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When Government Shuts Down

January 20, 2018 in Economics

By Llewellyn H. Rockwell Jr.


By: Llewellyn H. Rockwell Jr.

[Editor's note: As we face another so-called government shutdown, some may recall that we've been down this road before. In this 1996 article, Lew Rockwell explains that government "shutdowns" are neither as unpopular, or as troublesome, as the media and Washington politicians assume.]

According to official history, the 104th Congress doomed itself when it shut down the government to force its budget priorities on the president. People got up in arms and demanded that government be reopened. This taught the people and their representatives a valuable lesson. As much as we may complain, we truly need big government. Today, we all agree with the White House vow to never allow the government to shut down again.

Of course, everything about this story is nonsense. Shutting down the government was this Congress's most noble act. Though the freshmen, who forced the closing against the leadership's wishes, didn't properly prepare for the inevitable response from the media and the bureaucracy, they were on the right track. It may have been the only principled act in two years of political compromise.

Moreover, nobody has produced a shred of evidence that the government shutdown was as unpopular as the media claimed it was. It was asserted daily, but never proven. Oh sure, we heard about how people couldn't get passports, couldn't get into Yellowstone, couldn't see the Vermeer art exhibit at the National Gallery of Art. But what's most startling is that the central government—which consumes 40 percent of the national wealth—wasn't missed much at all.

There was a fiscal illusion at work. At issue was a budget authorization that entitled government to spend money before it was there to spend. But government could have reopened, and run based on present receipts. That way the budget would be immediately balanced. Everyone claims to want pay-as-you-go government, but nobody suggested this as an option. They acted as if debt finance is part of the natural law.

There is still more to learn about government during shutdowns. Consider what is known as the “Washington Monument Ploy.” When budget cuts are threatened, visiting hours at popular monuments are cut back. A budget cut is voted by Congress, or an insufficient increase, and moments later an official-looking official asks the assembled tourists to please disperse. Thanks to those greedy Congressmen, we've been denied essential funds.

The media are there to record every word, and conduct interviews to …read more


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Mises Explains the Difference Between Circulation Credit and Commodity Credit

January 20, 2018 in Economics

By Frank Shostak


By: Frank Shostak

In the slump of a cycle, businesses that were thriving come to experience difficulties or go under. These errors aren't specific to any one firm. They occur in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs.

Businessmen themselves are confused as to why. They cannot make sense of why certain business practices that were profitable yesterday are losing money today. Bad business conditions emerge when least expected — just when all businesses are holding the view that a new age of steady and rapid progress has emerged.

In his writings, Ludwig von Mises argued against the prevailing explanation of the business cycle of overproduction and under-consumption theories, and he critically addressed various theories that depended on vague notions of mass psychology and irregular shocks.

In the psychological explanation, an increase in people's confidence regarding future business conditions gives rise to an economic boom. Conversely, a sudden fall in confidence sets in motion business stagnation.

Now, there can be no doubt that during a recession people are less confident about the future than during good times. But to observe this is not to explain it.

Likewise, theories that view various shocks and disruptions as the central cause behind boom-bust cycles do not advance our knowledge regarding the boom-bust cycle phenomenon.

Neither explains how the boom and bust come about, or why they are of a recurrent nature.

To arrive at a correct explanation, Mises held, we need to trace the change in business conditions back to previously established and identified phenomena, and that is precisely what these theories do not do.

Hence Mises concluded that all these theories do not provide an explanation but rather describe the phenomenon in a different way.

Mises also held that various statistical and mathematical methods are another way of describing but not explaining events. Statistical methods make it possible to generate charts of data fluctuations but they do not improve on our knowledge of what causes the fluctuations.

The Circulation-Credit Theory of Business Cycles

Mises made a distinction between credit that is backed by savings, and credit that does not have any backing. The first type of credit he labeled commodity credit. The second he labeled circulation credit. It is circulation credit that plays the key role in setting the boom-bust cycle process.<a target=_blank class="see-footnote" id="footnoteref1_1o6s0y5" title="Ludwig von Mises Human …read more


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Economics Is Like Birdwatching — You Have to Know What to Look For

January 20, 2018 in Economics

By Gary Galles


By: Gary Galles

Have you ever been birdwatching? If not, how well do you think you would recognize the birds around you the first time you tried? Even if you were specifically looking for a species present in your area, you might fail to recognize it. The reason is simple. Without additional training, there are many ways to identify birds you are unaware of — you often would not know what to look at or listen for, or where or when to look. An experienced birder might well see what you missed.

