Power & Market

What Hayek Said about the "Nobel Prize" in Economics

10/08/2018Jeff Deist

The Nobel Prize in Economic Sciences is a dubious thing at best.

First, it's not a "real" Nobel Prize in the sense the Nobel Foundation neither chooses nor pays the recipient(s). Technically, it's the "Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel." The award itself is of checkered provenance, created by Swedish central bankers hoping to bolster the scientific image of economics. It's chosen by committee members who purposely apply the same principles used to determine winners in medicine, physics, and chemistry, thereby hoping the public won't much notice its lack of connection to the late Alfred Nobel (or his surviving family, one of whom blasted the prize as a PR effort designed to improve the bad reputation of economists). 

More importantly, though, the "Nobel Prize confers on an individual an authority which in economics no man ought to possess," as none other than Friedrich Hayek exclaimed in his own remarkable acceptance speech upon receiving the award in 1974. 

In Hayek's view, the Prize threatened to create an aura of hard science certainty around the decidedly social science of economics. This veneer, he worried, would influence both government officials and the public to view economic theory more like laws of physics or properties of molecules. 

This was dangerous, in the view of a man who had seen Europe and Russia collapse under "scientific" socialism and written extensively about political economy in The Road to Serfdom and The Constitution of Liberty. He understood the deadly combination of hubris and certainty, and hoped to impress upon the audience that economics remained a discipline that studied humans, with all their irrationalities and frailties. In this sense he demonstrated the degree of respect he still had for the praxeological foundation of his then recently-departed old mentor Ludwig von Mises.

Murray Rothbard, writing in Human Events, had fulsome praise for Hayek as the surprise winner who eschewed the mathematical orientation of previous recipients:

The Nobel award comes as a surprise on two counts. Not only because all the previous Nobel Prizes in economics have gone to left-liberals and opponents of the free market, but also because they have gone uniformly to economists who have transformed the discipline into a supposed "science" filled with mathematical jargon and unrealistic "models" which are then used to criticize the free-enterprise system and to attempt to plan the economy by the central government.

F.A. Hayek is not only the leading free-market economist; he has also led the way in attacking the mathematical models and the planning pretensions of the would-be "scientists," and in integrating economics into a wider libertarian social philosophy. Both concepts have so far been anathema to the Nobel establishment.

Rothbard saw Hayek's achievement not only as a refutation of the Keynesian orthodoxy regarding stumulative monetary policy, but also as a demolition of the whole socialist political program flowing from Keynes's followers:

The political prescription that flows from the Hayekian theory is, of course, the diametric opposite of the Keynesian: stop the artificial inflationary boom, and allow the recession to proceed as fast as possible with its work of readjustment. Postponement and government attempts to stop or interfere with the recession process will only drag out and intensify the agony and lead to our current and probably future turmoil of inflation combined with lengthy recession and depression. The Mises-Hayek analysis is not only the only cogent theory of the business cycle; it is the only comprehensive free-market answer to the Keynesian morass of government planning and "fine tuning" that we are suffering from today.

But F.A. Hayek did not stop with this monumental contribution to economics. In the 1940s he widened his approach to the entire area of political economy. In his best-selling Road to Serfdom (1944) he challenged the prosocialist and pro-Communist intellectual climate of the day, showing how socialist planning must inevitably lead to totalitarianism, and demonstrating examples in the way in which the socialistic Weimar Republic paved the way for Hitler. He also showed how the "worst always get to the top" in a statist society.

So today let us celebrate Friedrich Hayek, the reluctant  and worthy Nobel winner—rather than an economist who once wrote this, in a textbook no less:

The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.

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What Bernie Sanders and Alexandria Ocasio-Cortez Need to Learn About Income Inequality

09/14/2018Tho Bishop

Earlier this week Aaron Ross Sorkin wrote an interesting article at the New York Times where he draws the connection between many of the political trends in this country—Trump and attacks on trade, rise of democratic socialist politicians, and the rise of general skepticism of the "expert class"—to the aftermath of the 2008 financial crisis.

Of course issue that has been driven to the forefront of American politics since 2008 has been heightened awareness about growing income inequality in the country. Naturally the American left looks at the issue and gets it completely wrong, but that doesn't mean that the issue isn't completely without merit. There is in fact a faction in America that could be considered as the "unjust rich" who benefit directly as a result of a parasitic government and the modern financial system. 

