Dalrymple on the Illusion of European Austerity

This past spring, David Howden, upon looking at European fiscal policy, asked the very reasonable question, "Where's the Austerity?" The answer being nowhere except in the minds of the politicians and the intellectual class that supports them.

Now along comes Theodore Dalyrmple, my favorite conservative commentator, warning of the misuse of the "loaded word" austerity. In so doing he uses an excellent household analogy:

Suppose that, for a number of years, my spending had been larger than my income, so that I had accumulated a large debt. Suppose also that I had nothing to show for my excess expenditure, which has all gone to increase my level of current consumption. Interest payments on my debt now exceed my outlays on such items as food, clothing, and shelter. The bank to whom I owe the money tells me that things cannot continue like this.

I agree that things cannot go on in the same way, and, as a token of my seriousness, I promise that henceforth, I shall not drink my nightly bottle of Meursault but only half a bottle of Chablis. This will reduce my excess expenditure from, say, 6 percent of my annual income to 4 percent. I call this sacrifice of Meursault for Chablis “austerity.” Would anyone take me seriously?

Austerity indeed!

Salerno on the Latest Winner of the Economics Nobel Prize

Praise from across the journalistic and economics worlds have been heaped upon the awarding of this years Nobel Prize in economics to Jean Tirole, a French game theorist who has specialized in finding market failure in large businesses, especially if they are vertically integrated.

In the Financial Post, economist Joseph Salerno says "Au contraire." He notes:

Tirole was awarded the Nobel Prize for concocting complex technical solutions to what Austrian School economists have long known and taught to be pseudo-problems for a dynamic market economy driven by rivalrous competition among entrepreneurs eager to earn profits by anticipating and serving ever-changing consumer demands.

EPA's Power Plant Rule Is Too Draconian

. . .And will do much more harm than good. That was the primary message of a panel I was a part of who sat down with some of the editors of the Harrisburg Patriot-News on Wednesday.

You can read about our meeting in the paper's very fair write-up, "Pa. industry leaders take aim at EPA's power plant rule: Six takeaways"

As the piece notes, "John Pippy of the coal alliance and Dave Taylor of the manufacturers' group visited the PennLive editorial board Wednesday, with Shawn Ritenour, professor of economics at Grove City College, to voice their concerns with EPA's plan."

The EPA wants to reduce CO2 emissions from coal-fired electricity plants by 30 percent by 2030. Doing so requires draconian measures that are not even possible with current technology.

Our main points were as follows:

• What the EPA wants power plants to do is unrealistic and unachievable and will kill off coal plants.

• Renewable energy can't replace the power supplies that will be lost if EPA's rule takes effect.

• The EPA is not giving due credit for reductions in carbon pollution made since 2005.

• The EPA regulations provide little if any benefit to the environment for way too many bucks. And that does not even consider the moral issue surrounding the encroachment of private property

• A tax on carbon pollution is not a good alternative, either. I made the point that, among other weaknesses, any carbon tax would be arbitrary and, therefore, unsuited to accomplishing what its proponents want it to.

You can read the entire piece by clicking here.

Christian Professors Weigh in on Markets, Justice, and Exploitation

On September 5, Christianity Today published an article by Dr. Kevin Brown, seeking to examine the relationship between capitalism and the common good. Brown is assistant professor at the Howard Dayton School of Business at Asbury University and in his essay he chastises the Institute for Faith Work and Economics' video, I Smartphone as a too simplistic, pro-capitalist work that tempts us to "deify the market."The Institute subsequently asked six professors from various disciplines to comment on the question whether markets, within a biblical framework, lessen exploitation. I was one of the professors asked to share my thoughts and they are included in this blog post.

Obviously, a single blog post is not nearly enough to do justice to the question, however some points are clear enough. I wrote:

The market is a network of voluntary exchange. Nothing more, nothing less. It is not the arbiter of truth and beauty, but it is a marvelous institution nonetheless, because the market price system allows for the coordination of a vast, complex market division of labor that increases the productivity, income, wealth, and standard of living of everyone who participates.

This even includes those employed in harsh working environments at what most Americans would think of as unacceptably low pay. We should note, however, that what most people see as labor exploitation is, in fact, people choosing work under such conditions because it is their best alternative.

Of course Christ calls us to be responsible market participants. However, responsibility includes not harming others in the name of good intentions. We do not help the most vulnerable of our society by taking away their best alternatives.

I encourage you to read the entire post that features insights from five economists and an associate professor of New Testament studies.

Obama Climate Policies Hurt the Poor

From my latest op-ed in the Harrisburg Patriot-News:

In anticipation of this week's United Nations Climate Summit, tens of thousands of activists stormed Manhattan in what organizers dubbed "The Peoples Climate March."

Organized by environmentalist, labor, and self-styled social justice groups, marchers demanded "climate justice now," even observing a minute of silence to recognize those most affected by climate change. 

They should have taken a moment to pray for the world's poor, too. Because the policies they demand would devastate hundreds of millions of lives worldwide.
That's the conclusion of a new report published by the Cornwall Alliance, A Call to Truth, and co-signed by 150 evangelical leaders, pastors, economists, scientists, and others, including myself.

We analyzed how environmental legislation and regulations—like the ones called for by President Obama at the U.N.—reduce the standard of living for hundreds of millions of the world's poorest citizens.

Mandatory reductions in carbon dioxide emissions are among the most common demands of climate activists.

 

Raising their electricity prices through government mandates is the economic equivalent to a regressive poverty tax.

