You are browsing the archive for 2014 January 23.

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Sound Advice for Janet Yellen

January 23, 2014 in Economics

By John P. Cochran

Sound Advice for Janet Yellen

Adam Ferguson (Jan 27 Weekly Standard) advice to Janet Yellen is highlighted in “Notable & Quotable” in today’s Wall Street Journal. Ferguson suggests that future Fed Chair Yellen should follow John Cowperthwaite whose introduction of free market economic policies are widely credited with turning postwar Hong Kong into a thriving global financial centre and “banish statisticians from her cold marble temple on Constitution Avenue.” Ferguson credits Cowperthwaite with such insights as:

Stripped of his numbers an economist would have to resort to the old home truths about how the world works: If you tax something you get less of it; as a general rule an individual manages his own affairs better than his neighbor can; it’s rude to be bossy; the number of problems that resolve themselves if only you wait long enough is far larger than the number of problems solved by mucking around in them. And the cure is often worse than the disease:

In the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.

Ferguson concludes, “Somehow the most successful practical economist of the twentieth century knew this was true, and he didn’t have to work out a single equation.”

The focus of Cowperthwaite  economic policy was positive non-interventionism and his management of the Hong Kong economy is often cited as a leading example of how small government encourages economic development and growth. [Sidebar: For a discussion of Hong Kong’s monetary system during this time see Kurt Schuler here and here.]

Even better advice for Yellen comes from Vedder’s and Gallaway’s The Fraud of Macroeconomic Stabilization Policy. Their major conclusions are 1. “Ex post attempts at implementing stabilization policy are destabilizing, not stabilizing”; and 2. Therefore, the notion of short-run contracyclical macroeconomic policymaking is an exercise in futility” [emphasis added]. Per Vedder and Gallaway policy makers would do much better following Bastiat, not John M. Keynes:

This does not mean that economists have nothing to offer in the way of advice. However, their role should be conditioned by the sentiments espoused by Frédéric Bastiat and not those of John Maynard Keynes. It was Keynes who glibly pontificated, …read more

Source: MISES INSTITUTE

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Monetary Keynesianism can’t save shopping malls

January 23, 2014 in Economics

By Jeff Deist

This article from CNBC paints a pretty gloomy picture.  Malls are dead.  Retail space is wildly overbuilt.  The poor and middle class have no cash– and too much debt.  Who really needs another shirt or ipod or kitchen device at this point? Trendy suburban brands like Lululemon may grow for awhile (mostly selling to households making 100K+), but niche stores can’t replace the Woolworths, Montgomery Wards, Sears, JC Penneys, etc.  Huge vacant malls are the depressing evidence of the bust caused by the engineered boom.
One type of store is booming, however: high-end pawn shops. As Lew Rockwell points out, pawnbrokers perform the important role of lending without increasing the money supply.

…read more

Source: MISES INSTITUTE

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VIDEO: The Economics of the Police State

January 23, 2014 in Economics

By Mises Updates

Tom Woods discusses the economics of the police state at last week’s Mises Cirlce in Houston.

Recorded at the Mises Circle Southwest Regional in Houston, 18 January 2014. Includes an introduction by Jeff Deist.

…read more

Source: MISES INSTITUTE

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Luck vs. Entrepreneurial Judgment at the Horse Track

January 23, 2014 in Economics

By Matt McCaffrey

1926WhyBeUnlucky

Many readers might have missed HBO’s short-lived series Luck, which debuted in 2012. It was a project of David Milch, creator of the brilliant Deadwood, another show unfortunately abandoned in its prime. Despite an all-star cast and A-list directing, Luck was cancelled after only one season due to concerns about animal safety. Short as it is though, it’s still a pretty riveting cross-section of the hidden world of horse racing, shining a spotlight on everyone from the Mafioso owners of the horse track down to the stable boys.

What interests me though is the eponymous theme of luck running through the show. One of my current research projects involves exploring the role luck plays in entrepreneurial success. There are some thorny issues involved in conceptualizing luck and making it operational within economic theory, but there are also some interesting problems in entrepreneurship that we may be able to answer by doing so. For instance, one criticism that has been raised against Israel Kirzner’s theory of entrepreneurship is that the idea of entrepreneurial alertness can be reduced to good luck. If this is true, then the entrepreneurial alertness to opportunities doesn’t explain much about how entrepreneurship happens in the real world. But if entrepreneurship is about more than just luck, then we can in fact think about why entrepreneurs succeed and fail.

