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Is Macroeconomics Really Economics?

August 15, 2013 in Economics

By Robert Higgs

The world probably would have been much better off had macroeconomics never been devised. Although I have in mind Keynesian macroeconomics above all, I include other types of macro models as well. I even include, somewhat reluctantly, the whole quantity theory approach descended from David Hume to the Friedmanites, now known as monetarism.

One of monetarism’s aspects that bothered me long before I became an Austrian (of sorts) is its oversimplification of aggregate economic activity. Resting their analysis on (a more or less elaborated version of) the Fisherian equation of exchange, monetarists maintain that changes in nominal aggregate demand (hence movements in either real output or the price level) occur in response to changes in the money stock (absent offsetting changes in the demand for money). To me this idea seemed to be a claim that the money-stock tail can and does wag the aggregate economic dog; that, more specifically, in a situation of sub-capacity real output (“recession” or “depression”), increases in money stock—and only such increases—drive increases in real output and employment.

Because I believed, and still believe, that changes in aggregate output and employment may occur also as a result of changes in other variables (e.g., investors’ perceptions of the future security of their private property rights ["regime uncertainty"]), monetarism always seemed to me to claim an implausibly high degree of explanatory power, some of which might be concealed by spurious empirical correlations between money and total output à la Friedman and Schwartz.

In short, among its many other deficiencies, as spelled out by Mises and his followers, monetarism’s most fundamental flaw is identical to the most fundamental flaw of Keynesian, Post-Keynesian, New Classical, and other theories advanced by macroeconomists during the past seventy or eighty years: not only does the theory leave out critical variables, but it is too simple, being expressed in huge, all-encompassing aggregates that conceal the real economic action taking place within the economic order.

I have written a related lament at great length and in more detail in my little article titled “Recession and Recovery: Six Fundamental Errors of the Current Orthodoxy.”

[Posted originally at The Beacon]

…read more

Source: MISES INSTITUTE

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Sens. Rand Paul and Patrick Leahy: Join Us to Do Away With Mandatory Minimums

August 15, 2013 in Politics & Elections

Attorney General Eric Holder’s decision not to pursue mandatory minimum sentences for certain drug cases is an encouraging step. Few have criticized the merits of his proposal, but some say that it is for Congress, not the executive branch, to take action. To them we say: we are ready. Join us.
Mandatory minimums are costly, unfair and do not make our country safer. They have played a major role in overcrowding our prisons and have confined us to an unsustainable and irresponsible economic path. In just the last three decades, the federal prison population has soared by almost 800 percent. There is increasing bipartisan support to reverse this trend, and it will take Congress to pass legislation to accomplish that goal.
In March, we introduced the Justice Safety Valve Act of 2013, which allows judges greater flexibility in sentencing federal defendants where mandatory minimums are considered unnecessary. Existing federal law provides a ‘safety valve’ for a very narrow range of offenders in drug cases otherwise subject to a mandatory minimum sentence, but the law has proven insufficient.
Our bill would expand that safety valve to more defendants in more types of cases and has earned support from across the political spectrum, including conservative columnist George Will, Americans for Tax Reform President Grover Norquist, former National Rifle Association President David Keene, the New York Times, Families Against Mandatory Minimums, and more than 50 former federal prosecutors and judges.
[See a collection of political cartoons on Congress.]
Attorney General Holder called our measure and a separate proposal from Sen. Dick Durbin, D-Ill., and Sen. Mike Lee, R-Utah, ‘promising legislation.’ George Will said our bill ‘is a way to begin reforming a criminal justice system in which justice is a diminishing component.’ The Senate Judiciary Committee will continue to build on this growing support when it holds a hearing on the issue of mandatory minimums next month.
The American people are ready to make sentencing reform a priority, and the states are leading the way. Forced by budget constraints to make tough political decisions, states have reduced prison populations while …read more

Source: RAND PAUL

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No Fed, No Destructive Housing Bubble

August 15, 2013 in Economics

By John P. Cochran

Yesterday’s Wall Street Journal had a nice short summary of how bad housing policy over several administrations misdirected greed (self interest or prudence) into actions by private actors that created the bad paper underlying the financial crisis. Unfortunately the authors, Gramm and Solon, greatly understate the role of the Fed in this calamity. My letter to the editors of the WSJ.

