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Bridging the Gap between Entrepreneurship Teaching and Economics

January 31, 2014 in Economics

By Matt McCaffrey

Starting with Menger, Böhm-Bawerk, and Wieser, Austrians have always emphasized the importance of the entrepreneur in economics. The role of entrepreneurship also featured prominently in the works of earlier economists such as the French liberals, and Chris Brown and Mark Thornton have even argued that the notion of the entrepreneur was a key to the founding of modern economics. At the same time though, Austrians (along with other scholars such as William Baumol) have also lamented the serious neglect of the entrepreneur in contemporary economics, which has led, among other things, to an underestimation of the welfare-enhancing power of markets, and an undue faith in the power of governments and regulators to tinker with the market process.

It should come as welcome news then that entrepreneurship studies is one of the fastest-growing fields among the business disciplines (along with related fields such as strategic management and strategic entrepreneurship). But sadly, these fields have sparked less attention than they probably should. One possible reason is that there is often a gap between the economic theory of the entrepreneur and the business practice of entrepreneurship. One way to think about it is that business research tends to focus on the practical aspects of new venture creation, whereas economists are usually interested in the economic function of entrepreneurship—the underlying (or perhaps overarching) economic and social significance of entrepreneurs. (Peter Klein makes this point by distinguishing between “occupational entrepreneurship” and “functional entrepreneurship.” Business scholars and practitioners focus mainly on the former, economists on the latter.)

A problem then is to bridge this gap and to bring economic insight to the field of practical business. This is especially important in teaching courses in entrepreneurship, which often focus so much on the business trees that they miss the economic forest. It’s true that entrepreneurship textbooks usually include something about Schumpeterian “creative destruction,” and repeat some well-worn facts about the importance of small business in the economy. But beyond these brief nods to economic ideas, many entrepreneurship courses don’t have much to say about the bigger picture of entrepreneurial behavior. The unfortunate result is that a lot of the richness of the economic point of view gets lost amongst (nevertheless important) details of new venture creation.

However, Austrians enjoy an advantage in that the Austrian tradition excels in explaining the market economy from the ground up, incorporating the entrepreneur at every opportunity. …read more

Source: MISES INSTITUTE

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VIDEO: Joseph Salerno Explains Price Gouging

January 31, 2014 in Economics

By Mises Updates

Joe Salerno discusses the economics of Price Gouging. Dr. Salerno is the Mises Institute’s Academic Vice President.

…read more

Source: MISES INSTITUTE

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Argentina's Luck Is Finally Running Out

January 31, 2014 in Economics

By Ian Vásquez

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Ian Vásquez

Argentina’s luck is finally starting to run out. It devalued its currency by 15 percent last week, marking the beginning of a possible economic crisis of the kind Argentina has become known for. Argentina’s problem is that it has followed the logic of populism for more than a decade and President Cristina Kirchner is showing no interest in changing course.

In the 1990s Argentina combined far-reaching but sometimes flawed market-reforms with irresponsible fiscal policies, culminating in its 2002 default on $81 billion in debt—the largest sovereign default in history. The country delinked its currency from the dollar, experienced a severe economic crisis, and initiated its current period of populist politics.

Those policies included price controls on domestic energy, reneging on contracts with foreign companies, export taxes, more pubic sector employment and vastly increased spending. When you don’t pay massive debts, you get temporary breathing room, so growth resumed. High commodity prices and low global interest rates that lifted demand for Argentine exports also helped produce Argentine growth.

But the government’s appetite has consistently grown faster, and, with little ability to borrow abroad, it has turned to other sources of finance. In 2008, Kirchner nationalized private pension funds worth some $30 billion, and has since nationalized an airline and a major oil company. As it drew down reserves, the government turned to printing money to finance itself, falsifying the inflation rate it says is about 11 percent, but which independent analysts put at about 28 percent. Economist Steve Hanke estimates it is much higher at 74 percent

The imposition of price controls on items such as food and electricity and controls on capital have only produced scarcities and the emergence of a black market exchange rate that values the peso some 50 percent under the official rate. In other words, people are putting far less worth in the currency than the government would like. The partial devaluation of the peso last week was an effort by the government to close that gap, and discourage speculating against the currency. But so far that hasn’t happened. The black market rate of the peso fell along with the official rate. It looks like the government’s move will undermine confidence in the Argentine economy even further.

We can expect worse not only because of the arbitrary way Buenos Aires makes policy and thus spreads uncertainty; a more fundamental reason is that the Kirchner regime has shown no interest in …read more

Source: OP-EDS

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The Fun is Over in Venezuela and Argentina

January 31, 2014 in Economics

By Ryan McMaken

Venezuela and Argentina are the Greeces of South America,  says this Economist article. 

Which may make Chile the Germany of South America, but fortunately for the Chileans, they’re not in a monetary union with Argentina.

