Author Archives: Sam

Virtual Reincarnation

If there were ever any loyal followers of this blog, they no doubt packed their bags and moved on when this site fell into disrepair a year and a half ago. Jeremy and I lost interest, and I proceeded, a few months later, to start a new blog, which has predictably fallen by the wayside.

Thus, in a desperate attempt to force myself to write, I have come crawling back to my old haunts. Jeremy may or may not be joining me, but perhaps I will rope someone else into joining me as a co-blogger.

The future, to paraphrase Tyion Lannister, is full of possibilities. Let’s see what happens.



4. Here’s Why The Fed Plan Is Failing: We’re All Austrians Now

Amazingly, this article appeared on CNBC and, perhaps more amazingly, provides a pretty good summary of the Austrian theory of the business cycle (ATBC). It’s pretty simple, though, and leaves out a lot of the nuances inherent within the theory. But as far as mainstream exposure goes, it probably doesn’t get any better than this.

3. Europe’s New Contagion Worries

I have to say, this statistic literally shocked me:

Sean Egan, principal at independent debt rating firm Egan-Jones, points out that Ireland’s per capita debt has soared to about 135,000 euro, or about $180,000. That’s roughly five times the per capita debt level in the United States.

I mean, I knew Ireland’s total debt was bad, but putting it in per capita terms just makes it look that much nastier. Yeaaah, no problems here, right? Move along folks, nothing to see…

2. Our Puritanical Progressives

In today’s world it often seems as though political ideologies shift more than Heraclitus’ river. One second conservatives are crying for smaller government and the next they’re calling for more military spending. Liberals advocate marijuana legalization on the grounds that people should be free from legislating morality and then they turn around and advocate banning violent video games because it affects children. George Will gets it mainly correct when he says

The progressives’ agenda for improving everyone else varies but invariably involves the cult of expertise – an unflagging faith in the application of science to social reform.

1. Ireland Should Not Be Bailed Out

Ireland is, indeed, in a precarious situation. Something needs to be done, but not all of the proposed remedies are worth the cost. Some are better than others. Case in point: an IMF/EU bailout is probably worse than the disease. Certainly, it’s a bad deal for Irish citizens. The entire idea of a bailout is being fanatically pushed hard by certain EU members (namely, Germany, the UK, and France) because those three happen to be the largest creditors to Ireland. This isn’t about “saving Ireland” but, rather, about saving banks that voluntarily bought up Irish debt. Ireland should do what Iceland did: reject any bailout and let the chips fall where they will. Incidentally, Iceland is doing much better than Ireland at the moment.


3. Corporate Profits Not Actually At Record High

Matthew Yglesias looks at the claim that corporate profits are at record highs and finds that the claim is not accurate. If one adjusts for inflation corporate profits are still below pre-recession levels. I think this is an important point to remember, if only to quiet the people who keep complaining that “PEOPLE ARE STARVING IN AMERICA WHILE CORPORATE PROFITS ARE AT THEIR HIGHEST LEVEL EVER!!!!” Yeah, that simply isn’t true.

2. Save the Dollar, Not the Fed

Good article that goes through a (very) short history of monetary theory and its relationship to the Federal Reserve. Prior to the 1970s the Fed had one job: price stability. However, with the onset of stagflation the Fed was given a dual mandate of price stability and full employment. Thanks to the “discovery” of the Phillips Curve, which posited an inverse relationship between inflation (which was seen to be caused by demand-side variables rather than primarily monetary policy) and unemployment. This gave the Federal Reserve a sort of theoretical justification for somehow maintaining a balance between skyrocketing prices and recessions. The author rightly points out that the empirical evidence for the Phillips Curve is questionable and, at any rate, the Fed has done an awful job of maintaining anything close to full employment and low inflation. Recent calls to remove the dual mandate and return to the original plan of solely focusing on price stability is misguided, the author claims, because the real problem is that the Fed cannot maintain price stability.

1. The Dual Over the Dual Mandate

This is an interesting article by Peter Schiff, and I think he gets it wrong (surprisingly, because he’s usually very good on monetary policy). He goes through a little history of the Fed just like the article mentioned above, but he comes to the conclusion that we should return to the days when the Fed only had one mandate, which was price stability. Now, I suppose as a policy of second best it would be better if the Fed was simply focusing on prices, but I think the first article gets it right that the Fed cannot achieve this and so we would be better off to simply get rid of the Fed. Schiff himself ends up making that case anyways when he writes

The real reason that prices rise, for both goods and wages, is that the Fed creates inflation.

