You are browsing the archive for 2013 August 06.

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Rothbard’s Solution for Detroit

August 6, 2013 in Economics

By Mark Thornton

You may have recently seen Patrick Barron’s solution for Detroit’s problems here. Now Mark Spitznagel has issued his own recommendations which are based on the writings of Murray Rothbard

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Source: MISES INSTITUTE

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A Central Banker with Austrian Instincts

August 6, 2013 in Economics

By Peter G. Klein

Raghu Rajan is a very good neoclassical economist who has made important contributions to banking, finance, the theory of the firm, corporate governance, economic development, and other fields. He is also taking over as head of India’s central bank. Rajan is no Austrian, but he has a quasi-Austrian take on the financial crisis, and far greater appreciation for free markets in general than any of the key US or European policymakers. As I tweeted this morning, Rajan is about 1,000,000 times better than either Summers or Yellen. I’d gladly trade him for any US central banker.

Consider, for example, Rajan’s take on the financial crisis:

The key then to understanding the recent crisis is to see why markets offered inordinate rewards for poor and risky decisions. Irrational exuberance played a part, but perhaps more important were the political forces distorting the markets. The tsunami of money directed by a US Congress, worried about growing income inequality, towards expanding low income housing, joined with the flood of foreign capital inflows to remove any discipline on home loans. And the willingness of the Fed to stay on hold until jobs came back, and indeed to infuse plentiful liquidity if ever the system got into trouble, eliminated any perceived cost to having an illiquid balance sheet.

As I wrote before, I’d reverse the order of emphasis — credit expansion first, housing policy second — but Rajan is right that government intervention gets the blame all around.

Rajan also wrote an interesting theoretical paper with Peter Diamond that echoes the Austrian theory of the business cycle: “[W]hen household needs for funds are high, interest rates will rise sharply, debtors will have to shut down illiquid projects, and in extremis, will face more damaging [bank] runs. Authorities may want to push down interest rates to maintain economic activity in the face of such illiquidity, but intervention may not always be feasible, and when feasible, could encourage banks to increase leverage or fund even more illiquid projects up front. This could make all parties worse off.” Add Diamond and Rajan:

We are certainly not the first to place the emphasis for contraction and crises on the mismatch between the long duration before investment produces consumption goods, and the temporal pattern of consumption in an expansion. This dates back at least to Von Mises (1949) and the Austrian School. Von Mises placed the emphasis, though, on …read more

Source: MISES INSTITUTE

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Obama Thinks Americans Don't Need to Know

August 6, 2013 in Economics

By Gene Healy

Gene Healy

When former National Security Agency contractor Edward Snowden leaked the existence of a massive spying program siphoning up Americans’ personal phone records earlier this year, President Obama declared: “I welcome this debate and I think it’s healthy for our democracy.”

Shortly thereafter, his administration revoked Snowden’s passport and hit him with Espionage Act charges (filed under seal, naturally).

That’s the thing about the self-styled “most transparent administration in history”: Often you can’t find out what they’re up to until somebody breaks the law to let you know.

Team Obama feels entitled to keep the public in the dark about the most fundamental decisions a self-governing people can make.”

One suspects Obama “welcomes this debate” about as enthusiastically as Anthony Weiner greets the debate over his post-apology “sexting.” But this administration has given us plenty of reasons to debate the health of our democracy.

After all, Team Obama feels entitled to keep the public in the dark about the most fundamental decisions a self-governing people can make, such as what the law is and whether and with whom we go to war.

Let’s review:

The administration claims the right to target Americans suspected of terrorism for death by drone-strike, but it’s resisted revealing the legal memoranda explaining under what circumstances and by what authority.

In 2011, the Obama Justice Department responded to a Freedom of Information Act request with “the very fact of the existence or nonexistence of such documents is itself classified.”

The current debate over the NSA’s call-records dragnet also involves “secret law” — specifically, a classified interpretation of the PATRIOT Act broad enough to make every American’s call data (and perhaps other records) “relevant” to terrorism investigations.

And for several years now, the Obama administration has been building secret drone bases throughout Africa and the Arabian Peninsula in order to wage war against al Qaeda and its “associated forces.” Who are those “associated forces”? Sorry, that’s classified too.

In May, Senate Armed Services Committee chairman Sen. Carl Levin, D-Mich., asked the Defense Department for a list. They agreed to provide one — but only if Levin kept it secret. Letting us know who we’re at war with could cause “serious damage to national security,” a Pentagon spokesman explained.

It might be useful for the public to learn how far War on Terrorism mission creep extends so their representatives can debate whether we need perpetual drone war against increasingly marginal groups.

Tough, says DoD: “Because elements that might be considered ‘associated forces’ can build credibility by being listed …read more

Source: OP-EDS

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Making Regulations That Do More Harm than Good

August 6, 2013 in Economics

By Richard W. Rahn

Richard W. Rahn

Terrorists, money launderers, drug dealers and tax evaders use automobiles, airplanes, telephones, computers, banks and countless other goods and services that we all use. Yet all too many government policymakers think that if we make these things very difficult to use, the bad guys will go away — forgetting, of course, that all the rest of us suffer from mindless regulation and control. Banks and other financial service firms have become the targets of choice for the unthinking government class and its allies — because in popular culture, bankers are often cast as the evil villains, despite the fact that the world economy could not function without them.

