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BERJAYA

There is a YouTube video entitled “A Critique of Austrian Economics“, made by an anonymous YouTuber, which has had over twenty thousand views.  The reader is dripping with insipid condescension; he reads the whole thing in this pedantic sing-song voice that is quite emetic in effect.  So that you don’t have to listen to that, and so as to thus spare whatever upholstery may be around you, I’ve transcribed the last half or so below and added comments.

The Austrian approach to philosophy is a very old one: rationalism.  You have to go back to the 17th and 18th centuries to find when it was last considered a serious philosophical movement.  It was widely abandoned after its inadequacies were laid bare by other schools of philosophy: empiricism, positivism, and most famously by Immanuel Kant’s Critique of Pure Reason.  Philosophy has progressed tremendously since rationalism.  The Austrian approach is a relic of history.

Here, he resorts to the fallacious Whig Theory of the History of Science.  Secondly, the YouTuber’s attempt to refute the epistemology of Ludwig von Mises by name-dropping Kant is highly ironic, given that Mises was hugely influenced by Kant.   Kant tried to reform rationalism, he did not try to refute it.  Kant is widely considered a rationalist himself, yet the YouTuber tries to make him out to be a standard-bearing anti-rationalist.  I’ll bet the YouTuber hasn’t even read anything about the Critique of Pure Reason, let alone the book itself, and is basing his assumption that the book is anti-rationalist on the everyday-usage definition of the word “critique” (as in “fault-finding”, which is the way he uses the word in the title of his video), as opposed to “detailed analysis and assessment”, which is how Kant was using the word.

The problem with rationalism is that it makes the search for truth a game without rules.  Rationalists are free to theorize anything they want, without such irritating constrictions as facts, statistics, data, history, or experimental confirmation.

To say that a method that is based on what Mises refers to as “the logical structure of the human mind” is “without rules” is preposterous.  Furthermore, if anything, it is positivism that is rule-free.  Statisticians are free to conclude from data anything they want.  Empiricism is effective in the natural sciences only insofar as (1) the scientist is able to control the experiment, (2) the elements of the experiment are simple and few, and (3) the correlations that result are enormous and cannot be easily explained in any other way.  Statistical economics fails on all three counts.  Statistical treatments of natural science in which these criteria are not met also fail (like climate modelling).

Their only guide is logic.  But this is no different from what religions do when they assert the logical existence of God, or Buddha, or Mohammed, or Gaia.

St. Anselm’s “ontological proof of god” was refuted by his clerical contemporaries, using the tools of logic.  One might ask the YouTuber if he considers geometry a religion.
[click to continue…]

It’s here. Frustrated that “nominal interest rates cannot be reduced below zero,” he makes the case that “unconventional” approaches are needed (direct purchases of securities with freshly created, high-powered money). This is not a problem, he says, because the Fed “will take account of the potential costs and risks of nonconventional policies…”

If inflation goes wild, it is your fault for not trusting the Fed:

Another concern associated with additional securities purchases is that substantial further expansion of the balance sheet could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might lead to an undesired increase in inflation expectations, to a level above the Committee’s inflation objective. To address such concerns and to ensure that it can withdraw monetary accommodation smoothly at the appropriate time, the Federal Reserve has developed an array of new tools. With these tools in hand, I am confident that the FOMC will be able to tighten monetary conditions when warranted, even if the balance sheet remains considerably larger than normal at that time.

To add to Mark’s post below, the US News provides some interesting data on the shrinking of the American middle class.

Economists Michael Hurd and Susann Rohwedder found that between November 2008 and April 2010 “39 percent of households had either been unemployed, had negative equity in their house or had been in arrears in their house payments.” Now that is truly depressing. When people are chained to their homes it makes it that much harder to find a job.

Effects of the Financial Crisis and Great Recession on American Households

Michael D. Hurd, Susann Rohwedder

NBER Working Paper No. 16407
Issued in September 2010

In this paper we present evidence from high-frequency data collections dedicated to tracking the effects of the financial crisis and great recession on American households. These data come from surveys that we conducted in the American Life Panel – an Internet survey run by RAND Labor and Population. The first survey was fielded at the beginning of November 2008, immediately following the large declines in the stock market of September and October 2008. The next survey followed three months later in February 2009. Since May 2009 we have collected monthly data on the same households. This paper shows the levels and trends of many of these data which summarize the experience and expectations of households during the recession.

