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The Market on Piketty

June 29, 2014 in Economics

By Per Bylund

With all the fuss about the French economist’s tome on capital and perpetually growing inequality, one perspective that is uncommon in the commentary is what “the market” thinks of Piketty’s characterization of it. In other words, do those involved in investing and developing capital agree with Piketty’s analysis?

Whereas one should hesitate to place too much value on individual people’s anecdotes, the “real world” rather than outrageously simplified models should be close to any Austrian’s heart on economic theory. After all, we are proponents of causal-realist analysis of the market and economy. So whereas it may not serve as scientific evidence, this comment by well-known investor Marc Andreessen is as interesting as it is revealing about the “socialist calculation” view of the economy held by the likes of Piketty:

The funny thing about Piketty is that he has a lot more faith in returns on invested capital than any professional investor I’ve ever met. It’s actually very interesting about his book. This is exactly what you’d expect form a French socialist economist. He assumes it’s really easy to put money in the market for 40 years or 80 years or 100 years and have it compound at these amazing rates. He never explains how that’s supposed to happen.

The comment, from an interview in Vox, goes to the core mechanistic assumption in Piketty’s system – and shows why it is wrong: it includes neither uncertainty nor entrepreneurship. Sometimes economists would benefit from listening to “the market.”

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Source: MISES INSTITUTE

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How to Make Government Cost More

June 29, 2014 in Economics

By David Howden

Think the government is expensive? It’s about to cost a little more.

The Grow America Act, introduced earlier this month in the U.S. House of Representatives, contains “Buy American” language that would raise U.S. content to 100 per cent by 2018 from 60 per cent now.

The bill, which must pass both the House and Senate, is part of a resurgence of so-called Buy American rules in numerous recent federal spending bills amid angst about the weak economy.

In particular the Act will hurt Canadian manufacturers who specialize in bus and subway cars for American public transit systems.

Notwithstanding the North American Free Trade Agreement, the new Act, if passed, will effectively place a trade embargo on foreign-made goods.

Just think, what would have happened to the cars Americans drive if 30 years ago the government stopped letting foreign cars into the country. Actually, we already have a pretty good test case for this in the old Soviet bloc.

The Grow American Act might appeal to voters who think jobs will come home, but they’ll be wrong. The main result of the Act will be a less trade and a more expensive government.

(Originally posted at Mises Canada.)

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Source: MISES INSTITUTE

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Did Carl Menger Start WWI?

June 28, 2014 in Economics

By Mark Thornton

English: The arrest of Gavrilo Princip. (Photo credit: Wikipedia)

On the 100th anniversary of the start of WWI this unlikeliest of antidotes comes to us from Forbes and Mark Hendrickson.

As we mark the 100th anniversary of the assassination of Archduke Franz Ferdinand and his wife, Sophie, and the eventual start of World War I later this summer, it is fascinating the way individuals affect history and history affects individuals.

Anecdote #1:

Here’s one that I doubt you’ve heard before: The founder of the Austrian school of economics, Carl Menger (1840-1921), might have altered the course of events in a way that made possible the double assassination in Sarajevo on June 28, 1914. Let me explain:

Franz Ferdinand might not have been the heir to the Hapsburg Empire in 1914 if his cousin, Crown Prince Rudolf, had lived to be 65. However, Rudolf had committed suicide at the age of 40 a quarter-century earlier. The reason for that suicide has been the subject of speculation ever since, and the Wikipedia entry on Rudolf lists 14 productions in film and theatre that have included Rudolf as a character. The most widely accepted explanation is that Rudolf was depressed because his father was insisting that the crown prince, who was married, end his relationship with a younger woman. However, there might have been another major cause for Rudolf’s depression.

I heard this from my mentor, the late Hans Sennholz, who in turn had heard it from his mentor, Ludwig von Mises, another Austrian economist whose lifespan overlapped Menger’s by nearly four decades, although whether Mises heard this directly from Menger or from their mutual colleague, Eugen von Böhm-Bawerk or a third party, I know not. The Emperor Franz Joseph I had appointed the brilliant Menger to be the crown prince’s private tutor/mentor accompanying Rudolf on extended travels across Europe. Menger was a visionary genius who foresaw a period of revolutions and wars that would involve the disintegration of the existing order. Understandably, Menger’s predictions depressed Rudolf, and perhaps contributed to his decision to end his life prematurely so as to avoid the approaching cataclysm that we know as World War I.

