Wednesday, February 27, 2013

When Is a Cut Not a Cut? When It Is a U. S. Government Sequester

As Paul Roderick Gregory points out on, according to the Congressional Budget Office's baseline budget projections, the supposedly horrific $995 billion sequester cut will actually be a $110 billion increase in spending. Such smoke and mirrors have been used inside the Beltway for a long time. You know the entire financial industry and economy is on shaky ground when people like Ben Bernanke are concerned that what amounts to a $110 billion increase over ten years will drag the economy down due to a supposed decrease in aggregate demand.

As Gregory notes, however,

Sequester alarmists will respond that it is impossible to run the federal government without annual inflation adjustments and without exempting certain government spending. We American voters might respond that most of us do not receive automatic inflation adjustments to our earnings and we are expected to tighten our belts when times are tough and our personal debt has gotten out of control.

Monday, February 25, 2013

Grant on the Gold Standard

Here is the always provocative, insightful, and thoughtful James Grant on Bloomberg TV with Tom Keene discussing a return to the Gold Standard:

It is certainly worth a watch. Grant's Money of the Mind is still the best history of U. S. credit markets from the Civil War to the 1980s.

Friday, February 15, 2013

Austrian Student Scholars Conference

This evening begins our annual Austrian Student Scholars Converence. We have a tremendous group of papers that will be presented by very bright and talented undergraduate and graduate students from around the country and two outstanding keynote lecturures in David Howden and Peter Klein.

The full schedule is as follows:

Friday, February 15, 2013

5:00-5:30 Registration. HAL Atrium.

5:30-6:30 Dinner. SU Great Room.

7:00-8:00 Hans Sennholz Memorial Lecture.  Sticht Lecture Hall.
     "Legal and Economic Conflicts in Financial Transactions"   

Asst. Professor of Economics 

Saturday, February 16, 2013

8:00-8:30 Coffee and Pastries. HAL Atrium. 
8:30-10:00 Sessions
▪ The Financial Crisis of 2007-2008. Chairman: Jeff Herbener. HAL 114.
GLBA and Financial Regulation: The Forgotten Cause of the Financial Crisis,"
Nicholas Freiling (Grove City College)
Austerity: The Answer to Europe's Crisis,"
                            Evan Gruver (Grove City College)
                  "Return of the Bank Run: How the Financial Crisis of 2007-2008 Was a Next-Generation Bank Run,"
                            Sam Williams (Grove City College)

        Markets and Institutions. Chariman: Shawn Ritenour. HAL 116.
"Market Power and Duopoly Despite Regulation: An Analysis of the Market Structure and Economic Conditions of the National Mobile Wireless  Telecommunications Market,"
                            Claire Vetter (Grove City College)
                 "Costa Nostra, Instutions, and Entrepreneurship,"
                            Rosolino Candela (Suffolk University)
                 "Bureaucracy and Innovation: How Hierarchical Firm Structures Stifle Innovation and Spontaneous Processes,"
                            William Krut (Grove City College)
10:15-11:45 Sessions

▪ Religion and Economics. Chairman: Jeff Herbener. HAL 114.
"St. Thomas Aquinas: Economics of the Just Society,”
                            Michael Hagan (Grove City College)
                "Religion and Economics: A Direct Investigation of an Indirect Relationship,”
                            Jesse Ingram (Grove City College)
"Austrian Economics and Distributism: Comparison in Light of Catholic Social Teaching,"
                            Nicole Wizorek (Grove City College)

        Depressions in History. Chairman: Shawn Ritenour. HAL 116.
                "Austrian Business Cycle Theory: An Application to New Zealand's Recent Boom and Bust,"
                            Roy Davidson
(University of Waikato)
                "The Panic of 1873: A Free Market Perspective,”
                            Matt Faherty (University of Chicago)

                "An Investigation into Great Britain's Commercial Crises of 1857 and the Preceding Business Cycle,"
                            John Henry Gendron (Providence College)

12:00-1:30 Lunch. SU Great Room.
1:45-3:15 Sessions

         Challenges to Austrian Business Cycle Theory. Chairman: Jeff Herbener. HAL 114.
"Rational Expectations and the Business Cycle,"
                            Caleb Fuller (Grove City College)
                  "Results of Inflation not Proportional to Its Extent,"
                            Leonid Shapiro (Ohio State University)
                  "Business Cycles, Entrepreneurs, and Economic Calculation,"
                            Andrew Deckert (Grove City College)
  ▪ Property: Public and Private. Chairman: Shawn Ritenour. HAL 116.
"Aristotle's Just Theory on the Exclusive Right to Property,"
                            Davis Bourne (Millsaps College)

