Power & Market

Mark Thornton Talks Red Tide and Skyscrapers on the Dangerous History Podcast

08/28/2018Mark Thornton

Mark Thornton recently joined CJ of the Dangerous History podcast to discuss his new book The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century, and his recent article on the government's role in Florida's recent red tide crisis. 

Listen here.

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Medicare For All – Getting the Math Straight

Okay, so I’ve been looking at the Mercatus numbers.

First, Think Progress IS wrong in their representation. (Think Progress makes the very simple error of acting like an ADDITION to cost is the WHOLE cost.)

HOWEVER,  my initial impression was also wrong. My error was a bit more complicated – I assumed constancy in some things that weren’t constant in the Mercatus estimates, and ended up misrepresenting the results, TOO.

So, let’s try to get it right, and we’ll just focus on one year.

Before we hop in, we need to figure out what we’re talking about. We’re going to look at National Health Expenditures (page 5 is my reference here). What this is: Personal Health Care Expenses + Government Administrative Cost + Net Cost of Insurance (Basically, private administrative costs, I would guess) + Government Public Health Activities

Mercatus starts by looking at personal health care expenses in 2022. They suggest these are projected, under our current system, as being $3.859 trillion. (Note: this includes both public and private systems.) With Medicare 4 All, there would be a big jump in healthcare utilization – amounting to $435 billion. This comes from the currently uninsured being covered and from Medicare covering things that some private insurance doesn’t, and from people using more medical care because they are no longer responsible for copays or coinsurance (so, on the margin, they go to the doctor more often – though I suspect this effect is small). BUT, providers would receive less because of M4A’s pay structure. That would cut $384 billion from provider payments, and $61 billion from prescription drug costs. Net effect: personal health care spending FALLS by $10 billion in 2021.

The other change is that total administrative cost is expected to fall by about $83 billion. Basically, we’re eliminating private health insurance costs,  but Medicare’s administration would have to eat that up – but with some economies of scale, there would be a net savings on the administrative side.

So, total effect: $93 billion in National Health Expenditure savings. The other years in the estimate project savings of up to $300 billion in NHE by 2031.

Now, Mercatus’s point is that, EVEN WITH this savings, the government would be spending an additional $2.535 trillion that year – since it is absorbing the private insurance industry’s costs. They want to know where the money is coming from, since doubling income taxes on both individuals and corporations wouldn’t be enough to bring in that money.

On the one hand, progressives can reasonably point out that we’re already spending this money, it’s just a matter of redirecting it. And there’s a point in that. This $2.535 trillion is not new to the ECONOMY, it’s just new to the GOVERNMENT BUDGET. Okay.

But, would progressives then suggest that we should just have the government absorb the health insurance premiums currently paid by employees, employers, and individuals? I suspect not. That would mean that each person’s premium would vary not based on income, but on their current employer. This would be an administrative nightmare, I suspect. So, while the money is there, there is still the practical question of how best to collect it in a way that isn’t politically disastrous.

Another big point: Blahous is very clear that he’s being generous in his estimates of savings because he wants to estimate the MINIMUM amount of additional tax revenue that would be required.

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Memories of Rothbard at UNLV

07/17/2018Joseph Becker

Returning today to Mises University 2018, it’s difficult and even a little scary for me to accept that thirty summers have gone by since my first Mises University in 1988 on the Stanford campus. And it's been twenty five years since I graduated from the University of Nevada Las Vegas (UNLV) with a master's degree in economics, earned under Dr. Murray Rothbard and Dr. Hans-Hermann Hoppe.

My "informal" instruction at UNLV is what I remember most. In the early 1990s we had an incredible group of Rothbardian and proto-Rothbardian graduate students, all gathered at one of the few Austrian-friendly economics programs in the country. Sadly, Rothbard died and Hoppe left UNLV before a PhD in economics was established. But for those few brief years the Nevada desert was home to an outstanding cadre of Austrian thinkers.

Both Rothbard and Hoppe were incredibly accessible, friendly, and willing to engage ideas. Office hours were opportunities to learn and grapple with issues, not the kind of rote meetings most students have with professors. Our ideas were considered important, and even debated, despite the tremendous disparity in knowledge between us and our interlocutors. We were never made to feel like stenographers receiving one-directional knowledge from authority figures.

Best of all, Professor Hoppe frequently joined our gang at the "Stake-Out," a downscale burger and video poker joint well off the Las Vegas strip (still in business!). Those evening sessions remain among my best memories of those years.

