Power & Market

Bylund: Entrepreneurship Involves Uncertainty. Here's How to Deal With It Productively.

08/19/2019Per Bylund

Late South African economist Ludwig Lachmann once wrote, “The future is unknowable, though not unimaginable.”

What he meant is, it's beyond our ability to know what the future will bring. We cannot plan without errors, because we do not actually know anything about the future before it's already reality.

The future is not simply unknown, which suggests a lack of information, but unknowable -- what will be is uncertain. There is no information. We are, in this sense, slaves to destiny.

But while the future is unknowable, this does not mean it is hopeless. Our efforts always aim to create some specific, limited part of the future. Entrepreneurs do this more than others, as entrepreneurship scholar Saras Sarasvathy argues.

They can do this, as Lachmann notes, as the future is imaginable. Because we can imagine different futures, we can act to create the better version. We have the creative ability to draft scenarios and possible outcomes, so we can prepare for what is more likely to be. And attempt to bring it about.

We all differ in our ability to imagine the future that will be. Very often it might simply be luck. But luck is not all, and it certainly isn’t reliable. Some seem to have the ability and willingness to face the unknowable by imagining and attempting to shape it, and they're willing to bet that they’re right and put their money where their mouths are.

Entrepreneurs are in the business of creating big chunks of our future. They bear uncertainty.

Read the full article at Entrepreneur.

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Business Schools Need More Austrian Economics

In a recent tweet, Philip Kotler, author of the most widely used marketing book in graduate business schools worldwide suggested that the government should be doing much more to reduce inequality.

To quote Kotler:

By suggesting that the government should somehow put in place these "solutions," Professor Kotler (a student of Friedman, Samuelson, and Solow with degrees from University of Chicago and MIT), shows an incredible ignorance of some of the most fundamental economic principles that influence his (insightful, and I risk to say, mostly correct) thoughts about marketing and strategy.

Another very respected business school scholar, Henry Mintzberg, has also advocated for "raising the minimum wage, the need for government to act to stop climate change, that the ridesharing apps are making people poor and unhappy."

He even asks, on some occasion, 'how can smart people be so dumb?'

His question forces me to ask my own, "How can people that are so knowledgeable in their areas be so naïve (to say the least) in economics when the discipline is such a fundamental topic for businesses?

This kind of public positioning made by such an influential scholar highlights the importance of promoting Austrian economics in business schools.

The comments from Kotler and Mintzberg remind me of a talk Murray Rothbard’s gave in the early '90s on "The Future of Austrian Economics." Rothbard advocated for Austrian economists to spread their ideas outside academia, identifying business people as a particularly important audience. These are people that actually see the market process unfold and end up understanding that actors and firms all belong to a complex web of interactions.

Particularly now, I think it is important to act upon Rothbard's suggestion, in particular by targeting business schools.

Business students take courses in Strategy and Marketing that are based (although this is hardly mentioned directly) on sound economics principles. For example, people (not collectives) act, preferences are subjective, the market is dynamic, the influence of government policies over businesses exists and is very heavy, markets are interconnected, etc.

Those same students are exposed to various blends of economic thinking that lack much practical use. For example, textbooks by monetarists, Keynesians, and even Marxists are common textbooks all over the globe. Instead, what these future professionals need is a more logical approach to economic thinking.

Fortunately, we are making progress in this area.

The Economics for Entrepreneurs podcast, hosted by Hunter Hastings, melds the sound economic thinking of the Austrian school, with discussions of strategy, marketing, and entrepreneurship, among others. Several scholars associated with the Mises Institute teach at business programs (see for instance Peter Klein, Per Bylund, and Matt McCaffrey.) Social media groups have also arisen, such as "Mises For Business" and “Management Scholars for Free Markets.” There's is also a great number of academic papers being published synthesizing concepts in Austrian economics, management, and business strategy. These are areas that already have a lot in common, and we can build on that.

At the same time, there is still a lot of room to grow.

Apart from Marketing and Strategy, there are many other areas that business schools can learn from studying praxeology and catallactics. Entrepreneurship and innovation are some of the most obvious areas where Austrians can contribute, other topics such as human resources and finance are also very strong candidates for potential research. Accounting is another area where Austrians have also begun to contribute. With a personal background in industrial engineering, I even think fields like operations could gain a lot from the understanding of matters such as the business cycle and especially insights of the structure of capital.

