You are browsing the archive for 2014 June 25.

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Hayek and the Intellectuals

June 25, 2014 in Economics

By Joseph Salerno

In the past week there has been a hugely entertaining brouhaha on Peter Boettke’s Face Book page concerning the most fruitful approach to promoting libertarian social change. It seems to have been precipitated  by an irritated Boettke hectoring youthful libertarian activists for adopting a populist “flattened structure of production” model of  propagating libertarian ideas while ignoring Boettke’s preferred IHS model of an elitist, top-down “intellectual structure of production.”  In the populist model, broadly libertarian ideas are directly absorbed by people in all professions and walks of life and directly “messaged” to their peers.  In the IHS-elitist model the only libertarian ideas worthy of dissemination are those that are created and  approved by scholars, invariably academics, at the pinnacle of the intellectual “pyramid of social change” and then carefully prepared for public consumption by the” lower-stage”  intellectuals in libertarian-leaning think tanks, libertarian media “communicators,” and designated top-level activists or “actuators.”   The blueprint for this  IHS model is commonly attributed to Friedrich A. Hayek, who purportedly developed it in his 1945 article, “The Intellectuals and Socialism.”  As  Boettke’s argues:

 Hayek is pretty crystal clear in that essay in his desire to inspire a new generation of philosophical thinkers to explore the foundations of a free society…. If you have doubts let’s go to the text. Second-hand dealers are a by-product of philosophical thinkers and policy results when the climate of opinion shifts. Re-read the text carefully PLEASE.

Now my purpose is not to adjudicate between the claims of these competing positions.  I wish only to correct some of the profound distortions of Hayek’s views embodied in the Boettke-IHS position.   Boettke exhorts his young opponents to re-read Hayek’s article carefully. But when one does so, it is clear that Boettke has gotten Hayek’s position exactly reversed.  The intellectuals, who Hayek refers to as the “secondhand dealers in ideas” are not a “by-product” of the scholars, experts, and scientists who originate and refine ideas.  To the contrary, according to Hayek, the intellectuals are an independent and powerful class, who create or suppress the popular reputations of the scholars by “exercising their censorship function” in choosing which new ideas to present to the public.  

As  Hayek (p. 376, 372-73) explains :

It is perhaps the most characteristic feature of the intellectual that he judges new ideas not by their specific merits but by the readiness with which they fit into his general conceptions, into the …read more

Source: MISES INSTITUTE

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The Real Elephant in the Room

June 25, 2014 in Economics

By John P. Cochran

Mark Skousen has been the leading advocate for better measures of economic activity ─ measures that better reflect and Austrian-Say based perspective of how an economy actually works ─ measures that better reflects the importance of production and investment in driving the economy and employment. His preference, gross domestic expenditure (GDE), as highlighted in his The Structure of Production. With a strong nudge from Mark, such a measure, gross output (GO), which is not quite as comprehensive as GDE, has recently become available as highlighted here.

Steve Hanke reports on the development here. Per Hanke, “The announcement went virtually unnoticed and unreported─an unfortunate but not uncommon, oversight on the part of the financial press.

He adds, “Yes, GO [emphasis added] represents a significant breakthrough” and “GO is a big deal.”

The new data offers Austrians and fellow travelers who have emphasized the importance of production and investment; business planning to best meet consumer demands, both now and in the future, as the prime mover of the economy better data to support their historical analysis.

Hanke’s conclusion:

Even though the always clever Keynes temporarily buried J.-B. Say, the great Say is back. With that, the relative importance of consumption and government expenditures withers away (see the accompanying bar charts). And, yes, the alleged importance of fiscal policy withers away, too.

Contrary to what the standard textbooks have taught us and what that pundits repeat ad nauseam, consumption is not the big elephant in the room. The elephant is business expenditures.

It’s time to not only tout, but time to take advantage of this new data set to better advance and support the insights of a capital-structure based macroeconomics (See Capital in Disequilibrium: Understanding the “Great Recession” and the Potential for Recovery).

