Happy Birthday to Ludwig von Mises

by Mario Rizzo

Today is the birthday of the great Austrian economist Ludwig von Mises (1881 – 1973). For a brief appreciation, I refer the reader to my comments of a year ago.

The Man as a Boy

Krugman Mangles Smith

by Gene Callahan

Here’s Paul Krugman, explaining the meaning of Adam Smith’s pin factory, and why it opposes Smith’s invisible hand metaphor:

“What may not be obvious is the way these two concepts [pin factory and invisible hand] stand in opposition to each other. The parable of the pin factory says that there are increasing returns to scale — the bigger the pin factory, the more specialized its workers can be, and therefore the more pins the factory can produce per worker. But increasing returns create a natural tendency toward monopoly, because a large business can achieve larger scale and hence lower costs than a small business. So in a world of increasing returns, bigger firms tend to drive smaller firms out of business, until each industry is dominated by just a few players.”

And, of course, this monopolistic competition wrecks the operation of the invisible hand, per Krugman.

Anti-Intellectualism and Freedom

by Chidem Kurdas

Anti-Intellectualism in American Life by Richard Hofstadter, a historian who died in 1970, is very much part of politics several decades after it was written. The past two years brought many charges of anti-intellectualism by left-liberals against people on the other side of the political divide.  The latest in Hofstadter-inspired critiques is an attack on Tea Partiers by Will Bunch — The Backlash: Right-Wing Radicals, High-Def Hucksters, and Paranoid Politics in the Age of Obama.

The term anti-intellectualism does not just denote those who don’t care for intellectuals. Rather, Hofstadter presents it as an ideology, an “ism” that periodically besets American culture and deprives intellectuals of political power. This deprivation disappears under certain administrations. Thus regarding the late 19^th and early 20^th century he wrote that “In the Progressive era the estrangement between intellectuals and power … came rather abruptly to an end.”

Similarly in the New Deal: “Never had there been such complete harmony between the popular cause in politics and the dominant view of the intellectuals.” Unfortunately – from Hofstadter’s perspective – this harmony was disrupted by right-wing reaction against policies associated with intellectuals.

Foreclosures

by Jerry O’Driscoll  

The New York Times reports that GMAC (now a subsidiary of Ally Financial) has admitted that it filed “dubious” financial documents.

The problem goes beyond GMAC. A Florida circuit judge is quoted as saying some of the documents filed by lenders are “incompetent,” some “just sloppy,” and he suggests “there could be a fraudulent element.”

In boom times, lenders cut many corners including loan documentation.  In the 1980s Texas banking crisis, regulators taking over failed banks often found it challenging to find loan documents.  Even if found, they could be defective.

Securitization has greatly complicated the problem.  Mortgages are sliced and diced into separate tranches of securities.  It can difficult to prove ownership of the mortgage. If the originator was sloppy in preparing the underlying loan documents, it can be an impossible task.

The Method of History

by Gene Callahan

I’m currently reading Bryan Sykes excellent book, The Seven Daughters of Eve. Well, excellently written, and, I have to assume, excellent on the genetics. But there are a couple of fundamental misunderstandings of history present in the book, that I think are worth noting, because of the frequency with which people believe them.

The first such error is that Sykes keeps referring to “prehistory,” “recorded history,” “the beginnings of history,” and so forth. These phrases are symptomatic of the error, exploded decades ago by Collingwood, that there is something especially “historical” about written records, that they represent the “recording” of history by those “witnessing” it, and that, in their absence, we only have some fuzzy “prehistory” with which to deal.

Which Market Process Theorist Said This?

by Gene Callahan

No fair googling!

‘Continual deviations of the prices of commodities from their values are the necessary condition in and through which the value of the commodities as such can come into existence. Only through the fluctuations of competition, and consequently of commodity prices, does the law of value of commodity production assert itself and the determination of the value of the commodity… become a reality.

Greenspan Paradox on Recovery

by Chidem Kurdas

Alan Greenspan exemplifies an inconsistency that appears to be widespread. He reportedly said that the stimulus has fallen far short of expectations and the government should get out of the way and allow businesses to power the recovery. At the same time, he’s so worried about budget deficits that he supports higher taxes.   

Threatening more taxes is not exactly the way to encourage economic activity.

The Second Austrian Moment

by Mario Rizzo  

This is an important time for Austrians. During the Great Depression and for many years thereafter, J.M. Keynes and his followers dominated macroeconomic theory (some say they created it) as well as the conventional wisdom about the historical lessons of the Depression and the New Deal.  

We are now witnessing many important developments that will affect economics and public perceptions for a long time to come.

Principled Economic Policy

by Jerry O’Driscoll  

Today’s Wall Street Journal features a major op ed, “Principles for Economic Revival,” co-authored by George P. Schultz, Michael J. Boskin, John F. Cogan, Allan H. Meltzer and John B. Taylor. It begins by noting that the “deep recession and anemic recovery have largely been driven by economic policies that have deviated from proven fact-based principles.”

As the piece’s title suggests, the authors advocate a return to policies for the long-run based on sound economic theory.  However much one may disagree with particulars, the emphasis on the long run must be applauded.  As they put it, “long-lasting economic policies based on a long-term strategy work; temporary policies don’t.”

The piece is very long, easily the size of two normal opinion pieces.  They cover a great deal of ground: bailouts, stimulus, health care, housing monetary policy, etc. It’s well-worth reading and should frame the policy debates going forward.

Let us once and for all be done with endless discussions of temporary policies with transient effects. They don’t work and they distract us from the business at hand.  Low marginal tax rates, transparent and not burdensome law and regulation, and non-inflationary monetary policy promote economic growth. The opposite leads to recession and anemic recovery.

Pragmatic Road to Bankruptcy

by Mario Rizzo

In the September 15th Wall Street Journal there is a chart that gives a quick view of the “pragmatic” expansion of entitlement programs that has led to where we are now. Who could have predicted the long-term consequences of case-by-case pragmatic problem solving?  I suggest Herbert Spencer, Ludwig von Mises, and Friedrich Hayek.