New Thoughts on a Great Classic
Faculty members at Mises University 2008 sat down with Jeff Tucker to discuss Henry Hazlitt's classic Economics in One Lesson. Each professor covered a particular chapter or chapters. The result is this series of twelve videos, viewable online.
It's all in honor of the Institute's beautiful new edition of the book, featuring an introduction by Walter Block.
De Soto book launch in London
The IEA is sponsoring a book launch for Jesus Huerta de Soto's new book, November 5, 2008. Details.
Those Wacky Swedes
Since I'm not an economist - nor do I play one on the Internet - I don't quite understand the hubbub over a New York Times columnist winning (approximately) $1.4 million in a Swedish lottery. Many reports curiously state that the lottery winner, Paul Krugman, won something called a "Nobel Prize". While there are five awards established by the last will and testament of the late Swedish chemist Alfred B. Nobel, none relate to economics. Instead, there is something currently known as Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels mine, which translated means "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel". Sveriges Riksbank is the Swedish central bank.
The bank, however, does not award the actual prize. That duty falls to the Royal Swedish Academy of Sciences, which has about 500 members, most of whom are, surprisingly, from Sweden. The Academy appoints a five-member committee to screen nominations using a process that, as best I can determine, is similar to how the U.S. Academy of Motion Picture Arts & Sciences selects its winner for Best Cinematography. (I'd add that AMPAS has about ten times the membership of the Royal Swedish Academy, so it's possible that even more people vote on the Best Cinematography Oscar then the Sveriges Riksbank Prize.)
In addition to the Sveriges Riksbank Prize and two bona fide Nobels - chemistry and physics - the Royal Swedish Academy awards several other prizes, some of which are international like the Nobels and others limited to Swedish nationals. My personal favorite is the Gregori Aminoff Prize, an international award for crystallography, the "experimental science of determining the arrangement of atoms in solids." That sounds way cooler then the Sveriges Riksbank Prize or even the Best Cinematography Oscar.
My point here, of course, is that it's unusually silly to grant Mr. Krugman any particular respect or acclaim because a self-selected handful of people from a country of about nine million decided that they're the standard-bearers for all economics. It's nice that Mr. Krugman will receive a medal and a check for $1.4 million, but it doesn't make his ideas any more valid or alter the true principles of economic science. The Swedish Academy could have simply picked the name of a random economist out of a hat and its decision would have been equally valuable.
Blatant Contradictions From Larry Kudlow
In this blog post, I summarize two amazingly quick turnabouts in Larry Kudlow's views on the bailout. Specifically, back in mid-September he was explaining why we needed to stop bailing out firms, because of the problem of moral hazard. Then, after the bailout was rejected by the House and the leaders were putting in "sweeteners," Kudlow said he couldn't support any plan that contained limits on executive pay.
Well, two days after that article, he came out saying how great the bailout would be for taxpayers. The fact that the plan still contained limits on executive pay apparently didn't bother him anymore. Then, just a few days ago, Kudlow explained that Paulson needed to "recapitalize" the banks without punishing shareholders. I.e., last month's talk about moral hazard was out the window.
Trade Makes People Better Off, Even Superheroes
How can trade make both parties better off if one is so much better at everything than someone else? Productivity differences, even extraordinary productivity differences, do not mean that both parties can't gain from trade. Even superheroes like Superman, Batman, the X-Men, and the Civic-Minded Five can gain from trade. FULL ARTICLE
What We Learn From a Play-Money Auction
A play-money auction, writes Bart Fuller, serves as a good example of what we now face. With the passage of the Emergency Economic Stabilization Act of 2008, the Fed is poised to accelerate the redistribution process at a rate not seen in our lifetime. Those who will be hurt the most, of course, will be those who do not receive the new money. FULL ARTICLE
Krugman wins not for his Keynesian-style macroeconomics
The Nobel Prize committee seems to have gone out of its way exclusively to cite Paul Krugman's "analysis of trade patterns and location of economic activity," contributions which students have appreciated and also criticized (Mark Brandly wrote this short piece in 1996). Only at the tail end of the press release does the committee mention the other Krugman we know so well: "In wider circles, he is better known as a lively blogger and spirited columnist in the New York Times." Is this the first time that blogging has been mentioned in the Nobel release?
Of course, the prize confers a broader invitation to take all his other ideas seriously, among which his criticism of Austrian trade cycle theory, a criticism to which Tyler Cowen points with admiration.
Here is Shawn Ritenour's excellent review of some of Krugman's work in this area. He argues that Krugman is not a neo-Keynesian or a proto-Keynesian or any other variety; he is just a plain old-fashioned paleo-Keynesian. Here also are Roger Garrison and John Cochran responding to Krugman.
