You are browsing the archive for 2014 August 05.

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Mercantilism Never Went Away

August 5, 2014 in Economics

By Ryan McMaken

2POUND1994

The debate over the Export-Import Bank continues, with the bank’s friends in Congress and other high places claiming that the Bank serves an indispensable function in the American economy. Larry Summers, for instance, defends the bank on the grounds that foreign authoritarian and “mercantilist” countries subsidize trade more aggressively than does the United States, therefore the bank is necessary.   Summers also seems to be under the impression that the US and the West practice something called “open market capitalism.” This exchange exhibits a way of thinking among some mainstream economists in which The US economy is capitalist while “mercantilism” is something that foreigners or people of ages past engaged in.

In this article, however, political scientist Dani Rodrik at  Harvard states what we have long already known: “mercantilism never really went away,” and perhaps inspired by people like Summers, he observes that “Today, mercantilism is typically dismissed as an archaic and blatantly erroneous set of ideas about economic policy.”  Rodrik is no enemy of mercantilism, though, and then goes on to sing the praises of mercantilism, which he regards as under-appreciated. It is no doubt true that many scholars (either honestly or dishonestly) claim mercantilism to be dead and buried in the West, but many who are familiar with the details of economic history will be forced to find mercantilism all around him. We can engage in semantic debates over whether or not modern “third way” economies are mercantilist, strictly speaking, but if these modern economic systems — that happily employ central banks, state corporations, and trade policies designed to benefit a certain group of people — are not mercantilist, then it’s hard to see what else they could be. Michael Heilperin defines mercantilism as a subspecies of “economic nationalism,” but we might also say this is a distinction without a difference. John Cochran, for example, has explained how the debate between libertarians and interventionists is essentially just a continuation of the historical debate between mercantilists and classical liberals.

Apparently unknown to Rodrik, mercantilism has received plenty of good press before. Writing in 1963, Rothbard discussed the ongoing non-death of mercantilism. Prior to World War II, mercantilism was disparaged often by the free-marketeers, but following the rise of Keynesian orthodoxy, people began to discover that there were many similarities between their own system and the mercantilists:

Mercantilism has had a “good press” in recent decades, in contrast to 19th-century opinion. …read more

Source: MISES INSTITUTE

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College Golf Courses, Water Parks, Etc.–Paid for by Taxpayers

August 5, 2014 in Economics

By Neal McCluskey

Neal McCluskey

Have you seen this quiz? The one that asks you to guess whether the thing you are looking at belongs to a college, country club, or prison? Give it a look, then continue reading. We’ll wait…

Stop giving higher education huge subsidies and preferential tax treatment, and make people foot the bill for their own fiestas.”

Okay, so what did you discover? Yup: Some pretty fancy golf courses, water parks, and buildings belong not to country clubs (or prisons, even in Switzerland), but to colleges. Of course, the difference between country clubs and colleges has been getting harder and harder to tell for years. Indeed, while featuring amusement park caliber water attractions at Texas Tech and Colorado State, the quiz didn’t even mention one of my favorites: the University of Missouri’s “resort quality” Tiger Grotto. But the Tiger Grotto website isn’t quite as blatant in its celebration of leisure as Texas Tech’s: while you watch Tech’s video about the “largest college leisure pool,” a tune plays that ends with a refrain of the famous Lionel Richie  song “All Night Long”: “fiesta forever!”

Fiesta, indeed!

In other college excess news, Penn State University just hired a new Athletic Director: Former UC Berkeley AD Sandy Barbour.  Her reported compensation? $700,000 per year, with “a $100,000 retention bonus and incentive compensation that can reach as much as $100,000 annually.” That deal may well be what’s needed to attract someone to take on responsibility for a big operation like PSU athletics, but it is way too much to justify the sentiment Barbour expressed upon taking the job. “When you spend a professional lifetime serving institutions and, most importantly, students, you dream about coming to a place like Penn State,” she said.

When you are making at least $700,000 a year, it is hard to believe it is mainly about serving  institutions and students. It is very much about serving yourself.