One of the few economists to think about luck and entrepreneurship in detail is Frank Fetter. Fetter makes an important point about how prescient entrepreneurial judgment is very often mistaken for simple luck:

Chance therefore has its part [in determining profits]; but the temptation is to exaggerate its importance. Many cases said to be due to chance are found on closer knowledge to be due to superior judgment. They result from the union of happy chance with deliberate choice. The adventurer who, on the discovery of gold, goes at once to California or to Alaska, may stumble upon a gold-mine. It is luck; but he has gone to a place where gold-mines are comparatively plentiful. If he stays at home it is more likely that he will stumble over an ash-heap. Throughout life there is constant opportunity, but it must be sought. One who has the good judgment to be ever at the right time at the place where he has the best chance of finding a good thing, usually gets the advantage, and …read more

Source: MISES INSTITUTE

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ObamaCare's Ugly 'Progress'

January 23, 2014 in Economics

By Michael D. Tanner

Michael D. Tanner

No one expects President Obama to say much about ObamaCare in his State of the Union Address on Tuesday — because there isn’t much good to say about his signature achievement.

Yes, we get a perfunctory apology for those Web site “glitches,” plus a suitably uplifting story about how someone finally found health insurance thanks to the Affordable Care Act. But it’s just too risky for him to say much more, because “the State of ObamaCare” is growing ever more troubled.

No one expects President Obama to say much about ObamaCare in his State of the Union Address on Tuesday — because there isn’t much good to say about his signature achievement.”

For starters, it’s falling far short of the goal of universal coverage. The White House admits that only about 2.2 million people have signed up for health insurance through the program so far — but even that number’s padded: It includes all who’ve “picked” a health plan, even if they haven’t yet paid for it, sort of like Amazon counting every item a shopper puts in their “cart” as a sale. So far, just 1.5 million have actually completed the ObamaCare checkout, including payment. Worse, surveys indicate that less than a third of those enrolling were previously uninsured.

Another 3.9 million people have been enrolled in Medicaid, though it is not clear how much of that’s a direct result of ObamaCare’s expansion of the program.

Even using the most optimistic reading of these figures, fewer than 11 percent of uninsured Americans have gotten coverage because of the ObamaCare law; most likely, fewer. This is what we’re getting for the $2.7 trillion that ObamaCare will cost over the next 10 years?

Plus, we should subtract the roughly 500,000 Americans who, by the White House’s own count, have lost insurance because of ObamaCare. They’re some of the 5 million to 10 million Americans whose plans got canceled because they didn’t meet ObamaCare standards (despite the president’s promises that “you’ll be able to keep your health-care plan, period”). Most of these victims ultimately found new plans, though they might have been more expensive or no longer included their current doctor.

Yet that’s just the tip of the iceberg, because those policy-killing rules will hit another part of the market over the course of this year — namely, the “small group” market, where employers now buy health policies that cover about …read more

Source: OP-EDS

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More of the Same From the Keynesians in 2014

January 23, 2014 in Economics

By Mises Updates

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Harry Goslin writes in today’s Mises Daily:

This system of natural law that we refer to as economic law governs economic activity, and much like the laws of physics that govern the world and universe in which we live, these laws are absolute and can only be manipulated at great risk. They cannot be negated.

In economics, legislation and regulations cannot fundamentally change the reality of economic law. If we bend them, reality snaps back with a vengeance, and the corrections will often be unpleasant.

Speaking in the 1920s, Ludwig von Mises said that any “correction” following an artificial boom period must be equal to or greater than the expansion that created it in order to fully liquidate the asset distortions amassed during the boom period. At the end of the 1920s he was proven correct.

…read more

Source: MISES INSTITUTE

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Why Team Obama's New Education Guidelines May Hurt, Not Help, Black Students

January 23, 2014 in Economics

By Andrew J. Coulson

Andrew J. Coulson

Attorney General Eric Holder and Education Secretary Arne Duncan recently announced new discipline guidelines for the nation’s schools.