By cutting these emissions across the board, the argument goes, it will reduce greenhouse gas emissions and lower global temperatures. This supposedly will save the earth by healing her atmosphere and calming her seas.

What this argument does not include, however, is the effect such draconian cuts will have on electricity prices.

By effectively prohibiting the cheapest and most abundant sources of energy—i.e., fossil fuels—government-imposed cuts to carbon dioxide emissions necessarily cause electricity bills to skyrocket. Forcing millions of people who can't even afford food for dinner to pay more for electricity is far from social "justice."

Read the rest of the article

Jeremy Shearmur at Grove City College

This Friday September 12, the Grove City College Economics Department is hosting Jeremy Shearmur, emeritus professor at the Australian National University, who will be speaking on the topic, “Commitment, Scholarship, and Objectivity.” The lecture will be in Sticht Lecture Hall at 7:00-8:00 on Friday, September 12.

In his lecture, Shearmur will discuss questions such as how can a political commitment to freedom or traditional values, or a religious commitment, best be squared with the production of good scholarly work and with the successful pursuit of an academic career? He will also suggest one way in which the problems in this area might be resolved.

Shearmur is an Emeritus Fellow in the School of Philosophy, Australian National University.  He was educated at the London School of Economics, University of London, where he subsequently worked for eight years as assistant to Professor Sir Karl Popper, the political philosopher and philosopher of science. Shearmur taught philosophy at the University of Edinburgh, political theory at Manchester University, and was Director of Studies at the Centre for Policy Studies in London (a public policy institute of which Mrs Thatcher was a founder).  He was subsequently a Research Associate Professor at the Institute for Humane Studies, George Mason University, and then taught political theory and subsequently philosophy at the Australian National University.

He has wide academic interests in philosophy, political theory and the history of political thought, has published books on Popper and on Friedrich Hayek, and is currently editing Hayek’s Law, Legislation and Liberty for inclusion in Hayek’s Collected Works.  In addition to Popper and Hayek, he has a particular interest in C. S. Lewis, and in the ‘classical liberal’ or libertarian tradition.

I hope to see you there.

The Worst Five Years Since World War II

In a new essay, my colleague, Tracy Miller, explains why our economy has turned in the worst five-year performance since World War II. Miller notes that:

The Obama administration has pursued several policies that make it harder for market forces to work. These include: bailouts, expansion of entitlement programs, regulation of the economy, tax increases, and huge government deficits.

These policies cumulatively result in capital consumption and curtailment of entrepreneurship. They reduce the incentive and ability of people to save and invest and hamper the price system, making it more difficult for entrepreneurs to do their job of allocating resources to their most highly value uses.

Three Reasons Private Property Is Essential for Human Flourishing

In his Elements of Moral Science, published in 1835, Baptist minister and college president Francis Wayland cogently identified the positive link between private property and human flourishing.

He describes it in elegant prose:

Just in proportion as the right of property is held inviolate, just in that proportion civilization advances, and the comforts and conveniences of life multiply. Hence it is, that, in free and well-ordered governments, and specially during peace, property accumulates, all the orders of society enjoy the blessings of competence, the arts flourish, science advances, and men begin to form some conception of the happiness of which the present system is capable.

Economic theory teaches that Wayland was speaking truth. The right to property is absolutely essential for human flourishing, for it is the social institution necessary for the engines of economic prosperity to function.

Read the rest of the article

Hulsmann on the Cultural Consequences of Fiat Money

Our current monetary system is one of fiat money. The monetary units of all modern nations are money based on nothing but the government's say so. They ceased to be money substitutes for gold when the world left the last semblance of the gold standard back in 1971. In a lecture he recently gave at Mises University at the Ludwig von Mises Institute, Guido Hulsmann explained the broader cultural consequences of fiat money. You can watch it below:


Hulsmann notes that economic phenomena help determine the culture of any society because the human action which is manifest in culture always involves using scarce goods.

The question he investigates is how does government intervention of fiat money change the culture. Hulsmann explains both the direct and indirect consequences of fiat money. He argues that the direct consequences of fiat money is centralization of government and tyranny, and the indirect consequences mainly flow from debt culture that is fruit of fiat money.

Kyle Marchini Takes First Prize

Recent Grove City College economics graduate Kyle Marchini won the first place prize for his oral exam at this year's Mises University. This is the top honor awarded to a Mises University student. Congratulations Kyle!

Dalrymple on the Capacity of the Poor

Here is a brief video clip from Poverty Cure featuring one of my favorite writers, Theodore Dalrymple. He is the author of a tremendous book, Life at the Bottom: The Worldview That Makes the Underclass. It is an outstanding picture of the ideologies, values, and behavioral habits of those in poverty Dalrymple came across in his vocation as a prison doctor and psychiatrist.


In the video above, Dalrymple urges those of us who are eager to help those in poverty to raise the questions,

"Why are these people uniquely unable to get out of their poverty? Is there not evidence, in fact, that when given the opportunity, they do in fact get out of poverty themselves?

Economic Freedom in the Early American Tradition

A video of my recent Founders Lecture, "Economic Freedom in the Early American Tradition" is now available at the Center for Vision and Values. You can watch the video by clicking here. Paul Kengor, Executive Director of the Center gave me a very (if not too) kind introduction and my remarks begin at the 4:25 mark of the video.

Note: I make at least one historical error. I say in the lecture that Samuel Willard's A Compleat Body of Divinity was published in 1606. In fact, Willard died in 1706 and his book was published posthumously in 1726.

Civics Summitt 2014

This weekend I will have the pleasure at lecturing at the Institute for Principle Studies' Civics Summit in Modesto, California. This year the summit will take a look back at the 50 years War on Poverty. I will be joined by Mike Winther, president of the Institute, and Mike Miller, a research fellow at the Acton Institute.