We find that the effects of the recession are widespread: between November 2008 and April 2010 about 39 percent of households had either been unemployed, had negative equity in their house or had been in arrears in their house payments. Reductions in spending were common especially following unemployment. On average expectations about stock market prices and housing prices are pessimistic, particularly long-run expectations. Among workers, expectations about becoming unemployed have recovered somewhat from their low point in May 2009 but still remain high. Overall the data suggest that households are not optimistic about their economic futures.

The New Tories

October 15, 2010 by Mises Daily

BERJAYAIt seems needful to remind everybody what liberalism was in the past, that they may perceive its unlikeness to the so-called liberalism of the present. Most people have lost sight of the truth that in past times liberalism habitually stood for individual freedom versus state coercion. FULL ARTICLE by Herbert Spencer

If Men Were Angels

October 15, 2010 by Mises Daily

BERJAYALife in a stateless society will sometimes be bad, because not only are people not angels, but many of them are irredeemably vicious. But the outcome in a society under a state will be much worse, because the most vicious people will tend to gain control of the state. FULL ARTICLE by Robert Higgs

BERJAYAThe wave of bombings and assassinations perpetrated by anarchists during the 1890s was largely a fiction. To some extent, it was frankly invented by sensation-mongering writers for newspapers. FULL ARTICLE by Jeff Riggenbach

BERJAYAJohn Brätland lives with his wife Rose Marie in Bethesda, Maryland. He is currently employed as a senior economist in the U.S. Department of the Interior in Washington, DC. Although he is a critic of war in general, his army experience earned him the Purple Heart and the Bronze Star (with the ‘v’ for valor) for his service in Viet Nam.

His work has focused on economic research and policy analysis. John is devoted to research on the ways in which private rights of property can serve as critically important institutional alternatives to current governmental ownership and political management of the nation’s natural resources. He has published on the subjects of property rights, privatization, eminent domain, exhaustible resources, entrepreneurship, intergenerational equity, intergenerational sustainability, industrial organization, environmental economics and federal land policy. His articles have appeared in The Independent Review, Quarterly Journal of Austrian Economics, Natural Resources Journal and the Journal of Libertarian Studies.

Probably the most obvious question for you John is: why are you working in the Federal government? It would seem to be a strange career path for someone doing research in Austrian economics.

When I’m asked this question by someone from the Austrian school of economics, I feel somewhat embarrassed. It’s a question with possibly several different answers. Almost every Austrian economist that I know is an academic. Perhaps I should be an academic. I was not an Austrian economist when I entered government. I was a neoclassical believer who thought that governmental intervention was usually desirable to rid society of every dreaded and omnipresent market failure. I need to admit that my own graduate work in economics seemed reinforce these notions. But along with my eventual reading of Hayek, Mises and Buchanan and my exposure to what was passing for economic analysis in government, I first became a skeptic and then a more vocal critic within my working environment. I was naive and probably egotistical enough to think that I could work on the inside and, through an erstwhile cooperative effort, make at least a small difference.

In my work, I have become convinced that economic method must be central to any analytical undertaken by government in addressing a presumed policy concern. With that focus in mind, my research is focused on the application of Austrian method to the examination of presumed policy issues and on public-policy implications of legitimately defined private property rights. Much of the time, my research is not necessarily greeted with favor. But that in itself is an inspiration and an indication that I have done something right. In having papers published in professional and academic journals, I do not submit them to Federal clearance. From time to time, this pattern of activity on my part has made the working environment hostile. But tellingly, I do not receive any coherent rebuttals on what I have had published. While I have never been part of the inter circle of decision making, I have been given a surprising degree of latitude in choosing the direction of my work. This fact in itself has made my work rewarding.

If you were not a scholar then what do you think you would be doing now? Do you have any hobbies?

Quite frankly what I would like to be a radio announcer (disc jockey) on a classical music station. For me, it’s a possible avocation that I may pursue in retirement years. My hobbies include listening to 20th Century Symphonic music (Mahler, Hindemith, Bartok, etc.), astronomy (cosmology), collecting rare books in economics, collecting Bowie knives and reading mostly nonfiction.