Applying economics to public policy is akin to birdwat­ching in this way, except for the fact that few untrained birdwatch­ers presume they have the expertise to “educate” others to their views, while almost everyone seems to assume they have sufficient expertise in economics to pontificate on public poli­cies. This leads to ignor­ance of the predictable, even if unintended, adverse side effects that can turn seemingly helpful economic policies into harmful ones, because people don’t know where or how to look to recognize them, and massive overconfidence in government’s ability to effectively solve societal problems.

At its core, economic analysis reduces to the proposition that “incentives matter.” Changes in the relevant costs or benefits facing decision-makers will alter people’s choices in predictable directions. Higher expected benefits induce people to do more of some­thing, and higher expected costs induce them to do less. And, important­ly, there are almost always more areas in which peoples’ incentives, and thus choices, are changed than those not “expert” in a field realize, resulting in responses to market incentives that are surprisingly (to central planners, if not to economists) large.

The altered choices of one group will also alter the costs and benefits of choices facing others, causing changes in their behavior that illustrate the impossibility of changing just one incentive story via changing policy. Those changes will, in turn, alter others’ incentives and behaviors, in a widening series of effects.

Economists are trained to “look” for all the important incentive changes that will face the affected individuals, and the predictable effects that will result, when analyzing policy changes — effects which untrained policy watchers often miss. If they are well-trained, they should also have learned enough humility about the complexity of social processes to admit that there can be margins of choice they might have overlooked as well, leading to drastic limitations on anyone’s ability …read more


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Ryan McMaken: Are We Getting Poorer?

January 19, 2018 in Economics

By Ryan McMaken, Jeff Deist

Mises Weekends with Jeff Deist

By: Ryan McMaken, Jeff Deist

By every measure extreme poverty in Third World nations is decreasing rapidly. But what about the US and the West? Economist and editor Ryan McMaken joins Jeff Deist for a wide-ranging discussion of what makes people rich, and how economists should measure wealth. This great discussion explains the decline of real incomes and savings rates in the West, the moral hazards created by central banks, and how a happy combination of technology and market innovation often manages to outpace rapacious governments. Is deflation, horribly mischaracterized by economists, the real source of wealth in a society? And should we judge our personal finances in terms of net worth or lifestyle?

…read more


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Trump's Ideas May Force the Introspection 'Davos Man' Needs

January 19, 2018 in Economics

By Ryan Bourne

Ryan Bourne

President Trump will attend the World Economic Forum in Davos
next week.

On the face of it, the annual jolly for worldwide business and
political elites at a ski resort in Switzerland looks an
unwelcoming environment for the President. “Davos Man” is seen by
many as the manifestation of the globalist agenda Trump denounces.
The biggest acclaim at last year’s jaunt, after all, went to
President Xi of China, as he outlined a robust defense of free trade days
after Trump’s inauguration extolled protectionism.

But there’s an argument to be made that on other issues, Trump’s
likely opinions will provide the shake-up the Forum needs.

Rich people blowing company cash in an expensive resort to
bloviate their political views and contemplate the musings of “very
important people” is in itself not particularly interesting. But
when politicians, businessmen, lobbyists, commentators and
regulators get together committing to “improving the state of the
world,” there are reasons to be concerned.

The first is that by design elites and vested interests dominate
the conversation.

As an example, last year the forum contained business voices
denouncing Brexit, with major banks and other established
international companies lamenting potential impacts on supply
chains and their commercial activities. Totally unrepresented were
British consumers, who pay higher prices for external goods because
of EU-level tariffs, and small businesses and yet-to-exist
enterprises, which disproportionately bear the costs, or don’t
exist, due to EU regulations.

Indeed, it should not surprise us given the aligned interests of
participants that Davos Man is so prone to groupthink on the issues
of the day. A look back at the conference of 2006 shows little to
no discussion of global systemic financial risks, but concern about
bird flu being the next Black Death.

And who can blame them? Financiers, industrialists and
regulators at Davos on any given year are generally success stories
under current policies, and see near-term concerns as threats to
their position, and arguably ignore larger systemic problems on the

Elites, by definition, have done well out of the status quo.
They have wealth and power that they seek to preserve. It should
not surprise us then to see the World Economic Forum now pushes
articles about how to “deal” with supposed populism. Conventional
elite wisdom worldwide is social democratic — that political
fissures have arisen because of economic anxieties and

So the lazy “solution” is for more government investment or more
redistribution to keep the populists at bay. It just so happens
bigger government will inevitably mean politicians dealing with and
buying goods and services from existing major businesses – the very
sort that appear at the World Economic Forum every January.

Perhaps the …read more

Source: OP-EDS

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How Sound Economics Birthed the Video-Game Era

January 19, 2018 in Economics

By Chris Calton


By: Chris Calton

In 1962, the first version of Spacewar! was completed. Technically, this wasn’t the first video game ever created, but it was probably the first one that really mattered, as it serves as the beginning of the long line of advances in video game technology that continues into the present day.

