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The Rothbard/Higgs/Vedder and Gallaway Thesis Part II

April 8, 2013 in Economics

By John P. Cochran

Thomas J. DiLorenzo in this 2004 Mises daily, “The New Deal Debunked (again)”, provides detail on the work by  Cole and Ohanian behind the Ohanian video  highlighted on Mark Thornton’s Circle Bastiat post “The Rothbard/Higgs/Vedder and Gallaway Thesis.

Highlights from DiLorenzo:

Macroeconomic model builders have finally realized what Henry Hazlitt and John T. Flynn (among others) knew in the 1930s: FDR’s New Deal made the Great Depression longer and deeper. It is a myth that Franklin D. Roosevelt “got us out of the Depression” and “saved capitalism from itself,” as generations of Americans have been taught by the state’s educational establishment.

This realization on the part of macroeconomists comes in the form of an article in the August 2004 Journal of Political Economy entitled “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis,” by UCLA economists Harold L. Cole and Lee E. Ohanian. This is a big deal, since the JPE is arguably the top academic economics journal in the world.

And

On top of that, virtually every single one of FDR’s “New Deal” policies made things even worse and prolonged the Depression. Austrian economists have known this for decades, but at least the neoclassical model builders have finally caught on—we can hope.

In this regard the most disappointing thing about the Cole-Ohanian article is that they do not even cite the pioneering work of Richard Vedder and Lowell Gallaway—Out of Work: Unemployment and Government in Twentieth Century America—first published in 1993.

Indeed, it is somewhat scandalous that they do not cite this well-known work while making essentially the same arguments that Vedder and Gallaway do.

And

This last conclusion—that the abandonment of FDR’s policies “coincided” with the recovery of the 1940s is very well documented by another author who is also ignored by Cole and Ohanian, Robert Higgs. In “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War” (Independent Review, Spring 1997), Higgs showed that it was the relative neutering of New Deal policies, along with a reduction (in absolute dollars) of the federal budget from $98.4 billion in 1945 to $33 billion in 1948, that brought forth the economic recovery. Private-sector production increased by almost one-third in 1946 alone, as private capital investment increased for the first time in eighteen years.

Too bad the true lesson has not been  learned. Dilernzo’s lesson:

In short, it was capitalism that finally ended the Great Depression, not …read more
Source: MISES INSTITUTE

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The Rothbard/Higgs/Vedder and Gallaway Thesis

April 8, 2013 in Economics

By Mark Thornton

Murray Rothbard argued that the cause of the Great Depression was the result of Hoover’s New Deal policies which sought to keep wages and profits high. Robert Higgs, Richard Vedder and Lowell Gallaway extended this thesis to FDR’s New Deal policies which created artificially high prices and profits and prevented the normal market correction processes, reduced employment and consumer demand. Here is a great video of Lee Ohanian, Professor of Economics at UCLA, explaining how FDR kept the free market from working. It would make a great video to show in class.

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Source: MISES INSTITUTE

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Maryland Enacts Law Allowing Academic Studies of Medical Marijuana

April 8, 2013 in PERSONAL LIBERTY

By drosenfeld

New Law Unlikely to Provide Patients Access to Medicine Absent Changes in Federal Policy

Statement from Drug Policy Alliance's Amanda Reiman

Today, Maryland enacted a law allowing approved academic research institutions in that state to establish investigational, research-oriented medical marijuana studies. Unlike 18 other states that have adopted medical marijuana laws that allow patients to obtain medical marijuana by growing it themselves or purchasing it from state-licensed businesses, Maryland’s law requires that patients obtain their medicine only from a limited number of research hospitals approved to conduct medical marijuana research.

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Source: DRUG POLICY

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E. O. Wilson on the Place of Mathematics in Science

April 8, 2013 in Economics

By Mark Thornton

Great Scientist ≠ Good at Math.

Pioneers in science only rarely make discoveries by extracting ideas from pure mathematics. Most of the stereotypical photographs of scientists studying rows of equations on a blackboard are instructors explaining discoveries already made.

Real progress comes in the field writing notes, at the office amid a litter of doodled paper, in the hallway struggling to explain something to a friend, or eating lunch alone. Eureka moments require hard work. And focus.

Newton invented calculus in order to give substance to his imagination. Darwin had little or no mathematical ability, but with the masses of information he had accumulated, he was able to conceive a process to which mathematics was later applied.

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Source: MISES INSTITUTE

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Time for Real Federalism

April 8, 2013 in Economics

By Doug Bandow

Doug Bandow

Everyone except President Barack Obama understands that the federal government has a spending problem. Yet Uncle Sam gives away more than $600 billion to states and localities every year. It’s time to turn off the spigot, implementing the Reagan vision of transferring program responsibilities and revenues sources away from Washington.

The original governmental system for the newly independent colonies envisioned states funding the national authorities. There was no enforcement mechanism, so the Articles of Confederation didn’t yield a very effective continental government. But the principle made a lot of sense. The best way to constrain national politicians was to make them dependent on local folks for money. No extravagant usurpations of the liberty of citizens or authority of states.

The Articles were tossed aside when the Constitution was ratified. It provided the so-called federal government with independent sources of revenue, but still envisioned states playing the dominant government role in citizens’ lives. The national government primarily relied on tariffs and the proceeds of land sales for money. Washington had no seemingly endless source of cash either for its own use or for distribution to others.

Alas, the Civil War demonstrated the truth of Randolph Bourne’s axiom that “war is the health of the state.” The national government avidly pursued new revenue sources to satisfy its voracious appetite for cash to fund the invasion of the southern states. Although federal outlays dropped when the conflict ended, federal memories of the joy of taxing did not. By the early 20th century Washington had a vast new source of money, the income tax, and ever higher expenses, including a big war overseas, an economic crisis, and another, even larger global war. Authority, prestige, and resources all flowed to Washington.

In our system, it’s the states that should be funding Washington, not the other way around.”

As the national government absorbed ever more of America’s resources, states and localities eventually became dependent on Uncle Sam. There are constitutional restrictions on what the national authorities can tell other governments to do. There are no similar limits on what the national authorities can bribe other governments to do. Hence the rise of federal grants to states and localities.

Although the number of programs and amount of outlays have varied over time, the federal role has expanded over time. Inter-governmental subsidies increasingly have concentrated in a few areas. The Congressional Budget Office recently reported: “Federal grants for health programs, primarily Medicaid, have …read more
Source: OP-EDS

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Interview with Walter Block

April 8, 2013 in Economics

By Mark Thornton

John O’Donnell interviews Walter Block. The interview begins around the 7 minute mark. Rothbard, the inflation-deflation debate, Ron Paul, and Walter’s new book are discussed.

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Source: MISES INSTITUTE

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Will Washington Get Gun Law Reform Right?

April 8, 2013 in Economics

With the tragedy at Newtown still fresh in Americans’ minds, it is all but certain that federal lawmakers will pass gun legislation before Congress recesses. There is room for positive compromise, writes Cato scholar Trevor Burrus—but only if the two major political parties adjust their thinking: “Democrats must stop pursuing ineffective laws, and Republicans must confront the problems of how guns get in the wrong hands.”

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Source: CATO HEADLINES