What drew you to the Austrian school?

My graduate school training was strictly in the neoclassical tradition with its attendant mathematical modeling and econometrics. My doctoral dissertation was neoclassical and relatively mathematical. It even had a centralized regulatory theme. But even though I completed the dissertation and successfully defended it, at a personal level, I was never able to deal with my own intuitive unease over the ‘information issues’ that were necessarily associated with such a regulatory scheme. I found myself reading Hayek’s “The Use of Knowledge in Society” and Hayek’s “Economics and Knowledge.”

At about the same time, I had a brief conversation with a fellow graduate student who was reading a book titled Cost and Choice by James Buchanan. She remarked on his emphasis on the ex ante, subjective nature of opportunity cost. My initial readings of Buchanan’s book were very unsettling because to accept the full implications of Buchanan’s approach to opportunity, I would need to jettison much of the objectivist structure of neoclassical economics. But nonetheless, I was eventually won over to Buchanan’s perspective. In his book, Buchanan described Mises’ Human Action as a “monumental polemic.” My curiosity was piqued. I promptly ordered Human Action and began to study it but initially with some difficulty. I’ve been an Austrian economist ever since. In retrospect I would need to say that I didn’t really become an economist until my exposure to Mises, Rothbard and other Austrian economists.

Who is your greatest inspiration?

If I had to focus on hero figures, I would need to say that Ludwig von Mises and Murray Rothbard come closest. Ludwig von Mises’ life is an inspiration in itself. I particularly enjoyed Guido Hülsmann’s biography of Mises. Hans Hoppe’s books have also been an inspiration. His Democracy: The God that Failed erased any naive notions that constitutional democracies can protect rights of private property and personal liberty. But in addition, I have admired and appreciated Richard Epstein’s research agenda since the publication of his book Takings. I say this even in light of the apparent fact that Epstein’s embrace of Lockean property theory seems to be utilitarian rather than ethical.

What kind of insights has the Austrian school brought to your latest paper, “Capital Concepts as Insights into Neglect of Public Infrastructure”?

The paper melds Austrian and Public Choice themes and appeared in the summer 2010 issue of The Independent Review. Neglect is an inherent part of governmental provision of the facilities that are part of what is currently viewed as part of ‘public infrastructure.’ No such focused and coordinated plan is possible in the case of public-infrastructure maintenance when viewed as a comprehensive whole. The absence of an integrated income stream makes ‘capital calculation’ impossible meaning that neglect is an intrinsic feature of so-called public provision. But public infrastructure neglect is also found to be a likely consequence of the longer-term career strategies of legislators and executive bureaucrats. These career strategies are seen to be a form of metaphorical capital in which self-serving acts of ‘capital maintenance’ can logically result in infrastructure neglect. These actors find themselves employing and managing the resources (metaphorical capital goods) at their disposal in pursuit of goals in which infrastructure maintenance may be, at best, only an ancillary concern. They will only be strong supporters of public infrastructure maintenance if doing so is complementary of their longer-term career ambitions.

But also I would like to call attention to another recent paper published this last summer: “On the Impossibility of ‘Just Compensation when Property is Taken: An Ethical and Epistemic Inquiry.” It is a chapter in a book published by The Independent Institute. The book is edited by Ed Lopéz and titled: The Pursuit of Justice: Law and Economics of Legal Institutions. The paper examines one question: can the concept of ‘just compensation’ be reconciled with the coercive taking of private property? More specifically, can the concept of ‘just compensation’ for private property be reconciled ethically or epistemologically with the coercive taking of such property by a governmental authority? From both an ethical and epistemic perspective, the answer is a clear no. From an ethical perspective, one can assert without risk of refutation that if the surrender of property by a property owner is not voluntary, the presumption of ethical breach is evident. But even from an epistemic perspective, the absence of assent bars any conceivable inference that compensation can be just in a transfer of property. In addition, no epistemic means are available to make any such determination. Market based benchmarks or professional appraisals are epistemically relevant to those willing to sell at a so-called market price. However, these estimates or surveys have no relevance what ever in gauging just compensation for the un-assenting owner. Reservation prices and efficient premium are equally empty from an epistemic perspective.