Most economies are in peril worldwide, but while Colombia, Uruguay, Chile, and even Peru, have been holding relatively steady, the great socialist experiments in Argentina and Venezuela will soon come crashing down.

This paragraph from the Economist article about Venezuela tells you all you need to know about the ability of Venezuelan politicians to solve the crisis:

The government blames the crisis on private businesses and “irresponsible” use of hard currency by ordinary Venezuelans. It has ordered drastic cuts in dollar allowances for travellers, especially to popular destinations like Miami. Remittances to relatives abroad have also been slashed. In a bid to curb runaway inflation, it has introduced a new law restricting companies’ profits to 30% of costs. Long jail sentences await transgressors.

More laws. That’ll solve it.

For some Austrian perspectives, see:

Inflation, Shortages, and Social Democracy in Venezuela by Matt McCaffrey

Economies are Not Destroyed in a Day and How the Fed Causes Booms and Busts in South America by Nicolás Cachanosky.

Argentina’s Politicians Should Read Mises by Iván Carrino

…read more

Source: MISES INSTITUTE

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The TSA Is a Fraud? We’re Shocked, SHOCKED!

January 31, 2014 in Economics

By William Anderson

So the TSA finally has been officially outed by one of its former employees. Yes, the agency is a joke, and everyone working there knows it. The TSA has not prevented any terrorist attacks, nor are TSA agents “on the front lines of fighting terrorism” no matter what rhetoric we hear from Washington and members of Congress, as well as from the sycophants working for President Obama.

No, Rape-a-Scan was little more than a radiation-spewing device aimed at making the public believe that the TSA was Johnny-on-the-Spot when everyone from the executives at the company (officially called Rapiscan, but we know better than to dignify this outfit) to the TSA drone who was stuffing his hand into someone’s crotch in the name of “national security.”

To put it another way, the TSA has been little more than a government PR scam and it is hilarious to watch the same “Progressive” people who mock business advertising as “propaganda” line up to defend this idiotic agency. As I wrote shortly after 9/11, the government’s show of force (and the TSA is exactly that) actually makes us less safe. I also wrote the following about a year later:

In this new atmosphere, one can expect a number of things. First, searches will be slower and more cumbersome, since the fewer people who actually get through, the lower the probability that a plane can be hijacked. Empty seats on flights will not matter to federal employees whose paychecks will come courtesy of the taxpayers.

Second, it is quite likely that screeners and other government security personnel will be more rude toward passengers than they are at present. While some of us have suffered through some brutal searches, I fear the worst is to come. Again, airline employees, while they can be disagreeable, do have at least some incentive to treat their customers with some decency. Federal employees will have none.

When my family and I went through security lines, there was some grumbling, although I could tell that many of the screeners at least were trying to be as fair and helpful as possible, given the difficult situation all of us found ourselves. However, I suspect that when the government takes over all security, anyone who makes even the slightest complaint quickly will be banned from their flight. Look for airport workers to become more surly and less helpful, …read more

Source: MISES INSTITUTE

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China Cannot Afford to let Housing Bubble Pop

January 31, 2014 in Economics

By Mark Thornton

A recent study by Gan Li found that 90% of households in China own their homes and that housing is typically the largest item in household wealth. The study reinforces the idea that China has been experiencing a real estate bubble of epic proportions the popping of which the Communist Party cannot tolerate.

“The Chinese housing market is clearly oversupplied,” Gan told Tom Orlik, a Bloomberg economist based in Beijing. “Existing housing stock is sufficient for every household to own one home, and we are supplying about 15 million new units a year. The housing bubble has to burst. No one knows when.”

The pivotal role of housing in China’s economy makes the sector too big to fail. Nothing worries Xi’s government more than the specter of public unrest, which explains its increasingly aggressive moves to censor the Internet and mobile-phone texts. And nothing would unnerve the masses faster than watching 65 percent of household wealth evaporate in a matter of weeks.

At some point, China’s property bubble will explode. But for now, expect the government to pull out all the stops and borrow as much as needed to prop up housing values and, by extension, the nation’s GDP bubble.

…read more

Source: MISES INSTITUTE

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Why There Should Be a Free Market in Food Labeling

January 31, 2014 in Economics

By Mises Updates

Nutrition facts

Dave Albin writes in today’s Mises Daily:

The articles from Lipsky and the food manufacturers both miss the point. The price of any good or service could be altered through state regulation of labeling GMO products (and new price equilibrium established) but there is no need for this to happen. Producers and consumers can and do take care of this on their own. Also, prices rising and falling is a natural consequence of any functioning market. The price is a signal to producers and consumers, and is used to allocate scarce resources, such as food. Rising prices create opportunities for producers, while falling prices indicate that either demand for the good or service is declining, or the supply is too abundant relative to demand. It is the distortion of these pricing signals that causes the real problems, not the fact that prices rise and fall.

