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Mark Thornton on Skyscrapers in ‘Le Monde’

August 23, 2013 in Economics

By Mises Updates

lamonde

In the French daily Le Monde, Mark Thornton recently commented on the ongoing drive to build more and more skyscrapers in China.

In a feature from the business section entitled “Les villes chinoises veulent toutes leurs gratte-ciel géants,” Le Monde takes note of the phenomenon that is the skyscraper-dense Chinese city, and specifically, the completion of Shanghai Tower, now one of the tallest buildings in Asia.

According to Le Monde (loosely translated),

Mark Thornton, economist at the Mises Institute in Auburn (United States), and author of research on the correlation between the race skyward and the advent of large crises, warns: “The construction of skyscrapers is a precursor to economic disorders”…”The skyscrapers are just one symptom of the government’s extravagant economic policies.”

(Click here for Thornton’s 2010 lecture “Skyscrapers and the Housing Crisis.”)

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Source: MISES INSTITUTE

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Unwinding the Unnecessary: QE and the Periphery

August 23, 2013 in Economics

By John P. Cochran

In today’s Wall Street Journal an editorial examines the impact of Fed Policy on the developing world (Ben Bernanke’s Global Adventure : The markets show unwinding QE is not so easy).  The emphasis is, as it maybe should be for now, on the difficulty facing not only the U.S, but the world economy if and when the Fed begins to unwind QE infinity:

This week’s turmoil nonetheless shows that it’s a rocky road from here to there, and the market tribulations should be on American policy makers’ minds. Monetary optimists have argued that, when the time comes, the Fed will be able to taper its easy money relatively smoothly. Perhaps, but a global repricing of risk in line with changing rates in America will also unsettle the very economies to which American companies increasingly turn for revenue growth.

However, attention should be paid to the world wide monetary misdirections of production created by the Fed’s misguided attempts to bolster the U.S. economy with Mondustrial Policy and other new tools of monetary central planning. As in many cases Austrian-based analysis is ahead of much of the main stream.

As examples see:

Nicolas Cachanosky (Metropolitan State University of Denver) U. S. Monetary Policy’s Impact on Latin America’s Structure of Production (1960-2010)which extends ABCT and capital-based macroeconomics in the international arena, especially as it applies to the ‘periphery’.

The abstract:

I study the effects of U.S. monetary policy on Latin America’s structure of production prior to two recent economic crises. I find that changes in the Federal Funds rate produced uneven effects across economic sectors. Those industries that are more capital intensive and relative long-term projects are more sensitive to changes in the Federal Funds rate than projects that are less capital intensive and relative short-term in duration. Therefore, periods of loose monetary policy resulted in a misallocation of resources that has been costly to correct during the bust. This result finds a particular pattern of economic distortion during an unsustainable boom.

And

Andreas Hoffman’s “Zero Interest Rate Policy and the Unintended Consequences on Emerging Markets.

Abstract:
In response to the subprime crisis and Great Recession central banks in advanced economies have cut interest rates towards zero and increased monetary accommodation to step-up domestic growth. In this paper I attempt to describe the unintended consequences of the low interest rate policies in emerging markets. I argue based on the …read more

Source: MISES INSTITUTE

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Surge in Disability Claims Is Gold Mine for Law Firms

August 23, 2013 in Economics

By Tad DeHaven

Tad DeHaven

Hoosiers watching television during the day might have noticed the numerous commercials from law firms advertising their ability to help clients obtain government disability benefits. That’s because the process for seeking disability benefits has become a boon to legal firms that specialize in disability claims.

The federal government’s two main disability programs have experienced rising enrollment and soaring spending in recent years. Combined outlays on Social Security Disability Insurance and Supplemental Security Income have roughly doubled over the last decade and will cost taxpayers almost $200 billion this year. The complex and often subjective disability determination process, which is essentially the same for both programs, has created an opportunity for specialty law firms to grab a piece of the action.

The process can be very cumbersome and costly. A rejected disability applicant can first ask the Social Security Administration for a “reconsideration” of his or her claim. If rejected again, the applicant can request a hearing before an administrative law judge. These hearings do not include a government representative to question the claim on behalf of taxpayers. Meanwhile, the vast majority of applicants who appeal a denial of benefits to an administrative judge have legal representation. For some impairments — back disorders, for example — representation can exceed 90 percent.