Rothbard's affability, however, did not mean he held low expectations for us or demanded little academic rigor. Just the opposite was true. Both as an instructor and thesis chair, he turned out to be as academically demanding as he was generous with his time.

I still recall the unanticipated sting of long hours spent charting out the timeline of such thinkers as the Spanish Scholastics and Turgot on large poster boards, attempting to fully synthesize each theorist’s contribution and the chronology of their work for an upcoming exam in Rothbard's History of Economic Thought class. Clearly (and fortunately), this was not a class wedded to Heilbroner’s Worldly Philosophers, the text foisted upon most students by most departments. We quickly set it aside, ready for return to the university bookstore. No, our instruction came from a stack of handwritten notes scribbled on unbound and disheveled pages torn seemingly eons ago from a yellow legal pad, yet magically transcribed in perfect order by Rothbard onto the chalkboard before us.

Despite his physical stature, Murray was an intellectual giant, a bigger than life character, and huge icon for certain writers with the Las Vegas Review Journal newspaper. One of the few big city newspapers with a slight libertarian bent, the Review Journal ran a front page caricature of him as a dragon slayer. His labeling of Clintonomics as “sort of psychotic” in that that same paper is forever etched in my mind.  

Not surprisingly, Murray went greatly underappreciated by his UNLV economics department “peers.” It may have been envy on his colleague’s part (no students were flocking to UNLV from anywhere to study under them), or his colleagues’ devotion to mathematical modeling. But it's safe to say they didn't much appreciate the genius in their midst.

In many ways Rothbard was the prototypical eccentric university professor. Murray, a night owl who eschewed early mornings, would awaken just in time to teach his night classes. As a Manhattanite he had never bothered to drive a car, making him dependent on one particular student to drive him to campus in his early-model-yet-still-somehow-running-vehicle (an experiment in hyphenation that perhaps only Murray would truly appreciate). After being returned home, Murray would commence writing all night long on a manual typewriter before turning in at sunup.

One of my task as a graduate assistant was serving as an unassuming communications conduit between the Austrians and the rest of the professors in the department, who despite working together in a relatively small office space seldom spoke to one another (and especially not about economics). Luckily for me, when I would bring an empiricist’s refutation of something “Austrian” to Murray he always patiently explained their error-- and taught me a lesson in the process.

Twenty five years later I still treasure Murray's devotion of his time to improve my understanding of economics.

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Medicare Part D and the Opioid Crisis

07/16/2018Mark Thornton

Medicare Part D is a relatively new "entitlement" program that provides a subsidy to retirees for prescription drugs. It is supposedly designed to help seniors, but is the drug companies that benefit most. Started in 2006, it was expected to cover 11 million, but that figure was 24 million after just one year! Not surprisingly the costs of the program have escalated far beyond original projections and are expected to continue to rise in the future.

One recent development intersects the opioid crisis. Seniors are receiving vast amounts of opioid prescriptions using this subsidy. Almost 5 million received three or more months of pills and nearly 60,000 received "extreme amounts" in 2017. Many seniors are receiving multiple prescriptions and using multiple prescribers and pharmacies. Surely, some of these extreme users are diverting pills to increase their income, but many are at risk from overdosing and dying. 

Just as sure, this would not be a problem if they had to pay the regular retain price.

HT: FL

 

 

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Mises Research Fellow Demelza Hays Named to Forbes 30 Under 30

06/04/2018Mises Institute

Congratulations to Demelza Hays, a 2015 Mises Research Fellow, for being named to Forbes 30 Under 30 from Deutschland/Austria/Switzerland. Ms. Hays is currently a PhD student at the University of Liechtenstein, specializing in cryptocurrency. Her analysis can be found at incrementum.li, an investment and management company guided by an understanding of Austrian economics. Her articles on cryptocurrency published on the Mises Wire can be found here. 

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Man Shoots Intruder, Turns Out to Be Cop — Gets 13.5 Years

05/21/2018Tho Bishop

Tyler Harrell was found guilty of a charge of aggravated assault today in a case that should concern anyone who cares about the right to self-defense.

Back in 2016, Harken grabbed his AK-47 after being awaken by a loud bang.  With him and his mom believing his house was being broken in to, he went on to shoot one of the intruders in the knee. Unfortunately for Harken, the people that broke down his door had government badges. The Austin SWAT team, allegedly responding to Snapchat photos of Harrellwith drugs, guns, and cash, were conducting a no-knock raid on the house. Their search found no drugs, but Harken faced the assault charge as well as an even more ludicrous charge of attempted capital murder, of which he was found not guilty. He now faces thirteen-and-a-half years in prison. 

