You are browsing the archive for 2014 May 09.

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China Plans Railroad to Seattle, and More

May 9, 2014 in Economics

By Ryan McMaken

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The Chinese government is desperate to keep its bubble economy going, and one way it’s doing that is by spending on massive infrastructure projects. The “China Bubble,” built on huge construction projects such as subways, skyscrapers, highways, and housing, continues to astound with the sheer numbers involved, from the height of the skyscrapers to the miles of track laid.

This sort of spending has become a central part of the Chinese economy:

In the last few years, cities’ efforts have helped government infrastructure and real estate spending surpass foreign trade as the biggest contributor to China’s growth. Subways and skyscrapers, in other words, are replacing exports of furniture and iPhones as the symbols of this nation’s prowess.

This naturally has many political uses, from full employment to rising GDP growth, as noted by Doug French in 2011:

However, Chinese economic growth has exploded on the shakiest of financial systems, Carl E. Walter and Fraser J.T. Howie point out in Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise. The country’s central planners do their best to keep as many of the 1.3 billion people employed as they can; building vacant cities and dozens of large infrastructure projects along with releasing eye-popping ”official” GDP numbers.

To keep this strategy going indefinitely, China is looking to expand its infrastructure well beyond its borders and even into other continents. The Independent today reports that China has announced plans to build a train to the United States. That is, the Chinese state plans to build a 13,000 km railway from China to Alaska, and down into the lower 48. Whether this can possibly be done in an economical fashion is completely irrelevant, of course. It’s another jobs program and monument to the Chinese state.

The announcement for a inter-continental railway comes only a few days after the Chinese government’s announcement that it is looking to fund a transcontinental railway in Africa. According to Reuters:

China will increase credit lines to Africa by $10 billion and will boost the China-Africa Development Fund by $2 billion, bringing it to a total of $5 billion, Xinhua said. It provided no details of the timeframe.

Li “depicted a dream that all African capitals are connected with high-speed rail, so as to boost pan-African communication and development,” the report said. As China has advanced technologies in this area, Li said China was ready to work with Africa “to make this dream come true”.

Practically speaking, …read more

Source: MISES INSTITUTE

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Patents and Birdmen

May 9, 2014 in Economics

By David Howden

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In his new book “Birdmen: The Wright Brothers, Glenn Curtis, and the Battle to Control the Skies”, Lawrence Goldstone tells the story of the feud between America´s two early air pioneers.  The interesting part of the book is not the battle taking place in the air as the Wright Brothers battled with Glenn Curtis to see who could be the superior airman. The more important battle was fought in the courts over the early patents for heavier-than-air flight.

Orville Wright developed the idea of twisting a plane´s wings to enable lateral control of the craft. For this great idea, the Wright Brothers were the recipients of an early “pioneer patent” – a right not only to the specific invention, but to the general concept. Even though Curtis developed flaps and ailerons on the wings to bring control to the craft, the Wrights fought in the courts (and often won) to stop him and other rivals from trespassing on their turf of general aircraft control.

The effect on flight innovation was more than noticeable at the time. The patent war they unleashed took the steam out of the budding industry. In 1912, only 90 aviators were in the air each day in the United States. Across the pond in France, nearly 1,000 airmen were flying, testing and further developing their craft.

Goldstone wraps up by questioning whether the restrictive patent system was positive for American airplane development. It obviously hindered airmen like Curtis´ ventures, resulted in costly (both in time and money) legal fights, and the Wright Brothers were in no rush to build upon their early discoveries.

Today similar patent fights are embroiling the tech world. “Birdmen” is a good example of how these fights played out in another era. It´s unfortunate that we only see the damaging nature of these laws with the benefit of hindsight.

(Originally posted at Mises Canada.)

…read more

Source: MISES INSTITUTE

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From Noahpinion to No Clue?

May 9, 2014 in Economics

By Per Bylund

Over at The Week, Noah Smith, an economics professor at Stony Brook University and of online “Noahpinion” fame, attempts a dismissal of the Austrian school of economics. His critique is intended to show that “the Austrian School’s demise came not because its ideas were rejected and marginalized, but because most of them were co-opted by mainstream macroeconomics.” But Smith is obviously far from an expert on Austrian theory (or the history of it).

