Machine to explain the economy (1949)
Thanks to Don Lloyd for this link to an interesting story about a British machine that modeled the workings of the British economy:
A sensation when it was unveiled at the London School of Economics in 1949, the Phillips machine used hydraulics to model the workings of the British economy but now looks, at first glance, like the brainchild of a nutty professor. Where the Bank's team of in-house economists are equipped with state-of- the-art digital computers, the profession's first stab at modelling was very much a do-it-yourself affair with a whiff of the Heath Robinson about it.
The prototype was an odd assortment of tanks, pipes, sluices and valves, with water pumped around the machine by a motor cannibalised from the windscreen wiper of a Lancaster bomber. Bits of filed-down Perspex and fishing line were used to channel the coloured dyes that mimicked the flow of income round the economy into consumer spending, taxes, investment and exports. Phillips and Walter Newlyn, who helped piece the machine together at the end of the 1940s, experimented with treacle and methylated spirits before deciding that coloured water was the best way of displaying the way money circulates around the economy.
But whoops:
By today's standards, the Phillips machine was limited. It made no provision for inflation and, with capital controls in force, had no need to take account of the curse of the modern UK economy - the wild swings in the credit cycle. Professor Brian Henry, a visiting fellow at the National Institute for Economic and Social Research, said: "It was a child of its time. It looked at how the economy could be stabilised when people were worried about the stabilisation of aggregate demand. That is the way things were in the 1950s.
"Things are different now. There is a different financial system and a completely different global economy. But Phillips was a brilliant guy. He came up with interesting ways of providing practical advice on policy."
Even so, Henry says the machine is far more than a museum piece. Today the Bank of England's models are supposed to show how shocks affect the economy and the time it takes for a change in policy to have an effect, precisely the sort of problems that the Phillips machine helped identify. Even with the most up-to-date computers, the Bank is still finding it hard to come up with the right answers.
Indeed, one early demonstration of the machine displayed the difficulties that can arise when monetary and fiscal policy are not synchronised. Phillips asked one of his students to be chancellor of the exchequer and control taxes and spending; the other to be governor of the Bank and control interest rates. Predictably, the policies were uncoordinated and the upshot was that water overflowed on to the floor.
Independent plug in for Community
I'm really taken with this gizmo designed to change the header for Community users.
The Uses of History
Gordon Wood's defense of objective history is salutary, and besides this, as one would expect from a historian of his eminence, he makes many illuminating remarks about concrete issues in American history. Despite its considerable merits, though, his book suffers from a fundamental flaw. He protests against ideologists who impose their own concerns on the past; but Wood himself has definite views about the nature of the past that are as much theoretical impositions as those of the writers he challenges. FULL ARTICLE
Does Money Taint Everything?
Let's pull this sentence out of the civic pieties of our time and see what's wrong with it: "We should all volunteer our time in charitable causes and give back to the community in a labor of love."
We can't argue with the instruction here, or the sentiment behind it. There is nothing wrong with giving and sacrifice. My argument is with the choice of language. It contains a word and three phrases the common usage of which can be highly misleading. FULL ARTICLE
Natural Disasters, It Turns Out, Are Bad
It seems that we may never rid ourselves of the broken-window fallacy. it's not only that disasters just have a silver lining: economists have long believed that natural disasters and wars are actually good for the economy! Until recently they have not made any attempt to empirically test their views. Now the good news. A recently published paper in Economic Inquiry by Cuaresma, Hlouskova, and Obersteiner brings the positive benefits of disasters into question. FULL ARTICLE
Wage and Price Controls Failed...
...in Massachusetts during 1630-50.
From Murray Rothbard's Conceived in Liberty: "Maximum-wage control always aggravates a shortage of labor, as employers will not be able to obtain needed workers at the statutory price. In trying to force labor to be cheaper than its price on the free market, the gentry only made it more difficult for employers to obtain that labor." (p. 254, Vol. I, Chapter 31).
Listen to Chapter 31 in MP3 audio format: Economics Begins to Dissolve the Theocracy: The Failure of Wage and Price Controls.
Are We Running Out of Food?
If we had free world markets, writes Kel Kelly, food would be exported from some countries, such as the United States and Europe, where food is plentiful, to countries where it is needed. This is because it would be profitable to ship goods to needy areas like Africa, where shortages were making prices rise.