To sum up, there is a lot of misunderstanding and bad economics being taught to business students, forcing many into courses claiming that theory in economics is useless, and that ‘data’ solves it all. In such programs, we are in desperate need for an Austrian revolution.

With the robust understanding of the market process that the Austrians are able to provide, business students, future entrepreneurs, and business professionals will be better prepared to operate their businesses and to better understand their consumers, competitors, and their macro environment. By talking to those people, moreover, we will be able to open the door to the other parts of Austro-libertarian thinking and, as a consequence, to bring more people to believe in individual liberties against central power coercion.

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Bias in Philosophy

08/02/2019David Gordon

Powerline reports the results of a survey of ideological bias in philosophy. “The more right-leaning the participant, the more hostility they reported personally experiencing from colleagues, and, overall, the more left-leaning the participant, the less hostility they reported personally experiencing.” The hostility was no mere matter of dislike experienced by the conservatives. It carried over to hiring decisions and evaluating papers and grant applications.  The more left-leaning the philosopher, the more likely was such bias held to be justified.  The author of the post wrongly thinks that such bias is an instance of “epistemic closure,” but that is a technical term, not a synonym for “closed-mindedness.” But this is a minor failing in an informative post.

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Bovard: Fourth of July should celebrate liberty, not politicians like Trump

07/03/2019James Bovard

President Donald Trump’s plan to give an Independence Day televised address from the Lincoln Memorial has outraged manypundits and plenty of normal Americans, too. There has rarely been a shortage of political buncombe on July Fourth but Trump could, as usual, break all records.

For Trump’s extravaganza, the Pentagon is bringing out of mothballs some World War II-era Sherman tanks. Though the gun turrets look impressive, Allied soldiers nicknamed Sherman tanks “Ronsons” because they were death traps that "light first every time” in clashes with better built German tanks. But that painful fact, like many others, will be swept under the rug.

The Washington Post condemned Trump’s “gaudy display of military hardware that is more in keeping with a banana republic than the world’s oldest democracy.” Regrettably, the Post’s indignation over a few tanks does not extend to the fact that American troops are now fighting in 14 foreign nations. But the real problem is not the military relics; it's exalting government power and politicians on a day meant to celebrate individual liberty.

The Fourth of July in Washington has been going downhill ever since 9/11.

Read the full article at USA Today

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Bovard: The Supreme Court rewrote FOIA into the Freedom FROM Information Act

06/27/2019James Bovard

This week the Supreme Court ruled that the federal government can keep secret the food stamp sales totals of grocery stores. By a 6-3 vote, the court decided that such business records are exempt from disclosure under the federal Freedom of Information Act (FOIA). This case, started eight years ago by the Argus Leader (a member of the USA Today network), is another landmark in cloaking federal data from the American people.     

The court upheld retail sales data secrecy despite no evidence that such disclosures would harm anyone. Argus Leader news editor Cory Myers labeled the decision “a massive blow to the public’s right to know how its tax dollars are being spent, and who is benefiting."

Controversies over the food stamp program have multiplied as evidence accumulated revealing that the program is a public health disaster. A 2017 study published in BMC Public Health found that food stamp recipients were twice as likely to be obese as eligible non-recipients. This confirms a 2015 USDA report which revealed that food stamp recipients are more likely to be obese than eligible non-recipients (40% vs. 32%). But the feds have consistently sought to limit public information on the program.

Food stamp supporters and food retailers helped block a 2013 congressional proposal to disclose how recipients actually spend food stamps. A limited survey by USDA released in 2016 indicated that sugar sweetened beverages are the item recipients of food stamps spend the most money on.But opening up the sales data nationwide to reveal what people purchase across the nation would do far more to spur food stamp reform and cease subsidizing junk food. ​​​​​​

Read the full article at USA Today

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Blue Laws Won’t Fill America’s Churches Again

06/10/2019Zachary Yost

In the age of Trump, many American conservatives are adopting populist positions. Policies that were once considered the right-wing status quo are being questioned and assailed, particularly when it comes to capitalism and markets.

Fox News personality Tucker Carlson is often on the front lines of this iconoclasm, with his regular diatribes against unfettered capitalism and financial elites. His voice is that of a growing traditionalist movement that has begun to vocalize their idealistic challenges to basic capitalist principles. These traditionalists want a larger role for religion in the public square. Unfortunately, they want the state to help facilitate this, and in seeking government’s help, they’re shooting themselves in the foot.