The argument that Austrian ideas have already been incorporated in mainstream economics has already been repeated by mainstreamers so many times that it would be strange if they don’t believe it by now. It is easy to see where Smith got the “idea” to add to the myth-building. But there was perhaps some truth to it, at least in the 1930s, as Pete Boettke noted in 2002:

By the mid-30′s … the idea of a distinct Austrian program, even in the minds of the Austrians themselves, was seriously waning, in part because the mainstream more or less absorbed the important points the Austrians were making. Mises (1933, 214) had argued that while it is commonplace in modern economics to distinguish between the Austrian, Anglo-American, and Lausanne School, “these three schools of thought differ only in their mode of expressing the same fundamental idea and that they are divided more by their terminology and by peculiarities of presentation than by the substance of their teachings.”

But since then several things have happened and the Austrian and mainstream/neoclassical schools have drifted apart. Not only has the Austrian school further developed and strengthened its theory (by such “minor” works as Human Action and Man, Economy, and State) and seen a resurgence, mainstream economics has stumbled down a very non- (anti-?) Austrian path of unreal assumptions hidden in layers of excessive mathematization, and, thanks to their adherence to Whig theory, lost most of its economic heritage and sound grounding.Smith produces a “new” flavor of the mainstream Whig fable of Austrian irrelevance by claiming that the “‘New Classical’ research program of Robert Lucas and Ed Prescott shares just enough similarities with the Austrian school to basically steal all their thunder.” (Yes, he writes “all.”)

He’s right in the sense that there is no reason why mainstream lines of thought should not incorporate the strengths of Austrian theory, just like they should incorporate – to the extent possible – other theories found useful. But that there …read more

Source: MISES INSTITUTE

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The Health Insurance Trap

May 9, 2014 in Economics

By Jeffrey A. Singer

Jeffrey A. Singer

Health care costs are too damn high—and the’re only getting worse. Last week, researchers at Harvard and Dartmouth released a report estimating that health care costs will continue to grow faster than the economy for at least the next two decades. This is a tremendous burden on average Americans, who already spend nearly a fifth of their average annual pre-tax income on health care.

Why can’t Obamacare stop this trend? Because the law doubles down on one of the biggest contributing factors to the high price of medical care: Health insurance.

Health insurance is a complicated system that serves patients’ needs last. It introduces a third party into the doctor-patient relationship. This can be a private company—such as modern insurance companies—or the government—such as in Medicare and Medicaid.

Obamacare’s architects expanded a health insurance system that artificially increases costs and decreases choice.”

Third party entities don’t spend money like you and I do. We care about two things when we buy a product: quality and affordability. Insurance providers aren’t overly concerned about either. Affordability isn’t their biggest concern because they’re spending someone else’s money—their members’ premiums. They’re also not concerned as much about quality because they’re spending that money on someone other than themselves—the patients receiving treatment.

This is a basic reflection of human nature. It’s also the single worst way to spend money, according to the late Noble Prize-winning economist Milton Friedman. The best arrangement, as he demonstrated through his economic work, occurs when individuals spend their own money on themselves.

That’s not what happens with health insurance. When insurers—whether a private insurer or the government, as happens under Obamacare—set prices, they negotiate compensation schedules with providers and facilities. But they don’t have to bargain hard enough to reach the best price possible. They just have to reach a price that is good enough—one that allows them to charge premiums that compete well with rival insurers. They pass on the difference to us, their premium-paying customers.

This only further drives up the cost of health care. Once insured, patients like you and me, along with the health care providers that contract with insurers, continue to spend money in inefficient and wasteful ways. The system encourages us to do just this: Health insurance gives us the illusion that we’re spending other people’s money when we get medical treatment.

I don’t know about you, but I’m not exactly frugal when I have …read more

Source: OP-EDS

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Gun Control in Nazi Germany

May 9, 2014 in Economics

By Mises Updates

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Audrey Kline writes in today’s Mises Daily:

There is no shortage of theories or writings related to the rise of the Third Reich and the subsequent Holocaust. Stephen Halbrook’s 2013 book, Gun Control in the Third Reich offers a compelling and important account of the role of gun prohibition in aiding Hitler’s goals of exterminating the Jews and other “enemies of the state.” While much of the early gun prohibition was created with supposedly good intent, Halbrook carefully and meticulously details how a change in political regime facilitated manipulating some well-intentioned gun registration laws and other gun prohibition to be used in inconceivable ways.

…read more

Source: MISES INSTITUTE