QJAE Vol. 22, No. 4 (Winter 2019) and Vol. 23, No. 1 (Spring 2020) Are Now Online

QJAE Vol. 22, No. 4 (Winter 2019) and Vol. 23, No. 1 (Spring 2020) Are Now Online

06/19/2020Mises Institute

Two new issues of the Quarterly Journal of Austrian Economics are now available online.

Vol. 22, no. 4 features an article by Dr. Mark Thornton on an unpublished note from the early 1960s by Murray Rothbard on the economics of antebellum slavery. Other highlights include a response by Dr. Joseph Salerno to Dr. Karl-Friedrich Israel on the wealth effect and the law of demand, as well as a book review from Dr. David Gordon of Janek Wasserman's book The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas.

Vol 23. no. 1 includes an interesting look by Dr. Mark A. DeWeaver at extending Austrian business cycle theory to the command economy, demonstrating that Mises’s socialist commonwealth would not be free from Rothbardian error cycles. Other notable articles include a critique of intellectual property by Dr. Jakub Bożydar Wiśniewski, a tribute to Oskar Morganstern from Dr. Richard Ebeling, and a response from Márton Kónya to the economic analysis of The People’s Republic of Walmart.

Volume 22, no. 4 (Winter 2019)


An Overlooked Scenario of “Reswitching” in the Austrian Structure of Production
by Er’el Granot

The Macroeconomic Models of the Austrian School: A History and Comparative Analysis
by Renaud Fillieule

Rothbard on the Economics of Slavery
by Mark Thornton

Notes and Replies:

The Wealth Effect and the Law of Demand: A Comment on Karl-Friedrich Israel
by Joseph T. Salerno

A Note on Some Recent Misinterpretations of the Cantillon Effect
by Arkadiusz Sieroń

The Relevance of Bitcoin to the Regression Theorem: A Reply to Luther
by George Pickering

Book Reviews:

Narrative Economics: How Stories Go Viral and Drive Major Economic Events
by Robert J. Shiller
Reviewed by Brendan Brown

Indebted: How Families Make College Work at Any Cost
by Caitlin Zaloom
Reviewed by Jeffrey Degner

The Bitcoin Standard: The Decentralized Alternative to Central Banking
by Saifedean Ammous
Reviewed by Kristoffer M. Hansen

Beyond Brexit: A Programme for UK Reform
by The Policy Reform Group
Reviewed by George Pickering

Prosperity and Liberty: What Venezuela Needs…
by Rafael Acevedo, ed.
Reviewed by David Gordon

Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly
by John Quiggin
Reviewed by David Gordon

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas
by Janek Wasserman
Reviewed by David Gordon


Remembering Ulrich Fehl, German Economist and Prominent Scholar with a Deep Knowledge of Austrian Economics
by Peter Engelhard

Volume 23, no. 1 (Spring 2020)


Discovering Markets
by Marius Kleinheyer and Thomas Mayer

Beyond Calculation: The Austrian Business Cycle in the Socialist Commonwealth
by Mark A. DeWeaver

On the Impossibility of Intellectual Property
by Jakub Bożydar Wiśniewski

Planned Economy and Economic Planning: What The People’s Republic of Walmart Got Wrong about the Nature of Economic Planning
by Márton Kónya

Book Reviews:

Ribatarianizumu: Amerika wo yurugasu jiyūshijōshugi (Libertarianism: The Ultrafreedomism Shaking Up America, published only in Japanese)
by Yasushi Watanabe
Reviewed by Jason Morgan

Unprofitable Schooling: Examining Causes of, and Fixes for, America’s Broken Ivory Tower
by Todd J. Zywicki and Neal P. McCluskey (ed.)
Reviewed by Jason Morgan

American Bonds: How Credit Markets Shaped a Nation
by Sarah L. Quinn
Reviewed by Patrick Newman

The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society
by Binyamin Appelbaum
Reviewed by David Gordon

The Great Reversal: How America Gave Up on Free Markets
by Thomas Philippon
Reviewed by David Gordon

Socialism Sucks: Two Economists Drink Their Way through the Unfree World
by Robert Lawson and Benjamin Powell
Reviewed by David Gordon

Banking and Monetary Policy from the Perspective of Austrian Economics
by Annette Godart-van der Kroon and Patrik Vonlanthen (ed.)
Reviewed by Joseph T. Salerno


Remembering Oskar Morganstern
by Richard Ebeling

The Quarterly Journal of Austrian Economics is also available on Scholastica.

If you are interested in submitting an article to the QJAE, learn more here.

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Why Kanye (and a Bunch of Billionaires) Got Those PPP Loans

07/09/2020Robert Aro

It was only a matter of time until the Treasury released the list of recipients of the Paycheck Protection Program (PPP). The nearly $700 billion taxpayer-funded program was designed to keep workers on payroll, whereby recipients could pay their employees even for instances where the employee does not actually work. In the weeks ahead, we will undoubtedly continue to see more articles, such as this one in Forbes:

Billionaire Kanye West's Yeezy Received A Multimillion-Dollar PPP Loan

It sounds scandalous! Beginning with:

Kanye West’s fashion company Yeezy received more than $2 million through the Paycheck Protection Program (PPP) — he owns 100% of the company which Forbes estimates brought in close to $1.3 billion in 2019.

