You are browsing the archive for 2013 October 04.

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It’s Not Consumption that Drives the Economy

October 4, 2013 in Economics

By John P. Cochran

Good news from Mark Skousen:

Important Announcement and some good news: It looks like government may be starting to adopt my new macro model, based on my concept of Gross Domestic Expenditures (GDE), rather than the old GDP, which is what gives the false impression that consumption, rather than production and investing, is what makes the difference in the economy.

Skousen has long argued that standards measures in the income and product account provide a very misleading picture of actual economic activity – a picture not consistent with a structure of production understanding of the economy.

In Skousen words:

Here’s why GDP is proving to be insufficient as “the” national income statistic: By focusing exclusively on final output, GDP measures only finished goods and services, what economists call the “use” economy. In limiting itself to final output only, GDP largely ignores or downplays the “make” economy, that is, the supply chain and intermediate stages of production required to produce all the finished goods and services.

This narrow focus of GDP has created much mischief in the media, government policy, and boardroom decision-making. For example, journalists are constantly overemphasizing consumer and government spending as the driving force behind the economy, rather than saving, business investment, and technological advances. They note that consumer spending is by far the biggest part of GDP, followed by government. Private investment is a distant third.

Skousen’s suggested measure, Gross Domestic Expenditur,e gives a more realistic picture and highlights the importance of investment properly measured in overall economic activity:

Per Skousen:

GDE is a real eye-opener. It turns out that the “make” economy (GDE) is more than twice the size of the “use” economy (GDP) and is 3-4 times more volatile over the business cycle. It demonstrates that business investment (the supply side of the economy) is much bigger than consumer spending (the demand side of the economy), thus dispelling the notion that consumer spending is the main driver of economic growth. Consumer spending turns out to represent only about 30% of total economic activity (GDE), not 70% as constantly reported.

Skousen reports that he recently received a letter from Steven Landefeld, the director of the Bureau of Economic Analysis (BEA), confirming ”that the BEA recognizes the need for a more comprehensive measure of economic activity and will be reporting this new aggregate (called Gross Output) in addition to the quarterly reports on GDP.”

This new measure should hopefull be extremely helpful for those pursing historical research in capital-structure …read more

Source: MISES INSTITUTE

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New Paper on Austrian Capital Theory

October 4, 2013 in Economics

By Nicolai Foss

In my Hayek Lecture at last year’s Austrian Economics Scholars Conference I argued that Austrian capital theory is deserving of a comeback as an absolute integral part of Austrian economics. I argued that ACT directs attention to the essential importance of heterogeneity and I argued that notions of capital heterogeneity serves to bring the entrepreneur, transaction costs and institutions directly into our understanding of the growth process.

An essential part of ACT is, of course, the work of Eugen von Böhm-Bawerk. On the one hand, Böhm’s work is absolutely seminal, on the other hand, its too strong emphasis on aggregates and simplifying assumptions arguably side-tracked the development of ACT in some key ways. Needless to say, to mainstream economists ACT is Böhm-Bawerkian capital theory because it lends itself to formalization.

A recent example of formalizing Böhm’s theory is Renaud Fillieule’s “A comprehensive graphical exposition of the macroeconomic theory of Böhm-Bawerk.” Fillieule makes a strong case for Böhm’s theory as a precursor of Solowian growth theory and of macroeconomics in general. In contrast to many other commentators on ACT, he is familiar with modern Austrian work on the subject. A very elegant article and most definitely worth a read. Here is the abstract:

This paper offers a comprehensive graphical exposition of Böhm-Bawerk’s formalised macroeconomic theory. This graphical model is used here for the first time to study the effects of the changes in the explanatory variables (quantity of capital, number of workers and level of technical knowledge) on the dependent variables (interest rate, wage and period of production). This systematic application of the model shows that some of the conclusions drawn by Böhm-Bawerk are incorrect and need to be amended. A comparison with Solow’s model also shows that Böhm-Bawerk can legitimately be considered as one of the main originators of the standard contemporary approach in macroeconomics of equilibrium and growth.

Also posted at Organizations and Markets.