The fact that this is not currently happening can be a result only of government price controls (which prevent prices from rising in needy countries), trade restrictions, or some other government barrier that prevents people from getting what they need. FULL ARTICLE
How profitable is big oil?
In the context of the recent spike in oil prices, this clip from Glenn Beck show might be of interest to some.
Particularly noteworthy is the fact that the oil industry has been facing a thirty years [sic] moratorium on exploring new fields within the United States. According to the president of Shell Oil, John Hofmeister, the US is dependent on the order of over 60% of its overall consumption on oil imports. The moratorium, though not mentioned in the clip, I suspect has got a great deal to do with environmentalism. Speaking about sponsoring of international terrorism!
Another fact is that the profit margin of oil companies is about 8% on capital invested. There are other extremely interesting facts in the clip as well.
Are eulas contrary to property rights?
One of my favorite blogs on Mises.org is Copyfascism Watch because it always raises challenging questions and offers great arguments and documentation. Today, the top item concerns End User License Agreements: "One of the problems that needs to be resolved in the copyfight is the validity of licenses, which not only includes all EULAs, but Creative Commons and open-source licenses like the GNU as well. An argument cannot be made that the consumer and seller participated in a voluntary-exchange, when often the terms of the EULA are not agreed to prior to the purchase. How legitimate are the claims of manufacturers that consumers are merely buying the CDs and not the permission to install and use the software for which the consumer (rightly, I might add) believed he is paying? We do not accept that Ford or American Eagle (a clothing company) has any say in how we use the products they sell us after it is sold to us. Why then do we give software companies this right?"
On the other hand, maybe eulas can be considered a kind of covenant with the user, and we readily accept such restrictions when buying homes, for example. I want to think that the blogger is right but I'm not sure. Thoughts?
Up with Iron Man; Down with the Merchants of Death
The phrase Merchants of Death takes center stage in the movie Iron Man, which is a spectacular expose of a subject that dominates the American economic landscape but about which Americans have very little knowledge. The phrase and the movie deal with the odd juxtaposition of capitalism and war as found in the weapons industry. Here we have innovations and efficiency of the type we associate with the private commercial sector but serving ends that are the very opposite of capitalism. The industry serves war, not peace, depends on coercion, not human volition, and profits from destruction, not creation. FULL ARTICLE
X-Treme Thomas Paine
Some people hang around on Mises.org to see what kind of amazing content we are making available now. Well, so for these folks, here is a wonderful thing. The Complete Writings of Thomas Paine: Volume 1 and Volume 2. So if you dig into this, you are set for reading 2000+ pages. How's that for x-treme content? Plus, these PDFs all have very detailed navigation tools -- and, unlike Google books, you can copy and paste the text for research work or quoting. Thomas Paine lives forever!
Economists and Their Frameworks
Part of the problem with being an economist -- besides having to don sunglasses and a fake beard to avoid throngs of adoring fans and marriage proposals when out in public -- is that once you think about a particular economic issue in a certain way, it's virtually impossible to shake that mindset. If some other economist is reaching a different conclusion with his preferred mental framework, you stubbornly cling to your own conclusion because "when I think about it this way" you seem to be right. FULL ARTICLE
The Reality Of The U.S. Recession
Today on LRC I explain why America really is in a recession and has been so since at least November last year despite the seemingly positive growth (Which as I explain really isn't positive). So if you haven't already read it, do it now.
Blast from the Argentinian Past
Take a look at this great clipping from the Buenos Aires newspaper from 1959, when Mises visited. This is courtesy of the Hayek Foundation, which has lots of photos I've not seen. (Thanks Adrian Ravier)
An Anti-Intellectual Intellectual--Hoppe Interview in Indonesian
Just out: Interview with Hans-Hermann Hoppe, an Anti-Intellectual Intellectual, the English translation of Hans-Hermann Hoppe: Potret Intelektual Anti-Intelektual, an interview by Sukasah Syahdan in Akal dan Kehendak, or "Reason and Will", an online weekly Journal on Liberty, Indonesia.
Syahdan observes in his introduction: "Anyone familiar with his ideas will without hesitation dub him the world's sharpest critic alive of most paradigmatic isms, such as socialism, communism and fascism. He is also a loud voice amid the barren and quiet desert of critical insight into 'empiricism,' the method he thinks largely inadequate for application in social studies. In an age where mechanistic views toward social phenomena have become a trademark for mainstream intellectuals, Hoppe has been a towering figure, calling himself an intellectual anti-intellectual."