How does the Fed create inflation? By increasing the quantity of money in the economy. If the Fed’s one tool- monetary policy- creates inflation, then how in the world is the Fed supposed to do anything? Price stability (which isn’t necessarily a good thing in and of itself) would seem to entail a Fed that literally did nothing, which is what Schiff should have advocated.


The Irony of “Buy Nothing Day”

There is an event/group on Facebook calling itself “Buy Nothing Day”, in regards to Black Friday. The idea is to, well, not partake in the rampant consumerism that characterizes the day after Thanksgiving. Of course, as should be obvious, the majority of people participating in this event are leftist college students. They rage against the mindless individualism and greedy consumerism of modern day capitalism. The very idea of spending money on cheap foreign products makes them sick.

So, to combat the capitalist machine, they will all refrain from spending money whilst wearing their Che shirts and waving the Communist Manifesto proudly through the air. The irony, of course, is that these capitalist-hating individuals have implicitly rejected today’s dominant leftist economic theory which states that consumer spending is what drives the economy and leads to our high-standard of living. The typical narrative goes something like this: “Consumer spending makes up 70% of our GDP! The only way to get out of the recession is to increase spending, which puts money into businesses, who then ramp of production, which requires them to hire more workers, and suddenly the economy is back on track!” Now, as Dr. Robert Higgs points out here, consumer spending has not been the problem. Consumer spending only fell a few percentage points since the recession began back in 2008. It’s investment that really took the hit.

In more formal economic terms, many economists today (those calling themselves Keynesians) believe the problem with the economy today is that aggregate demand has fallen and, in order to get the economy back on track, aggregate demand has to be boosted. There are two ways this could be done: Government spending, and consumer spending. If consumers would only go out and began spending once again, businesses would hire more people and the economy would right itself. Unfortunately, this doesn’t happen because consumers fear uncertainty, and so begin saving. This increased savings (non-consumption) further depresses the economy. At this point, government is supposed to pick up the extra slack in the economy and spend enough to get businesses hiring again.

If the Keynesian theory is to be believed, “Buy Nothing Day” can only further deteriorate the state of the economy. At any rate, it certainly won’t help. These people’s decision to not consume is going to contribute to lower wages, more unemployment, and further depressed housing prices. Not good, right?

I would argue, however, that there is nothing economically harmful when it comes to “Buy Nothing Day”. Indeed, I don’t believe the problem is with a lack of aggregate demand. Spending does not drive the economy, savings does. One cannot consume oneself into prosperity. Prosperity and rising living standards require that some people putting aside some consumption today in order to consume more tomorrow. If we imagine a man, alone, on an island with some fruit trees, we know that he can either consumer all of the fruit on the trees, or he can consume some of the fruit and plant more fruit trees for the future. If he consumes all of the fruit today he will certainly be well off for a short period of time. Perhaps until the next evening, or so. But after that he will have nothing left to eat until the trees grow more fruit. Clearly, if this man wants to have something to eat for the future he will engage in some non-consumption in order to consume more later.

To the extent that “Buy Nothing Day” leads to less consumption today (savings) and more consumption later, I think it will be a good thing. I doubt it will have much effect on the economy, but in principle it sounds right. The economy needs more savings to finance greater output in the future. The irony with this whole thing, however, is that the people participating in this event are probably the same people calling on the government to spend more money in order to get us out of the recession. Is spending the problem, or is spending the solution? Which is it, guys?

HOT LINKS 11/22/10…

Now that it is Thanksgiving break I find myself without much to do. So why not try blogging on a regular basis this week? I think I can handle that. I’ll begin this week with some articles I read this morning…

2. Obama Should Cut the Corporate Tax Rate

America has the highest corporate income tax in the world. Is this good for productivity? Not according to the OECD (Organization for Economic Cooperation and Development), which reported last year that the corporate income tax is the most damaging tax for long-run development (this may or may not be the original OECD study, but if not it looks close enough). America’s corporate income tax is 40% (that includes both State and Federal tax rates). The article nicely points out that since capital is relatively mobile, labor is going to end up taking the brunt of corporate tax rates. If you want to increase wages and productivity, lower tax rates.