The absurdity of the money recipients is also noted by The Hill:

A luxury restaurant chain co-founded by actor Robert De Niro received as much as $27.7 million through 14 taxpayer-backed loans from the Paycheck Protection Program (PPP).

CNBC joined the analysis, providing a list of billionaires and country clubs which received small business loans from government:

Soho House, the exclusive membership club controlled by billionaire Ron Burkle, received loans totaling $9 million to $23 million by applying for seven loans.

The article reports that over four hundred country clubs and golf resorts received loans. After reading various news headlines, a pattern emerges whereby we are told about wealthy beneficiaries of taxpayer dollars but little else. It’s understandable to scoff at “the rich” when they're taking advantage of “the poor,” but the media remains misguided as to where they should point the finger.

We must remember that Congress created the forgivable loan program in the first place, funded by taxpayer money, supported by the Fed, to provide a direct incentive for small businesses to retain workers. It seems misplaced to be upset with the entrepreneur for receiving a “forgivable loan” for which they were eligible.

The PPP gives us an excellent opportunity to study problems with government social programs, as they almost always invoke a near-primal jealousy. Many take issue with something not considered “fair” according to their value judgement. Assuming Kanye’s company received $2 million and kept forty people on payroll, the program could be considered successful, since the objective was to keep workers employed. In fact, under socialism, compared to a hypothetical local pizzeria, which may only employ ten people, we can argue that Kanye is four times more deserving.

Kanye’s forgivable loan didn’t take away from other struggling businesses, as illustrated in the PPP June 30 report. There is still $131 billion left in the program. Surely, anyone who “needs” the money would have applied to the program by now.

The last wrinkle (which won’t be mentioned on any news outlet) is the $521 billion in approved loans, only $68 billion of which has made its way to the Fed’s balance sheet. Certainly, it’s possible everyone will voluntarily pay this money back. But what happens if they don’t?

Around $450 billion more dollars will be added to the Fed’s balance sheet, as no lending institution wants to keep a forgivable loan on its books. Either the loans will stay on the Fed’s book indefinitely, or more likely, the Small Business Administration (SBA, funded by the Treasury) will pay off the loan balances, possibly with money directly borrowed from the Fed through US Treasurys.

The media will point the finger at greedy billionaires to show how they took advantage of the weak and poor. We know better! The problem is not that the money went to the wrong people, but, rather, that the PPP exists in the first place. It shouldn’t matter whether one is rich or poor. Bad things tend to happen when central planners decide it’s best to pay people to do nothing, as allowed under the PPP. The effects will be both numerous and immeasurable, ranging from loss of purchasing power of the dollar, increase in asset prices and consumer goods, increase in national debt levels and an increase in disparity between the rich and poor…to name a few.

Ultimately, no matter how the hundreds of billions of dollars could have been allocated, and even if no billionaires had received this money, it is the poorest members of society paying for this program caused by nonsensical inflationary monetary policies seemingly understood only by a few.

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Total "Excess" Mortality in the US Rapidly Declined in May 2020

07/09/2020Ryan McMaken

Due partly to big increases in deaths attributed to COVID-19 in the northeastern United States, total mortality increased to more than 34 percent above the 2017–19 average in the US during April. According to CDC data, For week 14 (ending April 4) through week 18 (ending May 2) total mortality was 366,592. That was up 34.9 from the average for the same weeks from 2017–19 (274,096). For the weeks of May, on the other hand, we found that from week 19 (ending May 9) to week 22 (ending May 30) total mortality was up by 15 percent in 2020 (totaling 241,095) compared to the average for the same weeks during 2017–19 (213,358).

We are now five weeks out from the end of May, so it is likely totals will still be adjusted up somewhat, perhaps resulting in an increase of around 20 percent above the 2017–19 average.

This percentage increase is likely to be even smaller for the weeks of June once those numbers are compiled more completely. As we see in the first graph, total mortality was sizable during April, coming in above even 2018's fairly severe mortality attributed to a particularly deadly flu season.

Since May 2, no weekly total has matched 2018's high of 67,495.

Looking at total mortality is important in gauging the full impact of COVID-19. In a typical week in the United States, 50,000–60,000 Americans die. It is important to examine total deaths attributed to COVID-19 in this context. That there has been "excess" death is clear at this point. Total deaths were up by around 40 percent during mid-April in the US. Not all of this could be attributed to COVID-19, but much of it could be, or at least to diseases with similar symptoms.

Nonetheless, the US never reached true crisis-level strains on its medical infrastructure, as noted by physician John Ioannidis in a recent interview:

Greek Reporter: We had been told that we needed to “flatten the curve” — and we did so in the US, did we not? No health system was completely overwhelmed, not even in NYC, where they did not completely run out of ventilators.

Dr. Ioannidis: The predictions of most mathematical models in terms of how many beds and how many ICU beds would be required were astronomically wrong. Indeed, the health system was not overrun in any location in the USA, although several hospitals were stressed. Conversely, the health care system was severely damaged in many places because of the measures taken.

