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Rothbard on Economic Ignorance

October 13, 2015 in Economics

By Matt McCaffrey

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Rothbard on Economic Ignorance

October 13, 2015

I’ve noticed that the following Rothbard quote tends to circulate periodically amongst free-market groups:

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

I think the reason these lines prove so popular is because they neatly summarize a problem that’s unique to economics. That is, economics is the most-discussed, but least-studied field of human inquiry. In fact, people often build their opinions about economic ideas and policies on a knowledge base so small it would seem bizarre in any other discipline.

For instance, if we were to select people at random on the street and ask them to debate recent advances in particle physics, the conversation would likely be limited, if indeed the subjects knew what to discuss at all. Yet we could bet with equal certainty that almost any such randomly selected person would have strong views on socialized medicine, the minimum wage, or gun control.

Other things equal, when friends meet for a drink, or families sit down to dinner, it’s unlikely they’ll discuss physics, chemistry, geology, or phenomenology. The reason is simple: many people know little about these subjects, and have little interest in exploring them. Most importantly though, we’re all generally happy to admit it if we lack such specialized knowledge, as it doesn’t usually play a vital role in our lives (again, assuming we’re not specialists).

But economics is different. Almost everyone discusses and debates economic problems, or public policies that carry profound economic implications. Because it’s grounded in human action and choice, economics is universally relatable, and therefore each individual tends to feel as if he has some relevant personal experience and knowledge through which to interpret economic events.

Unfortunately, this intuition is very often mistaken; hence, Rothbard’s irritation.

However, while I appreciate his observation, I also think there’s a problem with the way it’s being used in popular economic discussions. What I mean is, if …read more

Source: MISES INSTITUTE

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The Fed’s Quadral Mandate and Impossible Balancing Act

October 13, 2015 in Economics

By Jonathan Newman

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The Fed’s Quadral Mandate and Impossible Balancing Act

October 13, 2015

The Fed’s responsibilities keep expanding. A 1977 update to the Federal Reserve Act included the goals of “maximum employment” and “stable prices”. Many economists, even in the mainstream, criticize this dual mandate as a difficult, if not impossible, balance. They point to Short-run Phillips Curves that show a tradeoff between inflation and unemployment rates. Expansionary monetary policy may encourage employment, but it runs the risk of above-target inflation. Contractionary monetary policy may rein in inflation, but at the detriment of employment levels.

A quick glance at any measure of prices or employment over the history of the Federal Reserve shows a complete failure to satisfy either half of their dual mandate, much less the whole.

During the most recent recession, the Bernanke Fed took on more responsibility: pacifying financial markets. In later remarks, he said that any central bank has two responsibilities: economic stability and financial stability. Bernanke considers maintaining maximum employment and stable prices as two parts of the economic stability responsibility. He details the difference in some 2012 lectures at George Washington University:

“For financial stability, the main tool the central banks have is lender of last resort powers by providing short-term liquidity to financial institutions, replacing lost funding. Central banks as they have for, you know, number of centuries, can help calm a financial panic. For economic stability, the principal tool is monetary policy, of course in normal times, that involves adjusting the level of short-term interest rates.”

The Fed has also taken on global economic and financial stability in recent years. At the recent World Bank and IMF meeting in Peru, China’s finance minister said that the US central bank “should assume global responsibilities” and hold off on raising interest rates to promote more demand from developed countries for output from developing countries.

The image of seesaws on top of seesaws comes to mind when I consider the Fed’s balancing act. The dual mandate is now a quadral mandate: maximum employment in the US, stable prices in the US, financial stability in the US, and, laughably, global economic growth. Astonishingly, their purview and responsibilities expand even when they …read more

Source: MISES INSTITUTE

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Resisting Calls for Further U.S. Intervention in Syria

October 13, 2015 in Economics

Some critics of President Obama’s foreign policy are using Russia’s decision to try to prop up Bashar al-Assad’s teetering regime as a justification for renewed U.S. involvement in Syria. According to Cato scholars, this would be a terrible mistake. “Up to this point, President Obama has exercised commendable restraint in resisting pressure to ‘do more’ in Syria,” says Cato scholar Brad Stapleton, “It would be folly to abandon that course in some sort of knee-jerk reaction to Russian intervention.”

…read more

Source: CATO HEADLINES

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Hillarynomics

October 13, 2015 in Economics

By Richard W. Rahn

Richard W. Rahn

If Hillary Clinton were to be elected president, what economic policies would she propose and what would be the effect on the economy? To try to get an answer, I have looked at her statements, her campaign website, and her Senate record.

Mrs. Clinton has recognized the major economic problem of slow growth and stagnant incomes, and her economic platform is called, “A plan to raise American incomes.” Unfortunately, the plan is largely a list of feel-good statements with very little specificity and contains nothing that would have a major positive impact on economic growth. (In fact, some of the proposals, such as increasing the minimum wage and overtime rules, would be small negatives). After Mrs. Clinton gave her big economic policy speech in July, the left-leaning Huffington Post featured an article by two of its reporters titled: “Hillary Clinton’s economic speech a total letdown: Wages and inequality get lip service and not much else.” After reading the speech, one can only conclude the authors got it right in the headline.

Hillary has said she is in favor of tax relief for families, yet, unlike many of her Republican rivals, she has failed to provide specific tax cut proposals with numbers other than extending a $2,500 tax cut for students to deal with college costs. Her small-business proposals are four, nice, general statements, without specifics.

Promises of economic growth are not borne out by her proposals.”

Hillary Clinton flip-flopped on the Trans-Pacific Partnership (TPP) trade deal this past week. She had supported the TPP when she was secretary of state, and referred to it as the “gold standard in trade agreements” in her book “Hard Choices.” When she came out against it on Oct. 7, she said: “I don’t believe it’s going to meet the high bar I have set,” while admitting she had not read it. In 1996, she was vocal in her support of the North American Free Trade Agreement, yet she has backed away from it in the years since. Both her Senate voting record and rhetoric on trade deals have been inconsistent. She supported free trade agreements with Singapore, Chile, Australia, Morocco and Oman, while she opposed the Central American Free Trade Agreement. One of the planks in her small-business proposal is to expand “access to new markets,” which seems to contradict her newly found opposition to the TPP.

As a senator, Mrs. Clinton …read more

Source: OP-EDS