HT to Mark Skousen.

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Source: MISES INSTITUTE

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BEA: GDP Shrank by 2.6 Percent During First Quarter, The Worst Since 2009

June 25, 2014 in Economics

By Ryan McMaken

gdp

According to the BEA’s press release today:

Real gross domestic product — the output of goods and services produced by labor and propertylocated in the United States — decreased at an annual rate of 2.9 percent in the first quarter of 2014 according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2013, real GDP increased 2.6 percent.

Here’s the year-over-year change:

The last time the drop was this much was during the 1st Q of 2009 when GDP dropped 5.4 percent. The worst YOY change during that recession was during the 4th Q of 2008 when GDP dropped 8.3 percent. Keep in mind that these numbers include government spending.

The numbers keep getting worse, but the mainstream economists remain on message and are continuing to blame “bad weather” as the cause of the slide. Looking at the last 25 years of GDP results, why is it that no other non-recessionary quarter saw a 2.9 percent drop due to weather? Was the winter of 2014 the worst winter in 25 years? So bad, in fact, that it succeeded in driving down economic growth by almost 3 percent in a non-recessionary quarter while the 25 previous winters failed? Or perhaps all the bad winters just happened to occur during recessions. That seems a bit unlikely.

But nevermind that. Reports Forbes:

In an interview following the release Stephen Auth, Chief Investment Officer at Federated Investors, called the revision “pretty incredible” but says that underlying trends have shown improvement that has simply been “masked” by the weather. He expects second quarter GDP growth to come in north of 4% and continual market gains.

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Source: MISES INSTITUTE

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Green and Pink Skycrapers to turn out in the Red?

June 25, 2014 in Economics

By Mark Thornton

6764

CNN reports today that in China they plan to build the world’s tallest skyscraper. It has been designed to be very environmentally friendly i.e. green, and will be in the color pink. In my paper “Skyscrapers and Business Cycles” I show that historically speaking there is a correlation between the building of the world’s tallest skycraper and world economic crisis. I also provide reasons related to the Austrian Business Cycle theory why the correlation might hold true. Because these record setting skyscrapers often open for business in the midst of a world economic crisis they typically fail as an investment and often operate “in the red” for many years to come. My guess is that the two Phoenix Towers planned for Wuhan, the capital of Hubei province in China will meet the same fate.

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Source: MISES INSTITUTE

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Princip, the Great War, and the Modern Prisoner State

June 25, 2014 in Economics

By Hunt Tooley

gavrilo-princip-original

So many anniversaries of meaning this summer! We now approach the hundredth anniversary of the shots that killed the Archduke Franz Ferdinand and his wife, Sophie, in Sarajevo. These shots, of course, precipitated the cataclysm we call the Great War. The shooter was Gavrilo Princip, a Bosnian Serb nationalist a few days from his twentieth birthday.

Since Austro-Hungarian law did not permit the death penalty for persons under age twenty, Princip was tried, given a twenty-year sentence, and sent to the Bohemian fortress-prison of Terezin, confined to a tiny cell. The fortress sits on a wind-swept plain, a desolate and grimly cold spot in the winter. Princip was undoubtedly mistreated, losing weight, contracting tuberculosis of the bone. He died on April 28, 1918. He did not outlive the war he had started.

Princip was far from the only prisoner at Terezin. The fortress became one of the many wartime prisons which Austria-Hungary maintained for enemy aliens and other suspected civilians. Austrians cracked down on “Russophiles” and others suspected of enemy sympathies within the first few weeks of the war. These civilian prisoners were held in a wide variety of situations, and Terezin was one of these. Under harsh conditions, many of these “suspects” died.