Greek Reporter: Finally, you had stated in March that, regarding lockdowns, they may be “bearable for a time, but how can policymakers tell if they are doing more good than harm?” if they are protracted. “School closures,” you stated, ”may reduce transmission rates” but may also “diminish the chances of developing herd immunity.” Even more important, perhaps, is this point you made — “One of the bottom lines is that we don’t know how long social distancing measures and lockdowns can be maintained without major consequences to the economy, society and mental health.

“Unpredictable evolutions may ensue, including financial crisis, unrest, civil strife, war and a meltdown of the social fabric.” Your thoughts, please, on how many of these things have indeed come to pass in this country as you had feared.

Dr. Ioannidis: I feel extremely sad that my predictions were verified. “Major consequences on the economy, society and mental health” have already occurred. I hope they are reversible, and this depends to a large extent on whether we can avoid prolonging the draconian lockdowns and manage to deal with COVID-19 in a smart, precision-risk targeted approach, rather than blindly shutting down everything. Similarly, we have already started to see the consequences of “financial crisis, unrest, and civil strife.” I hope it is not followed by “war and meltdown of the social fabric.”

Indeed, many deaths factored into total mortality during April and May can be attributed not to COVID-19 itself, but to the closures and shutdowns mandated by governments. We still have yet to see the full effects reflected in any government statistics, but we know severe child abuse, domestic abuse, suicides, drug overdoses, and cancer deaths all increased due to government-imposed stay-at-home orders and the government-forced deferment of necessary medical procedures for non-COVID conditions. Many of these medical procedures were arbitrarily labeled as "elective" procedures, and many Americans were unable to receive important diagnostic tests or medical procedures.

The government officials who caused their deaths and injuries continue to ignore these impacts, and are again hinting at enforcing new stay-at-home orders.

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Hyperinflation in Civil War China

07/09/2020Matthew Tanous

I have recently been reading Helen Zia’s Last Boat out of Shanghai, which presents a narrative history of a handful of refugees who fled Shanghai as the Communist Party took control of China in the late 1940s. In framing this flight from the city, Zia details the experiences of the refugees during the Japanese occupation during the Sino-Japanese War, as well as just after the Chinese Civil War. Naturally, there is a lot of heart-wrenching suffering documented in these pages, from people of various backgrounds, but I found the experience of hyperinflation during the late 1940s to be particularly interesting as something I had not heard of before.

Zia first describes the experience of that hyperinflation from the view of the people trying to pay for what they need:

Everyone in Shanghai had had the unsettling experience of looking in a shopwindow as a clerk reached in to cross out one price and scrawl a new, much higher price, often x-ing out prices several times in a single day. Not even the belt-tightening inflation during the war had prepared them for costs that seemed to multiply by the minute. In June 1948, a sack of rice had cost 6.7 million yuan; within a few weeks the price had reached 63 million.

In response to the out-of-control inflation, the Nationalist government of Chiang Kai-shek did what most governments in history have done. Chiang Kai-shek appointed his son, Chiang Ching-kuo, finance minister and had him go after “hoarders” and “speculators.” Most egregiously, the younger Chiang ordered Chinese citizens to hand over all gold, silver, and foreign currency to the government, as well as outstanding yuan, for a new version of the yuan supposedly backed by gold. Zia quotes Chiang Ching-kuo as threatening, “Those who damage the new gold-based currency will have their heads chopped off!”

This policy did not last long, however. Chiang Ching-kuo made the mistake of arresting the wrong person for “speculation”:

Chiang Ching-kuo also arrested David Kung, the nephew of his stepmother, Madame Chiang. Upon learning that her favorite nephew was in jail, Madame Chiang stormed into her stepson’s office and slapped his face. Then she wired her husband, the generalissimo…

This severe loss of face put an end to Chiang Ching-kuo’s attempted currency reform process. Forced to abandon it, he released the “hoarders” and “speculators” from prison. The new version of the yuan failed spectacularly:

The newly issued currency collapsed, becoming instantly worth less than the paper it was printed on. Everyone who had obeyed the government’s orders to use the new currency lost everything; their assets of gold, silver, and foreign currency were now locked in Chiang Kai-shek’s treasury.

It is important to note that Zia is not an economist, and takes essentially for granted that the inflation was due to hoarding and speculation rather than the printing of money by the Nationalist government to fund their war efforts (though she does not explain why, if that is the case, foreign currency was still “better than gold against the collapsing new Chinese yuan”). There is, however, still a lot of value to be gleaned from this narrative history and it is worth examining in detail. I highly encourage the reader to consider purchasing this book for that alone.

Reprinted from Disinthrallment.

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Another 1.3 Million Americans File for Unemployment Insurance as White-Collar Layoffs Loom

07/09/2020Ryan McMaken

The labor department released new data today on initial unemployment claims, and the claims total remains stubbornly high at 1.3 million for the week ending July 4.

This was down slightly from the previous week's total of 1.4 million new unemployment claims.

Total new claims are way down from the peak of 6.8 million for the week ending March 28. This may seem like a big improvement, but at the peak of the Great Recession, initial claims reached "only" 660,000. In other words, current total unemployment claims are still far, far above what we would call "normal" even in a recessionary period.