I will be lecturing on the following:

• The Biblical View of Man and Economic Law
• The Economics of Income Transfers and the War on Poverty
• The History of the War on Poverty
• Fulfilling the Cultural Mandate

A fun time shall be had by all.

To hear more about it click here.

To register click here.

Foundations of Economics Recommended by Bigger Pie Forum

I am pleased to note that my book, Foundations of Economics, is among pretty lofty company in the Bigger Pie Forum's recommended book list. Bigger Pie Forum is a non-profit, non-partisan educational organization devoted to researching and communicating ideas promoting economic freedom, exposing cronyism, and helping  Mississippi’s economy grow.

The Founding Fathers Were Entrepreneurs

Following up on yesterday's post, it is appropriate to point you to a post by Bill Murphy, Jr. documenting that most of the signers of the Declaration of Independence were entrepreneurs. By this Murphy means they were in business for themselves. They undertook production of various sorts with their own property, bearing the risk of failure. Murphy draws upon Charles Goodrich's, Lives of the Signers of the Declaration of Independence, originally published in 1829.

Why Entrepreneurship Is Essential for Economic Development

Since our banishment from the Garden of Eden, man has faced a central cultural dilemma: how do we fulfill God’s creation mandate in a world of aggravated scarcity without either starving to death or killing one another?

This is not at all a moot point.

Whether they know it or not, different societies seek to answer this question with every change of economic institutions and policies. History is full of stark examples revealing that different attempts to solve our dilemma have resulted in widely different consequences.

Key Components of Economic Development

Economic theory rooted in an understanding of man as a purposeful actor created in God’s image teaches that to materially fulfill God’s cultural mandate, we must take advantage of the division of labor, capital accumulation, and entrepreneurship.

• Division of labor opens the door to increased productivity by allowing people to specialize at lines of production where they are most efficient.

• Capital formation also contributes to economic progress by increasing the productivity of the user. Likewise, with more capital investment comes better technology that will further increase productivity.

In order for economic progress to continue over time, however, it is important not to waste capital that has already been accumulated. This is why entrepreneurship is the third major contributor to economic development. 

Read the Rest of the Article

Economics after 2008

What to make of Robert Skildelsky's call for reform of the economics curriculum?

Skidelsky is correct to note that the economics profession needs reform. By the summer 2009 various economists and journalists such as Paul Krugman, the editors of Economist magazine and Paul de Grauwe were both noting the limitations of standard economic models and calling for modifying the analysis so as to allow for more reality. Indeed I was cautiously optimistic that the 2008 meltdown and its aftermath would foster a major reevaluation and reorienting of modern economics. It seems, however, that many are learning all the wrong lessons.

Most would-be reformers quickly turned to behavioral economics as a way to incorporate more reality into economic analysis. Unfortunately, this amounts to little more than asserting that emotions impact human behavior and transforms economic science into something more resembling applied psychology. While no one should doubt the importance of emotions on the actions of people, it is not clear that such recognition fundamentally alters sound economic analysis. This was noticed decades ago by Ludwig von Mises:

Many champions of the instinct school are convinced that they have proved that action is not determined by reason, but stems from the profound depths of innate forces, impulses, instincts, and dispositions which are not open to any rational elucidation. They are certain they have succeeded in exposing the shallowness of rationaIisrn and disparage economics as "a tissue of false conc1usions drawn from false psychological assumptions."

Yet rationalism, praxeology, and economics do not deal with the ultimate springs and goals of action, but with the means applied for the attainment of an end sought. However unfathomable the depths may be from which an impulse or instinct emerges, the means which man chooses for its satisfaction are determined by a rational consideration of expense and success.

He who acts under an emotional impulse also acts. What distinguishes an emotional action from other actions is the valuation of input and output. Emotions disarrange valuations. Inflamed with passion man sees the goal as more desirable and the price he has to pay for it as less burdensome than he would in cool deliberation. Men have never doubted that even in the state of emotion means and ends are pondered and that it is possible to influence the outcome of this deliberation by rendering more costly the yielding to the passionatc impulse (Human Action, pp. 15-16).

Sound economic analysis already recognized that our emotions affect our behavior, however, the fact remains that all of our action is purposeful behavior. Economics is an implication of that fact that people act with purpose, regardless of the proximate source of that purpose. Sound economics is not dependent upon why people act as they do, only that they act.

There are further issues with Skidelsky's assertions, but they are matters for another day.

Good Inflation?

Dunstan Prial in his report, "Good Inflation, Bad Inflation: The Fed's Dilemma" talks about the spot between the inflationary rock and recessionary hard place the FED has put itself in. Prial rightly explains why Americans are concerned about price inflation. Prices for necessities are significantly higher now than they were only a year ago. According to the Bureau of Labor Statistics, prices of foodstuffs have risen by 17% since February.

Prices of  housing, electricity, airline travel, and gasoline also were noticeably higher.

Prial also rightly reports that the FED desires positive inflation of about 2%. That is, it desires that prices increase at that rate every year, which means it desires that the purchasing power of the dollar falls every year. 

Unfortunately, Prial also seems to embrace the false notion that inflation is a sign of economic growth.

[Inflation] means the economy is humming along nicely, creating jobs, lifting wages and increasing consumers’ ability to spend. All of which generates demand for goods and spurs economic growth.

