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America’s Great Depression Quote of the Week: Cycles and Fluctuations

March 18, 2013 in Economics

By John P. Cochran

This week’s quote(s) highlights why an explanation of a general boom-bust pattern of economic must be a monetary theory of the trade cycle. The first key is to clearly distinguish between fluctuations, which are a normal and indispensable part of the market process, and cycles, which are extra-market; the result of interventions into the market order. Hayek makes similar observations if Monetary Theory of the Trade Cycle and refers to explanations of fluctuations as opposed to true cycles, which rely on external shocks as essentially a non-economic explanation of observed changes in business conditions. The real business cycle research thus actually attempts to explain fluctuations, not cycles. One way to interpret their results is that the research provides some historical evidence that much of what appears to be the ebb and flows of economic activity is actually market adjustments to shocks. However, much is left unexplained (30%?). That which is left unexplained is the boom and bust of the cycle, best understood through the lens of ABCT.

All quotes are from AGD (Scholar’s edition, 4-9).

Cycles and Fluctuations: Error and the Role of the Entrepreneur

 It is important, first, to distinguish between business cycles and ordinary business fluctuations. We live necessarily in a society of continual and unending change, change that can never be precisely charted in advance. People try to forecast and anticipate changes as best they can, but such forecasting can never be reduced to an exact science. Entrepreneurs are in the business of forecasting changes on the market, both for conditions of demand and of supply.

The more successful ones make profits pari passus with their accuracy of judgment, while the unsuccessful forecasters fall by the wayside. As a result, the successful entrepreneurs on the free market will be the ones most adept at anticipating future business conditions.

And:

It is important, first, to distinguish between business cycles and ordinary business fluctuations. We live necessarily in a society of continual and unending change, change that can never be precisely charted in advance. People try to forecast and anticipate changes as best they can, but such forecasting can never be reduced to an exact science. Entrepreneurs are in the business of forecasting changes on the market, both for conditions of demand and of supply. The more successful ones make profits pari passus with their accuracy of judgment, while the unsuccessful forecasters fall by the wayside. As a result, the successful entrepreneurs on the …read more
Source: MISES INSTITUTE

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Taking the ‘Blinder’s off Monetary Easing

March 18, 2013 in Economics

By John P. Cochran

Mark Thornton and Mises in today’s Wall Street Journal in “Letters to Editor” responses to Alan Blinder’s Easing Angst About Fed Easing which originally appeared March 13 in the print edition. A15.

Mark’s commentary (2nd letter in the link above):

Prof. Blinder aptly explores the dangers of the Fed’s easy-money policy but claims it has succeeded in its mandate to keep price inflation low. I object.

Gasoline and food prices have risen. Commodity prices have risen. The Producer Price Index is at an all-time high. Farmland prices have risen to all-time highs. Gold prices are up $1,000 per ounce since the crisis began. Stocks and bonds are at all-time highs. Manhattan real estate and contemporary art prices are at all-time highs. These are all “prices.” Plus, we are exporting inflation around the globe. None of this is good news for Joe Mainstreet and is worrisome for the future.

For more by Mark on inflation see: “Where is the inflation?

From the first letter by Mike Smith of Sugar Land, Texas

Alan Blinder’s op-ed “Easing the Angst About Fed Easing” (March 13) brings to mind Ludwig von Mises’s observation: “Credit expansion (easy money) is governments’ foremost tool in their struggle against the market economy . . . it is the magic wand designed to expropriate the capitalists . . . to lower the rate of interest or to abolish it altogether, to finance lavish government spending . . . and to make everybody prosperous” (“Human Action,” 1966).

Smith concludes:

At some point, we must ask ourselves how many years of 0% rates we must endure before the Federal Open Market Committee stops “plugging away” and allows the unhampered market work its magic.

…read more
Source: MISES INSTITUTE

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Zimbabwe: Why Is One of the World’s Least-Free Economies Growing So Fast?

March 18, 2013 in Economics

Zimbabwe has been consistently ranked one of the world’s least economically free countries. Yet for the past three years, Zimbabwe’s GDP growth averaged an impressive 7.3 percent, making it one of the world’s fastest-growing countries. What explains this apparent discrepancy? In a new paper, author and economics professor Craig J. Richardson finds three significant economic developments that account for the recent surge, none of which will actually foster growth long-term.

…read more
Source: CATO HEADLINES

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How Washington Encourages Nuclear Proliferation

March 18, 2013 in Economics

By Ted Galen Carpenter

Ted Galen Carpenter

The current top priority for U.S. foreign policy is to prevent Iran from building nuclear weapons—or even acquiring the capability to build such weapons. That goal reflects the general U.S. policy, in place for more than six decades, of combating nuclear proliferation. U.S. leaders achieved a major diplomatic triumph with the signing of the Nuclear Nonproliferation Treaty (NPT) in the late 1960s, and subsequent administrations have fought hard to prevent signatories from violating its provisions and to lobby other states to join the nonproliferation regime.

But U.S. actions frequently undermine Washington’s own nonproliferation goals. U.S. policy makers are adamant that such countries as Iran and North Korea have no legitimate reasons to want their own nuclear arsenals. That argument is either naive or disingenuous. Leaders in Pyongyang and Tehran have undoubtedly watched how Washington treats non-nuclear adversaries, and surveying the global scene has not offered any comfort.

Following the Persian Gulf War in 1991, a high-level Indian military official was asked what lessons could be drawn from that conflict. His response reportedly was: “Don’t fight the United States unless you have nuclear weapons.” That lesson was strengthened later in the decade when U.S.-led NATO forces bombed Serbia into relinquishing control of its restive Kosovo province.

Leaders in Pyongyang and Tehran have undoubtedly watched how Washington treats non-nuclear adversaries, and surveying the global scene has not offered any comfort.”

Two more recent incidents made it clear that non-nuclear adversaries of the United States risk being targets of forcible regime change. In 2003, Washington invaded Iraq and ousted Saddam Hussein. This happened right on Iran’s doorstep, and outspoken American hawks even asserted that a broader purpose of the Iraq mission was to intimidate Tehran—or, hopefully, even spark an uprising against the clerical regime.

An even more damaging precedent was set in Libya. Longtime Libyan strongman Muammar el-Qaddafi had pursued a nuclear program for years—albeit with only minimal progress. But he finally abandoned that effort and sought to normalize relations with the United States and its Western allies. For a short time, it appeared that his course change would pay dividends, as the Western powers greatly eased their economic sanctions, and even such a strident hawk like Senator John McCain praised Qaddafi during a visit to Libya.

The honeymoon did not last long, though. When insurgent forces began an uprising against Qaddafi’s rule, the U.S. and its NATO allies assisted the rebellion, even …read more
Source: OP-EDS