While Princip’s individual role in history is so significant on an individual level, his imprisonment and death are connected with an institution accelerated by the war he helped begin: the internment camp—the indispensable tool of the modern state. Actually, Terezin itself represents a real pattern in the development of the prisoner state: the state owns property which becomes dated and obsolete, but which is recyclable. Increasingly bedeviled by potential enemies, the state makes use of facilities such as forts and camps, which can be recycled to intern large numbers of people. Barbed wire helps close up the gaps.

By the way, when WWI ended, the Terezin facility had not outlived its usefulness. The SS recycled it during the Second World War to intern and murder another set of state enemies in the infamous transit camp, now using its German name, Theresienstadt. The modern prisoner state of the twentieth and twenty-first centuries, strangely, owes a great deal to the war touched off by Princip.

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Source: MISES INSTITUTE

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NGOs and Their Ideas Seen as Hurting Development Should Be Countered, Not Banned

June 25, 2014 in Economics

By Swaminathan S. Anklesaria Aiyar

Swaminathan S. Anklesaria Aiyar

Free access to ideas of all sorts is a fundamental right. Many ideas may be terrible, but battles against them should be fought in the high country of the mind, not through censorship or bans. Caveat: ideas accompanied by or leading to violence are subject to reasonable restrictions. Yet, such restrictions need to be minimal. We do not, for instance, ban Marxist schools of thought although they seek to overthrow democracy and liquidate class enemies. The Intelligence Bureau (IB) seems unaware of or opposed to a free flow of ideas.

In a report leaked to the media, it alleges that Greenpeace and other NGOs are using foreign money to launch anti-nuclear, anti-coal and anti-GM food agitations, thus reducing India’s GDP growth by a whopping 2-3% per year. The report expresses outrage that one NGO has got funding for criticising the Gujarat model of development. The IB suggests screening and stopping all foreign funding of NGOs that support such “antinational” activities.

This is plain wrong. Every human being has a right to her own concept of what is good or bad for development. I disagree strongly with many NGOs on some issues, while agreeing with them on others. To oppose nuclear power, e-waste, large dams or carbon emissions can, in some cases, be called misguided. But it is not anti-national. It is a rival view of what development should be about. No thinking person views GDP as the only measure of development. If you go by GDP alone, Mahatma Gandhi was far more anti-development than Greenpeace.

He believed that happiness lay in reducing one’s wants, not in consuming more. This would be devastating for GDP growth, of course, but the Mahatma did not think that mattered. He opposed modern machinery, swore by handspun cloth, and wanted India to be a collection of self-sufficient village republics. If implemented, these ideas would have slashed GDP growth by much more than the 2-3% than the IB complains about.

Call the Lie

But what is the basis for the IB’s estimate anyway? The 2-3% of GDP it claims as the annual loss is around Rs 2,00,000-3,00,000 crore. Has it cited any respectable economist in this matter? Does it have a peer-reviewed model? Not at all. Worse, the sums received from abroad by the “anti-development” NGOs have averaged barely Rs 50 crore or so per year. The government can easily spend 10 times as much on exposing the …read more

Source: OP-EDS

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America's Stupidest Criminal Laws

June 25, 2014 in Economics

By Jonathan Blanks

Jonathan Blanks

Imagine this: two defendants, same age, smoke a joint with some friends one July evening in their respective apartments. Neither has a criminal record. Both get caught; one faces an extra two years in jail.

Why? Because he shared drugs within a certain number of feet from a school that’s been out for a month.

The so-called ‘Drug Free School Zone’ is one of many laws that create extra penalties for already illegal acts with no reasonable tie to the public’s safety or the defendant’s particular circumstances.

It hasn’t always been like this. Historically, U.S. law and custom have provided robust protections for defendants. Four amendments in the Bill of Rights directly address rights during criminal investigations. Until the 1800s, juries not only determined facts of law — that is, whether the law was broken — but whether the law in question was just in the first place.