You can comment on the forum, where a thread is developing.
Election 2008 In Brief
There are two major parties in the United States. One party nominated a man who always needs to be perceived as the hero. The other party nominated a man who constantly requires the approval of others. I forget which one is which.
The voters are themselves divided. Most voters support individual rights - but not for anyone beside themselves. Some voters think credentials are important for the presidency. Others think credentials are important for the vice presidency.
Many voters are concerned about the wars in Iraq and Afghanistan. The Republican nominee doesn't share these concerns. The Democratic nominee is very concerned and he will do something about it . . . not now, of course, but maybe after he's out of office.
Many voters are concerned about the economy. The Republican nominee admits he knows nothing about economics. The Democratic nominee thinks that eventually socialism will simply work - just like in Star Trek.
Many voters are concerned about civil liberties. The Republican nominee admits he knows nothing about civil liberties. The Democratic nominee thinks the problem is low self-esteem, which can be solved by putting him on more magazine covers.
Many voters are concerned about health care. The Republican nominee says he knows how to fix the health care system - after all, he's been in Congress for 25 years. The Democratic nominee personally guarantees he can provide health care for everyone - after all, he did go to Harvard Law School.
Many voters are concerned about the courts. The Republican nominee wants judges who will always agree with him, even when he doesn't know what he believes. The Democratic nominee wants judges who will be nice to people and not make them feel bad when they violate other people's rights.
Many voters are concerned about the right to keep and bear arms. The Republican nominee is sort of okay with this - as long as the government has more guns. The Democratic nominee is sort of okay with this - as long as the government has more guns.
Time for a flight to Rome
The 13th Austrian seminar in Rome, sponsored by Istituto Bruno Leoni, starts tomorrow!
The Debt We Owe to Trade
Here is my review of William Bernstein's A Splendid Exchange: How Trade Shaped the World, Atlantic Monthly Press, 494 pages.
Unlearning the lessons in 30 days or your money back guaranteed
Four weeks later Fannie and Freddie have been ordered to acquire $40 billion a month in "troubled assets."
I recently ran into a moving bus and have forgotten the reason why the two GSEs were originally "rescued."
Was it because they bought a lot of tulips? Was it because they speculated in the Mississippi river basin? Did they invest heavily in beanie babies?
Srsly, what exactly are they drinking in DC?
Via Robert Wenzel.
See also: The Bailout Reader
The Recession Reader
Economic Indoctrination: Teacher, You're leading the witness.
Today, NPR News visited Garret Capping's US government class to hear how the financial crisis is being addressed in the government's schools.
Capping asked his students, "In a nutshell, what would you say caused the financial crisis that we have today?"
Three students parroted the party line:
Spencer: "Corporate greed."
Alison: "Adjustable rate mortgages and the housing crisis."
Sam: "Subprime mortgages."
Capping: "Subprime mortgages. Good. Alright, so those are pretty good answers"
The discussion then turned to the role of securities, specifically credit default swaps.
Capping: "But these investors got nervous. So what they do to cover their bets is something called a credit default swap. But they didn't take enough money -- they didn't reserve enough money to actually cover if those things failed. Now, why did they not have to do that?"
Kate (a student): "Ok. It was because that they, uh ... Oh, it's because it wasn't technically an insurance policy. It was called, you know, a credit default swap. And so it wasn't, you know, part of, like, the government's job to make sure that it was regulated."
Capping: "Excellent. Good answer. Right. What happens is -- because we're not calling it insurance, we're calling it a credit default swap -- it's not regulated by the government. So these companies don't actually need to set aside this money to sure they can cover their bet."
Hmmm. Teacher, You're leading the witness.
No mention of the FED. And the correct answer is always the feds and more regulations.
By the way, these students are seniors and will soon be voters. Scary.
A time to praise central banking?
This is truly an awful op ed from today's WSJ. I am hoping that a bunch of us can write Letters to the Editor, so maybe one of ours will get published. The writer claims that our periodic banking panics are the fault of Thomas Jefferson, because he didn't understand commerce and hated rich people, and thus killed (through his disciples) a strong central bank that could prevent crises. Oh, the writer also explains Jefferson got these weird views because he grew up on the backs of slaves.
Closing markets?
True or not, and probably and surely not, all you need to know is that this rumor had some plausibility to it.