…read more

Source: MISES INSTITUTE

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Washington Times Op-Ed: Obama’s response to shutdown is just ‘shut up’

October 4, 2013 in Politics & Elections

It has been said that politics is the art of compromise. Try as they may, Washington leaders hardly ever get absolutely everything they want.
Polls show Americans are worried about the implementation of Obamacare-worried about keeping their current plans, the new law itself, the exchanges, potential fines, personal privacy, keeping their jobs, their work hours and a host of other issues, too many to list here. As a country and in Congress, we have much to discuss.
But right now, President Obama refuses to engage in any debate or discussion. The President is demanding that he get 100 percent of what he wants and if he doesn’t, he and his democratic allies in the Senate will shut down the government.
Republicans have offered compromises that might stop or dull some of the negative effects of Obamacare, but that would also pass a budget and keep the government functioning. Still, President Obama refuses to budge. He will not even consider compromise.
Republicans are told that the law has already passed and we’re being obstructionists for attempting to question or modify it. But since when in this country, after a law is passed, is it eternally set in stone? When has it ever been true that Congress cannot look at and alter or improve existing law?
The Obama Administration announced in August that it sought to reform our current mandatory minimum sentencing laws. I’ve been speaking out on the need to get rid of these unjust laws for sometime and look forward to working with anyone in either party who is serious about doing so.
Some of those mandatory minimum sentencing laws have been in place since the 1980′s. Does anyone believe that just because they were once passed into law, that President Obama or I are somehow ‘extremists’ for wanting to change them? Does a bad law have to be decades old before we do anything about it? When Reagan was elected, and the top bracket tax rate was at 70 percent and had been so for 40 years, did he just throw up his hands and accept it? Or did he change the bad laws?
Plenty of people are saying Obamacare is bad law, and not just Republicans. The Teamsters are saying Obamacare has serious problems. Warren Buffet says it’s a problem. Former President Bill Clinton says there are problems.
Even President Obama himself acknowledges that there are some significant flaws. …read more

Source: RAND PAUL

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Mises’s Legacy 40 Years Later: How His Work Influenced Me

October 4, 2013 in Economics

By Walter Block

Thursday is the 40th Anniversary of the death of Ludwig von Mises.

First, let me start out with a bit of braggadocio. I must be one of the few people, still living, who has actually shaken hands with Ludwig von Mises (and never washed his hand afterward; so, if you shake hands with me, you come off a bit smelly, but you can directly channel Mises himself through my intermediation).

Now, to business. There is hardly ever a book or an article ever I write about economics, or politics for that matter that does not benefit from, and cite Mises.  This is important, because there are all too many economists, even including those who characterize themselves as Austrians (better yet, coordination economists, or market process economists) and whose work is highly dependent upon his, who nevertheless write as if “You Know Who” never published. In this regard I am highly grateful to the Mises Institute in Auburn Alabama, and to all those in other countries such as Mises Canada, who keep his name alive. Mises was to economics what Mozart was to music. I can’t think of a better compliment than that.

At my school, Loyola University New Orleans, I have started up a regular meeting,, called the Human Action Seminar. I try as best I can, to my feeble abilities, to replicate Mises’ seminar in Austrian, and the one at New York University (where I met him.) I regard Mises as the best economist who ever wrote, period, and not just the best in one century or another. Mises had a long productive life, and I try to emulate him as best I can in both regards.

I am a heavily published author in economics and political philosophy. I have a long paper trail. Most of it is filled with praise for Ludwig von Mises. Yet, I am also proud to say that I have also, on rare occasion, attempted to correct my betters, Mises in this case, and have published critiques of his works. For example:

Barnett and Block, 2004, 2005, 2005-2006, 2007, 2012; Block, 1977; Block, Klein and Hansen, 2007:

Barnett, William II and Walter E. Block. 2004. “On the Optimum Quantity of Money,” Quarterly Journal of Austrian Economics, Vol. 7, No. 1, pp. 39-52;

Barnett, William II, and Walter E. Block.  2005.  “Money: Capital Good, Consumers’ Good, or (Media of) Exchange Good?” Review of Austrian Economics. 18 (2): 179-194

Barnett, William II, and Walter E. Block. 2005-2006. …read more

Source: MISES INSTITUTE

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CNN Op-Ed: Obamacare, shutdown are bad ideas

