Economics

New Issue of Econ Journal Watch: Does Economics Need an Infusion of Religious or Quasi-Religious Formulations?

Brandon Christensen Current Events, Economics, History, Links, Religion , , , , , , ,

The new issue of Econ Journal Watch is out and EJW has teamed up with the Acton Institute to feature ‘religion and economics’ as the topic for a symposium.

As some of you may know, my fellow Editor-in-Chief Fred Foldvary is an editor for the journal, and Warren is the math reader, so this project holds a special place here at NOL. I just wish they’d be a little less humble about their endeavors elsewhere and share this type of stuff themselves (this humility is a recurring problem in the libertarian quadrant of the blogopshere)!

At any rate, here is the lineup:

The Prologue to the symposium suggests that mainstream economics has unduly flattened economic issues down to certain modes of thought (such as ‘Max U’); it suggests that economics needs enrichment by formulations that have religious or quasi-religious overtones.

Robin Klay helps to set the stage with her exploration“Where Do Economists of Faith Hang Out? Their Journals and Associations, plus Luminaries Among Them.”

Seventeen response essays are contributed by authors representing a broad range of religious traditions and ideological outlooks:

Pavel Chalupníček:
From an Individual to a Person: What Economics Can Learn from Theology About Human Beings

Victor V. Claar:
Joyful Economics

Charles M. A. Clark:
Where There Is No Vision, Economists Will Perish

Ross B. Emmett:
Economics Is Not All of Life

Daniel K. Finn:
Philosophy, Not Theology, Is the Key for Economics: A Catholic Perspective

David George:
Moving from the Empirically Testable to the Merely Plausible: How Religion and Moral Philosophy Can Broaden Economics

Jayati Ghosh:
Notes of an Atheist on Economics and Religion

M. Kabir Hassan and William J. Hippler, III:
Entrepreneurship and Islam: An Overview

Mary Hirschfeld:
On the Relationship Between Finite and Infinite Goods, Or: How to Avoid Flattening

Abbas Mirakhor:
The Starry Heavens Above and the Moral Law Within: On the Flatness of Economics

Andrew P. Morriss:
On the Usefulness of a Flat Economics to the World of Faith

Edd Noell:
What Has Jerusalem to Do with Chicago (or Cambridge)? Why Economics Needs an Infusion of Religious Formulations

Eric B. Rasmusen:
Maximization Is Fine—But Based on What Assumptions?

Rupert Read and Nassim Nicholas Taleb:
Religion, Heuristics, and Intergenerational Risk Management

Russell Roberts:
Sympathy for Homo Religiosus

A. M. C. Waterman:
Can ‘Religion’ Enrich ‘Economics’?

Andrew M. Yuengert:
Sin, and the Economics of ‘Sin’

Not too shabby, eh? I’ll admit upfront I haven’t been able to read any of the articles yet, but once I find some work out here in Austin I’ll be able to patch together a schedule that’ll allow for a little leisure. You can always download the entire issue, too (pdf). Econ Journal Watch is an important project that is dedicated to exploring and criticizing the underlying assumptions of the discipline of economics, but it is done in a way that is classy, professional, and informative.

Hayekian Environmental Policy

Fred Foldvary Economics, Liberty , , , , , ,

Just as decentralized knowledge implies economic non-intervention, so too it implies environmental non-intervention.

One of the contributions to economics made by the Austrian-school economist Friedrich Hayek is the theory of scattered knowledge. In his famous article, “The use of knowledge in society,” Hayek analyzed how the knowledge needed for economic activity by consumers, producers, legislators, and bureaucrats is dispersed, tacit, and ever-changing. Sellers of goods can conduct surveys to find out what people want, but such data collection reveals only a small fraction of the subjective desires of buyers. The knowledge of how to produce goods is decentralized among the firms, each of which has its own local knowledge of the costs and the demand for its goods.

Much of the knowledge about goods is tacit, not written down. A label can list the ingredients, but it will not tell the buyer about how good it will taste, and does not reveal the full story about the nutritional benefits and harmful effects. A government bureaucrat cannot know all the details about the way a company handles its goods. The biggest and fastest computers cannot be programmed to know everything the economy is doing. The supplies and demands for goods are dynamic, always changing, like the weather, so that even when knowledge is gathered and analyzed, it soon becomes obsolete.

The Hayekian knowledge problem is one reason the Austrian school of economic thought concludes that only a truly free market can effectively apply the relevant knowledge. Government officials who try industrial policy, the promotion of some goods at the expense of others, often fail. For examples, subsidies to energy from the wind end up wasting resources, as a uniform policy cannot be applied to suit local conditions, and the full effects (such as windmills killing birds) are not known in advance, resulting in bad unintended consequences.