The invention of the game is generally credited to Steve Russell, who was the primary programmer. But the development of the game was the product of a handful of programmers working with an early computer known as the PDP-1. The original version of the game employed two “ships” – really just shapes on a screen – that could shoot a missile (a dot) at the other ship. It was a two-player game, and the goal was to destroy your opponent.

But the programmers made their code available to anybody who asked for it, and innovation in the game flourished. A gravity simulation was developed by another programmer who added a sun that would pull on the ships, creating a new obstacle for players to contend with. Another programmer altered the randomly placed dots on the screen that represented stars so that they actually reflected the real-world constellations and even mirrored each star’s respective brightness. A hyperspace option was added by yet another programmer, providing a new strategic element to the game.

But perhaps the most important innovation came from another techy named Nolan Bushnell. While he attended college at the University of Utah, he was employed by an amusement park to work their arcade room. In the days prior to electronic games, this meant mechanical pinball games, rather than the modern arcade games that Bushnell was about to invent.

Like any computer geek in the 1960s, Bushnell was enthralled by Spacewar! which he was able to play on the PDP-1 owned by the University of Utah, and he wanted to bring the game to the arcade so non-computer geeks could play for a quarter. The problem was that the PDP-1 that the game ran on did not come cheap. “I realized you could make a whole lot of quarters if you could put a computer with a game in an arcade,” Bushnell said, in reflecting on the idea in 2013,1 “And …read more


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Judge Us Tax Reform on Wage Growth, Not Share Buybacks or Staff Bonuses

January 19, 2018 in Economics

By Ryan Bourne

Ryan Bourne

Even before Donald Trump had signed his tax reform into law, his
opponents had company-level stories at the ready.

Pfizer, Coca-Cola and Cisco Systems had said they intended to
use any immediate gains from rate cuts to increase dividends and
buy their own shares. Instead of increasing wages as promised,
Democrat critics were certain this showed wealthy shareholders were
the beneficiaries of major cuts to corporate taxes.

So who can blame Republicans for drawing on contrary evidence
after the signed Bill slashed the headline rate from 35pc to 21pc?
The apparent good news just kept on coming for the president. Wells
Fargo increased their company minimum wage to $15 an hour and
pledged to donate $400m to charity, citing the tax Bill’s
effects. AT&T said they would give a $1,000 bonus to more than
200,000 US employees. Others, such as Fifth Third Bancorp, pledged
to both give bonuses and increase basic pay.

Yet despite the despair on the Democrat side or the backslapping
by Republicans, attaching too much weight to either set of company
announcements would be erroneous. The success or otherwise of the corporate tax change
cannot and should not be judged by company bonus or share
buyback decisions. The acid test of the reforms, which cuts rates
and allows immediate expensing on equipment, is whether it
increases corporate investment, in turn raising productivity and

Yes, the immediate effect of a corporate rate cut is indeed a
windfall to “old capital”. Existing investments obtain
higher after-tax returns than envisaged. This is a big reason why
the stock market surged as tax-reform prospects
. All else the same, profitable companies find
themselves with more cash, deciding what to do with it based upon
their short-term investment opportunities, the health of the labour
market and much else besides.

Where Democrats are wrong is to assume that dividend payments,
or buybacks, are themselves a “bad thing” for the
economy. If a company has little near-term investment
opportunities, payouts to shareholders might make sense. And
it’s not as if that money is going to be burned out of
existence. It will most likely be reinvested by shareholders

One-off bonuses may likewise help show the trade-off of taxes in
terms of more resources left in the private sector. But it’s
easy to suspect some companies saw a good PR opportunity. Sharing
some of the burgeoned post-tax profits with workers helps entrench
the tax reform they desired and wins favour with a president who
regularly wades in with very public opinions on companies. Some
firms would probably have increased wages anyway, given the health
of the economy.

No, the stated aim of the administration …read more

Source: OP-EDS

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A Sideways Skyscraper Curse?

January 19, 2018 in Economics

By Doug French


By: Doug French

The Skyscraper Index shows a correlation between the construction of the world’s tallest buildings and economic busts. It was created by economist Andrew Lawrence in 1999. Mark Thornton of the Mises Institute expanded on Lawrence’s work combining Austrian Business Cycle Theory to the analysis.

Dr. Thornton said in an interview,

Record-setting skyscrapers are a prominent example of how distortions in interest rates (i.e., actual rates below “natural” rates) alter the economy’s structure of production in an unsustainable manner, but obviously it is not the building of a very tall building that causes an economic crisis. The most general impact on the economy is that the structure of production is reoriented toward longer run and more roundabout production processes. Record-setting skyscrapers usually require a multitude of new technological processes and systems all of which have to have their own production, distribution, installation, and maintenance systems. This is symptomatic of the entire economy in an artificial boom.