                  "Entrepreneurial Resource Allocation and Internet-Based Consumer Reviews,"
                            Ryan Budny (Grove City College)

"Public Education: Who Is It For?"
                            Jordan Reel (Loyola University, New Orleans)
3:30-5:00 Sessions

    Money and Capital. Chairman: Jeff Herbener. HAL 114.
"What Really Drives Sweden's Economic Success: A Policy Analysis Paper of Sweden During the 1930s Crisis and the 1990s Crisis"
                            Luke Cutler (Grove City College)
                    "Causal Factors in the Crisis of Confidence in Hyperinflation,"
                           Matt Keith (Grove City College)
                    "Microloans and Austrian Capital Theory,"
                            Alex Martin (Grove City College)
     ▪ Philosophy and Economics. Chairman: Shawn Ritenour. HAL 116.
                    "Intuition, Science, and the Action Axiom,"
                            Bryce Laliberte (University of Minnesota)
                    "Implications of Causal-Realist Preference Theory on Expected Utility Theory,"
                            Paul Sangrey (Grove City College)
                    "Argumentation Ethics Applied to Abortion,"
                            Justin T.P. Quinn (Rowan University)

5:30-6:30 Dinner. SU Great Room.

6:45-7:00 Awarding of the Richard E. Fox Prizes for Best Papers. Sticht Lecture Hall.

7:00-8:00 Ludwig von Mises Memorial Lecture. Sticht Lecture Hall.
“Austrian Economics and Entrepreneurship Research”

 Dr. Peter Klein
 Professor of Economics
  University of Missouri

Thursday, February 14, 2013

The Minimum Wage: Once More with Feeling!

In his State of the Union Address, President Obama again called for raising the minimum wage--this time to $9 an hour! This flies in the face of all economic wisdom. The last think we want to do in a time of high unemployment is to make it more expensive to hire someone. 

As I explain in Chapter 15 of my book, a minimum wage above the market wage results in unemployment, increases labor costs, keeps the lowest-skilled workers out of the labor force, putting them on a lower income trajectory, reduces societal wealth by encouraging entrepreneurs to use an inefficient combination of factors of production, causing needless waste and decreases in overall production. That is no way to reduce the plight of the poor.

Heather Boushey concedes the theoretical argument, but claims the theory does not hold up in practice. Boushey sees the minimum wage increase as a great way to help poor people and stimulate the economy to boot. Economists Richard Vedder and Lowell Gallaway, who have spent much of their careers examining the economics of labor markets have come to, shall we say, a different conclusion. I highly recommend Vedder and Gallaway's study "Does the Minimum Wage Reduce Poverty?" Both economic theory and history answer, in a word, no!

Wednesday, February 13, 2013

President Obama Promises Bad Economic Policy

So says Douglas Holtz-Eakin, former director of the Congressional Budget Office. He provides much food for thought in an interview by Lauren Lyster and Aaron Trask on the Daily Ticker. Holtz-Eakin explains our government spending and debt are a problem and why increasing the minimum wage to $9.00 is what we do not want if we want a return to prosperity. Holtz-Eakin says that the options that the President gives us are higher taxes or a financial crisis. Not a happy choice.

Monday, February 11, 2013

Freiling on the War on Work

Nicholas Freiling
Today's daily article at is "Waging War on Work," written by one of my students Nicholas Freiling! He provides sound analysis of the destructive nature of the minimum wage and reminds us that, regarding labor market interventionism, our work is never done.
No doubt, libertarians have come a long way. Austrian economics is more popular now than ever. Even on Capitol Hill, the ideas of sound money, financial austerity, and economic liberty have become impossible to ignore. But if two-thirds of the American people maintain support for the flawed idea of minimum wage, libertarians still have a long way to go.
Nicholas is a promising economics major and author at

Saturday, February 9, 2013

The Monetary Writings of Carl Menger

The past two lectures in my History of Economic Thought course has been over the contributions of Carl Menger, the fountainhead of Austrian Economics. Thus far I have spent most of the time explaining Menger's distinct praxeological method and subjective marginal value theory.  Here is a lecture from the great Hans Sennholz detailing the contributions of Carl Menger for monetary theory and policy:

Sennholz is presenting the paper "The Monetary Writings of Carl Menger" at the very first economic conference hosted by the Ludwig von Mises Institute. His paper was subsequently included in the volume The Gold Standard: Perspectives in the Austrian School, edited by Llewellyn H. Rockwell, Jr. Sennholz held forth as the chairman of the economics department at Grove City College from 1956-92 and then was president of the Foundation for Economic Education the five years following. The present president of FEE is Lawrence W. Reed, a student of Hans Sennholz at Grove City.