The natural environment, everything apart from human action, is too complex for human beings to fully understand it. As with economic knowledge, the data needed to understand human effects on the environment is both global and local. The knowledge of environmental conditions is tacit, and changing. The ecologies of the earth, like the economies, have interconnected elements with feedback loops. Kill the mountain lions, and the deer multiply, eat up the vegetation, and then the rains wash away the soils.

The Hayekian perspective on global climate change as well as local impacts is to admit that we don’t know the full effects of human activity, but we do know that interference with long-established interconnections can be deadly. The policy implication is that we should minimize unnecessary human interference with the natural environment. Any human presence displaces the natural presence, as a farm replaces meadows and forests. But it is excessive to burn down large areas of rain forests in order to have a few years of crops until the soil nutrients are depleted.

The optimal application of the knowledge issue is to understand that we can apply some general knowledge but not specific knowledge. For example, we know that emissions from power plants, factories, and vehicles have bad effects. Costs are ultimately subjective, but some costs, such as lost income and resources, can be quantified. We cannot precisely measure the social cost of pollution, but by comparing places with various amounts of pollution, and the various rates of diseases in those places, we can obtain some estimates of the ill effects. Policy can therefore require a payment for emissions that invade others’ property. To do nothing is to declare a price of zero, which is less accurate than the positive price obtained by statistical means.

The Hayekian policy for emissions is therefore a payment for the estimated damage. A pollution charge requires less knowledge than detailed regulations such as engine requirements, gasoline additives, and smog tests. The emissions charge would not be based on uncertain climate changes, but on the proposition that human interventions into the atmosphere and oceans could be catastrophic. The probabilities are uncertain, but what we do know is that a small probability times a huge cost equals a substantial present value. Because the earth’s environment is a balance of water and air temperatures, cycles of carbon emissions and absorptions, feedback loops, and substances such as the ozone layer, the probability that human interventions are harmful is much greater than the chance that they are beneficial. The mutual relationship of wolves, deer, and vegetation imply that killing off either the wolves or the deer will have bad effects.

The knowledge problem implies that policy has to confront the environmental issue rather than ignore it, because human activity is inherently environmentally interventionist. In some cases, intervention can help the environment, such as with artificial coral reefs. But large interventions such as deliberately dumping iron compounds into the ocean should be avoided.

The Austrian school of economic thought is critical of central planning due to its absence of economic calculation via market prices, and due to the knowledge problem. But the absence of pollution charges itself implies mispricing and the presumption that we know nothing about the effects of emissions. Given today’s highly regulated economy, the implication of Hayek’s thought on knowledge is to replace regulations and emissions trading schemes with the requirement to pay the estimated social costs. Firms (and their customers) can then either pay that cost or else avoid that cost by polluting less. To be most effective, pollution charges would need to be applied globally.

Some free-market economists respond to the pollution issue by stating that property rights are sufficient to solve the problem. But any negotiation or lawsuit to compensate others for negative external effects necessarily requires an objective estimate of the damages. A complete prohibition of an external effect, whether of emissions or noise or visual effects, imposes a cost on the emitter. Tort law, with transferable lawsuits, as well as arbitration and mediation, could replace governmentally enacted pollution levies when the victims can be identified, but there is no avoiding some objective estimate of costs. And where torts are not effective, an international agreement on pollution charges would be warranted.

Karl Marx versus Thomas Piketty

Brandon Christensen Economics, History, Philosophy , , , , , ,

Both [Marx and Piketty] protest economic disparities, but move in opposite directions. Piketty advances into the domain of salaries, income and wealth; he wants to temper these extremes and give us—to alter the slogan of the ill-fated Prague Spring of 1968—capitalism with a human face. Marx advances into the domain of commodities, work, and alienation; he wants to undo these relations and give us a transformed society.

This is from UCLA historian Russell Jacoby in the New Republic. The rest of the article is not that great, to be honest (I’ll bet you ten bucks that Jacoby – whom I never took during my time in Westwood – is an old man; I can safely assume this because of the praise he lavishes upon Karl Marx at the expense of Piketty and other economists), but I thought this excerpt was a good opportunity to enhance my argument that Murray Rothbard was a great Cold War scholar and a terrible role model for the world we live in today.

Rothbard’s argument – exemplified by this excerpt that Adam provided in the ‘comments’ threads a while back – devastated the Marxist notions of the world held in the 1960s and 1970s, but Rothbard’s argument simply does not grapple with Piketty’s. It’s a whole new ball game, and one that newer scholars who have built upon Rothbard’s foundations are now grappling with. It does us no good to continue parroting a line of reasoning that has long since outlived its usefulness.