Recently, a great many traditionalists were up in arms over North Dakota’s repeal of its blue laws, which prohibited retail businesses from operating before noon on Sundays. Blue laws were once in place across the country and increasingly have been rolled back. Usually they take the form of bans on alcohol and retail sales, hunting, and certain other recreations.

In response to North Dakota’s repeal, Father Dominic Bouck, a Catholic priest in Bismarck, argued in First Things that the move will hurt the poor and even make the siren song of socialism more palatable to the tired and restless masses.

Without blue laws, Bouck contends that many workers “conscripted into hourly wage jobs” will be denied the ability to attend mass and enjoy holidays with their families. In Bouck’s words, “the legal protection of Sunday rest helps the individual worker and preserves the family from the arms race that is our consumer society.” He also cautions that the decline of blue laws has helped facilitate the rise of our hyper-consumerist culture and the tendency to view man as “the sum of his production and consumption.”

Bouck is onto something here. However, blue laws aren’t going to address his concerns.

Rest from work is crucial, and a person’s worth doesn’t stem from his ability to be a cog in the retail machine. This lack of regularized rest has doubtless contributed to the current increases in anxiety and depression. In 1843 Magazine, psychoanalyst Josh Cohen notes that “anxieties about burnout seem to be everywhere these days.” Coupled with this problem is a lack of togetherness and fellowship. Whereas Sundays have traditionally provided opportunities for families and friends to spend time together, Cigna reports that there’s currently an epidemic of loneliness in the United States.

There can be no doubt that most people would benefit from taking Sundays slowly and spending time with their friends, family, and God. However, reinstating blue laws won’t solve the problem. It’s completely off-base to attribute the dramatic decline in American churchgoing to the lack of legal prohibitions on Sunday work. According to Gallup, weekly religious attendance has been going down since the 1950s.

Ask a young person why he didn’t go to church last Sunday, and I doubt he’ll offer a work shift as the reason. More likely, you’ll hear that church isn’t relevant to his life.

As sociologist Robert Nisbet noted in his classic work The Quest for Community, the relevance of a social institution depends on its maintaining a function and fulfilling the needs of its members. As the centralized state has usurped more and more of the traditional functions of important mediating institutions such as the church and family, the relevance of those institutions has waned. Relying on the same state to rejuvenate church attendance would only further religion down the path of irrelevance and decay.

In his essay “The Balance of Power in Society,” sociologist Frank Tannenbaum discussed the importance of maintaining a balance in society between the various institutions that comprise it: the family, the church, the state, and the market. According to Tannenbaum, these institutions are frequently in conflict and constantly trying to encroach upon the territory of the others. This push and pull is natural, Tannenbaum says, and even healthy when it results in societal balance. Unfortunately, when one institution gains too much power, the result is usually chaos and disorder.

There’s no doubt that our society is woefully out of balance. Family and church are deprioritized in favor of the market and job concerns, and all three are dominated by the powerful centralized state. Many in our Western world see their primary value in their jobs to the neglect of other aspects of their lives. It’s this imbalance that traditionalists are getting at with their call for more blue laws. But legislation is a poor method of restoring balance and order to society because it fails to address the underlying issue: the values that motivate people’s actions.

In the long run, consumers determine the shape of the market, a concept known as consumer-sovereignty. As I’ve argued previously, it’s inaccurate to say that markets are responsible for the decay of community and family. Markets are merely a mirror of people’s values. Employers can’t actually force or “conscript” others into working for them, Father Bouck’s hyperbole notwithstanding. Although man must eat “by the sweat of his brow,” that does not mean he must let the world determine in what manner he will sweat. Employers only have as much power as their employees give them. It may be uncomfortable and inconvenient to resist, but no one is forced to worship mammon.

Blue laws are merely an attempt to make the already very low barriers to church attendance even lower—to match the low value people ascribe to it. That isn’t going to fix anything. Early Christians were martyred and fed to the Roman lions because they valued their beliefs even more than their lives, much like the merchant seeking the pearl of great price. Have contemporary Christians really fallen so far that they’re unable to organize their economic lives so they too can worship?

