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Economic Means vs. Political Means

April 30, 2014 in Economics

By Mises Updates

Writing in Forbes, Bill Bonner notes that “the financial scam that every American falls for” is the one in which politicians promise to improve economic outcomes using politics. “Rare was the man,” he writes, “such as Robert Lucas or Murray Rothbard, who pointed out that you could not really improve economic results with political means.” He continues:

There are economic means, and there are political means. There is persuasion and there is force. There are civilized ways and barbaric ones.

The economist is a harmless crank as long as he is just peeping through the window, but when he undertakes to get people to do what he wants–either by offering them money that is not his own, by defrauding them with artificially low interest rates, or by printing up money that is not backed by something of real value such as gold–he has crossed over to the dark side. He has moved to political means to get what he wants. He has become a jackass

Keynesian “improvements” were applied in the 1920s — when then Fed governor Ben Strong decided to give the economy a little “coup de whiskey” — and later in the 1930s when the stock market was recovering from the hangover.

The results were predictably disastrous. And along came other economists with their own bad ideas. Rare was the man, such as Robert Lucas or Murray Rothbard, who pointed out that you could not really improve economic results with political means.

…read more

Source: MISES INSTITUTE

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Don’t Blame the Whole Housing Bubble on CRA: Part II

April 30, 2014 in Economics

By John P. Cochran

800px-MarlboroNJMcMansions

A follow up to Ryan’s excellent post.

Roger Garrison is at his best here balancing Fed policy and housing policy  including CRA and their relative impact of the latest boom-bust. An excellent example of  historical interpretation and “variations of the theme” of ABCT.

From his Alchemy Leveraged: The Federal Reserve and Modern Finance:

Unsound as these policies were, they were not the principal cause of the financial crisis. Again, Dowd and Hutchinson are right in identifying the expansion-prone Federal Reserve as the principal institutional cause. Had the Fed provided no fuel for the boom, federal housing policy, though perverse, would not have been unsustainable. The mortgage market would have had to compete with all other markets for the funds that savers provided. There would have been a continuing bias in favor of the mortgage market, and the ongoing rate of foreclosures would have been higher. House prices would have been higher (because houses and mortgage loans are complements), but they would not have been high and rising. Practitioners of modern finance would have paid due attention to the higher VaR, which would have reflected the expectation of an ongoing higher foreclosure rate. Conversely, had the federal government not enacted legislation and created institutions that rigged mortgage markets so as to increase home ownership, credit expansion by the Fed would nonetheless have created an artificial boom, which inevitably would have ended in a bust.

And

Although Fannie, Freddie, and related federal legislation are not the principal cause of the crisis, they do account for the particular character of the preceding boom and hence for the particular character of the subsequent bust. The terms boom and bubble are often used interchangeably in the literature on business cycles. It may be preferable, however, to use boom—or more specifically artificial boom—to refer to the credit-induced simultaneous expansion to various degrees of different interestsensitive sectors of the economy and to use bubble to refer to the artificial boom’s most dramatic manifestation. Which sector reveals itself as the bubble depends on the circumstances in which the credit expansion occurs. As indicated earlier, artificial booms entail a turbocharging of whatever else is going on at the time.

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Source: MISES INSTITUTE

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Don’t Blame the Whole Housing Bubble on CRA

April 30, 2014 in Economics

By Ryan McMaken

LevittownPA

Newly-released memos from the Clinton presidential library reveal a little more about the scope of the Community Reinvestment Act (CRA) activities in the years leading up to the collapse of the housing bubble.  For those unfamiliar with the home-loan industry, the Community Revinvestment Act was a 1977 act that “encourages” (with the threat of violence) banks and other lending institutions to make more home loans to low-income, non-white, and Hispanic households, and to reduce “redlining.”

As noted in this article (now popping up around the conservative press) about the new CRA revelations, former Treasury Secreatary Robert Rubin crows about the substantial increases in loans made to these households that have historically not qualified for loans.  The problem is that “CRA-approved loans defaulted about 15% more often” as a result of the “flexible lending” mandated by the feds. No one should be surprised that CRA loans go into default more often. While there is ample evidence that banks aren’t terribly fastidious in their underwriting (which is why they like to get the mediocre loans out of their portfolio and thus make them someone else’s problem ASAP), there was nevertheless a reason those riskier CRA loans weren’t being made in the first place.

So, CRA had a hand in helping create a sizable number of default-prone loans that contributed to the housing bubble that popped in 2008. The degree to which CRA was a major factor in the bubble is not clear, however, and while CRA should of course be repealed immediately,  I’m not sure CRA should really be the primary focus when we’re looking for explanations about the bubble or its collapse.