Friday, February 8, 2013

Let the Good Times Roll

If you're a spending bureaucrat or politician, that is. One day after legislation was singed that superseded the old debt ceiling, the U.S. Treasury surpassed it by $41 billion dollars. U.S. Treasury debt subject to the statutory limit now is at $16.435 trillion. When it comes to spending, our government stands alone.

Thursday, February 7, 2013

Music Video Contest for Students!

The L. V. Hackley Endowment for the Study of Capitalism and Free Enterprise at Fayetteville State University has announced their Economics Music Video Contest. The contest is open to high school, college, and graduate students and features a prize of $2,500!  Here is the statement from Ed Stringham, Hackley Distinguished Professor for the Study of Capitalism and Free Enterprise:

Dear Fellow Scholars,

Eighteen years ago I was in Walter Block's class and he said that economists will always have a disadvantage to critics of markets who have a bunch of catchy folk songs.

To counter that I created a music video contest and this year's theme is "Economic value is subjective." 

The winners get $2,500 and the professor of the winning entry gets $500. Tell your classes! Entries are due May 15, 2013.

Assign it as a new assignment (I do and get some great videos that mention Carl Menger), as an alternative to an existing assignment like a paper, or as extra credit assignment. Let them know that if they place as a finalist they will get even more extra credit. 

Full details about the contest are here:
To see the current entries click here:


Edward Peter Stringham, Ph.D.
L.V. Hackley Distinguished Professor for the Study of Capitalism and Free Enterprise
School of Business and Economics
Fayetteville State University
1200 Murchison Road
Fayetteville, NC 28301

Wednesday, February 6, 2013

It Didn't Have to Be This Way

So says Harry Veryser about the financial meltdown and subsequent Great Recession. Veryser has written a new book explaining that Austrian economics and its policy implications are the key to understanding why this is so. Veryser's book sounds like just what the economic doctor ordered to provide a way out of our mess and to prevent similar messes in the future.

As Veryser says:
For years now, we have endured a barrage of bad news: businesses going belly-up, people losing their jobs and homes, government debt soaring. It didn’t have to be this way. The Austrian School presents the most coherent explication of the economic relations among men and—more so than any other system today—lays out economic guidelines that offer real prospects for prosperity worldwide. 
As indicated above, Veryser  draws upon Austrian Business Cycle Theory to explain the nature of the boom/bust economic cycle, which is also the theory that I discuss in Foundations of Economics. Additionally, I personally know Veryser to be a true gentleman and a scholar. He is presently an associated scholar of the Ludwig von Mises Institute and has served as director of the graduate program in economics at the University of Detroit Mercy and chairman of Walsh College’s Department of Economics and Finance.

Tuesday, February 5, 2013

Economic Method, Theory and Policy: Krugman Edition

In a recent attack on causal-realist economists [or the "Austrianish Horde" as he called it], Paul Krugman again reverts back to using a baby-sitting co-op as a model for the economy. His doing so provides an excellent example of what I tell my students the first day of my Foundations of Economics course. I explain that too often people wish to begin by answering policy questions without making sure their theory is correct. This is a disastrous mistake, because one's policy conclusions are directly related to one's understanding of economic theory. It is our economic theory that leads us to conclude that particular economic policies will result in particular economic consequences. For example, increasing the money supply by a billion dollars a day will result in its purchasing power being lower than it would be without the monetary inflation.

Krugman's recent blog post is a case in point. Krugman is well-known to be a Keynesian fiscal and monetary activist. He pushes this policy agenda in large part because of the way he conceives of the economy. He thinks we can model the economy as a baby-sitting cop-op that uses baby-sitting tickets to purchase sitter services. In doing so, Krugman uses what Rothbard called a "false mechanical analogy" of model building.  Rothbard criticizes the use of such model building because "the 'models' of economic and political theory are simply a few equations and concepts which, at very best, could only approximate a few of the numerous relations in the economy or society." As such, they often abstract so far from reality as to be irrelevant at best or destructive at worst.