The Discovery Doctrine of Land Ownership

Fred Foldvary Economics, History, Religion , , , , , ,

The legal basis for land ownership in the Americas is “Christian Discovery.” This land doctrine derives from the 15th century theology of the Catholic Church. The moral origin of the Vatican’s land doctrine is its old claim of the supremacy of Christianity over all other religions. The “Christian discovery” doctrine is not in the US Constitution, yet it has been adopted by the US government and upheld by the courts.

“Bully’s Justice” by George Zebrowsky, an eye-opening article on Christian Discovery, was published in the June/July 2014 issues of Free Inquiry. Under Christian Discovery, the first Christians to “discover” land previously unknown to the Christian chiefs of state, and held by non-Christians, have a legally legitimate claim to that land. The indigenous and current dwellers have no legal property rights.

A court case in 2005 showed that the Christian Discovery doctrine is still in force. The Onondaga Indian (native American) nation in the State of New York sought federal-court recognition to title of ancestral lands. Also in 2005 the Oneida and Cayuga Indian nations had their land claims dismissed by the US Supreme Court. The Onondaga claim was dismissed in 2010 based on the 2005 Supreme Court decision.

The Supreme Court stated that “Under the doctrine of discovery,” the ownership of “lands occupied by Indians when the colonists arrived became vested in the sovereign, first the discovering European nation and later the original states and the United States.”

There are three moral justifications of land ownership. First is natural moral law, the universal ethic that is inherent in human nature and is a moral imperative for humanity. Second is tradition. Third is force. Natural moral law invalidates both tradition and force as moral rationales.

The laws of the United States derive from English common law, the US Constitution, natural moral law, and the Vatican’s doctrine of land discovery. The US Constitution recognizes the supremacy of natural moral law in its Ninth Amendment, and it also recognizes common law. The US Constitution does not recognize the legality of tradition, force, or the Christian Discovery doctrine, yet the US Supreme Court continues to adhere to Christian Discovery.

As stated in “Bully’s Justice” (p. 28), this Doctrine of Discovery is “one of the rare principles of American law that came not from English common law or from the pen of some Enlightenment philosopher but rather from the Vatican.” The US Supreme Court recognized the doctrine in Johnson v. M’Intosh in 1823 under Chief Justice John Marshall.

The doctrine of Christian Discovery originated in 1455 when Pope Nicholas V issued the papal bull Romanus Pontifex. Without any Biblical justification, this declaration justified the conquest of African lands by the king of Portugal. Pope Alexander VI extended the doctrine to the Spanish conquests in the Americas. The doctrine of Christian Discovery authorized European Christian explorers and their monarchs the rationale to claim lands not occupied by Christians. The doctrine deprived the indigenous inhabitants of any legal land rights.

As ultimate legal owner of the land, the state can then lease land to private tenants, and it can sell or transfer land titles to private persons, but such titles are always secondary to the state as senior and supreme owner, as the state can tax land, control its use, and forcibly buy back title with eminent domain.

The current Pope has expressed concern with global inequalities, but he has not gone to the core cause of inequality and poverty: privileged land tenure and the denial of labor’s self-ownership rights. The Catholic Church would have to confront its old doctrine on the conquest of land, and this is cannot do, and therefore popes must confine their concern about poverty and inequality to laments and exhortations. Now come economists such as Thomas Piketty calling for massive redistribution to treat the effects of income inequality, but refusing to acknowledge the origins and remedies in land and labor.

The Christian Discovery doctrine is based on supremacism, the belief that one’s religion, culture, and traditions are superior to those of others, justifying the use of force to maintain this supremacy. Such supremacy has been adopted by several religions, but this violates the human equality that is the basis of natural moral law and that has been recognized in declarations of human rights. Such constitutional cognitive dissonance does not seem to bother legal authorities.

If we seriously apply natural moral law to the question of land ownership, we need to confront both the false justifications of Christian Doctrine of Discovery and also the aboriginal land claims. As stated by John Locke in his Second Treatise of Government, human moral equality implies that one may fully own land only so long as there is free land of that quality available to others. When such land is scarce and has a price, the analysis of Henry George kicks in, that one may have possession conditional on paying the land rent to the members of the relevant community in equal shares.

Therefore the native American Indians may not take full ownership of their former lands. The land rent belongs not to them but to all humanity, or at least to all Americans. Also, the rental value of land due to civic improvements is a return on the capital goods, not the natural spacial resource.

Justice requires the abolition of the supremacist Doctrine of Discovery and its replacement with natural moral law. Some compensation and restoration of rights of possession are due to the aboriginal inhabitants, but history cannot be erased, and the current residents, users, and title holders, having followed the current rules, also deserve some consideration.