Of course, getting back to the aquatic centers, golf courses, etc. — and the research showing the self-interested actions  of students and college employees – it is clear that higher education is awash not in selflessness, but self-interest. There’s nothing wrong with that — it is completely normal — except for one thing: government, especially, treats higher education like charity work, with big subsidies and big tax favors. From excessive fun, to massive pay in supposed service of students, …read more

Source: OP-EDS

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U.S.-China Relations: Setting Priorities, Making Choices

August 5, 2014 in Economics

By Doug Bandow

Doug Bandow

The United States confronts increasingly complex challenges. Iraq faces disaster at the hands of Jihadist extremists, Syria’s horrific civil war rages on, and Russia is underwriting separatist forces in Ukraine. Washington’s policies are failing.

The Obama administration has been doing a little better, but not good enough, with China. There is no open conflict between the two, but tensions are high. Territorial disputes throughout the South China Sea and Sea of Japan could flare into violence. North Korea is more disruptive than ever. Other important issues lurk in the background.

While there should be no surprise when important powers like the U.S. and People’s Republic of China disagree, the two must work through such issues. Unfortunately, the U.S. is far better at making demands than negotiating solutions. In particular, Washington seems to ignore the interdependence of issues, the fact that positions taken in one area may affect responses in others.

For instance, the U.S. famously initiated a “pivot” to Asia, or “rebalancing” of U.S. resources and attention to the region. In practice, the plan hasn’t amounted to much. Washington moved a few thousand Marines to Australia—enough to irritate the PRC but not to achieve anything if hostilities occurred.

The U.S. is far better at making demands than negotiating solutions.”

Washington implausibly claimed that the shift had nothing to do with China. But the residents of Zhongnanhai are not stupid. For what other reason would the U.S. reaffirm military alliances and augment military forces in Beijing’s backyard?

Yet at the same time the Obama administration was pressing the PRC to apply greater pressure on North Korea to end the latter’s nuclear program and constant provocations. The North has no other close relationships and relies on the PRC for most of its energy and food, as well as the vast majority of outside economic investment. If only China would step on Pyongyang’s windpipe North Korea would have to yield, runs the argument.

The U.S. acts as if it was asking for a small favor. In fact, no one knows how the Democratic People’s Republic of Korea would react. Attempting to coerce Pyongyang would risk China’s relationship with its only ally in the region.

The DPRK might grudgingly give ground, while shifting its economic and political ties to Russia or the West, leaving China with another hostile power on its border. Or Pyongyang might successfully resist Beijing’s pressure, while making a similar geopolitical shift to others.

Or the North might …read more

Source: OP-EDS

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Orwellian Language: Peace Abroad; War at Home

August 5, 2014 in Economics

By Randall Holcombe

Capture

Governments often misuse language to build emotional and patriotic support for their policies. This Orwellian use of language is clearly evident in the way that US government policy uses the words “war” and “peace.”

Everyone is well aware of the US military invasions in Iraq and Afghanistan. Initiated during the Bush administration and continued through the administration of Nobel Peace Prize winner Obama, the US enlisted the assistance of other countries (but both invasions were mainly undertaken by the US military) to bomb those countries, occupy them with ground troops, and overthrow their governments. There was no declaration of war in either case. Those invasions of Iraq and Afghanistan, and the subsequent occupation by American troops, were called peacekeeping operations.

When we bomb other countries, invade them with our troops, and topple their governments, that is what we call peace.

Meanwhile, we refer to many of our domestic policies as wars. We have a war on drugs, a war on poverty, a war on terror, and lesser wars like the war on obesity, the war on smoking, and the war on coal. The list could go on.

In the post-Cold War era, everyone knows the US is the World’s policeman, or the World’s bully, depending on one’s point of view. But when we impose our preferences on people in other countries through the use of military force, we call that peace. In war, one side fights another, and linguistically, our peacekeeping missions are telling people that we are helping them out by destabilizing their governments and killing their countrymen.

At home, the language of war invokes images of a patriotic effort to fight an enemy, whether the enemy is poverty or obesity or coal, and invokes images of treason for those who dare to speak out against the nation’s efforts to fight its enemies. Offering support to the opposition in one of our wars is unpatriotic and treasonous.