If initial claims continue to hover around 1 million to 1.5 million, as they did through all of July, the promise of a V-shaped recovery will grow all the more distant:

Meanwhile, continuing claims, as of the week ending June 27, remain above 18 million.

None of this should be surprising given that state governments are now forcing business closures again and business owners are functioning in an environment of extreme uncertainty. As USAToday reports today:

"Initial state claims have barely budged over the past month, and are only 16% lower than on June 6,'' Andrew Stettner, senior fellow at The Century Foundation, said in a statement. "Equally concerning, initial state claims increased in 23 states last week, including those with major virus spikes, such as Texas and Louisiana."

Now, more layoffs loom. United Airlines warned this week that it may lay off 36,000 employees in the U.S., including flight attendants and customer service agents, if travel doesn't rebound. Retailers could also shed even more jobs if stores like Bed, Bath & Beyond continue to shutter locations.

And it looks like other layoffs are coming as well. The Observer reports:

On Thursday, Bloomberg Law reported that Wells Fargo, the largest employer in the U.S. banking industry, is mulling a plan to cut thousands of jobs from its 263,000 people workforce starting later this year. A management order to dramatically reduce costs is coming to a top executive inside the bank, according to people with knowledge of the confidential discussion.

What’s worse, if the layoff is materialized, it will likely have a seismic effect on the entire banking industry and could prematurely end other large banks’ pledges to provide job security for employees through at least the end of 2020.

Last month, a number of observers suggested that white-collar layoffs would soon materialize.

And as Jack Kelly at Forbes concluded in mid-June, white-collar hiring has declined substantially year over year. Naturally, this will lead to more unemployment in those sectors over time:

According to Jed Kolko, chief economist at the Indeed Hiring Lab (which is part of Indeed.com, the large job aggregation site), his study concluded that the current trend in job postings was 34% lower than in 2019. This was an improvement compared to when new listings turned down about 45% from the same time last year. White-collar roles, such as software development postings, are 36.3% below last year’s trend. Banking and financing job postings are down 51.3%.

Regime uncertainty continues to be a significant problem for employers. Under current conditions, with many consumers reducing consumption over COVID-19-related concerns, businesses already must scramble to deal with the changing landscape. But the situation is made far worse as policymakers (specifically state governors and big-city mayors) continue to hint that they could impose forced closures on countless businesses yet again. Under these conditions, employers are far less likely to expand their businesses, and with them total employment.

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Will Economics Fall to Politics?

07/07/2020Jeff Deist

The intense pressure to politicize every aspect of academia will not spare economics, and why would it? A society willing to topple statues is hardly one to worry about pulling down a body of knowledge, especially one skillfully characterized by the Left as a political program rather than an actual social science. 


Keep in mind that the English literary canon and "Western civ" generally are under fire on campuses across America. What we think of as important and seminal works in classics, literature, philosophy, and history increasingly are questioned and discarded. Even hard-science STEM curricula are not immune—and not simply for the lack of diversity among those working and teaching in STEM fields, but because the knowledge itself is deemed too Western and Anglocentric. Even physical sciences are not considered objective in our grim political world.

2+2=4, says who?

We cannot imagine economics is immune from this gross politicization. The dismal science is similarly full of dead white men: names like Adam Smith, Karl Marx, John Maynard Keynes, Alfred Marshall, Paul Samuelson, along with Austrians like Hayek and Mises, come to mind when naming seminal works. Do we think this edifice will not be attacked on identitarian grounds, even apart from the general belief that economics is mostly a fake discipline designed to provide phony intellectual cover for business interests? 

Academic economists supposedly have skewed, and still skew, more "conservative" than their deeply left-wing colleagues in social science departments—at least according to this perishable 2010 study by the New York Fed. But this is not really true today, and is less so every year. According to Forbes, 70 percent of economists supported Hillary Clinton over Donald Trump in 2016 and most are Democrats. 

So while university economists might be less left-leaning than academia generally, they may well be further left than the general population. This is readily apparent if you spend much time consuming fintwit, shorthand "financial Twitter," where economists and finance types who are active on the platform gather. In the fintwit universe, old horses like Paul Krugman find themselves elbowed aside by deeply progressive younger voices like Noah Smith at Bloomberg, Marshall Steinbaum at the University of Utah, and modern monetary theory proponent Stephanie Kelton at SUNY Stony Brook. These writers focus with particular zeal on "remaking" economics, questioning whether any past knowledge, however painstakingly developed, fits the modern world. We need a "new economics," always one that serves "people over profits"—which is another way of saying serves their preferred political program of democratic socialism.

Increasingly, economics is understood not as a discipline with principles, axioms, and laws, but rather a malleable tool run by legislative or central bank fiat. Economies can be commanded. After all, Congress just appropriated more than $2 trillion in the CARES Act, with no new taxes, and the Trump administration has plans for another round of trillion-dollar stimulus. If the $600 weekly federal add-on to unemployment benefits is extended into August and beyond, are we not approaching a form of universal basic income? The Fed, for its part, has already created more than $3 trillion in "liquidity" just since February of this year, and appears willing to increase its balance sheet to $10 trillion as needed to soothe corporate bond markets.