An excerpt from the interview:
A&K: What are the three things you value most dearly in life, Prof.?
HHH: Truth, justice, and beauty.A&K: And three things you abhor?
HHH: The opposite of truth, justice, and beauty. And more specifically: ''political correctness,'' moral cowardice and opportunism.
...
A&K: ... In just a few words, what's the prospect of Austrianism?
HHH: I cannot but hope that the truth represented by Austrianism will ultimately win over
falsehood and illusion. But even if that were not the case, I still consider it to be my duty to fight for it as long as I can.
Continue reading "An Anti-Intellectual Intellectual--Hoppe Interview in Indonesian" »
The Sphere of Economic Calculation
In this chapter of Human Action, Mises lays out the boundaries of economic calculation, and explains that within their sphere market prices render all the services needed of them. The tools of economic calculation are inappropriate, though, when people extrapolate into areas outside of the actual market. In particular, economic calculation cannot provide a measure of immutable value, because no such thing exists. The efforts to devise a stable money and to provide a flow of guaranteed income are futile.
(Robert Murphy has written a study guide for this chapter, available in HTML and PDF. This chapter follows "Valuation Without Calculation.")
Bad News, Comrades: Reading Did Not Improve
President Bush and the Republicans are no better than the naive Great Society liberals of yesteryear in thinking that a new law and new government spending can accomplish glorious things here and abroad, and one of those programs was called Reading First and it generated billions in spending. Billions.
I swear that the propaganda for this program reads like stuff from the Soviet Union in the 1960s or something: "This program focuses on putting proven methods of early reading instruction in classrooms. Through Reading First, states and districts receive support to apply scientifically based reading research--and the proven instructional and assessment tools consistent with this research--to ensure that all children learn to read well by the end of third grade. ... Only programs that are founded on scientifically based reading research are eligible for funding through Reading First."
Well, two things. First, it turns out that it didn't work. The Department of Education--more more specifically, named in the tradition of Elena Ceausescu, the "Institute of Education Sciences"--released a report yesterday (I don't see it online but the NYT reports on it here) that says, well, the program didn't do a darn thing.
But, second, that doesn't mean there weren't winners. It turns out that the program was really a subsidy to certain GOP-connected publishers, and that is what scientific really means.. The NYT reports: "federal officials and private contractors with ties to publishers had advised educators in several states to buy reading materials for the Reading First program from those publishers." No details on precisely which publishers, but inquiring minds would like to know.
Two years ago, there was a big shake up in the program when it turned out that the director had send emails referring to other publishers of books as "dirtbags." The full email message: "They are trying to crash our party and we need to beat the [expletive deleted] out of them in front of all the other would-be party crashers who are standing on the front lawn waiting to see how we welcome these dirtbags."
Now, that's some news: a federal program proves wasteful, morally hypocritical, ineffective, and corrupt. No comment yet from the "Assistant Secretary for Planning, Evaluation, and Policy Development." That, however, should not stop you from consulting Laura Bush's approved reading list for children available on whitehouse.gov.
Is the Nursing Market Malfunctioning?
Studies of the nursing market forecast that the shortage will get worse in the coming years. But the real question is this: has something happened to the price mechanism in the market for nurses? To assert that the United States is suffering from a nursing shortage that will not only persist but grow worse for years to come is to assert that the nursing market is malfunctioning. Is the price mechanism in the nursing market broken?
Contrary to the many articles and studies, the price mechanism in the nursing market is not malfunctioning. It is working in textbook-like fashion. The increasing demand for nurses is driving nursing compensation up, which in turn is bringing more nurses into the market. Such is not the stuff of shortages but of market prices coordinating the allocation of scarce resources exceptionally well -- and in reality, not just theory. FULL ARTICLE
Get "Liberty"
Can a libertarian periodical really survive, really stay useful, in the online age, in which libertarian commentary appears on hundreds of thousands of blogs, a time when libertarian websites multiply without end, when libertarian commentary is available in a million different places instantly?
The burden of proof is on the print publication, that's for sure. But you know what? One publication does do it. It is Liberty Magazine. This is the one hard-copy publication with a libertarian bent that I would recommend you get. You can also buy it on newsstands. FULL ARTICLE
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