In the days following the collapse, however, conservative media zeroed in on CRA as a major cause of the housing bubble. This is likely due to a couple of reasons:

1. Conservative pundits don’t understand the business cycle or the role of central banks in it.

2. The CRA critique fits nicely into the conservative obsession with “multiculturalism” and the knee-jerk tribalism that dominates political discussion at the level of talk radio and TV-news punditry (not just among conservatives).

If we look at it more carefully, we can see “flexible” CRA loans as really just a sub-species of the general problem of housing bubbles:  malinvestment propelled by easy money  policies of the central bank. CRA certainly channels  the “flexible loans” to certain households and neighborhoods, but it seems unlikely that the malinvestments of the …read more

Source: MISES INSTITUTE

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Nasty GDP Report

April 30, 2014 in Economics

By Mark Thornton

The latest GDP report for the first quarter can be reviewed here. GDP grew by only 1/10 of 1% in the first quarter. There were big negative reversals in both exports and equipment purchases from the 4th quarter of last year. The accumulation of inventories also was reduced, but is still accumulating rapidly indicating less of a need to add inventory in future quarters. Consumption grew at a 3% rate, but this was largely driven by a nearly 10% jump in health care spending, that was probably driven by the Affordable Care Act. The saving rate is also reported to be “unusually low.” The only bright spot in the report was that government spending was down for the quarter.

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Source: MISES INSTITUTE

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Audio: George Reisman Discusses Capitalism

April 30, 2014 in Economics

By Mises Updates

George Reisman speaks on a variety of issues, including economic inequality, income and inheritance taxes, with John O’Donnell on the Power Trading Radio show. George Reisman is economics professor emeritus from Pepperdine University.  He received his Ph.D from New York University with Ludwig von Mises as his thesis advisor.  He was also a close associate of Murray Rothbard for many years and Ayn Rand.

(Length: 30 Minutes)

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Source: MISES INSTITUTE

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Military Judge Orders CIA to List "Black Sites" and Other Torture Info

April 30, 2014 in Economics

By Nat Hentoff

Nat Hentoff

As first reported by the Miami Herald’s Carol Rosenberg on April 17, during a pretrial hearing of a Guantanamo prisoner previously held at a series of CIA secret prisons, judge Army Col. James Pohl ordered the agency to provide the long-concealed “names of agents, interrogators and medical personnel who worked at the so-called black sites” (“Guantanamo judge to CIA: Disclose ‘black site’ details to USS Cole defense lawyers,” Carol Rosenberg, Miami Herald, April 17).

Furthermore, the judge demanded that prosecutors give the defense lawyers such “closely guarded classified CIA information” as “ ‘locations, personnel and communications,’ interrogation notes and cables between the black sites and headquarters that sought and approved so-called enhanced interrogation techniques.”

Rosenberg has covered Gitmo and American torture for years, unlike many members of the media. But other reporters here and abroad, including me, have documented some of this CIA torture from our research.

I urge the media to stay on this story of military Judge Pohl’s order to the CIA as the Obama administration tries to bury it — including the renditions by which the CIA brought suspects to be interrogated at places other than the supposedly discontinued black sites. Obama has retained these classified renditions.

What Pohl has ignited should become a historic issue in the 2016 presidential and congressional elections — all the more because, as Rosenberg makes clear, the judge did not “order the government to turn over Office of Legal Counsel memos (from the George W. Bush administration) that both blessed and defined the so-called Torture Program that sent CIA captives to secret interrogations across the world after the Sept. 11, 2001, attacks — out of reach of International Committee of the Red Cross delegates.”

It was also out of reach of the Constitution and international treaties we signed.

This Guantanamo ferment may be our chance to begin to cleanse what I have previously described as “our worldwide shame of having become a torture nation. As we condemn other nations’ crimes against their citizens — Syria, Libya, Zimbabwe, et al — our government makes it easier for those countries to escape accountability by utterly denying our own complicity in the cruel, inhumane, degrading torture that has given terrorists around the world so valuable a means for recruiting more terrorists” (my column, “Obama Bans War Criminals, but Not Our Own,” Aug. 17, 2011).

But before we go deeper into how to begin cleansing our history of torture, let’s focus …read more

Source: OP-EDS

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The Costs of Uniting Europe

April 30, 2014 in Economics

By Dalibor Rohac

Dalibor Rohac

Ten years since their country joined the European Union on May 1, 2004 — and only weeks before European Parliament elections — only 34 percent of Czechs trust the EU, compared to more than 50 percent just three years ago. Though well-known for their euroskepticism, the Czechs are not alone. Never since the eight eastern European countries, together with Malta and Cyprus, joined the European Union have the levels of distrust in EU institutions been so high across the continent.