Any casual observer is hard pressed not to wonder whether government cannot simply create money and credit indefinitely. Why can't this "new normal" system keep us all housed and fed even after the coronavirus crisis fades? Why can't we substitute politics for economics, and in fact redefine the latter as a state program?

Those of us who believe in markets and property better wake up. Send everyone you know this link, for starters, and equip yourself with the intellectual ammunition to fight the reality deniers. Economics cannot be faked, ignored, or legislated away any more than physics or chemistry. Economics, as Mises understood, is the study of social cooperation. When economics falls to politics, peace and prosperity fall to poverty and violence.

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How the Austrians Teach Economics

07/06/2020Joshua Schubert

Owen Holzbach recently wrote in Power and Market "How Public Schools Teach Economics." I had a similar experience in my high school macroeconomics class. As taught, Keynesian economics provides a "toolkit" for wannabe central planners.

After high school I attended Grove City College, where I am learning real economics. What my Austrian school professors do differently from their mainstream cousins is demonstrate the truth of their conclusions from the first principles of human action and the empirical reality of the world.

Every economics student, and many other GCC students, take Dr. Shawn Ritenour's class Foundations of Economics. This is the class that got me interested in economics. Following Mises, the class covers basic epistemology before starting with the action axiom, that is, purposeful behavior, and proceeding to carefully derive economics.

With a firm understanding of economic method, subjective preferences, cooperative vs. aggressive interaction, division of labor, the emergence of money, time preference, and entrepreneurship students receive a firm foundation in economic law.

Sprinkled in the class is discussion of ethics, consequences of policy, and the view of man. Students, for example, are introduced to (and shown the error in) the ideas of Gustav Schmoller on historicism, Milton Friedman on positivism, Marx on labor exploitation, and Malthus on population.

Some of my favorite advanced classes thus far are intermediate micro and intermediate macroeconomics. In both classes differing views are presented on their own terms. Students appreciate this level of intellectual honesty.

In intermediate macro, for example, Dr. Ritenour explains the capital structure and derives Austrian business cycle theory. But we also learn the Keynesian simple system, the IS-LM (investment-savings, liquidity preference–money supply) model, Friedman's plucking model, Real business cycle theory, and more.

In intermediate microeconomics, Dr. Caleb Fuller teaches the mainstream calculus-based approach to utility and welfare analysis. We learn and critique the perfect competition model as well as neoclassical consumer theory and cost-based producer theory.

Understanding the roots of ideas provides a grounding that many economists lack. This past spring, I took History of Economic Thought since 1870, where we concentrate on the Marginal Revolution as well as the economic thought of Keynes, Marshall, Friedman, Hayek, Mises, Böhm-Bawerk, Veblen, and much more. Both of the History of Economic Thought courses are now required for economics majors at the college.

For example, it is easy to take the Marginal Revolution for granted. However, there is a lot more to the story than three economists independently discovering the same idea. It turns out that the marginalism of Carl Menger is a bit different from that of William Stanley Jevons and that of Léon Walras.

For Walras, marginal utility is the key to complete his model for general equilibrium. Rather than moving from first principles, he starts with an idea of perfect competition and climbs down to marginal utility. This model is rigorously static and devoid of action. Instead, a timeless Walrasian auctioneer equilibrizes markets.

Jevons bases his marginal utility analysis on Jeremy Bentham's utilitarian calculus of pain and pleasure. This use of cardinal utility functions and assumption of infinitely divisible goods, as opposed to ordinal demonstrated preference, has led to neglect of qualitative aspects of human choice that are irreducible to a mathematical function.

Menger also takes the subjective value approach, but it is embedded in the structure of means and ends rather than a calculus of pain and pleasure. In his book Principles of Economics, Menger emphasizes the real-world process of action, as opposed to an equilibrium model that abstracts from action.

These differences, minor at the time, have borne out over the last 150 years to where mainstream economists, fixated on their perfect competition models, have advocated for government intervention in markets in to ensure competition. The reality is the opposite, that antitrust action to break up large firms harms consumers. It is not the number of firms itself, but the threat of both actual and potential competition that incentivizes firms to act competitively.

This is a microcosm of what I have learned from my "heterodox" Austrian school professors. The Austrians bring a lot more to the table in terms of intellectual honesty and curiosity, real-world relevance, depth of understanding, and solid first principles. I am graduating this December, and in spite of everything going on in the world right now, I must consider my education in causal-realist Austrian economics a success.

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Three Weeks Later: The Fed Minutes

07/04/2020Robert Aro

Somewhere there exists a list of ostentatious, unapologetic behavior exhibited by the Federal Reserve. On that list there must be a spot for the three-week delay on publishing the board minutes, as seen by the June 9–10 Federal Open Market Committee (FOMC) meeting minutes. We can only wonder if the minutes have been significantly edited or instances of great dissent among central bankers omitted entirely. Among the many issues with the Fed is a lack of accountability. We only know whatever information they provide.

Chair Powell began with a mention of the current civil unrest facing the country. In an attempt to address inequality, or at least appear to, he added:

Everyone deserves the opportunity to participate fully in our society and in our economy.

