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.