Unfortunately, these principles have eroded over time, particularly in recent decades. Congress and many states have legislated harsher, blanket punishments for crimes considered public priorities, regardless of what a judge or jury might deem appropriate. Many times, these laws are passed with the best of intentions, often in response to tragedies involving young children. But they handicap judges and juries, making it impossible for them to determine whether or not a legislated punishment is reasonable given the facts of the case. Moreover, harsh automatic punishments give prosecutors more leverage to extract plea bargains from defendants, because a judge, upon conviction, will be obligated to inflict a harsh penalty no matter what sentence he thinks the defendant deserves.

The stupid laws and rules promulgated over decades of ‘tough on crime’ rhetoric will take years to reform and correct.”

In a nutshell, these laws instruct our criminal justice system, “For the sake of the children, don’t think!”

Take, for example, Drug Free School Zones. In all 50 states, selling, manufacturing, and sometimes just possessing illicit drugs within a specified distance of a school, park, or daycare center may trigger a higher punishment for the underlying drug offense. Some statutes are written so broadly that huge swaths of major cities — often black or Hispanic neighborhoods with high population densities — are covered by overlapping Drug Free School Zones, negating any deterrent effect and skewing enforcement against minority communities. These penalties are applied whether or not children are involved, and even if the school is out of …read more

Source: OP-EDS

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Is Poland's Alliance with America "Worthless"?

June 25, 2014 in Economics

By Doug Bandow

Doug Bandow

The outspoken Polish Foreign Minister, Radoslaw Sikorski, apparently believes his nation’s alliance with America is “worthless.” For once, Washington should not race over to reassure him that Americans will do whatever it takes to protect Poland from whatever it faces. Instead, Warsaw should demonstrate why it is worthy of Washington’s support.

The weekly publication Wprost apparently received a recording of Sikorski’s conversation with Poland’s former finance minister. Sikorski, mentioned as a candidate for European Union foreign minister, declared: “This Polish-American union is worthless. It is even harmful because it gives Poland a false sense of security. Complete bullsh*t. We get into conflicts with the Germans, with Russia, and we think everything’s great because the Americans like us. [We are] suckers. Total suckers.”

There are suckers in the existing relationship, but they are American rather than Polish.

The United States spends more than 4 percent of its GDP on the military and accounts for three-fourths of total defense outlays by NATO members. The alliance aims for 2 percent of GDP but its members collectively only hit 1.6 percent last year. Poland has been patting itself on the back for recently hiking defense expenditures — to 1.8 percent of GDP. This year, Warsaw expects to edge up to 1.95 percent. Overall, America’s contribution to direct NATO expenditures is nearly ten times that of Poland.

The collapse of the Soviet Union exacerbated the discrepancy. While Washington preserved its globe-spanning military, its European allies quickly cut their armed forces to reflect the fact that they lost their main (and in many cases, only) enemy overnight.

Worse, the alliance expanded willy-nilly to the Russian border, bringing in nations combining minimal military capabilities and serious potential disputes with Moscow. None had ever mattered to American security, but Washington handed out security guarantees like hotels place chocolates on pillows: everyone got one — including Poland.

Sikorski’s comments should be a wake-up call in America.”

U.S. and European officials simply assumed that they would never have to make good on their promises. Then came the crisis in Ukraine, which suggested NATO’s Article 5 guarantee might not be a dead letter. The easternmost members of the alliance started clamoring for reassurance. Most importantly, they wanted American troops on station and permanent garrisons to protect their frontiers.

No one was more insistent than the Poles. Back before he thought the alliance was worthless, Sikorski stated: “America, we hope, has ways of reassuring us that we …read more

Source: OP-EDS

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The Supreme Court's Aereo Effect Might Evaporate Silicon Valley's Cloud

June 25, 2014 in Economics

By Julian Sanchez

Julian Sanchez

When is an online streaming service like a cable company? The US supreme court’s answer on Wednesday – sure to send chills down the spines of Silicon Valley entrepreneurs — was this: when five justices think it kinda sorta looks like one.