I recently have noted that inflation does not cause economic expansion, nor is it a sign of economic expansion. If the economy really is more productive and we experience economic growth, the supply of goods would increase and overall prices would fall. If overall prices increase, that would be the result of an increased supply of or decreased demand for money, or some combination of both. We the FED has done its part by increasing the money supply by $4 trillion since January of 2009.

The bottom line is that there is no "good inflation." The only kind of inflation there is raises overall prices, shrinks the purchasing power of the dollar and leads to capital malinvestment that results in recession.

Freiling on a Little Known Exemption from the Minimum Wage

One of my former students, Nick Freiling, has a revealing piece at Mises.org today about the minimum wage. He shows how even those mandating the wage floor demonstrate they know a minimum wage above the market wage reduces employment opportunities. Freiling reminds us that the 1938 Fair Labor Standards Act, the law that put the national minimum wage in place, exempted and continues to exempt employees who are disabled. 

In light of that exemption, Freiling raises a very good question:

When Congress passed the 14(c) exemption along with minimum wage in 1938, they did so, as quoted above, “to prevent curtailment of opportunities for employment” of people with disabilities. The authors of the bill understood that minimum wage leads to unemployment for those “whose earning or productive capacity is impaired.” So in order to avoid the negative publicity associated with putting people with disabilities out of work, they exempted such people from minimum wage.

But this begs a question. If people with disabilities are exempt from minimum wage because their earning capacity is impaired and finding employment might otherwise be impossible, why don’t people without disabilities whose earning capacity is equally low also qualify for an exemption?

Why Seattle's Minimum Wage Hike Might Not Cost Jobs

Catherine Rampell has a naive and one can only say ignorant  blog post celebrating Seattle, Washington's bold $15 an hour "minimum wage experiment." Ms. Rampell treats the move as a positivist experiment "whose effects on workers, businesses and the local economy are unknowable. Anyone who claims otherwise is either lying or misguided." Here she surely overstates her case.

Though one cannot say with quantitative specificity the precise reduction in employment and production and increases in selling prices that such a wage hike will produce, one can know for certain that if the wage is truly above the market wage, there will fewer people hired than there would be without the law. That this has been demonstrated by both economic theory and history has been made clear by an outstanding study by Richard K. Vedder and Lowell E. Gallaway. They further document that not only does increasing the minimum wage above the market wage reduce employment, it also contributes to poverty rather than reducing it because it keeps the lowest skilled workers out of the labor market. By the way, if firms could easily get buy with fewer workers, why are they not doing this already?

It remains true, however, that job losses from such a drastic mandatory wage increase might not be as numerous as we might thing. This is because there are ways to adjust compensation to workers . What is often forgotten in debates over the minimum wage is that compensation for labor takes more forms than monetary wages. Depending on the employer, compensation could include vacation, health insurance, discounted meals, free drinks or any number of additional perks.

As an indicator for what might happen in Seattle, some have looked at the early fall-out of the SeaTac minimum wage that increased to $15 an hour for some hotels and restaurants at the beginning of the year. One hotel restaurant has closed, and work that used to be done by minimum wage employees is now being done by salaried managers. Some parking lots are adding surcharges on parking spaces near the airport. Some firms are hoping to offset increased labor costs with a reduction in advertising.

Assunta Ng writing for the Northwest Asian Weekly reports that a hotel workers she interviewed were surprised that their employers for whom they worked reduced various benefits to offset the increased mandatory wage. They are earning a higher hourly monetary wage, however, they lost their 401k, health insurance, a paid holiday, vacation time, free food, free parking, and the ability to work overtime. Restaurant workers bring in smaller tips. The bottom line is what the minimum wage giveth, the minimum wage taketh away.

Jewell on Christianity and Social Justice

My friend Jason Jewell, Professor and Chair of the Humanities Department at Faulkner University in Montgomery, Alabama has contributed to a new book on Social Justice from a variety of viewpoints. As Jewell reports, the book is "definitive proof (in case you were in doubt) that there is absolutely no consensus of any kind on social or political issues among people professing Christianity." It seems that anyone interested in Christianity and how it informs the concept of social justice could profit from this book.

Liesure Time for Mothers Is an Economic Good

A recent story on Bloomberg News reports that increasing numbers of women in Canada are deciding to stay home with children instead of continuing to supply labor in the marketplace. According to the author Greg Quinn, the downside to this trend is that such decisions "cuts growth."

The choices of people such as Recoskie may spell trouble for Canada and other economies with aging workforces, which have been supported in recent decades by women who broke social barriers to join the labor market. The long-term economic growth trend in Canada will slow because female participation in the workforce has probably crested, says Organization for Economic Cooperation and Development economist Peter Jarrett.

What this analysis fails to recognize is that leisure time spent raising children is an economic good. If women voluntarily make this choice, they demonstrate that they value this more highly than their employment opportunities. We ought not give into the temptation that all of human welfare is encapsulated in GDP. Even if such decisions do result in fewer commodities and services being supplied in the market place, paying higher prices to ration these goods is the only peaceful way to harmonize conflicting interests. 

Economic Freedom in the Early American Tradition

Three days ago I had the honor of delivering the Founders Lecture in Pittsburgh sponsored by the Center for Vision and Values. My topic was "Economic Freedom and the Early American Republic." I gave the audience a whirlwind tour of the variety of economic ideas that were current in the minds of the founders. I highlighted the distinction between the mercantilism of James Steuart and the political economy of Adam Smith. I also cited the ethics of property affirmed by Samuel Willard and John Witherspoon, the economic analysis of American Pelatiah Webster and the importance of the early French Liberal school. Stay tuned for a video link to the lecutre.

Is Capital a Blessing or Curse?