While it's a shame that someone was hurt during the police raid, Harrell is the clear victim in this situation. After all, what is a reasonable person supposed to do when armed men knock down your front door without any sort of announcement? Anyone who favors gun rights must concede that the natural reaction is to defend yourself and everyone else in the home. Unfortunately, the overlap between the Blue Lives Matter and NRA crowds mean we are unlikely to hear many national voices come to Harken's defense. 

Unfortunately situations like Harrell's are not all the uncommon, as the government continues to wage its absurd war on drugs. As Tate Fegley noted following the disastrous Utah vs Streiff Supreme Court case: 

To read the decisions of the Court regarding the Fourth Amendment, which prohibits the government from conducting unreasonable searches and seizures, is to read of its slow death, with drug prohibition playing a role almost every step of the way.

Consider, for example, one of the most odious developments in modern American policing: the no-knock SWAT raid. There are, on average, over 100 raids per day and the majority of them are to serve low-level drug warrants. Such a dangerous procedure inevitably has led to a huge number of botched raids, resulting in unnecessary property damage and death. It is a common law principle that officers of the law “knock-and-announce” themselves prior to the search of a dwelling in order to give the occupant time to compose himself and answer the door. The Supreme Court has created exceptions to this principle, such as the possibility that suspects could destroy drug evidence, thus providing a necessary condition to the environment that allows a raid-happy style of policing to exist. In consideration of this, it is not hard to imagine how the Strieff decision could lead to widespread pretext stops and ID-checking in order to go on fishing expeditions for evidence.

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Money-Supply Growth Slowed in April

05/15/2018Ryan McMaken

Last month, we reported that money-supply growth accelerated for the first time after a year-long period of falling growth rates, at the end of which money-supply growth fell to a near-ten-year low of 2.6 percent, year over year. 

In March of this year growth rates had headed upward, rising to a year-over-year growth rate of 5.1 percent. 

In April, however, growth rates lessened again, coming in at a rate of 4.3 percent, year over year.

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(The money-supply metric used here — an "Austrian money supply" measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.)

Meanwhile, the more commonly used measure of money supply, M2, continued to experience falling growth rates through the first part of this year. In April, M2 increased 3.7 percent, year over year, making it the smallest increase in M2 since 2011.

Part of what has pushed the Austrian measure of money supply above growth rates from last year was an increase in treasury deposits at the Fed. 

The inclusion of deposits at the Fed is a key difference between M2 and the Austrian measure of the money supply, and growth in these deposits has added to the differences seen in growth between M2 and the Austrian measure. 

In April, treasury deposits at the Fed hit a 16-month high, rising to $324 billion. The highest level for treasury deposits ever reported occurred in November of 2016, at a total of $394 billion. 

What does the trend in money supply indicate? 

Historically, a sizable drop in money supply growth rates suggests that a recession is on the horizon — but not on the immediate horizon. 

In this graph, provided by RealForecasts.com, we see how dips in the money supply growth rate often precede recessions, but with a lag period of a year or so. In many cases, money supply growth is trending upward again by the time the recession officially begins. 

tms_time (1).png

Moreover, if we look at TMS totals (in terms of dollar amounts) we can see that flattening in the money supply has occurred to varying degrees on three occassions over the past 20 years. There was a slight flattening leading up to the 2001 recession, and then another in the lead up to the 2008 financial crisis. And we are experiencing some flattening now — although to a lesser extent. It's unknown if this trend will continue or if growth will pick up again. 

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So does the recent downturn and subsequent uptick indicate a recession? 

It's difficult to say how long the current boom period will last. Home prices continue to sail upward for now, although we do see volatility in the stock market. Unemployment data doesn't point to anything catastrophic at this time. 

Some indicators suggest problems, however. Delinquencies in auto-loan debt continue to trend upwardhousehold formation is stagnating, and growth in commercial loans — a factor in expanding the money supply — remains near multi-year lows:

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Making America Protectionist Again

04/30/2018Doug French

Roll over David Ricardo, former White House Chief Strategist Steve Bannon, says a trade war is great for America’s Main Street, even if Wall Street doesn’t like it. "Ask the working people in Ohio, Pennsylvania and Michigan about Wall Street. Wall Street supported and cheered on the export of their jobs. To hell with Wall Street if they don't like it. It's time somebody stood up to them and Donald Trump is the perfect guy. Wall Street is always short term. Trump is trying to protect the beating heart of American capitalism — our innovation," Bannon told Reuters in a telephone interview.