The hypocrisy, of course, is in how this can be achieved when the Fed takes action such as buying bonds from billion- (to trillion-) dollar corporations or focuses on managing price increases in consumer goods while neglecting the rise in asset prices. The Fed’s own actions harm the most vulnerable members of society first while claiming to serve the entire nation!

They quickly move on to financial modeling, noting:

The simulations suggested that the Committee would have to maintain highly accommodative financial conditions for many years to quicken meaningfully the recovery from the current severe downturn.

We could argue the Fed has been “highly accommodative” to financial markets since the Great Recession, keeping rates at historic lows, and only shrinking the balance sheet briefly from 2008 to mid-2019 until finally capitulating after the stock market neared the verge of collapse. Perhaps, we shouldn’t fear low rates or an end to the stimulus any time soon, if ever.

The yield curve control or target (YCT) was briefly discussed. This seems to remain in the discussion phase, as the Fed noted some pros and cons. While deciphering Fedspeak is not an easy task, it seems they are not completely behind the idea just yet, especially as:

the staff also highlighted the potential for YCT policies to require the central bank to purchase very sizable amounts of government debt under certain circumstances.

Wouldn’t it be grand if making sizable government debts in order to control interest rates was something the Fed wanted to shy away from?

They continued with favorable views on large-scale asset purchases, since they were “effective” during the Great Recession and are now “key parts of the monetary policy toolkit”:

as a result, they have important roles to play in supporting the attainment of the Committee’s maximum-employment and price-stability goals.

It would be interesting to see them try to justify how central bank asset purchases lead to “maximum employment” and “price stability.” Price “inflation” also received an honorable mention:

Prices fell in March and April in many categories that were affected the most by social-distancing measures, such as the prices for air travel and hotel accommodations.

Surely economists calculated the inflation numbers correctly and accounted for the decrease in prices while considering the change in relative importance of each item used to arrive at their inflation number. Can anyone imagine what would happen if the actual “inflation rate” was much higher, such as 5 percent? What would that mean for the stock market, bond market, risk ratings, Treasury prices, pension plans, long-dated contracts, and a whole host of other calculations that factor in inflation?

There was much deliberation and many economic projections made, each piece of data used to help plan our future, ensuring the Fed gets closer to reaching its mandate of maximum employment and stable prices, ostensibly to the benefit of society. Ultimately, for all the pomp and circumstance surrounding the Fed, there really isn’t much to be revealed. Congress granted them a monopoly on the US dollar allowing them to create and destroy money (credit) as they see fit, all while manipulating interest rates. Tragically, they won’t even deny this. It’s policy and all explained on their website.

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June Jobs Numbers Showed Big Growth. But Recent Weekly Unemployment Claims Data Is Worrisome.

07/02/2020Ryan McMaken

According to new jobs data released today by the US Labor Department, total nonfarm employment grew by 4.8 million in June (seasonally adjusted). The gain was even larger (5.1 million) in non–seasonally adjusted totals. 

June's unemployment rate was 11.1 percent, a drop of 2.2 percent.

This means total employment is now "only" 14.6 million below the November peak, meaning the US is now back to where total employment was in 2015. 

As we can see in the first graph, so far a "V-shaped recovery" looks possible. In April, employment crashed by the largest amount seen since the Great Depression. The economy recovered more than 3 million jobs in May in addition to June's 4.8 million jobs.

But it remains unclear if the current job recovery will continue at the same rate. In June it looked like government-imposed business closures might be disappearing, but by late June state governors and other policymakers had begun announcing or threatening new business closures and lockdowns. This will no doubt have an effect on employment in July, but the extent of the effect is impossible to predict at this time. 

If the recovery continues at its current rate, then total employment could recover within a few months, making the 2020 recession (at least in terms of jobs) considerably shorter than the Great Recession. Here is total employment (by recession and final month in each cycle before job losses began) indexed to peak month, and the number of months that passed before employment returned to peak levels:

In recent weeks, however, unemployment claims have remained stubbornly flat. For the week ending June 27, new unemployment claims increased by 1.43 million. This was only down slightly from the previous week, when there were 1.48 million new claims. Since March, new unemployment claims have totaled over 48 million. 

That 1.43 million number for last week remains very large. During the Great Recession, new unemployment claims peaked at around 660,000 in late 2009. So long as unemployment claims continue to number above a million, we're looking at job losses well above what would be considered "normal" even in a recession. 

Moreover, continuing unemployment claims actually increased slightly from the week ending June 13 to the week ending June 20, climbing to 17.9 million. 

If unemployment claims continue to move sideways, there's good reason to suspect employment in July may do the same. 

At the same time, the unemployment rate could continue to fall if workforce participation continues to fall. As people leave the workforce, the unemployment rate could theoretically fall even without any job growth. 

And workforce participation is indeed falling. In April of this year, participation (for all ages) fell to about a 43-year low, coming in around where it was in April 1976. Participation climbed again in May and June, but remains near a forty-year low for June. 