October 4, 2013 in Politics & Elections

This week, we saw the outrageous spectacle of World War II veterans being told by our government that they couldn’t visit their own memorial. These former service members, who stared down the Japanese and the Nazis, were told that they couldn’t step through barricades arbitrarily placed in front of their memorial because the government has shut down. Some have speculated that it might have cost more to place the barricades there than to have done nothing at all.
Regardless, these WWII heroes busted through the barricades and gathered at the memorial anyway. Good for them.
While all of this was happening, millions of Americans got their first taste of just how problematic Obamacare is. The healthcare.gov website crashed. When the complaints came, President Obama said that it was just like when Apple unveils a new product-there are bound to be glitches. I don’t recall ever being forced by the government to buy Apple products. I don’t recall Apple ever being tone deaf to the complaints of their customers either.
Despite popular belief, all members of Congress will be forced to get Obamacare. All Congress and their staff will have to buy their insurance on the Obamacare health exchanges.
In researching the Obamacare exchanges in Kentucky, I learned that I now had a choice between just two insurance companies (previously I had over 30 choices). One of those companies would not insure me out-of-state. Considering how often I’m in Washington, D.C., this posed as problematic.
But my Obamacare problems were small compared to what most Americans faced-worries about keeping their current plans, the new law itself, what it entails, potential fines, personal privacy and in many cases, even keeping their jobs.
Like the shutdown itself, Obamacare makes no sense.
No one wanted a government shutdown. Republicans have continued to offer multiple compromises that would keep the government open. I offered an amendment to keep the government open an additional week while negotiations continued. My proposal was rejected. In fact, all of our proposals were rejected.
Every attempt to bargain, negotiate or compromise has been rejected by the Democrats. President Obama seems to have a ‘my way or the highway’ attitude towards Obamacare. But as the new health care system frustrates nearly everyone, the President insists we must stay the course.
Pundits like to talk about dysfunctional government in Washington. This week demonstrated how right they are. Our government is …read more

Source: RAND PAUL

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Was the Fed a Good Idea?

October 4, 2013 in Economics

Today we have a pure fiat money and the Fed is the largest buyer of U.S. public debt, enabling the federal government to live beyond its means. Would we have been better off adhering to the rules of a gold standard? Cato’s 31st Annual Monetary Conference will bring together some of the world’s leading scholars and policymakers to consider the record of the Federal Reserve since its establishment in December 1913.

…read more

Source: CATO HEADLINES

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Honk if You Love the Mass-Produced Automobile

October 4, 2013 in Economics

By Randal O'Toole

Randal O'Toole

Monday, Oct. 7, will mark the 100th anniversary of the opening of Henry Ford’s moving assembly line for producing the Model T. This innovative production system allowed Ford to double worker pay while cutting the price of his cars in half, making it possible, for the first time, for auto workers to buy the cars they built.

Time magazine lists the Model T among its “50 worst cars of all time” because “the consequences of putting every living soul on gas-powered wheels” were (supposedly) so negative. The Obama administration seems to agree with that bleak summation. Its recent strategic plan for the Department of Transportation focuses exclusively on such negative consequences, which allegedly include the high dollar cost of driving, poorly designed cities, greenhouse gases and obesity. The “Livable Communities” section of the plan, for instance, says that Americans drive too much because cities are designed to make us “auto dependent,” and the plan’s goal is to rebuild cities to induce people to drive less.

Instead of trying to reduce driving, we should encourage it while continuing to make it safer, cleaner and more energy efficient.”

In fact, many of the supposed negative costs of cars are purely imaginary, while others are rapidly declining. Each year’s crop of new cars is safer, more fuel-efficient and less polluting than before. Department of Energy data show that in 1970 cars used twice as much energy per passenger mile as did mass transit. Today, they are practically tied, and in a few years driving will use less energy and emit less pollution than public transit.

For more than 60 years, Americans have consistently spent around 9% of their personal incomes on driving, even though per-capita miles have tripled since 1950. According to data from the Bureau of Transportation Statistics—counting both user costs and subsidies—public transportation costs nearly four times as much per passenger mile as driving, while Amtrak costs well over twice as much.

The costs of driving are overwhelmed by the benefits of mass-produced automobiles, benefits largely ignored by the Obama administration and various anti-auto groups. Ford democratized mobility: Today, 91% of American households have at least one car, and 96% of commuters live in a household with at least one car. Curiously, Census Bureau statistics indicate that more than 20% of commuters who live in car less households still get to work by driving alone (apparently in borrowed cars).

By tripling urban travel speeds, autos gave workers access to better jobs and employers access to a wider pool of workers, contributing to …read more

Source: OP-EDS

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The Front Burner: Initiative's Backers Would Put Washington in Charge

October 4, 2013 in Economics

By Neal McCluskey

Neal McCluskey

With districts nationwide being forced to implement Common Core State Standards, the outcry from parents, and sounds of states backtracking, are becoming deafening. In the loudest bang yet, Gov. Rick Scott has directed the state Board of Education to withdraw from one of two Core testing groups and identify “risks of federal intrusion.” Fear that implementation of the Core constitutes a Washington takeover of education is what’s driving concern across the country.

Core supporters, including former Gov. Jeb Bush, insist such concerns are baseless. The standards, their mantra goes, are “state-led and voluntary,” and anyone who says otherwise is “misinformed.” But Washington has been the Core’s key driver, which is exactly what supporters have wanted.

The closest to state-led the Core has been is in coming from the National Governors Association and Council of Chief State School Officers. They aren’t legislatures, but at least they include state-level officials. But that doesn’t mean Core supporters want states in charge. Many have long argued that states won’t hold themselves accountable, which is why they’ve been quietly begging for federal force.