1. The rapid declawing of the debt-ridden Celtic Tiger should spell the demise of supply-side economics—especially for Congress

Now, I may be misreading this article but it seems to me this fellow is mixing a few different points up. Basically, his main point is that Ireland was the supply-sider’s favorite example of success. Ireland cut its taxes, productivity surged, and everyone seemed happy. That is until it was revealed that it had some serious financial issues to deal with. So far so good. Nothing to quibble with here. So how did lower tax rates lead to Ireland’s financial instability? One would be tempted to say, “because they didn’t cut government spending along with the tax cuts,” but, according to his author, you would be very wrong. No, what led to all the problem’s was the deregulation during the late 90’s and early 2000’s that fueled the housing bubble which eventually collapsed into the world-wide recession we are experiencing today. Here’s where I am confused: What in the hell do lower-tax rates have to do with deregulation? They don’t necessarily imply one another. One can have lower tax rates AND sound regulation. In case the author didn’t notice, Ireland isn’t the only country that experienced a housing bubble, and amongst the countries that did, the regulatory schemes differed at times quite dramatically. The author tries to make the argument that lower tax rates ultimately led to the housing bubble and Ireland’s current financial predicaments. But I see no evidence for that. I haven’t really heard anyone arguing that lower tax rates led to the housing bubble anywhere. Most see it as either a failure of the regulatory systems in various countries, or foreign savings gluts, or central bank mischief, and so forth. Lower tax rates did not cause Ireland’s troubles.


Election Day News and Tidbits…

As usual, it has been nearly forever since I last posted anything. I want to say that in the future I will post more, but I think I will only be deceiving myself. So I will say this: We shall see what happens. For now, here are some general election day reactions from yours truly…

1) It appears as though California’s Proposition 19 is going to fail. Bummer. As far as I’m concerned, the War on Drugs has been a monumental failure of the most epic proportions. Not only does it cost us billions of dollars a year, it diverts law enforcement from actually cracking down on REAL crimes, and it has gotten us to the point where we have the largest prison population on the planet (as a percentage of the population and in the actual amount of bodies in prison). As a country claiming to be the “land of the free”, I find that to be more than a little disturbing. Prop 19, had it passed, would have gone a long way towards eventually getting the entire War on Drugs abolished, or at least incredibly toned down (against soft drugs). California- you disappoint me.

2) Senate Majority Leader Harry Reid is still in office. How dreadfully depressing. It isn’t that I thought Sharon Angle was anything special, it’s just that Reid is one of those obnoxious and established politicians that annoy me so much. I think it would have been healthy to his ego to have gotten the boot from Nevada voters. Next time…next time.

3) The good news: Democrats have lost the House of Representatives. The bad news? Republicans have gained the House of Representatives. I find this to be both depressing and a bit heartwarming at the same time. I dislike both parties about equally, but incumbent parties tend to be more annoying than challenger parties, so it’s always nice to see the smug looks wiped off the faces of the incumbents. Of course, now that the Republicans are back (mostly back, anyways), it will be interesting to see what, if anything, they actually attempt to do.

4)  In the end, the government won this election. It always does, and it probably will continue to do so for a very long time. Not much will change. The governments response to the economy certainly won’t. If things get any worse (and, sadly, I think they might), all those small government loving Republicans will probably end up voting for another stimulus package like they did the first time around.


The Problem of Farm Subsidies for the Environmental Movement

“Free-markets” and “environmentalism” aren’t terms normally thrown together in conjunction these days. If you’re well enough in tune with various right-wing and free-market think tanks you will no doubt be aware of institutions like PERC (Property and Environment Research Center) which offer a free-market look at environmental issues. But all in all environmentalism, the green movement, and locovores are usually seen as the domain of the left, not the domain of the right or even those with a libertarian bent.

For that reason I was pleasantly surprised to meet a libertarian the other week who was quite interested in the concept of sustainable farming (in fact, her desire to one day run a sustainable farm influenced her towards libertarianism). A Political Science major at Boise State, she was quite knowledgeable about the ways in which government was, paradoxically, holding back the green movement in favor of large corporate farms.