What those of us in Vegas are wondering (h.t. Jeff Barr); wouldn’t this theory apply to large scale public works projects? The improvements are horizontal instead of vertical, but what happens at the end massive of highway infrastructure projects like the ones continuing in Las Vegas.

Project Neon is the largest public works project in Nevada history. At a cost of $1.5 billion, what is affectionately known as the “Spaghetti Bowl,” the interchange between Interstate 15 and U.S. Highway 95 located just west of downtown, is being overhauled. Mick Akers writes for the Las Vegas Sun, the “3.7-mile-long widening of Interstate 15 between the Spaghetti Bowl and Sahara Avenue, improves the busiest stretch of highway in the state. It sees 300,000 vehicles daily, or 10 percent of the state population, with 25,000 lane changes per hour.”

The project began in the spring of 2016 and this past July it was believed to be 40 percent complete. “Project Neon is nearly 40 percent complete, recording roughly 400,000 man-hours of work thus far without a recordable injury,” said Dale Keller, Nevada Department of Transportation project manager. “Meanwhile, the transformation of Martin Luther King Boulevard into an enhanced feeder-like roadway paralleling Interstate 15 is nearly complete.”

Mick Aker lists what has been done.

  • More than one mile of reinforced concrete box culvert for flood control.
  • The longest sign structure in the state — an automated traffic management sign, which …read more


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Korean DéTente a Positive but Limited Step Forward

January 19, 2018 in Economics

By Doug Bandow

Doug Bandow

South and North Korea currently are enjoying a limited détente.
But their seeming embrace, with plans for a unified Olympics team,
is a symbolic act unlikely on its own to reshape U.S. policy.

South Korean President Moon Jae-in planned to resume the
so-called Sunshine Policy, which uses cash and aid to leaven
engagement with the North, until Pyongyang’s aggressive rhetoric
and accelerated weapons testing forced him to change course. Now
Kim Jong-un’s call for dialogue has resurrected his original

President Trump’s cascade of threats encouraged Kim to engage
Moon and help pull the South away from the Trump administration,
citing U.S. “hostility.” The result has been to reinforce Seoul’s
already firm opposition to U.S. military action, which the South
fears could trigger a Second Korean War.

At the end of the day: Contact between the U.S. and North Korea
is essential to a permanent solution. Unfortunately, the Trump
administration remains intransigent, pressing the DPRK to concede
the main issue at stake before talks can be held — a
nonstarter — and leaving the threat of war looming.

Doug Bandow is
a senior fellow at the Cato Institute and the author of “Tripwire:
Korea and U.S. Foreign Policy in a Changed World.” …read more

Source: OP-EDS

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City Council Disregards Stripper Safety with "No-Touch" Rule

January 19, 2018 in Economics

By Lee Friday


By: Lee Friday

Politicians in London, Ontario have revised their business licensing regulations. Public consultation was part of the process, and sex workers asked City Council to delete a clause in the by-law that bans touching between customers and employees of London’s strip clubs. However, Council unanimously denied their request, as they claim to be a better judge of what is in the best interest of these workers.

City Council says one of the purposes of the by-law is the “health and safety of service providers.” But the sex workers say the no-touch rule makes them less safe! Who is right? More importantly, who has the right to decide?

Politicians force Women into Dangerous Situations

Naïve politicians seem to think that when they forbid sexual touching in strip clubs, sexual touching will stop. It won’t. It continues, as it has in the past, either in the strip clubs as the workers risk fines, or in other locations as they risk their own safety in their attempt to earn a living. As AnnaLise Trudell, education manager with Anova, the former Women’s Community House, said “That’s what actually earns a living wage, touch-based activities.” And Julie Baumann, a co-founder and co-ordinator of SafeSpace, a local collective for sex workers and supporters, pointed out that “women have said . . . that it is safer to do the work inside an establishment with safety buttons, backup security, than it is within a private residence.”

The risk for sex workers is increased by the actions of these arrogant politicians, who refuse to acknowledge that the sex workers themselves are uniquely qualified to determine the circumstances which offer them the highest degree of safety. Dr. Jodi Hall is a nursing professor who conducts research on women who are criminalized. As per the London Free Press:

Hall’s been interviewing sex workers in London for the last five years. None have linked the touching ban with feelings of safety, she said.

“It moves them into spaces where there are less people, it’s less public, and there are less opportunities to get help if they needed it,” she said.

London Councillor Maureen Cassidy is not convinced the no-touch rule should be scrapped:

“I’m a woman. I don’t like being condescended to and somebody thinking they know what’s better for me. I hear those arguments,” she said.

“But I know there are women in this trade who are coerced into doing things …read more