This is all why I think one of the most important contributions Austrian economics offers to modern political discourse is connection between monetary policy and income inequality.

At Mises University this year, Dr. Karl-Friedrich Israel gave an excellent lecture on this topic, looking at the relevant data that exists, analyzing the work of non-Austrian scholars like Thomas Piketty, and focusing on the ways artificial credit expansion directly feed into this issue. Consider sharing it the next time a friends quotes Bernie Sanders or Alexandria Ocasio-Cortez on the topic.

Monetary Policy and Inequality | Karl-Friedrich Israel

Read more about the topic:

Central Banks Enrich a Select Few at the Expense of Many by Thorsten Polleit
How Central Banking Increased Inequality by Louis Rouanet
How Central Banks Widen Wealth and Income Gaps by Hal Snarr

More from Karl-Friedrich Israel:

How Much Do Central Banks Cost Us?
Inflation May Be Causing a Long-Term Rise in Unemployment
Five Reasons for Central Banks: Are They Any Good?

 

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Without the Federal Government, Who Will Regulate Dog Meat?

09/13/2018Ryan McMaken

The federal government is running a massive deficit right now. American wages are stagnant. The US is involved in multiple costly wars with no apparent objective. And the president raises taxes on Americans at will through his tariff policy.

But fortunately the Congress is getting down to what is really important. Federalizing laws banning the sale of cat and dog meat.

The silliness of Congress's involvement in the matter is so obvious that even CBS news begins its article on the topic with a snide comment:

The government shuts down at the end of the month, and Democrats and Republicans seem unable to make a deal to keep it open. They are, however, united in trying to stop people from eating pets.

But the new bill does provide a chance for politicians to crow about "accomplishing" something in Congress. Bill sponsor and Florida Democrat Alice Hastings released a glowing statement:

"The House of Representatives has voted to unify animal cruelty laws across the country, which would prohibit the slaughter of dogs and cats for human consumption," Hastings said. "I am proud to have championed this effort in Congress to explicitly ban the killing and consumption dogs and cats across the United States, and am greatly appreciative of my friend and colleague Congressman Buchanan for taking the 'Dog and Cat Meat Trade Prohibition Act' across the finish line today."

Boy, without the federal government, who could possibly regulate such things? I mean, other than the county commissioners who could just as easily pass an ordinance on the matter? The sale and handling of dog meat is already illegal nearly everywhere in the US. The new federal law is being passed because it gives politicians a shiny object to distract the voters with on the campaign trail this fall.

Keep in mind also that if the feds plan to enforce the new regulations, it will require work from federal employees who will need to surveil, investigate, and prosecute any suspected lawbreakers. The people who do it will collect a federal salary and, eventually, a federal pension.

Needless to say, there's no section of the Federal Constitution that expresses the necessity of federal involvement in regulating cat meat. But such trifles don't concern Congress when there is good politicking to be had. After all, from the politician's standpoint, only a few odd eccentrics like yours truly are going to bother condemning the bill. Meanwhile, the bill's supporters will be able to make stump speeches to suburban moms and college activists about how "I am fighting for you" in Congress by making dog-meat boutiques illegal under federal law.

This leads us to ask the question of how widespread this black-market industry even is. If is is not widespread then why the need for federal legislation? And if consumption of dog meat is widespread, then this tells us that somewhere in America private citizens — presumably taxpayers — like to eat dog meat. So, the federal legislation is either pointless, or it's trampling on the property rights of someone somewhere.

In either case, the question must be answered: are we to believe that dog-meat lovers have no rights just because lots of people think dogs are cute? Yes, I get it, I have a dog too and she's swell. Barring a Venezuela-style apocalypse, I'm totally not going to eat her.

On the other hand, if some people somewhere like eating dog, why is it my place to sign off on threatening those people with fines imposed by federal agents for doing something I find distasteful.

At this point in the debate, of course, the opponents of dog meat will start repeating totally arbitrary reasons for why eating dog ought to be verboten. "They' cute, they're intelligent, they make good companions." And so on.

But as anyone who has worked with pigs knows, those animals are very intelligent, too. Some are even cute. Some people keep pigs as pets. And yet, many of the same people who sob over dog meat have few scruples about ordering a sausage pizza.