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Source: MISES INSTITUTE

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June 28 A Century Ago

June 28, 2014 in Economics

By Hunt Tooley

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Franz Ferdinand was a difficult person in many ways. Dark. Angry at times. He became heir to the throne of Austria-Hungary when his cousin, Rudolf (whose tutor was the father of the Austrian School of Economics, Carl Menger) died in an apparent murder-suicide with his young mistress in 1889. The death of Rudolf was only one of many tragedies in the Habsburg family in the two generations leading up to World War I. Besides the cases of consecutive heirs to the throne, Franz Josef’s glamorous wife, Elisabeth, died at the hands of an assassin in 1898. There was also the rancor over Franz Ferdinand’s marriage in 1900 to Sophie Chotek, whose prestigious pedigree was not quite prestigious enough for the House of Habsburg. The two married in 1900, but only on the condition that Sophie not appear as Franz Ferdinand’s consort on occasions when he was appearing in the capacity of heir to the throne. She would not receive the title of Empress, and any son would not be eligible to succeed to the throne.

This is to say, Franz Ferdinand was facing somewhat more than normal family pressures. Political issues also lay heavy on his mind. To his thinking the transformation that had given Hungary autonomy within the Empire in 1867 had allowed the Hungarians to impose “magyarization” on the nationalities who came under their control–in effect nationalizing the minorities in the way that the Russians were “russianizing” their minorities. In an Empire which had grown by marriage alliances and had kept strong by means of negotiation and compromise, the 1867 compromise represented permission to introduce a new tone of bitterness into politics. Franz Ferdinand advocated peace with the bothersome southern neighbor Serbia, in part because he needed to have the cooperation of all Habsburg Slavs. He hoped to revamp the Empire from a Dual Monarchy into a Monarchy presiding over a federation of regions, and the various Slavic nationalities were crucial in overwhelming the Hungarians.

So he had enough on his mind to appear dark and angry. At times, he was capable of charm—for example in the center of his family or when he was with friends and close aides.

As Inspector-General of the Habsburg Army, Franz Ferdinand must have found the occasion of visiting Sarajevo, in recently annexed Slavic Bosnia, a special moment. Not only could he confer special attention on the picturesque capital with a parade and a visit …read more

Source: MISES INSTITUTE

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Human Action in Swedish

June 28, 2014 in Economics

By Per Bylund

As we noted a couple of months ago (here and here), the Swedish Mises Institute (officially the Ludwig von Mises-institutet i Sverige) were organized a crowd funding campaign to finance the translation and subsequent publication of Mises’s magnum opus Human Action in Swedish. They eventually reached (exceeded, actually) their goal of SEK 60,000 (almost $9,000) and are now working on getting the translation done, proofed, and then published. If all goes well, they hope to have the book available already in the fall – at least in a digital format. (This, of course, would require quite a bit of human action.)

Those of you who read Swedish or wish to learn – and this is obviously a great opportunity for Misesians in e.g. Minnesota and Wisconsin with Swedish or Scandinavian ancestry - may want to consider investing in a copy or two of the final product. Keep an eye on the Mises.se site for updates on how this project progresses. Find the post We Made It! here in English translation.

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Source: MISES INSTITUTE

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The Unintended Consequences of World War I

June 28, 2014 in Economics

A hundred years ago this weekend, Archduke Franz Ferdinand of Austria-Hungary was assassinated, triggering World War I and changing the course of the 20th century. And while the devastation of World War I was itself terrible, a recent article from Jim Powell argues that the American entry into World War I was substantially responsible for the unintended consequences that next played out in Germany and Russia, contributing to the rise of totalitarian regimes and another world war.

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Source: CATO HEADLINES

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Seattle’s $15 Minimum Wage

June 27, 2014 in Economics

By Mark Thornton

The City government of Seattle has voted unanimously to raise the minimum wage in the city to $15/hour to be done is a number of stages over the next few years. College students seem to realize that such increases could be a threat to current and longer term job prospects. According to the College Fix:

OPINION: Students and recent grads will take the back of the employment line under a steep wage increase

One of my professor’s favorite pieces of advice in “Intro to Politics,” designed for freshmen political science majors and those looking for a quick social science credit, is ominously relevant: “If you’re about to graduate, you had better take that job offer at that GAP back home.”