By misusing language in this way, words lose precision in their meanings. When bombing people is peace and providing food to poor people is war, those words that are misused for their emotional connotations no longer refer to clear concepts. In both cases, the Orwellian language does serve a clear purpose. It builds support for the state, and facilitates its foreign and domestic policies.

…read more

Source: MISES INSTITUTE

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George Reisman’s Monograph on Piketty’s ‘Capital in the Twenty-First Century’

August 5, 2014 in Economics

By Ryan McMaken

piketty_0

Good News: George Reisman read Piketty’s Capital so you don’t have to. It seems Reisman is one of the few people who has actually read it. More good news: Reisman tells you what you need to know in a short monograph, and not in 700 pages like Piketty. The monograph is available at Amazon and at Reisman’s web site.  Reisman provided a comprehensive list of topics:

• Prelude to Piketty: The US Government’s Assault on the American Economic System
• Piketty’s Destructive Program
• Overview of Piketty
• Piketty’s Ignorance of the Role of Capital in Production
• The Actual Role of Capital Accumulation and Technological Progress
• Technological Progress as a Requirement for Capital Accumulation
• The Contribution of a Higher Capital/Income Ratio
• The Relationship between Technological Progress and Capital Accumulation Is Reciprocal
• Piketty’s Theory of Profit
• Piketty’s Fear of Saving and Higher Capital/Income Ratios
• Piketty’s Contradiction on the Productive Contribution of Capital
• Time Preference versus Piketty’s Alleged Limitless Rise in the Capital/Income Ratio


• Contrary to Piketty, Capitalism Progressively Raises Real Wages and Increases the Wage Share of National Income While Reducing the Profit Share
• Higher Aggregate Costs as the Source of Lower and Progressively Falling Unit Costs and Prices
• Piketty’s Failure to Realize that a Higher Capital/Income Ratio Signifies not More Profit but a Still Lower Rate of Profit
• No Tendency toward a Falling Rate of Profit
• The Actual Effects of the Capitalists’ Activities
• Unravelling Piketty’s Confusions: The Increase in the Quantity of Money as the Cause of Continual Net Saving and Net Investment
• Collapse of Piketty’s Alleged “Second Fundamental Law of Capitalism”
• The Connection between Profit and Net Investment: The Net-Investment/Monetary Component in Profit
• The Net-Consumption Component in Profit
• The National-Income/Net-National Product Identity
• Reductions to Consumption
• The Monetary Component in the Rate of Profit Need Not Signify Inflation
• Why Saving in the Real World Is Not Accompanied by a Falling Rate of Profit
• Taxation that Reduces Saving and Investment Increases Profits and Reduces Wages
• Piketty’s Program Would Increase the Amount and Rate of Profit
• For the Capitalists to Cause the Harm Piketty Says they Will Cause, They Would Have to Do the Exact Opposite of What He Fears They Will Do
• Contra Piketty: In Defense of 1,000:1 Income Inequality
• Contra Piketty: The …read more

Source: MISES INSTITUTE

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Ron Paul on the Latest Anti-Russia Sanctions

August 5, 2014 in Economics

By Ryan McMaken

WTC-Moscow

From a free-market perspective, trade sanctions are always immoral and illegitimate because they restrict trade and free choice among individuals. Arguably, they are even worse when instituted for purposes of provoking war, as is the case with the Obama administration and Russia. Ron Paul examines the current controversy:

Why Won’t Obama Just Leave Ukraine Alone?

by Ron Paul

President Obama announced last week that he was imposing yet another round of sanctions on Russia, this time targeting financial, arms, and energy sectors. The European Union, as it has done each time, quickly followed suit.

These sanctions will not produce the results Washington demands, but they will hurt the economies of the US and EU, as well as Russia.

These sanctions are, according to the Obama administration, punishment for what it claims is Russia’s role in the crash of Malaysia Airlines Flight 17, and for what the president claims is Russia’s continued arming of separatists in eastern Ukraine. Neither of these reasons makes much sense because neither case has been proven.

