Saturday, December 29, 2012

What Must Be Addressed about Our Fiscal Mess

Cutting Spending. Period. Many still are arguing that our fiscal problems require compromise that includes both tax increases and spending cuts. While this is trivially true in the sense that whenever the government runs a budget deficit it is because government spending is higher than tax revenue so the two can be brought closer together by raising taxes, cutting spending or some combination of both.

 This chart included in a Credit Suisse report about potential fiscal cliff outcomes illustrates exactly why we got in this mess:

Outstanding public debt has almost tripled since 2000. This is because , while federal revenues increased 14% since 2000, government spending increased 101%. Yes, spending more than doubled in the course of only 11 years. In light of these numbers, it should be clear why many thoughtful people conclude that the source of our fiscal mess is way too much government spending.

I have mentioned earlier, however, doing "whatever it takes" merely to reduce the budget deficit is short-sighted, because there are good ways and bad ways to balance the budget if the goal is to support economic prosperity. Doing so by raising taxes leaves more economic goods directed by state bureaucrats away from their most valued uses. Doing so by cutting spending puts more goods in the hands of private citizens who are better equipped and have a greater incentive to allocated them to their most productive use.

Tuesday, December 25, 2012

Good News of Great Joy!

In those days a decree went out from Caesar Augustus that all the world should be registered. This was the first registration when Quirinius was governor of Syria. And all went to be registered, each to his own town. And Joseph also went up from Galilee, from the town of Nazareth, to Judea, to the city of David, which is called Bethlehem, because he was of the house and lineage of David, to be registered with Mary, his betrothed, who was with child. And while they were there, the time came for her to give birth. And she gave birth to her firstborn son and wrapped him in swaddling cloths and laid him in a manger, because there was no place for them in the inn.
Annunciation to the Shepherds, Govaert Flink, 1639

And in the same region there were shepherds out in the field, keeping watch over their flock by night. And an angel of the Lord appeared to them, and the glory of the Lord shone around them, and they were filled with great fear. And the angel said to them, “Fear not, for behold, I bring you good news of great joy that will be for all the people. For unto you is born this day in the city of David a Savior, who is Christ the Lord. And this will be a sign for you: you will find a baby wrapped in swaddling cloths and lying in a manger.” And suddenly there was with the angel a multitude of the heavenly host praising God and saying,

“Glory to God in the highest,
and on earth peace among those with whom he is pleased!”

When the angels went away from them into heaven, the shepherds said to one another, “Let us go over to Bethlehem and see this thing that has happened, which the Lord has made known to us.” And they went with haste and found Mary and Joseph, and the baby lying in a manger. And when they saw it, they made known the saying that had been told them concerning this child. And all who heard it wondered at what the shepherds told them. But Mary treasured up all these things, pondering them in her heart. And the shepherds returned, glorifying and praising God for all they had heard and seen, as it had been told them.

(Luke 2:1-20 ESV)
On this Christmas Day, the day in which we celebrate the Incarnation, I invite you to meditate upon the unique magnitude of the advent of Christ. To this end I commend to you the essay "The Coming of Christ" by John Robbins.


Monday, December 24, 2012

50 Ways to Leave Your Economy in the Dust

For the first time ever, I was able to include a formal lecture on government regulation of business in my Principles of Economics course. The thrust of my economic analysis of economic policy is comparative. Following Rothbard, I explain how a free society maximizes social preferences by allowing for the most possible mutually beneficial exchanges. I then contrast this with the outcome of various government interventions such as price controls or product standards. The end result of such regulations is generally a reduction in the quantity of people satisfying their most preferred ends because voluntary exchanges are restricted.

Jeff Tucker and Doug French apply this economic principle to the many "Dumb Ways (for an Economy) to Die." Their list includes propping up failing industries, protectionism, saving insolvent banks, regulation of the automobile industry, the minimum wage, economic class warfare, military warfare, property confiscation, socializing health care, demonizing immigrants, and abolishing interest rates via monetary manipulation. All of which is discussed with their typical style and panache.