An applicant whose appeal is successful is awarded payments dating back to the onset of the disability. The lawyer typically receives 25 percent or up to $6,000 of this “back pay.” While that amount may not be enticing to general law firms, firms specializing in disability claims can make millions of dollars based on a high volume of cases and knowing how to work the system. According to Social Security Administration data obtained by the Wall Street Journal, fees paid to lawyers and other representatives of disability applicants went from $425 million in 2001 to $1.4 billion in 2011.

[pullquote]Reining in federal disability programs would not only save taxpayer money, it would also give marginally disabled people who have valuable skills an incentive to reenter the workforce.[/pullquote]

While the majority of applicants for disability benefits are denied (often for technical reasons), the opposite is the case for those who appeal to their claim to administrative judges. Judges are largely independent and possess broad discretion to award or deny benefits. Legal firms are aware of which judges are more likely to award benefits and try to steer their clients accordingly. For example, one judge approved …read more

Source: OP-EDS

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North Korea's Latest American Hostage

August 23, 2013 in Economics

By Doug Bandow

Doug Bandow

Kenneth Bae apparently entered North Korea to do good, which in Pyongyang’s view is bad. He ended up in prison. He and his family are calling on Washington to do something. However, Americans who travel the globe on personal missions to undermine foreign governments shouldn’t expect rescue if they are caught.

Bae is a 44-year-old Christian missionary. He was arrested last November while leading a tour of Chinese businessmen in the Rason special economic zone. His courage clearly exceeded his judgment. He apparently explained his plans for proselytizing in an online video posted two years ago. He suffers from an enlarged heart, diabetes, and a bad back, a dubious trifecta for someone playing secret agent. And the Democratic People’s Republic of Korea views religion as a particularly serious threat. The only thing in his favor is the fact that as an American he is of value to Pyongyang as a bargaining chip.

After being convicted of “hostile acts” four months ago, he was sentenced to 15 years of hard labor. His family received letters from him last month which, said his sister, Terri Chung, “contained the same message — Kenneth’s health is failing, and he asked us to seek help from our government to bring him home.” He urged Washington to send an envoy to seek a pardon for him.

Bae apparently was transferred to a hospital earlier this month. Chung observed: “There’s more urgency than ever to bring him home.” Bae’s mother was even more insistent: “I don’t see any action. I want to ask them, send an envoy or do something. As a mother, I am really getting angry, really getting angry. What do they do?”

It’s a tragic situation. The last thing one should wish on anyone is a lengthy stay at the Pyongyang Hilton.

But it isn’t the responsibility of the U.S. government to win the release American citizens who voluntarily and knowingly violate the laws of other nations. I say that as someone who traveled multiple times with ethnic Karen guerrillas in eastern Burma. Things could have gotten ugly, but I accepted the risk; I didn’t expect a dramatic rescue from Washington. After all, I’d chosen to walk into a war zone.

In Bae’s case the U.S. has called for his humanitarian release. The DPRK almost certainly wants to use him to win one concession or another. In the past that usually meant a high-level visit to Pyongyang. In 2009 …read more

Source: OP-EDS

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India’s Problem Is Exports, Not the Rupee

August 23, 2013 in Economics

By Swaminathan S. Anklesaria Aiyar

Swaminathan S. Anklesaria Aiyar

King Canute had it easy. Indian Finance Minister Palaniappan Chidambaram has battled currency markets for two months, trying to stem the collapse of the Indian rupee from 55 to a dollar in May to 65 this week. He has found commanding currency markets even harder than commanding the ocean waves.

He should stop trying. A weaker rupee is not inherently a terrible thing. Rather than frantically shoring up the currency, Chidambaram should target the structural impediments in the economy that have caused both Indian and foreign investors to lose faith in the once-glowing India story.

A falling rupee is a political, not an economic disaster. The plunge raises import prices and exacerbates inflation in the run-up to the next general election, just eight months away. In an attempt to support the currency, the government has increased import duties on gold and consumer durables, and has raised short-term interest rates to curb currency speculation.