The administration began blaming Russia for the downing of the plane just hours after the crash, before an investigation had even begun. The administration claimed it had evidence of Russia’s involvement but refused to show it. Later, the Obama administration arranged a briefing by “senior intelligence officials” who told the media that “we don’t know a name, we don’t know a rank and we’re not even 100 percent sure of a nationality,” of who brought down the aircraft.

So Obama then claimed Russian culpability because Russia’s “support” for the separatists in east Ukraine “created the conditions” for the shoot-down of the aircraft. That is a dangerous measure of culpability considering US support for separatist groups in Syria and elsewhere.

Similarly, the US government claimed that Russia is providing weapons, including heavy weapons, to the rebels in Ukraine and shooting across the border into Ukrainian territory. It may be true, but again the US refuses to provide any evidence and the Russian government denies the charge. It’s like Iraq’s WMDs all over again.

Obama has argued that the Ukrainians should solve this problem themselves and therefore Russia should butt out.

I agree with the president on this. Outside countries should leave Ukraine to resolve the conflict itself. However, even as the US demands that the Russians de-escalate, the United States is busy escalating!

In June, Washington sent a team of military advisors to help Ukraine fight the separatists in the eastern …read more

Source: MISES INSTITUTE

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Walter Block On Controversies Throughout His Career

August 5, 2014 in Economics

By Walter Block

(Summary by Luis Rivera III)

Here, Dr. Walter Block reveals what he believes is his most controversial view as well as what has been the harshest response he has ever received. Dr. Block talks about his books Defending The Undefendable I and Defending The Undefendable II. He touches on some of the chapter including prostitution, drug legalization, blackmail, WalMart, child labor and private roads. This and more in this great interview!

For more on why blackmail should be legal and how it distinguishes itself from extortion read Legalize Blackmail (ebook.)

…read more

Source: MISES INSTITUTE

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Kicking Social Security's Empty Can Down the Road

August 5, 2014 in Economics

By Jagadeesh Gokhale

Jagadeesh Gokhale

The Social Security Trustees’ report was released in late July, and it shows the program’s finances to have worsened compared to last year — an unsurprising outcome since Congress has not enacted any changes to improve the program’s solvency.

A consistent and sizable worsening in Social Security’s finances during the last decade means that we now face a bigger economic challenge in sustaining a modicum of economic security for today’s and future generations of retirees, survivors, dependents and individuals with disabilities.

The Trustees’ latest report shows that the entire Old Age, Survivors’ and Disability Insurance (OASDI) program accrued an additional $1.8 trillion of unfunded obligations in present value during 2013 when future financial shortfalls are projected without any time limit.

Since the 2004 Trustees’ report was issued, the program’s unfunded obligation has grown larger by a whopping $14.5 trillion.”

Over just the next 75 years — a calculation that understates the system’s present valued funding shortfall — it increased by $1 trillion.

The OASDI trust funds’ claims on future Treasury tax receipts, however, increased by just $32 billion.

This comparison shows in terms of today’s dollars how exceptionally rapidly Social Security’s funding shortfall is growing over time.

Another example: Since the 2004 Trustees’ report was issued, the program’s unfunded obligation (“the can that the cohort of 2004 kicked to us in 2014”) has grown larger by a whopping $14.5 trillion.

The current total shortfall of the OASDI program equals 4.1% of the present value of future taxable payrolls.

It means that to achieve fully funded status, the payroll tax rate would have to be increased by 33% — from its current 12.4% rate to 16.5% immediately and permanently.

Alternatively, benefits must be reduced across-the-board by a commensurate 25%, also immediately and permanently. According to the 2004 Trustees’ report, the then-required immediate and permanent changes would have been a payroll tax increase of 28% or a benefit cut of 22%, respectively.

The comparison of the situation today with that of 2004 shows two things:

First, however these funding changes are introduced — whether in a piecemeal manner or all at once, via tax and benefit changes exclusively or the two in combination — there’s simply no escaping them.

And, second, the only available trade-off is to make smaller changes now — to impose smaller economic costs on many more generations of Social Security participants — or to make larger changes later on a fewer number of younger and …read more

Source: OP-EDS