“Capital is opposed to labor, and the rich get richer while the poor get poorer” is a phrase heard all too often.

It’s often repeated by those who misunderstand the true economic relationship between capital formation and the productivity and real income of workers.

• I have previously written about how our understanding of the causes of economic progress can assist human flourishing and our fulfilling the cultural mandate.
• I later explained the nature and beneficial consequences of division of labor and how voluntary exchange is necessary for the division of labor to thrive.

Something often forgotten, however, is that a highly developed division of labor would be impossible without capital formation—another engine of economic development.

What is Capital, and Why Does It Matter?

Capital goods are produced means of production: tools, machines, buildings, and intermediary goods.

What we call capital is merely the sum of the monetary value of all a firm’s assets that are dedicated to that firm’s productive operations minus the sum of the monetary value of all of a firm’s liabilities. These assets may consist of land, physical plant, tools, machinery, goods-in-process, receivables, cash, etc.

Therefore, capital formation should be no more suspect than any other economic activity. Fulfilling the cultural mandate in our fallen world without either starving to death or killing one another requires productive labor. Sustaining a growing population requires increases in productivity.

This is why capital is a blessing.

Read the rest here

Improved Economic Growth Should Not Cause Increased Prices

Yet another misconception about the relationship between economic progress and overall prices is illustrated from this article from January by Bloomberg News' Jeanna Smialek and Victoria Stilwell claiming that "Improved U. S. Growth Lifts Inflation." The authors claim that the economy is gaining speed, as indicated by fewer jobless claims, increased manufacturing activity, and increases in spending on consumption, housing, and investment. In reality, however, we cannot point to economic growth as a cause of price inflation. If the economy is truly experiencing expansion, it is becoming more productive, so that we are producing more goods. If the supply of goods is increasing relative to demand, prices would be falling, not rising. If overall prices are rising, this is due to increase overall spending due to increases in the money supply.

Households Are Finding It Tougher Going

Because real income is down, while prices are up.  Real GDP reportedly shrunk during the first quarter for the first time in three years, while the food prices are rising at an annual rate of 22%! This is a consequence of Quantitative Easing Infinity. Monetary inflation via credit expansion fosters malinvestment which consumes capital and constrains economic progress. At the same time, it encourages increases in spending, which result in higher prices.

Yellen and Company Get Another Shot of Xanax

It has been nicely documented how leadership at the Fed past and present continue an irrational fear of deflation.  Well, they should be feeling even better than they were this time last month. The BLS reports that the CPI increased at an annual rate of 3.6%. That is the highest rate since last June. Most disturbing is that the pace of the increase is picking up as well. Indeed prices rose in April at a rate a third faster than the did the month before. Not to be left out, in April wholesale prices rose at their fastest pace in a year. Can you imagine how bad things would be if there was no deflation????

Rainy Days and Bad Economics Always Get Me Down

It is reported that dozens of fast-food workers in Pittsburgh endured the rain this morning to join a demonstration by other similarly-employed workers around the world "demanding hourly pay of $15 and the right to unionize." While it is entirely possible that the word "demand" was used by the reporter and not by any of the protesters, the fact remains that such language misconstrues the fundamental nature of exchange. In a market economy, even one as hampered as ours, the labor contract is voluntary on both sides. No business can force people to work for it. That would be slavery. On the other hand, no one can force a firm to hire someone (at least not yet).

This means, of course, that to get hired to begin with, workers must make it worth their potential employers' while. If the marginal worker does not contribute more than $15 an hour in revenue for the entrepreneur, he will not be hired and paid that wage. To do so would be economic suicide. If fast-food restaurants would capitulate to such demands, some workers would benefit to be sure, but at the expense of others who would face a reduction in hours, be let go,  or would not be hired in the first place.

What You Need to Know about Capital in the 21st Century

The new book by Thomas Piketty, that is. Hunter Lewis and Peter Klein tell us what you need to know. What they note is similar to my initial thoughts upon hearing of the new book which is being trumpeted as the latest in a long trail of discarded hopes called "game changers" and "must reads" that will "change the way we think about economics forever." Let us please stop with the hyperbole.

It turns out that government intervention, especially in the form of monetary inflation is the primary cause of income inquality in more developed countries. When the Fed decides to inflate, the new government-initiated, bank-created money is given to some people--often Wall Street investors--while the rest of us must pay higher prices.

For additional insight, I recommend this brand new video by Mark Thornton on The Mises View:

 

Crony Capitalism Breeds Inequality

That is a main theme in a tremendous essay by Sam Gregg appearing in the American Spectator. As Gregg notes, income inequality seems to be the theme for 2014. In fact, increased income inequality is no mystery once we understand the continuing transformation of our economy from a free market to an interventionist play ground for cronies. As Gregg explains, Cronyism promotes economic inequality because:

Crony capitalist arrangements create distinct groups of insiders and outsiders that have nothing to do with classic criteria of justice such as need, merit, and willingness to take on risk and responsibility. All that matters in a crony capitalist world is closeness to state power. . .

There is a price to be paid for all this collusion. By injecting extra-regulatory costs into the economy, undermining the workings of free prices, and shifting economic incentives towards cultivating politicians and regulators, the process of wealth-creation is severely compromised. The result is the type of slow-motion decline that characterizes countries like Italy, Greece, Portugal, and France.

That’s bad news for everyone, but especially the poor. The wealthy and the powerful — especially those who rotate between the political, lobbying, and business worlds — can always take care of themselves in a crony capitalist economy. They are crony capitalism’s nomenklatura. But those without power and money are at a distinct disadvantage.