Saturday, December 22, 2012

Goverment Spending Does Not Equal Economic Expansion

I have written a couple of pieces recently arguing this very thing. In yesterday's daily article on, Robert Higgs makes the same case.

In "Government Bloat is Not Real Growth," Higgs explains why a real GDP statistic that is inflated with the vapor of government spending will be misleading at best. He explains why government spending should not be included in a statistic that serves ostensibly as a measure of national output. Higgs then goes on to provide statistical evidence that our social economy is not better shape that it was four years ago. As government spending becomes a more important driver of GDP, national income accounting becomes an even less proxy for economic activity.

Higgs sums up thusly,

Perhaps the most positive statement we can make about the private economy’s performance during this twelve-year period is that it has been somewhat better than complete stagnation. But private product has lost ground relative to total official GDP. Moreover, many of the measures taken to deal with the contraction—the government’s huge run-up in its spending and debt; the Fed’s great expansion of bank reserves, its allocation of credit directly to failing companies and struggling sectors, and its accommodation of the federal government’s gigantic deficits; and the government’s enactment of extremely unsettling regulatory statutes, especially Obamacare and the Dodd-Frank Act—have served to discourage the private investment needed to hasten the recovery and lay the foundation for more rapid economic growth in the long run. To find a similar perfect storm of counter-productive government fiscal, monetary, and regulatory policies, we must go back to the 1930s, when the measures taken under Herbert Hoover and Franklin D. Roosevelt turned what probably would have been an ordinary, short-lived recession into the Great Depression. If the government and the Fed persist in the kind of destructive policies they have undertaken since 2007, the potential for another great depression will remain. Even without such a catastrophe, the U.S. economy presents at best the prospect of weak performance for many years to come.

Monday, December 17, 2012

Miller on What to Keep Our Eye on as We Consider the Fiscal Cliff

My friend and colleague Tracy Miller has a lot of wisdom in his most recent blog post about the fiscal cliff. As Miller notes, while the media and the masses have generally focused how the fiscal cliff or some budget agreement cobbled together to avoid it will affect aggregate spending,
We should be much more concerned about how the fiscal cliff affects investment and entrepreneurship than how it affects aggregate spending. This is why allowing tax rates to rise, especially on the rich, will do more harm than good.
He is exactly right. One of the key drivers of prosperity is capital accumulation, because more and better capital goods help workers produce more. Increases in productivity drive increased real wages and incomes, allowing us to buy more goods at lower real prices. Higher taxes stymie economic progress because it reduces both the ability and incentive of private citizens to save and invest. Consequently, over time capital is consumed and we are placed on a lower income trajectory. Bad news for an economy struggling to find places where people can work productively.

Tuesday, December 11, 2012

Is Quantitative Easing Killing the Economy?

John Tamny, editor of RealClear Markets thinks so. It is widely anticipated that the Federal Reserve will continue quantitative easing through 2013, pushing its balance sheet to as much as almost $4 trillion. What will be the consequences? Tamny provides some thought provoking analysis on Daily Ticker:

Saturday, December 1, 2012

Austrian Student Scholars Conference 2013

Grove City College will again host the ninth annual Austrian Student Scholars Conference, February 15-16, 2013. Open to undergraduates and graduate students in any academic discipline, the ASSC will bring together students from colleges and universities across the country and around the world to present their own research papers written in the tradition of the great Austrian School intellectuals such as Ludwig von Mises, F.A. Hayek, Murray Rothbard, and Hans Sennholz. Accepted papers will be presented in a regular conference format to an audience of students and faculty.

Keynote lectures will be delivered by Drs. Peter Klein and David Howden.

Cash prizes of $1,000, $750, and $500 will be awarded for the top three papers, respectively, as judged by a select panel of Grove City College faculty. Hotel accommodation will be provided to students who travel to the conference and limited stipends are available to cover travel expenses. Students should submit their proposals to present a paper to the director of the conference ( by January 1. To be eligible for the cash prizes, finished papers should be submitted to the director by January 15.