This is a paradox, as the advantages brought by the European integration should not be taken for granted, especially in the “new” Europe. Just 25 years ago, the prospect of being a part of the Schengen space, and being able to shop, invest or work anywhere in the EU would have sounded phantasmagorical to most denizens of USSR-dominated Eastern Europe. The eastern enlargement was in many ways a mutually advantageous move, as it provided western European companies with new investment opportunities and unleashed migratory flows that have an economic boon for the host countries — most notably for the United Kingdom.

An honest discussion about the benefits and downsides of European integration is very necessary.”

For the “new” Europe, the most important benefit of membership predated the enlargement. The prospect of being a part of the EU served as a justification for otherwise contentious economic and institutional reforms, including the privatization and deregulation of utilities and energy. Perhaps offering a realistic prospect of EU membership to Ukraine today could have the same effect, garnering support for reforms that the country urgently needs.

But there have also been downsides to the membership on which most politicians prefer to be silent. EU structural funds, once seen as the silver bullet for poor post-communist economies, crowd out the private sector, especially in the area of transport and logistics, where private companies that have been doing profitable business without any government support suddenly face competition from new EU-funded firms.

Worse yet, EU funds have bred waste, cronyism and corruption. In 2013, Slovakia’s Ministry of Social Affairs spent 100 thousand euros of an EU grant to combat unemployment to purchase pens and disposable raincoats. While relatively trivial in size, it seems representative of the waste that has been unearthed by journalists.

It may not be a coincidence that corruption in many eastern European countries has gone up since 2004. Slovakia, for example, ranked 57th …read more

Source: OP-EDS

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Krugman in the 1 Percent

April 30, 2014 in Economics

By Michael D. Tanner

Michael D. Tanner

I am outraged. The City University of New York recently announced that it is going to pay PaulKrugman $225,000 for part-time work studying income inequality. If you add in his sundry speaking fees, Professor Krugman is solidly ensconced among the hated 1 percent.

I too write about inequality, yet I am not being paid nearly as much. Of course, Professor Krugman does have that Nobel Prize thing going for him, but that hardly seems to justify such blatant inequality. So I have been waiting patiently for Professor Krugman to mail me a check to correct this unfair situation.

Or perhaps, instead, he has been busy lobbying for a taxpayer-funded program to subsidize underpaid inequality writers.

The bard of inequality fails to notice that most Americans are better off than their parents were.”

In reality, of course, Professor Krugman’s income has absolutely nothing to do with mine. Nor should it. This is not a zero-sum world. I don’t earn less because Krugman earns more.

There is no doubt that income inequality has increased in America. Even after adjusting for inflation, the income share of the top 1 percent of Americans rose by 201 percent from 1979 to 2010, compared to just 49 percent for the bottom 20 percent.

But just as Professor Krugman’s earnings are irrelevant to mine, the growing wealth of the super-rich tells us little about how the average American is really doing.

And it turns out we are doing pretty well.

First, we should recognize that, by and large, Americans at all income levels are better off than their parents were. A study by the Pew Charitable Trust and the Brookings Institution found that two-thirds of 40-year-old Americans are in households with larger incomes than their parents had at the same age, even taking into account the fact that the cost of living has risen.

In fact, the news is actually even better than that. The average household is smaller today than it was back then, meaning a household income has to cover fewer family members, leaving them better off than the bigger households of the past. A second Pew study found that when incomes are adjusted for household size, four out of five adults today are better off than their parents were at the same age.

Even the poor are doing comparatively well. As Robert Rector of the Heritage Foundation has pointed out, the poorest of Americans today enjoys luxuries that were beyond …read more

Source: OP-EDS

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Audio: What Government is Doing to Our Money

April 29, 2014 in Economics

By Ryan McMaken

Interviewed by host Alan Butler, Jeff Deist discusses the Federal Reserve, the criminal political class, and how the collapse of the U.S. dollar is imminent.

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Source: MISES INSTITUTE

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Peikoff on Snowden

April 29, 2014 in Economics

By David Gordon

Leonard Peikoff, much to my surprise, has an excellent podcast on Edward Snowden.  He praises Snowden for revealing the vast amount of information the NSA collects about us. The government’s program is in essence totalitarian, and Peikoff aptly draws a parallel with Orwell’s 1984. To those who say that Snowden gave American secrets to Russia, Peikoff replies that even if this were true, Snowden is still a hero. Obama is a much greater threat to us than Putin. The information Snowden gave the American people about what the government is doing far outweighs in importance anything Putin may have learned from him about America.

Unfortunately, Peikoff  near the end  of the podcast reverts to form and calls for a nuclear attack on Iran; but at least he does not claim to derive the necessity of such an attack from “A is A”.

…read more

Source: MISES INSTITUTE