Five Things You Need to Know about Faith, Work, and Economics

It is not uncommon for many people to think there is an unbridgeable chasm between Christianity and economics.

• There are unbelievers who are aghast at the notion that economic truth has any affinity with anything smacking of religious belief.

• On the other hand, many Christians assume economics is about how greedy people satisfy their lust of the eye and pride of life.

In fact, God is interested in both the spiritual and material aspects of his creation, and there are many truths that indicate the connection between economic theory and a Christian view of humanity and nature.

In fact, the opposite is true.

There is No Conflict between Christian Faith and Sound Economics

Economics is part of the created order and, hence, part of God’s general revelation (Psalm 19:1–4). We are only able to engage in science of any kind because God created a universe with purpose and natural regularities we call scientific laws (Genesis 1:1, 14–16, 20–25; Psalm 119:89-90; 72:5-7, 17; 89:34-37).

Additionally, God made every person in his own image (Genesis 1:27) and, therefore, like God, we engage in purposeful behavior.

Consequently, those economic laws that are implications of human action are reflections of God’s glory as he reveals it in creation.

The Laws of Economics Are Predicated on a Christian View of Man

Whether we acknowledge it or not, as implied above, economic laws, such as the law of comparative advantage and the law of supply and demand, are consequences of our being made in God’s image.

Therefore, we can understand more about the nature of man as we understand more about the image of God.

Because God thinks (Isaiah 55:8–9) and acts with purpose (Genesis 1:1–4, 14-18) and because man is made in the image of God (Genesis 1:27), it is reasonable to conclude that man is able to think and act with purpose, including within an economic setting.

Read the rest

We Can Sleep Well with Yellen at the Helm

The editor at Against Crony Capitalism show us this revealing graph of the history of consumer prices since 1775:

Boy I am so happy that Fed Chair Janet Yellen is on the look out protecting us from deflation. Clearly lower prices has been the bain of our economic existence. If you are like Violet in A Charlie Brown Christmas*, the previous was sarcasm.

* 
Don't you know sarcasm

What Sweden Can Teach Us About Obamacare?

Per Byland tells us in the Wall Street Journal.  Byland is a professor in the Hankamer School of Business at Baylor University. He is also a citizen of Sweden, so he knows of what he speaks. He explains that, because a centrally planned and controlled healthcare system has neither a price system nor competition, health care services must be rationed by waiting. And waiting to receive health care can often be life threatening.

As Byland reports:

Sweden's problem is access to care. According to the Euro Health Consumer Index 2013, Swedish patients suffer from inordinately long wait times to get an appointment with a doctor, specialist treatment or even emergency care. Wait times are Europe's longest, and Swedes dependent on the public-health system have to wait months or even years for certain procedures, or are denied treatment. . .

Stories of people in Sweden suffering stroke, heart failure and other serious medical conditions who were denied or unable to receive urgent care are frequently reported in Swedish media. Recent examples include a one-month-old infant with cerebral hemorrhage for whom no ambulance was made available, and an 80-year-old woman with suspected stroke who had to wait four hours for an ambulance.

Other stories include people waiting many hours before a nurse or anyone talked to them after they arrived in emergency rooms and then suffering for long periods of time before receiving needed care. A 42-year-old woman in Karlstad seeking care for meningitis died in the ER after a three-hour wait. A woman with colon cancer spent 12 years contesting a money-saving decision to deny an abdominal scan that would have found the cancer earlier. The denial-of-care decision was not made by an insurance company, but by the government health-care system and its policies.

Why We Cannot Hide Behind Core Inflation Anymore

Often, when government officials or central bankers wish to downplay price inflation numbers that appear to the masses as too hot to handle comfortably, they stress so-called "core inflation" which removes food and energy from the CPI because of their more volatile nature. Many think this is mere slight-of-hand rhetoric meant to confuse more than clarify. Most politicians and their intellectual enablers assert, however, that "core inflation" gives a better picture of overall price trends.

Well, regardless of the motive, we cannot hide behind core inflation anymore. As reported by Business Insider:

"Core" inflation — a measure that ignores food and energy prices — unexpectedly accelerated to 1.7% from a year earlier, up from 1.6% in February. Gains were driven by an acceleration in housing prices, which account for a little more than 41% of the whole index. The year-over-year change in the housing component rose to 2.8% from 2.5%, marking the fastest advance in housing prices since 2008.

Why We Should Not Rejoice About 2% Price Inflation

David Stockman has done excellent work showing the damage that seemingly mild-mannered price inflation at the rate of about 2% a year does to society. The purchasing power of the dollar shrinks significantly and we are generally worse off, especially those who must live on fixed incomes. Take a look at what the Fed has wrought over the past thirteen years, all the while trying to frighten the masses about the specter of deflation.

Why Yellen and Bernanke Should Be Sleeping Better

Consumer prices rose in March at an annual rate of 2.4%, according to the BLS. As a writer at Bloomberg News reveals, "The Fed’s goal of 2 percent inflation has proved elusive as the economic expansion was slow to gain momentum." The writer reminds us that the goal of the Fed is to perpetually shrink the purchasing power of the dollar. She also reveals the standard Keynesian mindset that economic progress means higher prices due to the economy being "overheated." In fact this could not be farther from economic reality. Economic expansion, by definition, means increases in output. As the supply of various goods increases relative to demand, their prices fall not increase, as more eager sellers bid down their selling prices. Economic expansion makes society better off, because consumers enjoy the opportunity to buy more goods at lower prices. All of us, thereby have the ability to achieve more of our ends. If prices are on the rise--and they are--this is due to the Fed's bankrolling monetary inflation, not due to any real recovery.