Hardliner animal rights people are, at least, consistent in this. They are against all animal slaughter. And that's a respectable position — although not one I agree with.1

Dog Meat vs. Horse Meat

Unfortunately, we've already been over this, and the federal government has already been blazing the trail for regulating meat slaughter and sales for quite some time. In fact, it was just late last year that the Congress was debating ending an existing federal ban on the processing of horse meat. And although I've been a personal fan of many horses I have met, I also came out against that federal ban.

[RELATED: "Do We Really Need a Federal Ban on Horse Meat?" by Ryan McMaken]

In that case, though, opponents of horse-meat bans had something more in their favor: Americans were still eating horse meat in the mid twentieth century. Even more recently, Americans were feeding horse meat — ironically, given the current debate — to their cats and dogs. Moreover, as I pointed out in the article, Western society has a long history of eating horse meat, although it was never especially popular in the United States. But in the case of horse meat, why ought the "rights" of horses trump those of private taxpaying citizens who happen to make their living from selling horse meat? Or who enjoy eating it?

With cats and dogs, of course, there is very little history of them being eaten in the US or in Europe.

Eating dogs, however, is apparently common in China, Indonesia, and Korea. Some immigrants from those places still eat dogs.

But, there aren't enough people in the US who like dog meat to make the pro-dog-meat lobby in the US politically significant. Congress simply doesn't have to worry about any of those people when campaigning for re-election this November. Those horrible foreigners and new arrivals who like dog meat? To hell with them. And if they get caught eating a dog or cat? Well then its a $5,000 fine. Xenophobia continues to be great politics, just not in the way you think. It's not the Trump voters in this case who are wanting to stick it to foreigners and immigrants. This time, banning dog meat is all about pandering to soccer moms and well-to-do twenty-somethings who refer to their dogs as their children. It's probably a winning strategy.

  • 1. Unfortunately, with many hardcore animal rights activists, this admirable consistency often fails to extend to opposing the killing of human life pre-birth.
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Wal-Mart Offers Choice in Currency...

09/04/2018Tho Bishop

At Wal-Mart, Bitcoin is now competing alongside gold, silver, and government coins in the candy isle. 

chocolate btc.png

Still not quite what Ron Paul and other Austrians have in mind advocating choice in currency, but it does serve as another illustration of how crypto-currency is becoming normalized in the United States. 

(h/t r/cryptocurrency) 

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Walter Block Talks Space Capitalism on CSPAN

08/27/2018Walter Block

At Freedom Fest, Walter Block was interviewed by CSPAN's Book TV to discuss his new book Space Capitalism: How Humans Will Colonize Planets, Moons, and Asteroids.

Click here to watch Dr. Block make the case for privatizing the final frontier. 

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What the Burgeoning Trade War Really Means for Entrepreneurs

08/17/2018Per Bylund

President Donald Trump followed his announcement of steel and aluminum tariffs with a declaration that “trade wars are good, and easy to win” -- a stance economists and members of his own political party immediately challenged. Not long after the U.S. announced its tariffs, international trading partners threatened retaliatory fees against American goods such as bourbon, blue jeans and Harley-Davidson.

As governments clash in big battles, small businesses are left to worry about how they might be affected by a trade war. The White House claims it’s acting in the interest of American businesses and is willing to put tariffs on more than $500 billion of imported goods (per CNBC), but not all American companies benefit from nationalistic policies. The Washington Post reports that farmers, for example, will receive $12 billion in federal aid to offset any negative effects of this trade war.

Many companies will need to pass costs on to consumers, as reported by The New York Times. These increases might seem small at first, but small price hikes across the board will leave consumers' wallets thinner from every purchase. This will be particularly problematic for individuals who cannot afford to buy American-made products and instead purchase cheap goods from China, the Atlantic reports.

For entrepreneurs, trade wars create an uncertain and often problematic situation. Which endeavors will succeed, and which will feel the tariff squeeze? How can small business owners protect their livelihood? Thankfully, entrepreneurs don’t have to wait to find out. Through proactive management, entrepreneurs can persevere in an economically volatile climate

Read the full article at Entrepreneur.com
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What is "Advanced" Technology?

07/10/2018Mark Thornton

During research for my book The Skyscraper Curse I started using the phrase "Advanced technology." It means a means of production that is currently beyond the capability of society or at least something that is "cutting edge." I would argue that is also useful in terms of the Austrian Business Cycle Theory (ABCT) because when artificially low interest rates impact an economy's structure of production, it typically induces the production and introduction of new "premature" technology that typically would only occur in the future, if at all.