Dear Editor:

Phil Gramm and Mike Solon in “The Clinton-Era Roots of the Financial Crisis” make a strong case that “Affordable-housing goals established in the 1990s led to a massive increase in risky, subprime mortgages.” While anti-market forces point to “banks, greed, and deregulation for causing the financial crisis,” it was in fact the government created institutional framework driven by the affordable housing cabal that channeled self interest, which normal market competition guides into patterns of behavior which benefits market participants and society, into an unsustainable pattern of activity that culminated in the Great Recession and accompanying financial crisis.

Gramm and Solon correctly recognize the role of the Federal Reserve in the run-up to the crisis with its “too low, too long” interest rate policy which followed the Fed induced dot-com boom-bust of the late 1990s and early 2000s. They point out, “Everything appeared to work fine as long as accommodative monetary policy and capital inflows from developing countries continued to fuel the upward float of housing prices.” However they fail to realize that without that Fed accommodation there would have been no crisis and most likely, no recession and definitely no Great Recession. Economist Roger W. Garrison [here, 449] clearly states the synergy between Fed policy and the mortgage induced financial crisis:

Without the Fed, the impact of the distortions in the housing market would still have been significant, but they would also have been much more limited. The fact that the “Greenspan Fed adopted a loose monetary stance in the wake of the dot.com bust and well into the century’s first decade was a game changer. The accommodation freed the housing sector from having to draw investment funds from other sectors. It fueled an economywide boom—the housing bubble leveraged by practitioners of Modern Finance being the most dramatic aspect of it.” He concludes, “[T][he fact that the bubble was doubly artificial provided a strong hint about the difficulties inherent in the subsequent recovery.

John P. Cochran
Emeritus Professor of Economics and Emeritus Dean-School of Business
Metropolitan State University of …read more

Source: MISES INSTITUTE

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Sen. Paul’s Statement on Obama Administration Refusal to End Foreign Aid to Egypt

August 15, 2013 in Politics & Elections

WASHINGTON, D.C. – Sen. Rand Paul today released the following statement in response to President Obama’s announcement that the United States was canceling joint military exercises to Egypt.

‘While President Obama ‘condemns the violence in Egypt’, his Administration continues to send billions of taxpayer dollars to help pay for it. The law is very clear when a coup d’état takes place, foreign aid must stop, regardless of the circumstances. With more than 500 dead and thousands more injured this week alone, chaos only continues to grow in Egypt. So Mr. President, stop skirting the issue, follow the law, and cancel all foreign aid to Egypt.’

On July 31, 2013, the Senate voted on Senator Paul’s Egypt amendment to S. 1243, the Transportation, Housing and Urban Development appropriations bill. Amendment No. 1739 would have stopped military foreign assistance to Egypt by enforcing current law that the Obama Administration is violating, which prohibits the United States from providing foreign assistance to nations that experience a military coups d’état. That money would have been redirected to the ‘Bridges in Critical Corridors’ fund in S.1243. The Paul Amendment was tabled on a 13-86 vote and you can read HERE the text of the Paul Amendment No. 1739 in its entirety.

During the debate, Senator Paul argued the following:

‘The law is very clear. Everyone here in Congress can read. They recognize, they recognize that the law says when there is a military coup, the aid must end. Today we will vote on whether or not they will obey the law or whether they will openly flout the law and disobey. When a military coup overturns a democratically elected government, all military aid must end. That’s the law. There is no presidential waiver. The law states unequivocally that the aid must end. So when the military coup occurred in Egypt, how did the President respond? How did Congress respond? The President and his cohorts in Congress responded by shoveling good money after bad into the failed state of Egypt. The President is intent on building nations abroad and not taking care of our nation here at home.’

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Source: RAND PAUL

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Amicus Brief Filed: In re: Electronic Privacy Information Center

August 15, 2013 in Economics

The National Security Agency’s collection of every American’s telephone dialing information is hotly contested in the court of public opinion and in Congress. It is now seeing its first test in the courts since its existence was revealed. This new brief filed by the Cato Institute urges the Court to reconsider Smith v. Maryland and the “third-party doctrine,” which purports to deny Fourth Amendment protection for information people have shared with others. Extraordinary appeals like this are rarely granted, and future cases will probably decide the fate of the NSA’s secret mass surveillance programs, but this brief informs the Court and the legal community about the issues. The Solicitor General, who ordinarily might ignore such an appeal, felt obligated to file a response to it.