WASHINGTON (MarketWatch) -- The White House denied Friday that it had any intention of closing financial markets. "There are absolutely no plans or discussions to interfere with the functioning of markets in the United States," White House spokesman Tony Fratto said in an email message. Earlier Friday, Italian Prime Minister Silvio Berlusconi had given conflicting statements about the possibility. He first told reporters that the idea of financial leaders closing markets was on the table, but he later told reporters that his only knowlege of such plans came from reading media accounts of the financial crisis. Berlusconi also said that G8 leaders may have a meeting to discuss the crisis in coming days
Selgin Just in Time
Wow, it just occurred to me. George Selgin's great book on private coinage came out just in time! Might be the path of the future after all of this. See Good Money.
Prices, Part 1
Ludwig von Mises lays out the nature of prices and (briefly) sketches how they are actually formed. He is very clear on the complicated but crucial relationship between subjective consumer valuations and objective prices of the factors of production. The material in this chapter is necessary to fully understand Mises's critique of socialism. FULL ARTICLE
[This article is excerpted from chapter 16 of Human Action. Robert Murphy has written a study guide for this chapter, available in HTML and PDF. This article follows "Chapter XV. The Market, Part 2."]
The End of the World As We Know It?
"And I feel fine." Well, not quite. The pleasures of saying "I told you so" have always been overrated, but they're non-existent these days as the parasite politicians and central bankers, and their willing enablers, non-Misesian economists, wreck the world. Then they use the wreckage as the excuse for vaster inflationism, fascism, and socialism.
But in the maelstrom, we have a job, aside from protecting ourselves and our families to the best of our abilities. That job is to teach discover and teach the truth about freedom and about the crimes and consequences of the state, the empire, central banking, and paper money. The truth is the necessary foundation of the restoration.
What Mises wrote seems ever more prescient:
No one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result.
In 1940, he was leaving Geneva, leaving a war-torn Europe for a centrally planned United States. Disaster was everywhere and there was far less hope to be had than today. He wrote:
How one carries on in the face of unavoidable catastrophe is a matter of temperament. In high school, as was custom, I had chosen a verse by Virgil to be my motto: Tu ne cede malis sed contra audentior ito. Do not give in to evil, but proceed ever more boldly against it. I recalled these words during the darkest hours of the war. Again and again I had met with situations from which rational deliberation found no means of escape; but then the unexpected intervened, and with it came salvation. I would not lose courage even now. I wanted to do everything an economist could do. I would not tire in saying what I knew to be true.
Turning to Mises
Every hour the crisis continues, I'm more grateful that we have Hayek, Rothbard, and Mises in print on all of this. I was just looking through Mises's Causes of the Economic Crisis (print and pdf) , and my eye quickly fell on this from 1931:
The appearance of periodically recurring economic crises is the necessary consequence of repeatedly renewed attempts to reduce the 'natural' rates of interest on the market by means of banking policy. The crises will never disappear so long as men have not learned to avoid such pump-priming, because an artificially stimulated boom must inevitably lead to crisis and depression....
All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis: Forgo every attempt to prevent the impact of market prices on production. Give up the pursuit of policies which seek to establish interest rates, wage rates and commodity prices different from those the market indicates. This may contradict the prevailing view. It certainly is not popular. Today all governments and political parties have full confidence in interventionism and it is not likely that they will abandon their program. However, it is perhaps not too optimistic to assume that those governments and parties whose policies have led to this crisis will some day disappear from the stage and make way for men whose economic program leads, not to destruction and chaos, but to economic development and progress.
Every day is April Fools at the NYT
Here is the howler printed yesterday, in reference to the prospect of bank nationalization: "This regime change refers to a change in the economic environment so radical that, at least for a while, economic policy makers will need to suspend what are usually sacred principles: minimal interference in free markets, gradualism and predictability."
Incidentally, I asked a trader and economist at a major hedge fund to be blunt about all the Fed's actions of late, and whether they have actually caused the meltdown to be far worse than it might have been under laissez-faire. He writes as follows: "We clearly would be better off long term. Short term it is so hard to argue counterfactuals but lately it seems like everything they do is akin to yelling fire in a crowded theater short term, and if they had just let bear go in January, further excesses in 2008 wouldn't have built up. It took the heat off the banks to sell assets or raise capital as they figured there would be a lifeline from the government."
Confidence Is Leaving the Fiat Money System
Whenever financial markets set out to end the disastrous process through, a decline in economic activity, governments and their central banks will do whatever it takes to keep the fiat-money system going: lowering interest rates by increasing credit expansion and increasing the money supply. In the current situation, however, banks' capacity to keep expanding the credit and money supply has been greatly diminished. FULL ARTICLE
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