Growing Weed in Humboldt County (and the Economics of Prohibition)

Brandon Christensen Current Events, Economics , , , , , , , , , , ,

And yet California, long the marijuana movement’s pacesetter, and a haven for high-capacity growers, finds itself in the perhaps-unwelcome position of losing outlaws like Ethan. Should the state follow Colorado’s and Washington’s leads in legalizing recreational use, as is expected, already-fragile economies in the north—specifically in the “Emerald Triangle” of Mendocino, Humboldt, and Trinity counties, home to some quarter of a million people—could be crippled. The “prohibition premium” that keeps marijuana prices, and those economies, aloft would fall, possibly so precipitously that many growers would lose their incentive and (perhaps ironically) leave for more-punitive regions. In recent years, many growers have reportedly left California for places like Wisconsin and North Carolina—markets where a pound of marijuana might fetch double what it does in the Golden State. Legalization helps keep growers out of jail, but regulation slashes their profit margins.

This is from Lee Ellis in The Believer. Read the whole thing, it’s a great piece of journalism, although I don’t link to this because I think it’ll teach readers anything new. I just like it because it reports on one of my old stomping grounds. I don’t smoke much pot anymore, but there is nothing quite like smoking weed from Humboldt County.

Another Preposterous Attempt to Punish Evil Foreign Regimes

Warren Gibson Current Events, Economics , , , , ,

Today’s Wall Street Journal carried a piece headlined “Gold from North Korea Stymies U.S. Firms.” It seems that U.S. firms that use various minerals, not just gold but also tungsten, tantalum and tin, are required by U.S. law to ask their suppliers whether any of these materials are so-called “conflict minerals.” Up to now this provision has mainly covered minerals sourced from areas of the Congo which are embroiled in warfare. Now it seems firms must also find out whether any of the gold they use in their products came from North Korea.

It’s not so simple as asking each supplier, because those suppliers may in turn have obtained their supplies from a variety of sources, all of which may have gotten mixed in together in their inventory. And of course it’s an open question as to whether suppliers can document their sources; presumably their say-so won’t suffice. They might also raise their asking prices to cover the costs of time-consuming compliance exercises.

The article says the North Korean central bank refined gold into bars that were certified by the London Bullion Market Association up until 2006. It is believed that they have continued to produce gold bars.

Gold is highly marketable. It’s uniform, nearly indestructible, and traded internationally. It’s unlikely the North Koreans would be stamp any of the bars they refine “made in the DPRK.” The North Koreans are known to be experts at counterfeiting U.S. currency, so how easy would it be for them to stamp a fake refinery mark on their gold bars?

What’s the point of this requirement? As with all political actions, this one has both an ostensible and a real (“public choice”) goal. The ostensible reason is to harm the evil North Korean regime by reducing the revenue they get from gold sales. The likely real reason is to make politicians and bureaucrats look good. None of this is to downplay the horror that is the North Korean regime. I only want to consider who will benefit and who will be hurt by this program.

All right, so who bears the costs? The requirement is an obvious expense for the firms involved. They will pass on as much of the compliance costs to customers as they can, but they will find little ability to do so if they face foreign competitors who suffer from no such regulatory burden. I won’t attempt to estimate elasticities here, just guess that costs will be borne primarily by shareholders and employees of gold-using firms and not so much by customers. These firms will become a little bit less competitive. To some extent suppliers will be burdened as well, but they probably have options like shifting to other customers or getting another intermediary in between them and their U.S. customers.

Lastly, how likely is this measure to succeed? The answer depends on which goal we’re thinking of. If it’s the political goal, politicians and bureaucrats will probably accrue a little bit of credit. If it’s the ostensible goal, hurting the North Korean regime, the answer is: no chance whatsoever. The only harm the North Koreans might endure would be busting a gut from laughing. In the unlikely event they find some of their customers have withdrawn, they can easily and with almost total anonymity dispose of their gold through international markets.

The effects of this requirement will be minor for a huge firm like Hewlett Packard. But U.S. industries are dying from a thousand cuts like this, and as they gradually lose out to foreign competitors, we wonder why.

You will notice I have not invoked any libertarian ideology in this humble piece. It’s just a matter of tracing consequences a little further and looking for public choice explanations of behavior. Hooray for the San Jose State University graduate program that helped me learn these skills.

Heads up Pennsylvanians you just became less free!

Adam Magoon Current Events, Economics, Liberty, Politics , , , , , , , , ,

Cops can now search your car without a warrant in Pa.

So much for due process?  Or unreasonable search and siezure…
That’s right, not only do police have the legal authority (thanks positivists!) to search a vehicle with absolutely no cause whatsoever but you can be arrested and charged for the simple act of having “secret compartments” in your vehicle.  I will leave it up to you to decide if this power will be abused or not.