The weak jobs market appears to be most impactful on young workers and old workers, as workforce participation in prime earnings years has not been as affected. For workers in the 25–54 category, workforce participation is back to where it was in 2015

Unless we start to see a more rapid drop-off in unemployment claims, it's difficult to see how a V-shaped recovery will continue. Moreover, much will depend on how harsh ongoing business closures and partial "lockdowns" are in the US. Since these policies are set at the state level, employment numbers will likely be very uneven from state to state. As we saw in the state-to-state data for May, many states with particularly harsh lockdowns, such as New York and Michigan, were among the states with the highest unemployment rates.

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The Fed Bails Out Big Corporations, Yet Again

07/02/2020Robert Aro

Of all the problems 2020 has given the world, perhaps one of the greatest has been granted by the Fed to a handful of CEOs across the country, that is, if their corporation has a credit rating of junk bond or higher.

On Monday the Fed announced the opening of its much-anticipated Primary Market Corporate Credit Facility (PMCCF), the $500 billion program whereby the Fed will create money out of thin air and lend directly to “large employers” in America. The term sheet says the pricing will be “issuer-specific.” But we can assume that it will be below market, otherwise no one would borrow directly from a central bank.

The justification behind this has been provided by the New York Fed. This time it's:

In general, the availability of credit has contracted for corporations and other issuers of debt while, at the same time, the disruptions to economic activity have heightened the need for companies to obtain financing.

Times may be rough indeed, especially for large employers such as Microsoft, a company currently valued at $1.5 trillion and that has fallen on tough times of late. Just last week it announced the permanent closure of all of its eighty-three retail locations according to CNBC:

Microsoft said the closing of its physical locations will “result in a pre-tax charge of approximately $450 million, or $0.05 per share.”

We won’t know whether or not Microsoft decides to take up the Fed’s offer to buy debt until the end of the month, when the Fed provides its monthly lending facility reports to Congress.

Other than using the money to pay severance packages, a large employer could refinance existing debt. Per the PMCCF term sheet:

Issuers may approach the Facility to refinance outstanding debt, from the period of three months ahead of the maturity date of such outstanding debt.

This would be great, especially since Congress is funding the PMCCF with $50 billion. The taxpayers can help fund interest savings for their employers!

Of course, if refinancing isn’t an issue, share buybacks could be a solution. In 2019, many large employers and some companies on the verge of bankruptcy spent $730 billion on buying back their own shares, while in 2018, that number was $1.1 trillion as reported by Fox News, citing the S&P DOW indices. Maybe this liquidity will help corporations restore their spending habits to match pre-COVID levels?

In a time when physical store locations may prove both undesirable and problematic, and where existing debt levels are through the roof, what can the largest corporations in America do with this money other than restructure, replace old debt with new cheaper debt, or buy back their own shares? Sadly, we live in a time where a few billion dollars can only go so far.

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Who Is the Greatest Living Economist?

07/02/2020Jeff Deist

With the venerable Dr. Thomas Sowell turning ninety this week, a question arises in the fintwit (financial Twitter) world: Who is the greatest living economist?

This question is more difficult than it appears. First, determining the "greatest" individual in any human field is always a highly subjective endeavor, whether we're talking about economists or basketball players. Do we mean the most brilliant economist, in terms of sheer mental horsepower, or the most influential? The most prolific? Most "correct"? Most respected? Most listened to, either by policymakers or the public? The economist with the most significant impact today? The most famous? Someone who is most popular among their academic peers, or best known to lay audiences? A wonkish technician, or a pop editorialist like Paul Krugman? Someone with a strong political orientation, like Thomas Piketty, or an ideologically inscrutable professor type? And should lay audiences have a vote, or only professional and academic economists equipped to judge the technical prowess and substance of a peer? 

Again, this question is highly subjective and unlikely to produce a broad consensus answer. But let me offer three seemingly obvious criteria for greatness: (i) the individual has made significant original contributions to the existing economics literature, and not only in a very narrow area or subdiscipline; (ii) the individual has produced a significant treatise (not just a book or articles) synthesizing and expanding the existing body of knowledge in at least one important area of economics (e.g., money and banking); and (iii) the individual will continue to be widely read and cited after their death.

With all this in mind, I asked several economists to nominate the greatest living economist. Admittedly everyone I canvassed is Austrian or free market in their orientation, but all were asked to consider the profession as a whole in their answers. And I insisted they limit themselves to one name (but caved to the pressure and made an exception for Bob Murphy).

Here are some of the answers, to be updated as I receive more (some asked to sleep on it!):

Professor Walter Block, Loyola University New Orleans: Bill Barnett. "I vote for Bill Barnett. He’s been my mentor in econ for the last 20 years or so, particularly in money macro. He's brilliant, creative." 

Professor Per Bylund, Oklahoma State University: Hernando de Soto. "I agree with the names that have already been mentioned. If I were to add a name with a different type of impact and importance, I might pick Hernando de Soto. For his uncovering of how poor people in poor countries have capital but lack the institutional support to use it. Had this been a couple of years ago I would have added Harold Demsetz to the list."

Professor Thomas DiLorenzo, Loyola University Maryland: Thomas Sowell. "Good Chicago-trained economist whose work has educated millions, everything from his Economics in One Lesson–style textbook to books on race and everything else."