The recommendations aim to end racial disparities in suspensions and expulsions that the administration attributes to discrimination.

The new guidelines misdiagnose the problem, ignore pivotal research, and will likely hurt academic achievement among African-American students.”

Though well-intentioned, the new guidelines misdiagnose the problem, ignore pivotal research, and will likely hurt academic achievement among African-American students.

For decades, public schools have suspended and expelled black students at substantially higher rates than whites. And studies show that this pattern cannot be entirely explained by racial differences in the rate of misbehavior. On average, for a given infraction, black students receive more severe punishment than whites.

This has led several researchers, many commentators, and now the Obama administration, to conclude that “racial discrimination in school discipline is a real problem.”

It is certainly possible to find cases in which racism is to blame, but do those cases really explain the broader pattern? According to the most sophisticated research in the field, the answer is no.

Over the past several years, University of Rochester professor Joshua Kinsler has explored this question using uniquely rich datasets. What he finds is that the variation in punishment between the races is largely explained by variation in discipline policies at the school level: black students are more likely to attend very strict schools.

Within any given school, Kinsler reports, black and white students are generally treated similarly. White students attending majority-black schools with strict policies are punished just as harshly as their African American peers. And black students in more lenient majority-white schools are punished equally leniently, on average.

Kinsler also finds that the race of teachers and administrators does not explain racial gaps in referrals to the principal’s office or the punishments meted out—further diminishing the likelihood that discrimination is a leading cause of the disparities.

So in order to achieve the administration’s goal of eliminating the racial discipline gap, schools that currently have many disruptive students and strict discipline policies will have to relax those policies.

Which brings us to Kinsler’s most important discovery: easing discipline policies in such schools causes overall student achievement to fall.                                                            

The Obama administration is correct that suspensions and expulsions are associated with worse educational outcomes for the disruptive student. But the opposite is true with respect to their classmates, the majority of whom …read more

Source: OP-EDS

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Don't Use MLK to Push Harmful Election Laws

January 23, 2014 in Economics

By Ilya Shapiro

Ilya Shapiro

Last week, a group of lawmakers introduced the Voting Rights Amendment Act of 2014. The timing was no coincidence: The bill was announced on Martin Luther King’s birthday, right before the holiday designated to commemorate the civil rights giant (for which Congress took the week off). This is the long-expected legislation responding to the Supreme Court’s decision in Shelby County v. Holder last June that disabled one part of the Voting Rights Act. But it’s both unnecessary to protect the right to vote and goes far beyond the provision it replaces to rework the machinery of American democracy on racial lines.

The new “voting rights” bill would make existing problems with voting worse while misallocating resources and inflaming racial tensions.”

Based on the reaction of certain elected officials to Shelby County you could be forgiven for thinking that a congressional fix is badly needed to prevent racial minorities from being disenfranchised. But all the Supreme Court did was strike down the “coverage formula” used to apply Section 5 of the Voting Rights Act, which required certain jurisdictions to “preclear” with the federal government any changes in election regulations—even those as small as moving a polling station from a schoolhouse to a firehouse. The Court found the formula to be unconstitutional because it was based on 40-year-old data, such that the states and localities subject to preclearance no longer corresponded to the incidence of racial discrimination in voting. Indeed, black voter registration and turnout is consistently higher in the formerly covered jurisdictions than in the rest of the country.

Nevertheless, the proposed legislation draws a new coverage formula, resurrecting Section 5’s requirements for states with five violations of federal voting law over a rolling 15-year period. (That formula would currently apply to four states: Georgia, Louisiana, Mississippi, and Texas.) It also sweeps in sub-state jurisdictions that have had one violation and “persistent, extremely low minority turnout”—which can mean simply an average racial-minority turnout rate lower than that nationwide for either minorities or non-minorities.

All that sounds reasonable—Congress is finally updating its coverage formula—until you realize that this reimposition of Section 5 comes without any proof that other laws are inadequate to address existing problems (which is what the Constitution demands to justify the suspension of the normal federalism in this area). After all, Section 5 was an emergency provision enacted in 1965 to provide temporary …read more

Source: OP-EDS