Core supporters won’t admit it, but they want Washington in charge. Thankfully, the public is figuring that out.”

The first plea came in the 2008 report “Benchmarking for Success,” which called on Washington to employ “tiered incentives” to push states toward national standards and assessments. Proposed prods included “increased flexibility … in meeting federal educational requirements” and connecting standards to federal dough.

One year later, the Common Core State Standards Initiative was created, and its website repeated the entreaty. It has since been scrubbed, and now implies that Washington had no role in the Core because it did not directly develop it or outright mandate adoption.

But Washington didn’t outright mandate that states follow the despised No Child Left Behind Act either. It only said if states wanted back some of the tax dollars their citizens had to fork over, they must “voluntarily” do as they’re told.

Which brings us to the Race to the Top program, a $4.35-billion contest funded by the 2009 “stimulus,” and No Child Left Behind waivers — just the kind of coercion supporters had asked for.

Race to the Top required recession-blasted states to adopt the Core to compete for dough, and even forced them to promise to adopt the standards before the final versions were published. Waivers locked compliance in, especially for states that didn’t win Race …read more

Source: OP-EDS

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Drug Prohibition Is a Global Folly

October 4, 2013 in Economics

By Ted Galen Carpenter

Ted Galen Carpenter

A report released this week tells us that the international war on drugs is failing. That comes as no surprise as a growing number of policy experts, pundits and politicians have reached that conclusion, including former Secretary of State George Shultz, former Mexican President Vicente Fox, and former Brazilian President Fernando Henrique Cardoso.

Among other findings, the report documents that inflation-adjusted and purity-adjusted prices of marijuana, cocaine and heroin have all decreased dramatically since 1990 in as geographically diverse areas as Europe, the United States and Australia. In other words, illegal drugs are plentiful and cheap around the world.

So now what?

The report’s policy recommendations are relatively tepid. It emphasizes the need to shift from a strategy of eradication and interdiction of drugs to one focused more on drug abuse prevention and treatment. Although that shift away from law enforcement to a “harm reduction” approach would be an improvement on the current futile, counterproductive strategy, it is not nearly sufficient.

Moreover, the report too readily accepts the conventional wisdom that drug use is largely responsible for a host of social pathologies. The reality is that the strategy of drug prohibition, not drug use itself, is responsible for many of those pathologies.

Drug abuse is certainly a major public health problem, and its societal costs are considerable. But banning the drug trade creates ugly social and economic distortions.

Because certain drugs are illegal, there is an enormous black-market premium (by most estimates, up to 90% of the retail price) associated with them. Moreover, people who are willing to traffic in an illegal product often do not have many qualms about violating other laws. Prohibition enables the most unsavory, violence-prone individuals and organizations to dominate the commerce.

Drug prohibition leads inevitably to corruption and violence — to a disturbing extent in the United States and even more so in drug-source or drug-transiting countries. The problems caused by the war on drugs are even more damaging to societies than those caused by drug use per se.

In Mexico, for example, about 60,000 people have perished in armed conflicts among the various drug cartels and between the cartels and the Mexican authorities over the past 6½ years. Another 20,000 people have gone missing. That turmoil has found even more fertile soil in the smaller, weaker countries of Central America. Today, Mexican-based drug cartels control major swaths of territory in both Honduras and Guatemala, and they pose …read more

Source: OP-EDS

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We're officially 25 years old!

October 4, 2013 in History

October 04, 2013 6:00 a.m.

Over the past 25 years, American Experience has produced close to 300 films and nearly 400 hours of television. If you were to sit down in front of the television tonight and decided to watch one of our films each night, it would take you nearly a YEAR to consume our entire body of work (probably longer, because we have several five and six-part films)! Which one would you start with first? Which of our 287 films (and counting) do you tell your friends and family they MUST see first? We certainly couldn’t choose, but somehow we whittled it down to a much more manageable 16, representing the different genres of films we’ve produced since 1988. Now YOU can help us determine which AMERICAN EXPERIENCE is the best by voting in our Best of AMERICAN EXPERIENCE bracket. Each round lasts four days, and by October 18, we will have a champion! Vote now!

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Can’t decide? Take a peek behind the curtain at the films included in the bracket:

FDR – watch the full film online for free
Clinton – watch the full film online for free, the first chapter, or the 30-second preview
Abraham & Mary Lincoln – watch the 30-second preview
John & Abigail Adams – watch the 30-second preview
The Rockefellers – watch the full film online for free, the first chapter, or the 30-second preview
The Kennedys – watch the 30-second preview
Freedom Riderswatch the full film online or the 30-second preview
<a target=_blank …read more

Source: AMERICAN EXPERIENCE