What’s bad for electoral prospects, however, can be good for an economy running a current account deficit that’s reached 4.8 percent of GDP. A cheaper rupee will encourage exports and discourage imports. Inflation will erode some of these apparent advantages. Indeed, the rupee’s fall from 45 to 60 a dollar from 2011 to June 2013 didn’t lift exports at all: The advantages were offset by high inflation and a lousy business climate. However, exports rose 12 percent in July, suggesting that the rupee may finally have fallen enough.

Strangled Birth

The danger now is that dysfunction in the Indian economy will strangle any incipient export boom at birth. GDP growth slowed to 5 percent last year, after racing along at 8.5 percent for a decade. Industry and, until the recent uptick, exports have stagnated. Inflation has soared. The current account deficit is almost double what the Reserve Bank says is sustainable. A year ago, rating companies threatened to downgrade India to junk.

Chidambaram was recalled to the Finance Ministry to stave off that verdict. He cut the fiscal deficit from 5.8 percent of GDP to 4.9 percent, and promised a further reduction this year. He initiated reforms, including liberalized entry for retail giants such as Wal-Mart Stores Inc.

The hope was that fiscal discipline plus reforms would revive animal spirits among investors, and produce an economic spurt before the elections. The plan was on track until May: Inflation fell, interest rates were cut three times, and $20 billion of foreign portfolio investment flowed in. But after Fed Chairman Ben S. Bernanke said he …read more

Source: OP-EDS

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Carlo Lottieri on Rothbard and Mises in ‘Liberali e non’

August 23, 2013 in Economics

By Mises Updates

Carlo Lottieri of Instituto Bruno Leoni has recently published a new book, Liberali e non. Percorsi di storia del pensiero politico, which translates (loosely) to Liberal and Not: Historical Paths of Political Thought. 

Writing in Il Giornale, Giampietro Berti writes that in his book, Lottieri notes that almost everyone (in Europe) calls himself liberal nowadays, but that being liberal today generally involves the rejection of what has historically characterized liberalism.

In Liberali e non, Lottieri seeks to clarify and explain what liberalism is, and according to Berti:

It is clear that Lottieri prefers that line of thought that dates back to the Austrian School, and thus to Mises and Hayek, culminating in Murray Rothbard, a line aimed at favoring a spontaneous social order, based on free trade and free contracts, and rejection of any form of legal positivism and state interventionism.

Lottieri’s examination consists of comparisons between a number of pairs of contrasting political theorists including:

Bastiat and Proudhon, Marx and Tocqueville, Mazzini and Cattaneo, Bakunin and Spooner, Mill and Spencer, Weber and Mises, Keynes and Hayek, Leoni and Schmitt, Rawls and Rothbard.

See more here (in Italian).

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Source: MISES INSTITUTE

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Mises, Menger and Bastiat in ‘The Dao of Capital’

August 23, 2013 in Economics

By Mises Updates

John Tamny at Forbes reviews Mark Spitznagel’s The Dao of Capital: Austrian Investing in a Distorted World. Writes Tamny:

As evidenced by the book’s title, Spitznagel’s economics and investing are rooted in the Austrian School tradition of Carl Menger, Eugen von Bohm-Bawerk, Ludwig von Mises whom he deems the greatest economist of them all, along with Bastiat and Hazlitt. Spitznagel rightly notes about Hazlitt that his Economics In One Lesson is the only book he’ll ever require his children to read, assuming they reveal no broader interest in the subject. To readers who e-mail this reviewer about books to read, it’s always said that a read of Hazlitt’s best known book will have them more informed about how economies work than 99.9% of economists. It’s that good, or perhaps economists are that bad. It would be a good debate…

Austrian thinkers correctly look ahead to the ‘unseen,’ as in if the initial business owner hadn’t had to pay for a broken window, he could have invested in a new hire who might expand the productivity of his business, he might have expanded into a new product line, or perhaps expended his always limited capital on signage meant to make his business more attractive to the passerby…

See more here.

The book includes a foreword by Ron Paul.

Authors interested in reviewing this book (or other books) for Mises Daily are encouraged to send submissions to Ryan at rwmcmaken@mises.org.

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Source: MISES INSTITUTE