Sustainable farming is the idea that farming today should leave future generations better off. It emphasizes environmental sustainability, animal welfare, biodiversity (many sustainable farms do not use any chemical pesticides), and so forth. In other words, it’s a popular buzz-word amongst the left and something you would likely hear tossed around casually at one of those hip downtown coffee shops that all the fashionable liberals like to frequent. Not that there’s anything wrong with that, of course. Sustainable farming is certainly a viable alternative to large-scale agribusiness, at least in theory.

Although one could no doubt argue back and forth about how efficient or realistic organic and sustainable farming really are, that isn’t the point of this post. As my libertarian friend went on to point out, due to the system of agricultural subsidies in the U.S. large, well established farming corporations are continually subsidized by the Department of Agriculture at the expense of smaller farms (many of which practice sustainable farming). As it turns out, the top 10% of the largest farms received close to 75% of all subsidies from 1995-2009. The USDA has shelled out close to a quarter trillion during that time period.

Aside from the fact that these subsidies lead to huge amounts of surplus agricultural products (inefficient use of resources) at taxpayer expense, they also directly destroy the livelihoods of third world farmers the world over. The U.S. Government, through its incredibly dubious “Food for Peace” program, buys this surplus food from U.S. farmers and sends it into third world countries at very low, discounted prices thereby ensuring small indigenous farmers are unable to make a living. The entire system is quite plainly awful.

But back to the subsidy’s effects on the domestic market.  What USDA subsidies do is not only encourage inefficiency through an ex ante declaration of market winners (those farms that get the subsidies), but they also ensure that Joseph Schumpeter’s creative destruction never happens. Creative destruction, remember, is a the idea that capitalism is constantly reinventing itself through the process of competition. Goods and services come and go; old businesses die while new ones are born, and so forth. USDA subsidies have the effect of maintaining large agribusiness while new, innovative farming firms (like those engaged in sustainable farming) flounder because they just cannot compete. It is not only a complete injustice- it is completely wrongheaded from an economic perspective. Not because sustainable farming is better than the traditional large-scale corporate farm, but because we don’t know which one is better. The only way to know is to let the market process work. If those subsidies are never removed, consumers will never know if my libertarian friend’s sustainable farm will be able to better satisfy their demands, as well as help the environment. USDA farm subsidies are neither fair nor efficient.

The Problem is Structural…Again

Over at the NY Times Economix page, the editors point to a new study by the Economic Policy Institute which makes the case that the state of unemployment today is cyclical rather than structural. Cyclical unemployment being the idea that unemployment exists because of a lack of demand in the economy. Structural unemployment, on the other hand, sees unemployment as arising because of a change in the structure of the economy (new products, sectors, and technologies requiring workers to move or learn new skills).

The authors of this study want to argue that the problem is simply one of demand. They recommend increased deficit spending to get the economy moving so that workers will be reemployed generally in the areas they used to work in. This is all fine and good, but only if you think the economy was following some natural trend line from 2001-2008 and the recession was just an event not at all connected to the housing boom that came before it. In other words, the problem isn’t structural if you think the economy was structurally sound during the housing boom years.

Is this is a realistic view? I would say no. One can argue about the causes of the housing bubble (low-interest rates, lax lending standards, global savings glut, etc), but one cannot argue that there was, indeed, a housing bubble.  Paul Krugman rightly points out that

The 2007-9 recession was driven by the collapse of a huge housing bubble, and the resulting financial fallout. The Fed couldn’t cut rates sharply, because they weren’t all that high to begin with; there couldn’t be a housing boom, because housing was already overbuilt.

Obviously houses don’t magically appear out of nowhere. To build houses requires material and labor. If houses are being overbuilt than we can only conclude it happened because resources and labor were diverted from other areas of the economy into the construction and manufacturing sectors. Notice that what was going on there was structural. People who would have worked in other sectors of the economy found themselves looking for employment in those areas of the economy connected to housing (obviously this isn’t the full story because hiring was taking place in plenty of other sectors as well).

Just look at wages and salaries of construction workers during the housing bubble:

That’s a pretty clear upward trend right there. Clearly, wages were being bid up which attracted workers from other sectors. More to the point, however, is the fall in construction jobs since the recession began. Employment in the residential building sector alone peaked at a little over 1 million jobs in 2006 but had fallen to a little over 500,000 jobs this last February. That’s almost a 50% drop. What the authors of this study are advocating for is for all of those people to wind back up in the construction sector, which is only going to happen with another housing bubble (at least for the immediate future).