In a 6-3 ruling — which, in a dissenting opinion, Justice Antonin Scalia predicted would “sow confusion for years to come” — the court held that a company called Aereo violates copyright when it lets users tune into broadcast TV signals over the internet. But the “improvised standard” established by the court’s majority in American Broadcasting Companies v Aereo creates new uncertainty about just what an innovative tech startup must do to stay on the right side of the law — and raises questions about the legal status of familiar cloud services run by companies like Apple and Amazon.

In essence, Aereo combined two services to allow subscribers to watch free over-the-air broadcast television on a computer or mobile device. First, each subscriber effectively rented their own miniature, remotely-controlled antenna that the user could activate and tune to any local broadcast TV station. Second, subscribers got a remote DVR drive that could record, store and stream those broadcasts over the internet. The court tacitly permitted remote DVR services in 2008, when it allowed a lower court ruling blessing them to stand – yet the logic of that decision is at odds with the court’s finding on Wednesday that Aereo “publicly performs” the shows that it allows users to stream, violating federal copyright law.

Aereo’s lawyers had argued that they’re not “publicly performing” any copyrighted works at all, because each user create a personal stream using their own personal antennas. As they saw it, the service was no different than a cloud storage service like Dropbox: each user would be downloading her individual copy of a file (even if a file with the same content could be found in the personal folders of many different users). If individuals are allowed to record broadcast programming using a rented antenna on their own rooftops, and store their recording on a cloud drive, why should it make a difference whether the antenna is on Aereo’s rooftop instead of the user’s?

The court rejected that argument, noting that Congress had changed federal statute specifically to cover cable companies retransmitting broadcast programming, redefining the “public performances” restricted by copyright law to include “transmissions”. Even though Aereo functions …read more

Source: OP-EDS

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The Supreme Court Tells Cops to Back Off Your Cell Phone

June 25, 2014 in Economics

Well my iPhone is locked, so is the tablet in my pack, and I know my rights, so you gon’ need a warrant for that. That, with apologies to Jay-Z, is the upshot of the Supreme Court’s unanimous ruling today in Riley v. California (PDF), which holds that police must get a judge’s approval before rummaging through the cell phones of people they arrest — closing a potentially massive loophole in the Fourth Amendment’s protection against unreasonable searches and seizures.

The Court’s 9-0 decision limits the scope of a longstanding exception to the Fourth Amendment’s requirement that law enforcement officers obtain a warrant based on “probable cause” to conduct intrusive searches.  Under the so-called “search incident to arrest exception,” when police place someone under arrest, they can conduct a warrantless search of the person and their immediate surroundings to look for weapons that might pose a threat to the arresting officer, as well as evidence the suspect might attempt to hastily destroy.

In the era of the smartphone, however, legal scholars have long worried that exception could metastasize, with lethal consequences for privacy. As Justice John Roberts wrote for the court, pocket-sized computers holding gigabytes of profoundly intimate data have become “such a pervasive and insistent part of daily life that the proverbial visitor from Mars might conclude they were an important feature of human anatomy.” With increasingly powerful mobile devices routinely holding entire photo albums, personal videos, records of Web-browsing history, and vast archives of private correspondence, Roberts noted, giving police free reign to look through a modern phone “would typically expose to the government far more than the most exhaustive search of a house.”

[pullquote]For once, privacy advocates can sleep a bit easier.[/pullquote]

That’s what David Riley learned after being pulled over for driving with expired registration tags and (police soon discovered) an expired license, along with two concealed handguns. Suspecting that Riley might be a member of the Bloods street gang, the arresting officer seized his smartphone and handed it over to detectives at the station house, who “went through” it “looking for evidence.”  He found “a lot of stuff” as he probed the files on the phone — including videos suggestive of gang involvement and a photo of Riley with a car police had tied to a shooting weeks earlier.

What he didn’t find, however, was a judge to issue a warrant authorizing the search. That, the Court held, was a …read more

Source: OP-EDS