We might be witnessing one such advanced technology on the campus of Auburn University--a robot bricklayer. The reason for this speculation is that low interest rates have increased the amount of construction and driven up costs so that new technology in the form of the robot bricklayer have been rush in to alleviate the high cost and lack of labor. Two masons and the robot can lay rough four times the number of bricks that two masons can lay.

 

SAM100, short for Semi-Automated Mason, will be the first of its kind in Alabama. It lays more than 3,000 bricks per day, using a conveyor belt and a robotic arm. Auburn University and Construction Robotics have partnered together to bring SAM to life on campus.

Construction Robotics, located in Victor, New York, created SAM to "leverage human jobs, not replace them." According to the MIT Technology Review, human masons can lay 300 to 500 bricks a day -- three times less than SAM. 

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Why Trump’s Iran Isolation Plan May Backfire

07/10/2018Ron Paul

In May, President Trump pulled the United States out of the Iran nuclear deal despite Iran living up to its obligations and the deal working as planned. While the US kept in place most sanctions against Tehran, China and Russia - along with many European countries - had begun reaping the benefits of trade with an Iran eager to do business with the world.

Now, President Trump is threatening sanctions against any country that continues to do business with Iran. But will his attempt to restore the status quo before the Iran deal really work?

Even if the Europeans cave in to US demands, the world has changed a great deal since the pre-Iran deal era.

President Trump is finding that his threats and heated rhetoric do not always have the effect he wishes. As his Administration warns countries to stop buying Iranian oil by November or risk punishment by the United States, a nervous international oil market is pushing prices ever higher, threatening the economic prosperity he claims credit for. President Trump’s response has been to demand that OPEC boost its oil production by two million barrels per day to calm markets and bring prices down.

Perhaps no one told him that Iran was a founding member of OPEC?

When President Trump Tweeted last week that Saudi Arabia agreed to begin pumping additional oil to make up for the removal of Iran from the international markets, the Saudis very quickly corrected him, saying that while they could increase capacity if needed, no promise to do so had been made.

The truth is, if the rest of the world followed Trump’s demands and returned to sanctions and boycotting Iranian oil, some 2.7 million barrels per day currently supplied by Iran would be very difficult to make up elsewhere. Venezuela, which has enormous reserves but is also suffering under, among other problems, crippling US sanctions, is shrinking out of the world oil market.

Iraq has not recovered its oil production capacity since its “liberation” by the US in 2003 and the al-Qaeda and ISIS insurgencies that followed it.

Last week, Bloomberg reported that “a complete shutdown of Iranian sales could push oil prices above $120 a barrel if Saudi Arabia can’t keep up.” Would that crash the US economy? Perhaps. Is Trump willing to risk it?

President Trump’s demand last week that OPEC “reduce prices now” or US military protection of OPEC countries may not continue almost sounded desperate. But if anything, Trump’s bluntness is refreshing: if, as he suggests, the purpose of the US military – with a yearly total budget of a trillion dollars - is to protect OPEC members in exchange for “cheap oil,” how cheap is that oil?

At the end, China, Russia, and others are not only unlikely to follow Trump’s demands that Iran again be isolated: they in fact stand to benefit from Trump’s bellicosity toward Iran. One Chinese refiner has just announced that it would cancel orders of US crude and instead turn to Iran for supplies. How many others might follow and what might it mean.

Ironically, President Trump’s “get tough” approach to Iran may end up benefiting Washington’s named adversaries Russia and China — perhaps even Iran. The wisest approach is unfortunately the least likely at this point: back off from regime change, back off from war-footing, back off from sanctions. Trump may eventually find that the cost of ignoring this advice may be higher than he imagined.

Reprinted with permission.

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What the ‘Dumpster Fire’ D.C. Metro Says About Federal Bureaucracy

07/10/2018James Bovard

The District of Columbia Council voted in June to impose a tax increase of almost 500 percent on Uber and Lyft users to help fix the Washington Metro transit system.  Anyone who summons a Lyft or Uber ride inside D.C. will now be hit with a 6 percent fee to bankroll a subway that a top Obama administration official aptly labeled an “ongoing dumpster fire” two years ago....