Where the World’s Unsold Cars Go To Die [Zerohedge]

Adam Magoon Current Events, Economics , , , , , , ,

I don’t have time to comment a ton on this (Life has just been absurd lately) but wanted to make sure more people saw this.

The guys over at Zerohedge noticed a surprising sight on google maps in the city of Sheerness, United Kingdom. West coast, below the River Thames and next to River Medway. Left of A249, Brielle Way. A car lot full of unsold, brand new cars. Zerohedge claims these are all new cars that cannot fit on overcapacity dealer lots. If true this would be a prime example of malinvestment spurred on by government bailout and subsidies. Quite literally a textbook case of the Austrian Business Cycle.

Further research is needed since I do not know whether these lots are standard practice or a new feature of our post-2008 crash world. It is possible that these are merely staging grounds for cars before they ship to dealers but at first glance I tend to agree with Zerohedge’s conclusion that “There is proof that the worlds recession is still biting and wont let go. All around the world there are huge stockpiles of unsold cars and they are being added to every day. They have run out of space to park all of these brand new unsold cars and are having to buy acres and acres of land to store them.”  

Something to keep an eye on regardless.

The Chinese Get Richer, I Become Poorer. Right? Dreaded Percentages!

Jacques Delacroix Current Events, Economics , , , , , , , ,

Elections season is on us again. On the talk shows, I hear more and more callers, and often hosts, grossly misusing percentages in the service of fallacious claims. Politicians won’t be far behind. Here we go again, I am thinking; I have been here before. Got to explain again.

This time, I am taking names. And there will be a quiz, and it will count toward the final grade.

Pay attention; slow down.

It’s 2000, I, JD, earn $60 as a machinist. My wife K earns $40 keeping accounts for others with the help of some sophisticate software. I am earning what percentage of our joint income?

60/60+40 = 60%

It’s 2010, I, JD, now earn $90 as a machinist, My wife K’s business has taken flight. She uses more sophisticated software. She has more customers than she can handle. She earns $120.

My share of our new joint income is now:

90/90+120 = 42%

The percentage of our joint income that I produce has declined. It has declined a lot; it has declined by almost 1/3.

Has the value of my production declined? Slow down!

The answer is clearly “no.” The value of my production has increased by half (from 60 to 90). That’s not bad at all. At any rate, it ‘s obviously an increase.

Think it through. Do the arithmetic yourself. There is no trick. It’s the simple math you did not learn in third grade because you hated the teacher.

In the simple example above, my income represents the value of American manufacturing. My wife’s income represents the value of the mysterious and illogical category “services.”

The percentage of the value of manufacturing relative to the total GDP of this country has been going down steadily because the value of US services has gone up even faster.

The absolute value of American manufacturing has only gone up and up, and going up. America has not become “de-industrialized,” contrary to a common but false perception.

The misperception has two main sources:

  1. Many media commentators and perhaps even more politicians don’t understand simple percentages. See above.
  2. The number of manufacturing jobs has declined even as the value of that which they manufacture has gone up.

Here is a solution to the drying up of manufacturing jobs: Take away machine tools from one metal worker in three; give him a hammer instead. You want even more manufacturing jobs, lots of them? Remove the software from textile weaving plants. Program their machines by hand as they did in 1910.

You don’t like the idea? Time for a serious discussion.

Now let’s go back up a little.

The quite good rise in the value of manufactures and the even greater rise in the value of whatever services produce, these two things are related. Better and better, more and more efficient manufacturing provides the resources for more services. We can afford more waiters, more surgeons, more teachers, more acupuncturists, more therapists, more life coaches, more “color advisers” (I live in Santa Cruz, California) because, collectively, we produce more hard necessities much more cheaply than our close ancestors did. Hard necessities include cars, soap, oatmeal, shovels, bricks and nails. Why, nails used to be forged by hand! I own some hand-forged nails from making repairs on my 1906 house.

When you hear, for example, that manufacturing now contributes only 30% of US GDP, it does not mean that there is less manufacturing being done in this country. To figure out the reality, you have to get out of percentages completely. Period!

If my income used to be $60 and it’s now $50 then, yes, it has declined. If it’s now $65, my income has risen. Period! That’s true irrespective of percentage contribution to anything.

Tech note: Don’t get tripped by the separate issue of the changing value of money. There are inflation/deflation calculators on the Internet that do a good enough job of dealing with this issue. I recommend that you consider one train of thought at a time.

Nearly everyone is overestimating himself. That’s the problem.

Speaking of GDP (Gross Domestic Product), a National Public Radio chickie announced breathlessly a couple of weeks ago that China would soon pass the US in GDP. I could hear fearful emotion in her voice, as if some bastard had threatened to cut up her credit card.