Professor Carmen Elena Dorobăț, Manchester Business School: Jagdish Bhagwati. "Interesting question, difficult to answer because economics is so fragmented these days; no one is writing treatises and thus discussing economics as a whole. That said, my view is (probably biased) that work on monetary theory and/or international trade, by the nature of the subjects, comes closest to doing economics in its original sense (a unified explanation of how markets work). With that in mind, Jagdish Bhagwati and Douglas Irwin on the international trade side, and Robert Mundell on the monetary side are possible candidates. They all also do quite a bit of history of economic thought, and history of economic policy, which is becoming a lost art in the mainstream these days. If I had to rank them, it'd probably be Bhagwati, Mundell, Irwin. I hope this helps! And just to be clear, Joe Salerno is better than all of them." 

Peter Earle, American Institute for Economic Research: Israel Kirzner. "I would choose Israel Kirzner. He bridged the gap between Austrian and neoclassical theory in a way which didn't compromise the methodological basis of the Austrian school and put the entrepreneur at the center of the market process: coordinating consumption demands with plans of production though constant relative movements of price and the interplay between profit (reward) and loss (sanction). A process whereby alertness within market systems leads to discovery and creation is vastly more nuanced than the prefiguring Walrasian model."

Professor Richard Ebeling, The Citadel: Israel Kirzner. "In my view, the greatest living economist is Israel M. Kirzner. Why? First, he is the last living giant of the modern Austrian school who has successfully helped to preserve and restore the 'Austrian' tradition (along with the late Murray N. Rothbard), and, second, due to his own unique and important contributions (building on Ludwig von Mises and Friedrich A. Hayek) to the theory of the entrepreneur and the market process." 

Gene EpsteinBarron's (retired) and the Soho Forum: George Reisman. "Ironically, not because of what George happens to think is his major contribution (to the theory of profit) but for all the energetic and imaginative insights I find in his massive tome Capitalism. For example, I often cite his lucid explanation of why wages rise under free market capitalism, despite 'worker need & employer greed'; his recognition that, while land acquisition has historically unjust roots, the 'stain' gets wiped away under free market capitalism; or his balanced critique of Adam Smith as having written some of the best and worst stuff on free markets."

Dr. David Gordon, Mises Institute: Joseph Salerno. "Joe Salerno is the economist I would rely on for understanding Austrian economics."

Professor Steve H. Hanke, Johns Hopkins University: PENDING.

Professor Emeritus Hans-Hermann Hoppe, University of Nevada Las Vegas: PENDING.

Professor Peter Klein, Baylor University: Robert Lucas. "I'm going to interpret your question to refer not to economists I personally like, but to those who are universally recognized in the field for accomplishment, influence, etc. The way 'greatest economist' might have been interpreted in Menger's or Mises's day. That would rule out people like Krugman and Stiglitz who are widely regarded as politically motivated public intellectuals, not serious economists, along with highly cited, but younger scholars like Daron Acemoglu."

Professor Matthew McCaffrey, University of Manchester: Amartya Sen. "Sen's work on development marks a break from the narrow, technical accounts of development that treat it purely as a matter of increasing economic indicators like GDP. Although Austrians can find much to criticize in his broader approach to economics, his work raises interesting questions and challenges that are usually absent from mainstream research."

Dr. Robert Murphy, Mises Institute and Independent Institute: Robert Lucas, hedged with Dr. Joe Salerno. "The problem is that my personal views are so far removed from the profession that I will cheat and answer two related questions, rather than what Jeff asked. 1) Who is the most important economist among living Nobel laureates? I would say Robert Lucas. His critique of old-school Keynesian macroeconometric models was an amazing achievement in science, the way intellectuals conceive of the advancement of science. Then his work on rational expectations laid the foundation for RBC and a lot of the modern Chicago school approach to financial markets. Furthermore, he is quite simply a super smart guy; e.g., in grad school we used his textbook on recursive mathematical methods. Even his critics agree that the models in the literature he spawned were elegant and rigorous; they were just wrong. 2) The reason I don't say Lucas is the greatest living economist is that he's missing out on the importance of economic calculation as developed in the Misesian tradition. So, who is the single best living economist to exemplify what the rest of the profession is missing? Joe Salerno."

Professor Emeritus George Reisman, Pepperdine University: George Reisman. "The reasons why I name myself will become apparent to any knowledgeable reader who takes the trouble to read my Capitalism: A Treatise on Economics. The book contains a number of major original contributions any one of which is worthy of a Nobel Prize. As one example, my demonstration in Chapter 15 that, contrary to contemporary “macroeconomics,” most spending in the economic system is not consumption but rather is concealed under the heading of net investment."

Professor Mark Thornton, Auburn University and the Mises Institute: Robert Higgs. "I nominate Bob Higgs for his reinterpretation of modern American history. He transitioned from a mainstream economist to a radical Austrian."

Of course no single opinion is dispositive. But it's important to consider economists in the broader context of truth and human advancement, and assess their relative contributions. At the moment the discipline is at great risk of losing its place as a meaningful science thanks to an orgy of mathematical methods and politicized demands for a "new" economics. We need to build a generation of young economists who actually understand history and theory, and we need to build it fast.

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