Additional attempts at increasing aggregate demand through fiscal stimulus will only have the effect of maintaining the pre-recession structure of the economy. Goodness knows the Federal government is still trying its darndest to prop up housing prices. This is a recipe for disaster or, at the very least, a non-recovery that goes on for years to come.

Conservatism as Foreign Policy

Last evening President Obama declared an end to combat operations in Iraq. Many commentators noted that this was a pretty dubious statement, but that need not concern us here. Before Obama appeared in the Oval Office, Sarah Palin posted this on her Facebook:

As Americans tune in to watch President Obama, it is important to remember the facts. He opposed the surge. He predicted it would fail. He said it would make things worse even after it dramatically improved the situation.

Of course, Palin is correct in pointing out Obama’s hypocrisy, but this just serves as another sad reminder that conservatives were the only ones that pushed for the surge (not to mention the entire Iraq war back in 2002/2003). As the mid-terms draw closer (as well as the 2012 race beyond that) we will no doubt see conservative candidates attempt to use the success of the Iraq war as a major talking point. Because I find “conservatism” and “war” to be polar opposites, I am reposting an article I wrote back in 2007 that tried to deal with the odd fact that so many conservatives could be such great fans of the warfare state. Enjoy.

Conservatism as Foreign Policy (written 2007)

In the year 2000, George Bush campaigned (at least partially) on “a humble foreign policy”, as well as the promise to stay away from nation building, explaining that countries need to take the responsibility on themselves.

Conservatives cheered.

Of course, lest one be misled to think of George Bush as a noninterventionist, I can say with quite a bit of certainty looking back on Bush’s record the past couple of years that the only reason he uttered those words was because the democrats had been very interventionist under Clinton (Haiti, Somalia, Kosovo, etc). The republicans, for the most part, opposed those wars, and conservative entertainers like Sean Hannity had a field day accusing Clinton of sending off our troops to die needlessly for a foreign country and spending our tax dollars propping up failed states. The sweet irony is diminished only by the sickening thought of how unprincipled some of these conservative entertainers can be.

But today, the conservative’s once good wisdom has largely diminished since Bush took office. Listen or read the headlines of any conservative media outlet, be it magazines, websites, or radio, and one could largely be forgiven for assuming conservatism was defined solely by one’s view of foreign policy. Peruse any of the numerous conservative blogs on popular sites such as and the overwhelming criterion for being a conservative appears to be how much somebody supports war.

It seems to be that the majority of conservatives define conservatism by foreign policy almost exclusively. If you support the war(s) you are a conservative. If you oppose the war(s) you are a liberal (or “libtard” as myspace conservatives ingeniously put it these days). This simplistic view of conservatism defames the rich history of conservatism and classical liberalism going back to Edmund Burke.

The genuine students of conservatism and classical liberalism, though, realize that conservatism is so much more than simply one’s view of foreign policy, or any government policy. What happened to the belief in a natural order, as Russell Kirk has elaborated on? What happened to a belief in natural rights, which our founding fathers held so dear? What about limited government, few laws, and a respect for private property? Does conservatism have anything to do with ethics and culture to these so called conservatives today?

Ann Coulter and other “conservative” entertainers, would have us believe that conservatives are republicans, and liberals are democrats. Republicans good, democrats bad. It is as simple as that. I scanned the index of a couple of Ann Coulter’s books and found no reference to any of the great conservative writers. Edmund Burke was nowhere to be seen. Russell Kirk was entirely absent. Both Bill O’Reilly and Rush Limbaugh’s books followed the same trend as Ann Coulter’s.

Conservatives have become so enamored on foreign policy that they refuse to see conservatism as anything else. Pat Buchanan is a great example of this. Although largely ignored in the conservative press, one would be hard pressed to find someone more conservative than him. The only issue that really distinguishes him from the rest of the conservatives is that he is not an interventionist, and he doesn’t believe in unconditional support for Israel.