Here is the truth: We may soon see the day when 1,400 million Chinese produce as much together as…..314 million Americans.

Personally, I can’t wait for the Chinese to do better, to make their percentage of global joint production much higher.

Question: When the Chinese GDP reaches 60% of world joint GDP, will I be poorer?

Neoliberalism: When French philosophy thinks about American economics

Brandon Christensen Economics, History, Philosophy , , , ,

From an economic perspective, the vision of man becomes very, very poor. Man is a being who responds to stimuli from the environment, and we can modify his behavior with a choice of stimuli. And what government is, what power is, is the use of different kinds of stimuli. The economic theory gives a set of tools, a “good manner” to use stimuli to obtain the right comportment. In this respect, the result of the theory, perhaps, is to produce a vision of man that is very impoverished.

This is French philosopher François Ewald taking a moment away from his task of explaining Foucault’s thoughts on Gary Becker’s work to elaborate his own thoughts on the discipline of economics. Read the whole thing (pdf). It’s a short paper on Michel Foucault’s thoughts about American liberalism (or neoliberalism) and particularly Gary Becker’s work.

Precios inflacionarios en la industria farmacéutica global

Guillermo Pineda Economics , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

20140513-075345.jpg

En Guatemala se impuso la insignificante multa de US$.20,000 a la industria multimillonaria de farmacias que venden medicamentos con altos porcentajes de descuentos. Este caso es uno más de cientos que tienen lugar en los países en vías de desarrollo.  Estudios que explican las razones por las cuales se paga más por medicamentos en países en vías de desarrollo han sido publicados y luego, ignorados por el Establishment.  Al centro de la discusión deberían de estar los criterios utilizados por la industria farmacéutica para establecer los precios de sus productos.  Empezando por acá se podría corregir errores elementales como los que pueden leer en la imagen de esta noticia publicada el día de hoy en el diario Prensa Libre titulado “Descuentos en medicinas no son reales“.

Los burócratas en esta nota aducen que “los descuentos no son reales” y por lo tanto piden al gobierno que legislé sobre los precios a los medicamentos con el establecimiento de controles.

Desafortunadamente, una legislación de control de precios no funcionará. Los descuentos son reales, existen, se aplican sobre un precio establecido según las reglas del mercado estipuladas por lo que existe en el mercado (oferta controlada por la industria farmacéutica global + oferta regulada por una grupos de lobby locales) y por lo que están dispuestos a pagar los consumidores (demanda) por estos productos que de “precios de libre mercado” tienen solamente el nombre.

Se puede hacer algo acaso para (rescatar) esta industria de las garras de las grandes corporaciones y permitir que los precios sean establecidos según las reglas del libre mercado?

Sí, la solución es sencilla pero relativamente imposible. El establecimiento de precios inflacionarios sobre industrias controladas por una pequeña elite capitalista en el pseudo “libre mercado global” es el resultado de que estas industrias estén protegidas por privilegios en los países desarrollados. Es allá, en el norte global donde los primeros pasos de nuestra solución se hayan. Destruye la raíz de los problemas y es muy difícil que la mala hierba vuelva a crecer.  Para esto es necesario comprender las razones por las cuales la postura neoclasica de considerar este tipo de problemas desde el punto de vista de “fluctuaciones en las reglas de la oferta y la demanda” es incompleto y no integra la complejidad de las sociedades de economías corporativistas y patrimonialistas en ausencia del de estado de derecho y/o en la existencia de economías mixtas que favorecen a grupos de interés.

Lo que la nota de este periódico muestra es lamentablemente el final de la cadena de malas decisiones económicas que existen en todas las industrias de nuestros estados naciones hoy en día.  Lo que hacen las empresas de venta minorista es una copia en pequeño de lo que acostumbran hacer las industrias farmacéuticas globales.

La estrategia de imponer precios artificiales a través de acuerdos corporativos globales que fueron inspirados en los precios de monopolio a la antigua usanza del estado-nación continúan y solamente se transforman en nuevas estrategias comerciales conforme la economía se ha ido integrando cada vez más.  Se ha incrementado controlando monopólicamente el mercado global y  distorsionando ‘efectivamente’ los precios para inducir precios inflacionarios.

La crítica y solución debe dirigirse a cuestionar el actual modelo de  economía política que rige y en cuestionar las condiciones del actual dominio del capital financiero corporativista, la  crisis estructural del capitalismo corporativista y la crisis ‘artificial con los controles de oferta y aumento de precios que continúan imponiendo las industrias globales de la provisión de energía y alimentos.

Ya ven como la única solución de este problema es sencilla pero casi imposible? O quizás se pueda solucionar más fácil de lo que pensábamos?