Does the Road Out of Poverty Run through Sweatshops?

Ben Powell, director of the Free Enterprise Institute at Texas Tech University, presented a great lecture last week to students in my Economic Expansion and Development class. Powell is on a tour promoting his latest book published by Cambridge University Press entitled Out of Poverty: Sweatshops in the Global Economy. Their function is not what you think.

Powell's primary goal is to educate people to the positive economic role sweatshops play in the lives of poor people who work in them. Additionally he hopes to encourage those who truly want to help the poor to do no harm mistakenly encouraging policies that will result in factories that close  because of rising costs and lower demand for their products. Such policies only make it more likely that poor workers in less developed countries have fewer opportunities and therefore will be faced with even worse working conditions and lower and less stable wages.

Here is Powell in a brief video that introduces many of the themes in the new book:

What You Need to Know about Equal Pay

Earlier today while surrounded by women President Obama again demonstrated his fondness for governing by dictate and signed two executive orders designed to force federal contractors to pay women as much as men for equal work.One prohibits government contractors from punish workers who talk about their wages. The second ordered contractors to compensation data based on sex and race to the federal government.

The move is obviously designed to shore up his electoral base among women voters. President Obama's rhetorical justification for added more labor market regulations is that full-time working women still earn 77 cents to every dollar earned by men. This statistic is not as egregious as the old "59-cent statistic," but it is merely a more contemporary variation of the same theme: there is obviously rampant discrimination on the basis of sex in the work place.

The reality is somewhat different, as I was able to write about many moons ago. It turns out that family ties are the primary explanation for men and women taking different jobs that pay different wages. Marriage and child rearing result in many women making choices that put them on a lower earning trajectory. Women have higher turnover rates and fewer continuous years on the job than men do. More women work part-time jobs than men and have a higher rate of absence than men. Women also tend to seek out occupations where an absence to raise a child will not make them obsolete.

What I said then still stands today:

[T]he performance of women's earnings over time is not the result of systematic discrimination. Whether egalitarians like it or not, for the "average" woman her family life trumps other concerns on the margin. Employers and employees are merely recognizing this fact of nature: women and men are not equal in the sense of being identical. They are different and have different comparative advantages when it comes to work outside the home versus child rearing.

Of course, both men and women would like to work for much more than what they are getting paid, other things equal. But then, the other things are never equal. That fact serves as a useful devise for egalitarian politicians and bureaucrats. Social engineers use the persistence of inequality of income as the warrant for never-ending regulation.

By the way, if it is really true that businesses easily discriminate by paying women twenty-three cents an hour less than men, would it not be in their interest to hire only women? That they do not do so seems to indicate that any compensation gap is not due to irrational discrimination.

Major in Economics, Get Lots of Offers

According to the National Association for Colleges and Employers, economics is the number 2 major to to generate a job offer before the student completes his course of study. Bully for economics!  I say come to Grove City College and major in the real deal: Economics as if Human Action matters. That is to say, economics in a causal-realist framework in the tradition of Menger, Bohm-Bawerk, Mises, Rothbard, Sennholz, and Herbener. If you do, you will study from the only undergraduate economics department with 100% full-time faculty representation at the most recent Austrian Economics Research Conference. You will also study from the works of the masters as well as what has been called "the gold standard of introductory treatments of economics in the causal-realist tradition."

Ritenour on Power Trading Radio

Yesterday I was the guest on Power Trading Radio co-hosted by John O’Donnell and Merlin Rothfeld. Fun fact: John O'Donnell received his B. S. in science from Southwest Baptist University, where I used to teach before coming to Grove City College.

We talked about government statistics, the Federal Reserve, and the needless fear of lower prices. You can listen to the program by clicking here. The program often features Austrian economists on Friday afternoons at 6:00 pm Eastern and listeners can submit questions to the experts.You can watch a video of my appearance on the show by going to this page.

Jim Grant Explains Why Henry Hazlitt Is His Hero

Last Thursday, the ever-interesting Jim Grant gave the Henry Hazlitt memorial lecture at the Austrian Economics Research Conference hosted by the Ludwig von Mises Institute. Grant is the editor of Grant's Interest Rate Observer and was his normal self: provocative, insightful, analytically sound, and humorous--often all at once. Treat yourself to his lecture below:





A personal highlight of the conference was my meeting him and his graciously autographing my copy of his Money of the Mind.

An Unexpected Source of Human Flourishing

Economists at the Brookings Institute bring the happy news that the United Nations’ goal to reduce the number of people in extreme poverty by fifty percent by 2015 has likely already been met.

This blessing has occurred through the benefits of international trade and the global division of labor.

Read the rest here

Talking Austrian Economics with Tom Woods

Today I was the guest on The Tom Woods Show. We discussed my book, Foundations of Economics and the nature of Austrian economics and how is it different in theory and practice from other economic frameworks. You can listen to the program which lasts just a touch over 27 minutes by clicking here.

George Frederick Handel

On this date in 1684 the great composer George Frederick Handel was born. In addition to celebrating his music, we should also recognize that he did so while facing the challenges of the entrepreneur. Those who have read this blog for a long time might remember a post I wrote over two years ago:

While browsing through Newman Flower's biography of Handel the other day, I came across a passage explaining why his opera Deborah failed and was surprised to see that much of the blame due to entrepreneurial error. In addition to other factors such as the lack of assistance from Court patronage (due to the public's being dissatisfied with its perceived preoccupation with all things German), Handel decided to significantly increase his ticket prices. He was led to do so because of his successes in the immediate past.