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Source: CATO HEADLINES

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Sen. Paul’s Statement on Obama Administration Refusal to End Foreign Aid to Egypt

August 15, 2013 in Politics & Elections

Sen. Rand Paul today released the following statement in response to President Obama’s announcement that the United States was canceling joint military exercises to Egypt.
‘While President Obama ‘condemns the violence in Egypt’, his Administration continues to send billions of taxpayer dollars to help pay for it. The law is very clear when a coup d’état takes place, foreign aid must stop, regardless of the circumstances. With more than 500 dead and thousands more injured this week alone, chaos only continues to grow in Egypt. So Mr. President, stop skirting the issue, follow the law, and cancel all foreign aid to Egypt.’
On July 31, 2013, the Senate voted on Senator Paul’s Egypt amendment to S. 1243, the Transportation, Housing and Urban Development appropriations bill. Amendment No. 1739 would have stopped military foreign assistance to Egypt by enforcing current law that the Obama Administration is violating, which prohibits the United States from providing foreign assistance to nations that experience a military coups d’état. That money would have been redirected to the ‘Bridges in Critical Corridors’ fund in S.1243. The Paul Amendment, however, was tabled. Click HERE to read the text of the Paul Amendment No. 1739 in its entirety.
During the debate, Senator Paul argued the following:
‘The law is very clear. Everyone here in Congress can read. They recognize, they recognize that the law says when there is a military coup, the aid must end. Today we will vote on whether or not they will obey the law or whether they will openly flout the law and disobey. When a military coup overturns a democratically elected government, all military aid must end. That’s the law. There is no presidential waiver. The law states unequivocally that the aid must end. So when the military coup occurred in Egypt, how did the President respond? How did Congress respond? The President and his cohorts in Congress responded by shoveling good money after bad into the failed state of Egypt. The President is intent on building nations abroad and not taking care of our nation here at home.’

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…read more

Source: RAND PAUL

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Educational Reform for Individual Students' Success

August 15, 2013 in Economics

By Nat Hentoff

Nat Hentoff

Earlier this month, reported The Cincinnati Enquirer’s Brenna R. Kelly, as Leonard Allgeyer was preparing for his first day as an eighth-grader at Tichenor Middle School in northern Kentucky, his mother, Staci, complained to his teacher: “He spells so many words wrong.”

What was Leonard’s mother’s immediate course of action? She explained her concerns to the teacher and a counselor when they came to her home.

This direct educational reform was possible because, according to the Enquirer’s Kelly, “several Northern Kentucky school districts are sending teachers out of the classroom and into homes to get to know their students and their families” (“N.Ky. schools build relationships by making home visits,” Kelly, The Cincinnati Enquirer, Aug. 8).

These schools are evolving, one student at a time — but deeper.

And dig the result of this commonsense approach to understanding how individual students learn:

“Experts say teacher home visits can result in increased attendance, decreased discipline problems, more parental involvement and — ultimately — higher test scores.”

Another valuable benefit, I would add, is that the individual teachers learn a lot more about how the home lives of each student affect the degree to which they can enjoy the surprises and pleasures of learning.

Before these visits, the at-risk population of the Tichenor School had doubled, according to principal Bryant Gillis, who told Kelly: “Probably a lot of our parents didn’t have a good experience with school.”

In addition, Kelly, citing an interview with Newport (Ky.) Independent Schools Superintendent Kelly E. Middleton, reported that “research shows that students work harder when they believe that teachers care about them.”

Furthermore, Middleton told Kelly that this care manifests itself in “not just the home visits; it’s the relationships.”

By getting to know the students, teachers and counselors are showing parents that schools can reach these students more wholly than tests can.

Meanwhile, amid all the stormy debates about teacher evaluations — and racial learning gaps experienced by black and Hispanic students — most of us hear little, if anything, about education reform among Native American students.

A recent story from southwestern Washington state found that “a new program offering mental health services for young people with Native American and Alaskan Native heritage will be offered in the Kelso School District this fall” (“Kelso schools add counseling program for Native American students,” Leslie Slape, The (Longview, Wash.) Daily News, Aug. 4).

I’ve reported on the need in school districts with diverse student cultures for diagnoses and medical …read more

Source: OP-EDS

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Localism: Remedy for Disunity and Recession

August 15, 2013 in Blogs

By Political Zach Foster