While no fresh graduate wants to end up back at home working at the GAP in the strip mall near the local elementary school, that’s the trajectory that the current job market is headed.

Given that the Seattle economy is highly dependent on large consumer product companies and Boeing, this could make an interesting case study of the effects of the minimum wage, especially if there is a large setback for those companies in the years ahead.

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Source: MISES INSTITUTE

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Germany Reneges on Request for its Gold

June 27, 2014 in Economics

By Mark Thornton

Germany has now decided that its gold is safe in the hands of the Federal Reserve after all. The budget spokesman for Angela Merkel’s Christian Democratic Union party, Norbert Barthle, said “The Americans are taking good care of our gold.” Germany initially made the request in January of 2013 after attempts to inventory the gold in 2012 were rebuffed. Juergen Hardt, also from the Christian Democratic Union party told reporters in May that there was no concern that German gold in the New York Fed has been tampered with. “It’s my view that the gold reserves should be stored wherever they might be needed in an emergency.” Of course Germany has never seen or possessed its gold. It obtained the gold in exchange for its surplus dollars in international trade prior to the breakdown of the Bretton Woods system. So I guess there really is no cause for concern.

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Source: MISES INSTITUTE

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No, Mr. President, You Can't Do Whatever You Want

June 27, 2014 in Economics

By Ilya Shapiro

Ilya Shapiro

Much as it might frustrate Barack Obama, there’s no “if Congress won’t act, the president gets extra powers” clause in the Constitution. The latest confirmation of that truism comes in the unanimous Supreme Court ruling in National Labor Relations Board v. Noel Canning, which invalidated the appointments our constitutional-scholar-in-chief made to the NLRB in January 2012. It turns out, the unanimous Court ruled, that the presidential power to make recess appointments — to avoid getting the Senate’s “advice and consent” on federal offices — is only triggered when the Senate is actually in recess.

And so, for the 13th time since those ill-fated NLRB nominations, the Obama Justice Department has lost unanimously at the Supreme Court. In each of those cases, the government argued for a radically expansive federal — and especially executive — power and in each case not a single justice agreed. In areas of law ranging from criminal procedure (as in Wednesday’s cell-phone-search ruling) to securities regulation, immigration to religious liberty, President Obama couldn’t even get the votes of the justices he himself appointed, Sonia Sotomayor and Elena Kagan.

As Miguel Estrada commented when summarizing the solicitor general’s abysmal performance last term — a win rate of 40 percent, against a historical norm of about 70 percent — “when you have a crazy client who insists you make crazy arguments, you’re gonna lose some cases.”

For the 13th time since those ill-fated NLRB nominations, the Obama Justice Department has lost unanimously at the Supreme Court.”

In Noel Canning, all the justices agreed that the Senate gets to determine when it’s in session and when it’s not. (That’s an argument that Miguel Estrada made on behalf of all 45 Republican senators — you’ll recall that Estrada himself declined a recess appointment to the D.C. Circuit after Democrats filibustered him for being Hispanic — and it’s also what Cato argued in the brief we filed). And that’s no surprise: based on oral argument, everyone was expecting the government to lose here, and lose big.

Unfortunately, the conventional wisdom (which I shared) about a narrow ruling was also proven correct. The only “rule” that emerges from Justice Breyer’s controlling opinion is that a three-day recess, the longest the Senate can adjourn without the House’s consent, isn’t long enough to enable recess appointments. And that a recess of between three and ten days is also “presumptively” too short. That’s a pragmatic …read more

Source: OP-EDS

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The Path to Digital Privacy Reform

June 27, 2014 in Economics

A unanimous Supreme Court recently declared that that our networked mobile devices merit the highest level of Fourth Amendment protection against government searches. Yet increasingly, the vast troves of personal data they contain are synched to “the cloud,” where the outdated Electronic Communications Privacy Act of 1986 allows many types of information to be accessed without a warrant. On July 8, Cato will be hosting a lively discussion on how and why to drag federal privacy law into the 21st century.

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Source: CATO HEADLINES