the whole earth was a snowball for as much as 200 million years. Although the earth will wind up fried to a crisp in a few billion years when the sun turns into a red giant, cold is probably a bigger risk than heat. The sun is all that keeps us from approaching the absolute zero of interstellar space.

CO2 is the main focus of the current hysteria. Carbon dioxide levels have varied radically over the eons. In the days of dinosaurs, carbon dioxide levels were many times what they are today, and they’ve basically been going down since Day One.

CO2 is plant food; it is to plants what oxygen is to animals. At about 400 parts per million in the atmosphere it’s really just a trace gas. The vast majority of the so-called Greenhouse Effect is actually caused by potentially much more deadly dihydrogen oxide vapor. When the man in the street is told about this danger, about 10% of them want the government to illegalize it.

Atmospheric CO2 levels are dictated by volcanism and absorption of the gas in seawater. There are thousands of active volcanoes on the planet, spewing CO2, SO2, CH4, and numerous other greenhouse gases in massive quantity. A lot is absorbed by seawater, which has a vastly larger effect on the climate than the atmosphere.

Over the long run, however, CO2 levels are driven by rocks. What happened to all the CO2 when it was, say, 20% of the atmosphere—that’s 200,000 parts per million? It’s now the carbonate part of limestone-calcium carbonate—and other rocks.

But it’s foolish to get hung up on CO2. Many, many things drive the temperature of the earth. Part of it is cosmic rays. They have a huge influence on the amount of cloud cover, which can change temperature immensely. Part of it is the changing tilt in the earth’s axis. Part is the gradual, and cyclical, change in the earth’s orbit around the sun. Part of it may well be the solar system’s orbit around the galaxy, believe it or not.

People have completely forgotten that in the 1970s national magazines were showing images of glaciers knocking over the skyscrapers in New York because they were afraid of a new ice age. People have also forgotten that from about the 1500s through the 1800s, we actually had a little ice age. Before that was the medieval warm period, 700-1400 AD, and before that another cold snap that coincided with the Dark Ages. From roughly 200 BC to 200 AD—coinciding with the rise of the Roman empire—the world was warmer than it is today. They weren’t big CO2 emitters…

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