So, it is widely known that some consumers care whether or not they are eating GMO foods, while others do not. Food producers are listening. A similar process occurred when the organic food movement began many decades ago — a “new” food market was created based on consumer demand. There is no reason to think that food choices and labels can’t change without legal mandates from the government. In fact, it is the mandates that would remove choice and knowledge on labels of food products for consumers.

…read more

Source: MISES INSTITUTE

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Costa Rica's Wrong Turn

January 31, 2014 in Economics

By Juan Carlos Hidalgo

Juan Carlos Hidalgo

On Sunday, Costa Ricans will go to the polls in what many consider the most important presidential election in a generation.

At stake is the future of an economic model that over the last 25 years has produced robust economic growth but has failed to significantly reduce the poverty rate. Unfortunately, a bad reading of the economic policies implemented by a succession of conservative and social-democratic administrations over the last three decades could lead voters to follow the siren song of populism.

Many Costa Ricans mistakenly believe that economic liberalization is to blame for the country’s social woes.”

The groundwork for a populist shift has already been laid. Rampant corruption, social stagnation and growing inequality have provided fertile soil in other Latin American nations for the rise of populist candidates — and Costa Rica is no exception.

The lead-up to the election has been marked by widespread national dissatisfaction, and according to surveys, corruption is voters’ main concern. After eight years in power, the National Liberation Party has become synonymous with cronyism and embezzlement.

This is the reason that a Socialist congressman, José María Villalta, is one of the leading candidates. His platform calls for policies similar to those disastrously implemented in Venezuela, like land distribution, punitive taxes on big corporations, price controls and the nationalization of key industries.

His claim that the country’s economic liberalization of the last 30 years has failed the masses resonates among a large segment of the electorate. But Mr. Villalta’s policy prescriptions are based on a wrong diagnosis of Costa Rica’s economic model.

After an acute crisis from 1980 to 1982 swelled the poverty rate to 54 percent, Costa Rica put in place reforms to move the economy toward an export-oriented model. The country set exchange rates to provide more certainty to exporters and established free-trade zones and entered into free-trade agreements with the United States, the European Union and China, among others. It also privatized inefficient state-owned enterprises and opened certain industries to competition.

These reforms brought significant growth. Since 1987, Costa Rica has been growing an average of 4.7 percent a year, one of the fastest rates in Latin America.

But since 1994, poverty has remained stagnant and income inequality is on the rise. In fact, Costa Rica is one of only three Latin American countries where inequality has risen since 2000.

And this has happened despite the fact that Costa Rica has one …read more

Source: OP-EDS

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Sen. Rand Paul Appears on Fox's Your World with Eric Bolling – January 30, 2014

January 30, 2014 in Politics & Elections

…read more

Source: RAND PAUL

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Censorship Through the Tax Code: The Obama Administration Unveils New Rules That Discourage Political Activity

January 30, 2014 in Economics

By Trevor Burrus

Trevor Burrus

The Obama administration has launched the first attack in a carefully planned war on conservative and libertarian political speech. In November, the IRS proposed “clarifying” the rules that govern the political activity of 501(c)(4) “social welfare” groups, many of which have been branded by the left as nefarious “dark money” cabals. By clarifying the rules, the IRS hopes to provide guidance on how much, and what kind, of political activity (c)(4)s can engage in. In reality, the IRS is using the tax code to discourage conservative political speech.

There are of course both liberal and conservative (c)(4)s, but, since 2010, conservative (c)(4)s and other “outside money” groups have greatly outspent liberal ones. Coming from a president who has publicly chided conservative (c)(4)s for not revealing their donors, it is not surprising that he would turn to the ultimate bully in the bully pulpit: the IRS.

Let’s take a step back. In order to have (c)(4) status, an organization must be organized “primarily” around social welfare and community activity. For decades, this language has been interpreted by lawyers to mean that a (c)(4) can’t spend more than 50 percent of its funds on political activity, and the IRS largely went along with that rule of thumb. Of course, the next question is: “what is ‘political activity’?” And it is here these clarifying rules become a thinly disguised political power game.

The IRS is using the tax code to discourage conservative political speech.”

Under the proposed rules, “candidate-related political activity” now includes nearly everything that most (c)(4)s do, including voter registration, voter guides, grassroots lobbying, events where candidates appear, candidate debates, and issue advocacy. This means that many (c)(4)s would have to count nearly all their activities as political spending, even though the rules remain unclear on what percentage of spending can be on “candidate-related political activity.” Not coincidentally, the new rules don’t apply to labor unions, which are not (c)(4)s and therefore can still do all those things without running afoul of the IRS.

Want to create a (c)(4) to organize a grassroots campaign to encourage voters to email their member of Congress to oppose the Farm Bill? That is now a “candidate-related political activity” and must be included as part of your organization’s political spending. Want to hold a voter registration drive that doesn’t mention any candidates? That is also considered “candidate-related political activity” under the proposed rules. …read more

Source: OP-EDS