The skewering of Uber and Lyft riders was spurred by the D.C. government’s promise to ante up $178 million a year in “dedicated funding” for the subway system. Virginia and Maryland are also chipping in massively for this “solution” that threw the Washington Post editorial board, which retains boundless faith in the magic of government spending, into ecstasy. Metro managers had long claimed that dedicated funding would sway passengers from comparing the subway to Dante’s Inferno. But as soon as the funding deal was done, Metro stunned riders with plans for a vast array of new service disruptions, including shutting down subway lines south of Reagan National Airport for more than three months.

Much of the prolificacy and inefficiency in local transit systems is the result of federal mandates. As a Heritage Foundation analysis noted, “Federal subsidies decrease incentives…to control costs, optimize service routes, and set proper priorities for maintenance and updates.” Transportation scholar Randal O’Toole observed, “Innovative solutions are bypassed and high costs are guaranteed because of the requirement that transit agencies obtain the approval of their unions to be eligible for federal grants.” And the unions often don’t give a damn about the traveling public. Unions representing DC Metro workers blame riders for the system’s problems and denounced as “diabolical” a plan to contract out custodial jobs. But union campaign contributions make politicians happy, which trumps reducing costs.

If money could solve Metro’s problems, the heavily-subsidized system never would have commenced a death spiral.  But neither the feds nor local politicians have the courage to compel radical changes to curb the power of unions, end anti-work rules, and vastly reduce a bureaucracy that makes endless excuses for the system’s other failings. Nor is it likely that Metro employees will even learn the art of non-shiftless shovel leaning.

Read the full article at The American Conservative 
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Who’s Afraid of the Trump/Putin Summit?

07/03/2018Ron Paul

President Trump’s National Security Advisor John Bolton was in Moscow last week organizing what promises to be an historic summit meeting between his boss and Russian President Vladimir Putin. Bolton, who has for years demanded that the US inflict “pain” on Russia and on Putin specifically, was tasked by Trump to change his tune. He was forced to shed some of his neoconservative skin and get involved in peacemaking. Trump surely deserves some credit for that!

As could be expected given the current political climate in the US, the neoconservatives have joined up with the anti-Trump forces on the Left -- and US client states overseas -- to vigorously oppose any movement toward peace with Russia. The mainstream media is, as also to be expected, amplifying every objection to any step away from a confrontation with Russia.

Bolton had hardly left Moscow when the media began its attacks. US allies are “nervous” over the planned summit, reported Reuters. They did not quote any US ally claiming to be nervous, but they did speculate that both the UK and Ukraine would not be happy were the US and Russia to improve relations. But why is that? The current Ukrainian government is only in power because the Obama Administration launched a coup against its democratically-elected president to put US puppets in charge. They’re right to be nervous. And the British government is also right to be worried. They swore that Russia was behind the “poisoning” of the Skripals without providing any evidence to back up their claims. Hundreds of Russian diplomats were expelled from Western countries on their word alone. And over the past couple of months, each of their claims has fallen short.

At the extreme of the reaction to Bolton’s Russia trip was the US-funded think tank, the Atlantic Council, which is stuck in a 1950s time warp. Its resident Russia “expert,” Anders Åslund, Tweeted that long-time Russia hawk Bolton had been “captured by the Kremlin” and must now be considered a Russian agent for having helped set up a meeting between Trump and Putin. Do they really prefer nuclear war?

The “experts” are usually wrong when it comes to peacemaking. They rely on having “official enemies” for their very livelihood. In 1985, national security “expert” Zbigniew Brzezinski attacked the idea of a summit between President Reagan and Soviet leader Mikhail Gorbachev. It was “demeaning” and “tactically unwise,” he said as reported at the time by the Washington Times. Such a meeting would only “elevate” Gorbachev and make him “first among equals,” he said. Thankfully, Reagan did engage Gorbachev in several summits and the rest is history. Brzezinski was wrong and peacemakers were right.

President Trump should understand that any move toward better relations with Russia has been already pre-approved by the American people. His position on Russia was well known. He campaigned very clearly on the idea that the US should end the hostility toward Russia that characterized the Obama Administration and find a way to work together. Voters knew his position and they chose him over Hillary Clinton, who was also very clear on Russia: more confrontation and more aggression.

President Trump would be wise to ignore the neocon talking heads and think tank “experts” paid by defense contractors. He should ignore the “never Trumpers” who have yet to make a coherent policy argument opposing the president. The extent of their opposition to Trump seems to be “he’s mean and rude.” Let us hope that a Trump/Putin meeting begins a move toward real reconciliation and away from the threat of nuclear war.

Reprinted with permission. 

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