Thirty years ago, the excuse for more financial services’ regulation was that “drug dealers” used banks. That argument morphed into “banks facilitate money laundering,” which was made a crime in the United States in 1986. Then after Sept. 11, 2001, that excuse evolved into “terrorists use banks.” More recently, the justification for more rules has become “banks around the world enable businesses and individuals to avoid taxes.” There are always new excuses for more regulation — but the demands are always the same: Banks must give more information about their customers and operations to government officials. This assumes, of course, that the government officials will not share the information with competitors, not use it for political or personal purposes, nor allow it to fall in the hands of evil governments or the bad guys. As anyone who can read a newspaper knows, none of this is true.

Governments forget to check the end result of their rules.”

Development experts have known for decades that the most effective foreign-aid program is private remittances. Millions of people have left poor countries to get jobs in rich countries. Most of these people send money back home to their families — remittances — which enable their families to better their own lives and even start small businesses. They most often use money-transfer businesses, because the workers and the recipients do not have bank accounts, or they find that bank transfer fees are very expensive, particularly for the small amounts of money that are frequently sent. The unholy cabal of Treasury and finance ministries, tax collectors of major countries, the Organization for Economic Cooperation and Development, and the Financial Action Task Force are making it increasingly difficult for major banks to deal with the money-transfer …read more

Source: OP-EDS

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Congress's Obamacare Waiver

August 6, 2013 in Economics

By Michael F. Cannon

Michael F. Cannon

America has a two-party system. But it’s not Republicans versus Democrats. It’s the ruling class — Republicans and Democrats — against everyone else. Consider how President Obama just gave Congress its very own Obamacare waiver.

Obamacare includes a provision that should cost each member of Congress and each staffer $5,000 to $11,000 per year. Needless to say, the ruling class was not pleased.

Congress wasn’t about to try to exempt itself from this provision explicitly, though. If John Q. Congressman voted to give himself an Obamacare waiver that his constituents don’t get, he wouldn’t be John Q. Congressman much longer. What’s an aristocrat to do?

President Obama is buying votes from members of Congress — with stolen money.”

On July 30, I predicted that, even though he had no authority to do so, President Obama would waive that provision at taxpayers’ expense. On August 1, he ignobly obliged the aristocracy by decreeing we peasants give each member and staffer $5,000 or $11,000, depending on whether they want self-only or family coverage. It’s good to be king.

The president’s supporters, like courtiers of old, are trying to quell a peasant uprising by denying there were any special favors. The denials ring hollow.

Obamacare imposes two costs on members of Congress and their staff. First, it kicks them out of their current health plans, leaving them to buy coverage on Obamacare’s health-insurance “exchanges.” Second, it makes no provision for the federal government to keep paying $5,000 or $11,000 toward the cost of their insurance as the Treasury does today. 

The second cost is by far the larger one; it amounts to a pay cut of $5,000 or $11,000. Many staffers were threatening to quit or retire early.

When the president’s supporters claim that Congress isn’t being exempted, they mean that Obama didn’t exempt them from Cost No. 1. Which is true. But he did exempt them from Cost No. 2.

Rescinding that pay cut may or may not have been the right thing to do. But it’s still a break that ordinary Americans like Kevin Pace don’t get. Pace is an adjunct music professor at Northern Virginia Community College. To avoid penalties under Obamacare, his employer cut his hours — sticking Pace with an $8,000 pay cut.

Supporters say President Obama merely held Congress harmless. Exactly. Kevin Pace and countless others like him aren’t being held harmless, because they’re not members of Congress. As Kevin Pace put …read more

Source: OP-EDS

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Infrastructure Boondoggles: No Path to Recovery

August 6, 2013 in Economics

By John P. Cochran

“Obama’s false history of public investment”

A don’t miss is Larry Schweikart and Burton Folsom in today’s Wall Street Journal. These are two excellent economic historians whose works I frequently used during my teaching days, especially for the economic history of the U. S.

Highlights:

“Entrepreneurs built our roads, rails and canals far better than government did.”

The conclusion:

There is a lesson here for President Obama: Government “investment” in infrastructure is often wasteful and tends to support decaying or stagnant technologies. Let the entrepreneurs decide what infrastructure the country needs, and most of the time they will build it themselves.

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Source: MISES INSTITUTE

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The Rising Cost of Social Security Disability Insurance

August 6, 2013 in Economics

Social Security Disability Insurance (SSDI) is one of the largest federal programs, and it is one of the most troubled. The program’s expenditures have doubled over the last decade, reaching an estimated $144 billion this year. In a new paper, Cato scholar Tad DeHaven says that SSDI has become financially unsustainable and economically damaging, and argues that policy makers should pursue major spending cuts to the program. They should also, says DeHaven, explore the potential to transition responsibility for disability insurance from the government to the private sector.

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Source: CATO HEADLINES