The Problem with Modern Monetary Theory

Fred Foldvary Economics, History, Liberty , , , , ,

“Modern Monetary Theory,” a doctrine about fiat money, has captured the attention of some reformers and progressives. This doctrine – a set of propositions contrary to logic and evidence – purports to explain why the US and other economies are ailing, but is beset by contradictions with the historic facts and within the doctrine.

For example, The New Inquiry on 11 April 2014 featured an article by Rebecca Rojer on “The World According to Modern Monetary Theory.” The author regards it as a revelation of MMT that the “rules of money are not immutable laws of nature.” Since the science of economics explains the effects of incentives and decisions, evidently these money “rules” are the outcomes of private and governmental decisions, and since the effects are not immutable laws, people can arbitrarily create whatever outcomes they wish. That would indeed be wonderful, to just print money are thereby eliminate unemployment, depressions, and poverty, all without creating price inflation, because the rules of money creation are not immutable, so we can have whatever outcome we wish!

Science is based on logic and evidence rather than “revelations.” It is possible that there have been revelations, but these create religion rather than science, since if an experience or experiment cannot be duplicated, the revelations are not sufficient for scientific warrants. Various religions have had different revelations, and the members do not believe the revelations of the others.

The author provides an example of the MMT doctrine. Suppose there is an island that has minerals. The owner of the mines hires workers and pays them with fiat money, like the paper and bank-account money we have today, i.e. money created out of nothing. But the owner also imposes a tax on the wages of the miners. So evidently this mine owner is a government, and we are not dealing with private enterprise, but a coercive socialist state. The miners work enough to both pay the wage tax and be able to survive.

But a premise of this MMT island example is that prior to the mining, the people were able to hunt and farm without working too hard. So why would anyone work in the mines? The historical explanation is the “enclosures” movement, in which land that was held by small-scale farmers or by villages was forcibly taken by the aristocracy or by the state or by foreign invaders. This is not a money story, but a land-grab story. Another way to get forced labor, other than chattel slavery, is to require the payment of taxes in money, which forces subsistence farmers to work on plantations at least long enough to pay the taxes. That is more a tax story than a money story, since if the government insists on being paid in coconuts, and a farmer does not grow coconuts, he must work on the coconut plantation, get paid in coconuts, and then pay the tax. Therefore the forced labor is based on the government’s restrictions on alternative employment opportunities.

MMT is correct in stating that one way that the government gets people to accept its fiat money is what economists call the “fiscal theory of money,” that the government reinforces its money as a medium of exchange by requiring the use of that money for paying taxes. However, if the government currency is being hyper-inflated, taxpayers would keep their savings in, say, gold, or a stable foreign currency, and then convert it to the fiat money only when a tax payment is due. The fiscal effect only works if the government is not creating too much inflation.

Therefore MMT is incorrect as stating, as a “core building block,” that forcing people to pay taxes with fiat money “gives it its value.” That was not the case, for example, in Zimbabwe, which suffered hyperinflation. One “immutable” economic law of money is that the creation of money, beyond what is needed for transactions, results in price inflation, and the payment of taxes becomes tied to that inflation, via the nominal rise of prices and wages, rather than preventing inflation.

A related fallacy of MMT is that “sovereigns” in general create money by “spending it into existence.” That can indeed happen, as for example in the Zimbabwe hyperinflation, but in the US and most countries today, government spending comes from taxes and borrowing, not money creation. The central bank, such as the Federal Reserve, does not create money by spending it for goods, but rather by buying bonds and then increasing the banks’ reserves or funds to pay for the bonds.

Since the “core” proposition of MMT, that price inflation can be controlled by government’s taxing and spending, is incorrect, the whole superstructure of the MMT doctrine built on it collapses. Actually, MMT does accept the proposition that monetary inflation creates price inflation, but that true proposition contradicts the core MMT premise that tax-paying gives money its value.

A worse MMT fallacy is that the taxes paid to the government destroys money. MMT tells us that governments create money when they spend, and then the money disappears when taxes are paid. But a tax no more destroys money than the dollars used to buy bread. The seller of bread now has the money, and the government now has the dollars paid in taxes, and they then spend that money.

There have been various theories and doctrines on money and banking in the history of economic thought, and in my judgment, the explanations that best fit the facts are a combination of the monetarist and the Austrian schools of thought. The monetarist core is the equation MV=PT, which explains that the quantity of money (M) multiplied by its annual velocity or turnover (V) equals the price level (P) multiplied by the amount of transactions (T) measured in money. Thus high price inflation, a rise in P, is usually caused by monetary inflation, an on-going increase in M.

The Austrian school explains how excessive monetary inflation not only cause price inflation, but distorts relative prices, such as when house purchase prices rise faster than rentals. Austrian theory shows how governmental central planning fails because the knowledge to do so well is always lacking, and that applies to money as well. Hence the Austrians propose free-market money and banking, so that the market sets interest rates and the money supply.