While Bannon frames the trade war as a class fight. However, Ricardo’s idea of comparative advantage, demonstrated the benefits of international specialization of international trade. His free trade argument put Britain on the course of exporting manufacturing and importing food in the 19th century.  

So, to use Bannon’s bluster, America innovates, while China’s labor creates the fruit of those innovations cheaper to the benefit of U.S. consumers, including those living in Ohio, Pennsylvania and Michigan.  

Bannon blathered on,

It's full throwdown. Trump has planned this out for a long time. He led with the smart things, forced technology transfers. It's obvious the Chinese have no real response to this. I think they played completely into his hands. By putting tariffs on agricultural products and avoiding addressing the technology questions they've shown once again they consider us nothing more than a tributary state.

Unfortunately, a full throwdown doesn’t end with just trade harming consumers.  Ludwig von Mises explained that Trump’s tactics are nothing new.

History is a struggle between two principles, the peaceful principle, which advances the development of trade, and the militarist-imperialist principle, which interprets human society not as a friendly division of labour but as the forcible repression of some of its members by others.

Brannon acts like Trump’s tariffs will benefit working people when, in fact, it is just the opposite.  

Murray Rothbard explains,

Tariffs and various forms of import quotas prohibit, partially or totally, geographical competition for various products. Domestic firms are granted a quasi monopoly and, generally, a monopoly price. Tariffs injure the consumers within the “protected” area, who are prevented from purchasing from more efficient competitors at a lower price. They also injure the more efficient foreign firms and the consumers of all areas, who are deprived of the advantages of geographic specialization. In a free market, the best resources will tend to be allocated to their most value-productive locations. Blocking interregional trade will force factors to obtain lower remuneration at less efficient and less value-productive tasks.

To make Rothbard’s point, Trump’s 25% tariff on 1,300 goods include,  raw materials, construction machinery, agricultural equipment, electronics, medical devices, and consumer goods.”  No American consumer will escape paying higher prices on something.

In 1930  Senator Reed Smoot and Representative Willis C. Hawley were able to pass into law an act raising U.S.tariffs on over 20,000 imported goods, helping put the Great in Great Depression.  

Making America Protectionist again will turn out to be anything but great.    

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Monetary Ease Spawns Euphoria, Reality Awaits

04/26/2018Doug French

“It’s time to stop calling this a recovery, and start calling it a boom,” writes Noah Smith for Bloomberg.The Elliott Wave Financial Forecast (EWFF) reports, The National Federation of Independent Business index of small business owners “Now Is a Good Time Expand” rose to its highest level in the 45-year history of the survey. “Main Street is roaring,” says the NFIB’s president.

EWFF points out that it feels like the year 2000 all over again.

There are many parallels to the top year of 2000, but two key ones stand out. The Conference Board’s Consumer Confidence Index hit 130.8 last month, its highest level since November 2000. Meanwhile, one of the most widely followed measures of economic performance, the U.S. unemployment rate, fell to 4.1% in January, its lowest level since December 2000.

The housing market is so hot, buyers are bidding up properties, sight unseen. Bloomberg reports,

Thirty-five percent of homebuyers in the U.S. aren’t even visiting the property before they put in a bid, amid torrid competition in a tight market, according to the latest survey by Redfin Corp.

Katia Dmitrieva writes for Bloomberg, “the biggest share of households since 1998 said their finances had improved over the past year and expected continued gains in the year ahead.”

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No wonder there is euphoria, “This is the everything bubble generated by seven years of zero interest rates and negative interest rates overseas and massive amounts of money printing. It shows up in the asset price inflation in many different places," Peter Boockvar told CNBC.

However, the easy money chickens are ready to come home to roost. Zero Hedge reports, “legendary trader Paul Tudor Jones (PTJ) argues that US inflation is set to accelerate sharply, making bonds a very poor investment, and that the Fed must act swiftly to tackle financial bubbles created by prolonged monetary easing.”

Jones doesn’t believe the current positive mood is sustainable.

Sitting where we are today, this grand experiment with negative real rates might seem successful: We have the strongest economy in 40 years, at full employment. The mood is euphoric. But it is unsustainable and comes with costs such as bubbles in stocks and credit. Navigating these bubbles will be one of the most difficult jobs any Fed chair has ever faced.

Will Main Street roar with the ten-year rate of 3.75% that PTJ is projecting? Jones doesn’t seem to think so. He doesn’t even want to buy stocks, let alone expand a small business. He says he ready to hunker down owning only commodities, hard assets, and cash, while everyone else believes they can continue to ride the Fed’s bubble.

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