Murray N. Rothbard’s book, “The Betrayal of the American Right“, is a disquisitional examination of what he terms the “two Rights, Old and New.” The Old right, which can loosely be said to exist as the Right wing of American politics from the mid-1930s to the 1950s, was defined purely as an opposition movement. The Old Right was in opposition to everything the New Deal and the war economy of WWI had imposed on American politics and society. Their opposition to big government, and believe it or not, war made them far more principled then conservatives today. Today’s conservatives have becomes yesterday’s progressives.

Fortunately, many conservatives today have admitted as much, even if nobody seems to have noticed. This is why they aptly self-title themselves neoconservatives. From Irving Kristol’s admission that neoconservatives don’t really mind big government to Charles Krauthammer’s unyielding support for American hegemony around the world, conservative intellectuals have no qualms supporting ultimately progressive policies and principles while cloaking them in the duplicitous label of “conservatism.”

Gone are the days when conservatives espoused limited government. In the first six years under a so-called “conservative” president, the Department of Education increased spending on K-12 education by 40% and on higher education by nearly as much. We live under the biggest government the world has ever seen, in all of history. And yet we hear conservatives calling for more government. They call for more spending on defense, more bases around the world, and more trade barriers against China. Forget the old phrase, “defend America first“, now its defend Kuwait first, or defend the Iraqis first. Conservatism has become just another side of the coin of progressivism. Sure, they’re not entirely happy with entitlement programs. But whereas conservatives used to support cutting the welfare state and giving the money back to the people, now they support cutting a little of the welfare state and make the warfare state larger!

As Patrick Buchanan put it, the choice before us is between an empire or a republic. We are bankrupt as it is, and are forced to borrow money from the Chinese to finance are ever growing foreign policy. Russell Kirk once said, “Not by force of arms are civilizations held together, but by subtle threads of moral and intellectual principle.” When will conservatives today realize this?

Mises on Transportation Subsidies

One of the primary claims of left-libertarians such as Roderick Long and Kevin Carson is that the state has supported the proliferation of large-scale organizations through subsidies such as the building of public roads, the interstate highway system, and so forth. According to them, firms are larger and more concentrated than they would be relative to a market where transportation subsidies did not exist.

How do transportation subsidies lead to overall larger firm sizes? The primary point is that transportation costs are, in effect, socialized (or dispersed) whereas the benefits tend to be concentrated on those who use the roads the most. In other words, although the roads are open to everyone, firms that have a geographically large market (such as Wal-Mart) are paying roughly the same as everyone else but actually using the roads more. Big-box retailer’s business model is dependent on long haul trucking, which is dependent on government subsidies to the roads.

The net effect of this is to increase the overall size of firms larger than they would otherwise be. The reason is simple: Were it not for transportation subsidies, the markets these firms compete in would probably be much smaller, and much more local. Without transportation being subsidized, a business model based on a market the size of (say) most of the United States would not be feasible.

At any rate, the reason I brought this up was because of a Mises Daily that I read this morning. It’s called, “The Problem of External Costs and External Economies” (written by Mises), and deals with external economies and government subsidies. One part caught my attention, and relates to what I’ve been talking about. Mises writes about the effort of governments to build railroads and other types of infrastructure to specific rural areas in an attempt to allow rural food producers a chance at a larger market. The reason the government has to engage in this sort of activity in the first place is because private investors are unwilling to put up the funds to develop a private railroad system. If it was profitable to do so a private railroad could be financed, allowing these farms to ship food to wherever it needs to go. In these sorts of areas the costs of production are higher than in other parts of the country, because the agriculture is taking place on submarginal land. Mises writes that…

If the government, yielding to the demands of the interested pressure groups, builds the railroad and runs it at a deficit, it certainly benefits the owners of farm land in those poor districts of the country. As a part of the costs that the shipping of their products requires is borne by the treasury, they find it easier to compete with those tilling more fertile land to whom such aid is denied.

This is essentially the exact same situation Carson has been writing about. This isn’t a direct subsidy to those out-of-the-way producers of food, but an indirect subsidy that allows submarginal land to compete with marginal land when, without government help, it would not have been able to. Likewise, big-box retailers and other firms that have geographically large markets are able to compete where they would not have been able to without government transportation subsidies.

So, although this doesn’t really add anything crucial to the debate over how much transportation subsidies effect the overall size of firms, I think it’s interesting Mises seems to have weighed in on it a good many years before today’s left-libertarians.