Indeed the Fed failed to prevent the Great Depression of the 1930s and the Great Recession of 2008, and its policies generated high inflation during the 1970s and the cheap credit that has fueled land-value bubbles. MMT cannot do any better, because, as the Austrian theory explains, the optimal money supply is not only not known, but not knowable. The pure free market provides the optimal money supply just as it provides the optimal amount of bread and the optimal amount of shoes.

Open Access Gary Becker papers, and a couple of thoughtful links on him

Brandon Christensen Current Events, Economics , , , , , , , , , , , ,

Nobel Prize-winning economist Gary Becker died Saturday. For those of you who don’t know about his work, go here. For the rest of you, economist Tyler Cowen has compiled a great list of articles by Becker that you can read:

    1. “Irrational Behavior and Economic Theory.”  Can the theorems of economics survive the assumption of irrational behavior? (hint: yes)
    2. “Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology.”  The title says it all, from 1976.
    3. “A Note on Restaurant Pricing and Other Examples of Social Influence on Price.”  Why don’t successful restaurants just raise the prices for Saturday night seatings?
    4. “The Quantity and Quality of Life and the Evolution of World Inequality” (with Philipson and Soares).  The causes and importance of converging lifespans.
    5. “Competition and Democracy.“  From 1958, but most people still ignore this basic point about why government very often does not improve on market outcomes.
    6. “The Challenge of Immigration: A Radical Solution.”  Auction off the right to enter this country.

Cowen also linked to sociologist Kieran Healy’s fascinating take on Michel Foucault’s thoughts about Gary Becker’s work over at Crooked Timber (and here is a pdf of Becker on Foucault on Becker).

And economist Mario Rizzo shares some short thoughts about Becker’s work in relation to the Austrian School of Economics (Becker is associated with the Chicago School of Economics). Rizzo’s account of the early 1960s debate on rationality between Becker and Kirzner is worth a look.

Update: Here is Gary Becker’s 1992 Nobel Prize lecture (pdf)

The subsidies a…

Rick Weber Economics , , , , ,

The subsidies and protections that New Zealand governments once doled out so generously to both agricultural and manufacturing interests had consequences. The economic way of thinking enables one to discern these consequences more clearly and to predict the consequences of alternative policies. Doing so will often clarify the origin of the subsidies and protections, at least for anyone who believes that democratic legislators pay attention to the interests that are paying attention to them.

From Paul Heyne’s Are Economists Basically Immoral.

Fantastic phrasing of the issue of rent seeking. I think skeptics like to think the public choice theorists are cynical for assuming that political actors act in their self interest; this quote turns that view on its head.

Princeton Concludes What Kind of Government America Really Has, and It’s Not a Democracy

Rick Weber Current Events, Economics, Law, Liberty

Princeton Concludes What Kind of Government America Really Has, and It’s Not a Democracy

A new scientific study from Princeton researchers… found that in fact, America is basically an oligarchy.

“Princeton” concludes?! “A new scientific study…”?! This is some sloppy journalism that you should immediately ignore. But it gets worse…

“Perhaps economic elites and interest group leaders enjoy greater policy expertise than the average citizen does,” Gilens and Page write. “Perhaps they know better which policies will benefit everyone, and perhaps they seek the common good, rather than selfish ends, when deciding which policies to support.

“But we tend to doubt it.”

That’s the close of the article; these “scientists” are about as unsophisticated as the journalist reporting it. They repeat the same old adages about inequality that don’t really mean much: The rich are getting richer, the poor are getting less richer, and (we wrongly assume) membership in these groups is stable over time. Their conclusion is basically “rich, powerful interests promote their own interests… if only the middle class was in charge to promote the public good instead of their own interests!”

And yet, I think there’s something worth reading here. I think the conclusion that the U.S. is an oligarchy is roughly correct. The importance of politically connected individuals and lobbying groups affects wealth creation and distribution. This is an example of where the Left and Right should agree with libertarians: centralization of political power is leading to wasteful rent seeking that weakens the economy (Right/libertarian) and the outcome is that politically powerful groups are given an unfair advantage (Left/libertarian).

We know that Democrats are libertarian on social issues (and this is one of them!) and Republicans are libertarian on economic issues (ditto), but we hit a snag. Each group tends to see the faults of the other party’s pet projects and miss the root causes. Republicans see Democrats centralizing power and weakening property rights and step in to save the victim: businesses. The result is pro-business policy recommendations that also centralize power. The Democrats see this and step in to save the victim: the little guy (poor people and consumers). The result is centralization of power that creates rent seeking opportunities for big business!