Krugman's baby-sitting co-op model is an example of the latter. In this model the output is baby sitting and the "money" is the tickets. Krugman used this model way back in 1998 in the first edition of his Return of Depression Economics, by which he meant return of Keynesian economics.

What I said about the model in my review of the book, still applies today:
Krugman’s main analytical model is a quintessential example of his strengths, such as they are, and weaknesses. While attempting to explain the workings of the economy in simple terms that the general population can readily understand, he hitches his analytical wagon to an article using a baby-sitting co-op in 1970s Georgetown as a model for the macroeconomy. As a result, Krugman makes fundamental errors regarding how the economy works. In an attempt to efficiently ration baby-sitting services among the members, the baby-sitting co-op issued coupons. Each member family paid a baby-sitting ticket whenever they used the co-op and received a ticket whenever they baby-sat for one of the other members of the co-op. Purposely leaving out the details, Krugman tells the reader that members of the co-op suddenly increased their demand to hold baby-sitting tickets. Consequently, there was not enough aggregate baby-sitting demand for the services of those members in the co-op who were looking to baby-sit in order to increase their ticket incomes. In other words, Krugman explains, the baby-sitting co-op went into a recession.

The attraction of this model is its seductive simplicity. Krugman is often quite good at taking issues and problems the general reader finds unmanageably complex and explaining them in ways simple to understand. While this is, of course, a virtue, it is only a virtue if his explanation accurately reflects reality. The chief responsibility of the economist is to get the analysis straight. For this, the
baby-sitting model will not do.
The fundamental error of this model is that it only has one good: baby-sitting. This leads the reader to think of economic output as if all goods produced in the economy are homogenous units making up one aggregate. The lesson of the model is that if a recession occurs, it must be that there is not enough demand for this homogenous output. In the baby-sitting model, the problem is that members
demanded to hold too many tickets. For the economy as a whole, as Krugman views it, “a recession is normally a matter of the public as a whole trying to accumulate cash” (p. 11). People decrease spending in order to increase their cash balances. The supply of goods not demanded sits idle, and unemployment results.

In reality, of course, the plethora of goods bought and sold in the world economy are heterogeneous. What causes a recession is not too little “aggregate demand” or “too much capacity” due to overinvestment. Recessions are a product of malinvestment, resulting from government intervention in credit markets. If the government increases the money supply through credit expansion by artificially lowering interest rates, an incentive is created for entrepreneurs to invest in too much production of some higher order goods and not enough production of other lower order goods. It is not that too much investment is occurring in every sector of the economy, rather, investment that is occurring is being directed toward producing the wrong things, from the point of view of the people who make up society.

A very telling characteristic of Krugman’s analysis is that he argues that recessions will persist until aggregate demand picks up due to monetary inflation. Again Krugman, alluding to both the baby-sitting co-op and the economy, states that the recession “can normally be cured simply by issuing more coupons” (p. 11). The immediate question that should come to mind is why the surplus was not eliminated by a fall in the price of baby-sitting. We do not know. Krugman does not even bring it up! The model assumes that the prices are fixed at a one-ticket-to-onenight-of-baby-sitting ratio. This lulls the reader, and it seems Krugman himself, into forgetting that prices will adjust downward to eliminate any surplus due to a drop in demand. It is curious, to say the least, that in a book with the word economics in the title, the author does not get around to discussing even the mere possibility of a price decrease in the face of a surplus until page 155, that is, until the reader has read 92 percent of the text.

Monday, February 4, 2013

Recent Interviews Worth Watching

Lauren Lyster, formerly of RT's Capital Account, and now at Yahoo's Daily Ticker, has had a couple of interviews well worth watching.

Last week she interviewed James Grant of Grant's Interest Rate Observer. Grant explains to Lyster why the actions of the Federal Reserve are Counterproductive for economic prosperity.

Today, The Daily Ticker posts an interview of David Stockman who argues that today's housing market is merely going through housing bubble 2.0, because resurgence in housing demand is merely a product of monetary stimulus and, therefore, unsustainable.

Both Grant and Stockman are always worth watching.