Republished with permission of the author
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Bylund: How to Prioritize When Making Decisions as an Entrepreneur

06/05/2019Per Bylund

Life in a startup is fast paced, varied and fun. But it is also a constant and chaotic struggle, a juggling of disparate issues that need attention and decisions to be made at a moment’s notice. There are employees who need directions, tensions that threaten to erupt into personal conflicts, the bank that keeps calling about refinancing the loan, the supplier who suddenly needs the blueprints earlier to be able to deliver on time, and, at the same time, an endless stream of prioritizations that need to be right.

How are entrepreneurs to make order of this chaos? They face a seemingly endless stream of decisions that need to be made.

There is, of course, no simple solution. But there is a way of thinking about all decisions in a startup that can help entrepreneurs quickly figure out what matters more and what matters less: focus on the forest, not the trees.

What I mean by that is not simply to take a holistic approach to decision-making, but to consider the startup’s position in the economy overall. In other words, what a business actually does in the market economy and what function entrepreneurs serve. Sound cryptic? It really isn’t.

Read the full article at Entrepreneur.

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Bernie and Ocasio-Cortez Declare War on the Poor With Anti-Credit-Card Law

05/09/2019Ryan McMaken

Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez unveiled sweeping new legislation on Thursday that would impose a federal cap of 15% on credit-card interest rates.

The bill would also allow state governments to set interest-rate ceilings even lower than the federal mandate.

Naturally, Sanders and Ocasio-Cortez are framing the bill as something designed to help "ordinary people." But in reality, the legislation will only act as to reduce access to credit for low-income and other high-risk borrowers.

Credit card companies don't attach high interest rates to credit cards because they are mean and cruel. Credit cards with especially high interest are that way because the borrowers have been determined to be an especially high credit risk. Credit card companies want people to borrow money from them, so if they can make loans at lower rates, they will, in order to undercut the competition. But these companies also must make sure they're likely to cover their costs. Thus, the high interest rate exists to ensure the lender can make consumer loans while still accounting for the high risk of default by borrowers based on a risk profile.

Given that interest rates are similar to a "price of money," if Sanders and Ocasio-Cortez manage to slap a new limit on credit card interest rates, they will be essentially imposing a price ceiling on credit cards.

And price ceilings are sure to lead to shortages.

That is, they'll lead to shortages in consumer credit for high risk borrowers — many of whom will be low-income borrowers.

If lenders cannot price their product in a way that allows them to recover costs, they'll simply stop providing that service. Rather than face lower interest rates on credit cards — as Sanders and Ocasio-Cortez imagine will happen — high-risk borrowers are more likely to not be able to borrow using credit cards at all. Given that default rates are generally higher for low-income borrowers, the cost of collecting payments is higher. Lending to high-risk groups then is only possible if the price of those loans is higher. Without the higher price, the service will go away.

Cutting Poor People Off — "For Their Own Good"

On the other hand, maybe this is exactly what Sanders and Ocasio-Cortez want. One way to claim to have "done something" about high levels of debt is to simply cut off potential borrowers from credit.

After all, there is an implicit paternalism in efforts to place roadblocks between low-income/high-risk consumers and the products those consumers may wish to purchase. In the minds of a government planner, the solution to the problem of people borrowing "too much" money is to pass a law preventing them from doing so.

This, of course, is inherently unfair to those people who are — for now — in the high risk category, but who do pay their bills most of the time. (They might simply be in their category because they are young and have never established much of a credit history.) Moreover, many people who missed payment in the past may now be much more reliable and less prone to default. As people who fit a certain high-risk profile at first, they're likely to face high rates. One of the best ways these people can build good credit, though, is to first gain access to credit at high interest rates. Over time, they will increasingly gain more access to credit on better terms. Should these people then be punished and cut off from credit because they can't qualify for more moderate interest rates right away? The effect of the Sanders and Ocasio-Cortez legislation would be to do exactly that.

Meanwhile, lenders who offer loans to high-risk groups are themselves being blamed for the proliferation of credit card debt among American consumers of all types.

In his essay on payday lending — an issue very similar to that of high-interest credit cards — Tom Lehman analyzes the accuracy of these sorts of claims:

[T]he allegation that payday lending "causes" chronic or habitual borrowing may ignore the old adage that "correlation does not equal causation." As indicated above, it is a well-known fact that payday loans appeal to a clientele that face numerous financial difficulties (many of them self-induced), quite independent of the payday lending industry itself. Most of these households have failed to establish good credit, have poor credit histories, are not known for their timely bill-paying habits, frequently bounce checks, frequently change jobs, and may relocate often. In short, they are the type of people who are going to be frequently short of cash and who will borrow "chronically" when given the opportunity. Because payday lending institutions provide them with this opportunity to borrow when other institutions will not does not mean that payday lenders cause this behavior. They simply provide an opportunity for this behavior to be exhibited more often than otherwise.