Raising prices was a mistake, because as the law of demand implies, many fewer buyers patronized his performances because they refused to pay the higher prices. And he did so at the worst possible time.

As Flower relates the story:

The greatest mistake of all was made by Handel himself. He increased the prices of admission all round. The boxes were a guinea: sets in the gallery half a guinea, so that only 120 people paid for admission to the first performance; the others forced themselves in.

Handel could not have made a greater blunder, for increased prices were at that time the principal topic of conversation. Sir Robert Walpole was floundering in a morass of the national excises, and, to save the Government from bankruptcy, he had revived the salt tax the year before, and now was about to impose a tax on tobacco, and two shillings on spirits and wine. The people were flaming. The muddle had been brought about by Walpole's reduction of a shilling off the land tax, which benefited, of course, the moneyed classes. Therefore he was not taxing the multitude to release those who had money enough to sp;are for taxation purposes. National hatred against Walpole surged up once; there should be, the mob declared, no taxation of the commodities of life. For Handel to put up his prices on top of the commotion, meant adding fuel to fire. They could not do without salt, tobacco, or wine, but they could do without Handel. Such was the import of the outcry.

The Politics of Envy Are Misguided

So says Grove City College Psychologist Joseph J. Horton. In his excellent essay, "The Politics of Envy" he notes that in a free market people get rich by productively serving others. Horton notes that if our rulers and their intellectual supporters promote envy, "Political points may be scored, but it will not improve our standard of living. If Americans succumb to the politics of envy we will be less happy and poorer for it."

Why Is Healthcare So Expensive and What Can be Done about It?

Peter Klein, economist at the University of Missouri and the Ludwig von Mises Institute, helps answer this question in this brief but informative video:



The main culprits, according to Klein, are various forms of government intervention in the health care industry. To work toward a more reasonable situation, we need to move toward a free market in health care.

Alexander Hamilton: Economic Fascist?

That's the conclusion of Virgle Glenn Wilhite in his book Founders of American Economic Thought and Policy.  Wilhite's book was published in 1958 and is an attempt to introduce the reader to the economic thought and policy advocacy of various thinkers  from Ben Franklin and Hamilton to lesser known Albert Gallatin and Pelatiah Webster.  Near the end of the final chapter, in which Wilhite attempts to classify various early American thinkers according to their economic thought he provides a rather radical judgement on the economic thought and policy of Hamilton.  He writes:

Alexander Hamilton was a nationalist and a mercantilist. His thought contains strong traces of the sort of political and economic doctrines characteristic  of modern Italian Fascism and pre-World War II German National Socialism (Wilhite, p. 426).

Wilhelm Röpke (1899 - 1966)

"I champion an economic order ruled by free prices and markets...the only economic order compatible with human freedom." ~ Wilhelm Röpke, A Human Economy, p. 6.

On this date in 1966 Wilhelm Röpke entered his eternal rest.

Wilhelm Röpke devoted his scholarly career to combating collectivism in economic, social, and political theory. As a student and proponent of the Austrian School, he contributed to its theoretical structure and political vision, warning of the dangers of political consolidation and underscoring the connection between culture and economic systems. More than any other Austrian of his time, he explored the ethical foundations of a market-based social order. 

He defended the free market from socialist cultural critics by pointing out that social crises and cultural decline are not the product of the free society; one needs to look to state control, political centralization, welfare, and inflation as a primary source of social decay. Röpke influenced the direction of post-war German economic reform, became a leading intellectual force in shaping the post-war American conservative movement, particularly its "fusionist" branch, and has been compared with Mises as an archetype of the individualist thinker

Röpke was born on October 10, 1899, at Schwarmstedt in Hannover, Germany. He was the son of a physician who brought him up in the classical and Protestant Christian tradition. Serving in the Germany army during World War I, he was shocked by the sheer brutality of war, and it had a profound effect on his life. He became, in his words, "a fervent hater of war, of brutal and stupid national pride, of the greed for domination and of every collective outrage against ethics."

Consistent with intellectual trends, Röpke initially blamed war on capitalist imperialism and was drawn toward socialism as its only alternative. But he had a change of mind after reading Ludwig von Mises's Nation, State, and Economy, published in 1919. That work was, "in many ways the redeeming answer to the many questions tormenting a young man who had just come back from the trenches." A socialist economy was, necessarily, an internationally planned economy. Such a regime would seriously hinder international trade, which generates cooperation between nations and decreases the likelihood of war. The only form of socialism compatible with international trade, he concluded, is the national variety, which Röpke could not abide. He then recognized socialism for what it is: collectivism through empowerment of the state.

Read the rest here

For some of the best of Röpke's economic work, I recommend his Economics of a Free Society and Against the Tide.

Mises Quote of the Day: Christianity and Capitalism

From Theory and History by Ludwig von Mises:

"There is nothing in any ethical doctrine or in the teachings of any of the creeds based on the Ten Commandments that could justify the condemnation of an economic system which has multiplied the population and provides the masses in the capitalistic countries with the highest standard of living ever attained in history. From the religious point of view, too, the drop in infant mortality, the prolongation of the average length of life, the successful fight against plagues and disease, the disappearance of famines, illiteracy, and superstition tell in favor of capitalism" (Theory of History, p. 343).

There  are some who wish to drive an immovable wedge between the economics of Ludwig von Mises and Christian faith and practice. Some have even argued, that Mises himself thought that sound economics was incompatible with Christianity. However, by the end of his life, (Theory and History was published in 1958, when Mises was 76 years old) he does not seem to have thought that there is such an inseparable gulf.