As is so typical of politicians, the answer offered by this new legislation is to limit the options available to the most at-risk populations.

A better approach is to allow freedom for both borrowers and lenders, to treat borrowers like adults, and to not assume they are incapable of managing their own money.

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Bovard on the Assange Arrest

04/11/2019James Bovard

Unmentioned in Assange arrest coverage — the US government after 9/11 dropped an Iron Curtain around itself. Wikileaks exposed US government crimes no one else would touch.

Julian Assange is charged with "conspiracy to commit computer intrusion." What about all the politicians and military officials who conspired to deceive Americans about the Iraq war?  

The Assange arrest proves that no government critic "is above the law."  But governments remain free to secretly trample the law as they please. Assange was labeled "our property" by same nitwit U.S. senator from West Virginia who wailed in 2016 that "due process is killing us."

Britain's foreign secretary whoops that Assange's arrest shows "no one is above the law." Except for the governments whose crimes Wikileaks and Assange helped expose.

The cheering by some of the US media on the Assange arrest vivifies how journalists no longer understand how government coverups destroy democracy.

Here's my USA Today piece from last November when reports surfaced of Assange’s indictment.

Formatted from @JimBovard on Twitter.

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Banks' Unrealized Losses Soon to Be Realized

04/04/2019Doug French

The timing of Jerome Powell’s appearance on “60 Minutes,” along with Janet Yellen and Ben Bernanke, is curious. Scott Pelley asked no penetrating questions, so nothing was learned. Fed Chairs aren’t known to hit the interview circuit. Bernanke appeared during the crisis to reassure the nation that the central bank can and will fix anything and everything.

Donald Trump (aka "Individual 1") tweeted in January:

 

The folks at GNS Economics, in their Q-Review 1/2019 report, contend, contrary to the president, “the global economic recovery since 2009 has not been real. It has been achieved with massive debt and monetary stimulus, which has created an economy where normal rules of the market economy do not apply.”

The emphasis of the GNS report is the economy’s fragility. The economy “is unable to stand on its own without ongoing massive debt and monetary stimulus.”

Powell and the ECB’s Draghi recent U-turns back to monetary stimulus support this notion. If central banks exist for anything it’s to keep commercial banks in business. Forget about full employment and a strong currency, the Fed’s job is to keep the banks open. And, when rates were normalizing or heading upward last year, what was it doing to U.S. bank balance sheets?

Wolf Richter at WolfStreet.com provides the highlights from the FDIC’s Quarterly report, and mentions a doozy of a detail—”US Banks Report $251 billion of ‘Unrealized Losses’ on Securities Investments in 2018, the Most Since 2008: FDIC”

These are “paper losses” so far and, as Richter explains, don’t impact bank bottom lines. Richter writes,

“Unrealized losses” are losses on securities that dropped in value but that the banks have not yet sold. In other words, they’re “paper losses.” Every quarter in 2018 brought steep unrealized losses: Q1: $55 billion; Q2: $66 billion; Q3: $84 billion; and Q4: $46 billion.

When interest rates go up, bond prices fall. Everything will be oakey-dokey if banks can hold the securities until maturity and are repaid in full. However,

if banks are forced to sell those bonds during a liquidity crunch, as happened during the Financial Crisis, the “unrealized losses” become real losses.

Richter points out that America’s banks hold nearly half a trillion in US Treasuries. That’s quite a concentration of debt extended to a borrower that on its books is $22 trillion in debt. Off balance sheet liabilities are multiples of that amount and the country’s budget deficit is running over a trillion a year. Government debt can never be repaid, only refinanced. This is referred to as Ponzi finance.

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Mr. Wolf concludes,

So, it’s still a good time to be a bank – especially since $251 billion “paper losses” don’t need to be included in net income. But loan-loss provisions are starting to indicate that the credit cycle has turned, and that banks are preparing little by little for the next phase in the cycle.

The next phase may turn those paper losses into real ones. Powell’s TV appearance and sudden change of policy signals the turn is near.

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