Do you have any new works on the way?

I am doing research on two papers. One is titled “Entrepreneurial Strategy vs. Accounting Accuracy in Calculating Capital and Income” and the other is titled “Blackstonian Obstacles to Resource Conservation: Coasean verses Lockean Remedies.” I have not decided on what journal would be most appropriate for these papers.

What kind of impact do you hope to make with your work?

I would be content with the realization that something I’ve written made someone rethink an old idea in economics.

Are there any words of wisdom you wish to pass onto the next generation of Austrian scholars?

My sense is that today, mainstream economics is being viewed with more skepticism than at any other time during my professional lifetime. At the same time, Austrian economics is being taken much more seriously than at any time that I can remember. I would urge younger Austrian economists to take advantage of this current trend in addressing issues that activist governments view as policy concerns.

See John Bratland’s literature

If you have any suggestions or recommendations for Faculty Spotlight, please email andrewcain@mises.com

Ludwig von Mises first formulated the Austrian Business Cycle Theory (ABCT) in his groundbreaking treatise The Theory of Money and Credit (1912).  But in the following much earlier passage (1888) by Eugen von Bohm-Bawerk (who, as his teacher, was a great influence on Mises) one can see the theory shadowed forth.

Bohm-Bawerk considers below what would happen if, for some reason an absence of interest (agio) occured. [EDIT: thanks to Martin and Inquisitor for correcting a superfluous and erroneous additional element here]  He shows how this situation would be unsustainable.

The possibility of obtaining means of subsistence free of agio would be certain to tempt undertakers into immoderate extension of the production period. If this were to occur only partially and in a few branches of production, naturally the limited stocks of subsistence would leave so much less for the other branches of production; these latter would have to curtail their processes unnaturally; and there would ensue a deficiency in the social provision which would outweigh the increased return got from the favoured branches through the immoderate extension of their processes. But if the excessive extension were to be introduced all over, the community’s stock of subsistence would come to an end sooner than the fruits of processes thus unduly extended could mature; there would be deficiency in provision, want, and distress; famine prices would recall the misdirected natural powers, and put them, with difficulty, to supply provision for the moment. All this could not happen without serious disturbance, expense, and loss.

Now the constant presence of the agio on present goods is like a self-acting drag on the tendency to extend the production period; without checking it all at once it makes it more difficult, and more difficult in proportion to the projected length of the process. Extensions which would be harmful as regards social provision are thus made economically impossible. Moderate extensions over the average process, however, are not absolutely prevented, but are limited to those branches where, from peculiar economic or technical circumstances, the productiveness that goes with the extension of the period is so great that they can bear the progressive burden of the agio. Branches, again, where longer processes are somewhat, but only a little, more productive, are tempted to escape the burden of agio by recurring to periods under the average. Thus, finally, under the influence of the agio, the total fund of subsistence is divided out automatically among the individual branches of production, in such amounts that each branch adopts that length of process which—in the given condition of the fund—is most favourable to the total provision.

Eugen von Bohm-Bawerk, The Positive Theory of Capital, Book VI, Chapter VI, (from The Library of Economics and Liberty)

The theory is almost all here: the immoderate extension of the production period (lengthening of the chain of production), the long-term necessity for savings, investment, and consumption to be in balance, and the role of the interest rate in keeping that balance.  All Bohm-Bawerk needed do was to extend this analysis of a situation with a complete lack of agio/interest to situations with artificially low agio/interest, and the Austrian Business Cycle Theory might have come rushing forth from his pen.

My question to Austrian economists: is my characterization of this passage as a prelude to the ABCT sound?  My question to historians of Austrian thought: has this passage been noticed/discussed before as a foretoken of the ABCT?

CVS was just fined $75 million for selling sudafed!

David Gordon found this little item: Winston Churchill was a big fan of the early work of Garet Garrett. In particular, he was a champion of his book (one I like but one that remains somewhat puzzling) called The American Omen.

Now I’m wondering if this book should be in print actually.

Garrett is of course stunning: “TO stand first in the earth, paramount thereon, is the part of one people at a time by lot and period. The sign regnant went to and fro in Asia before there was any western civilization, and sometime gilded the dome of Africa. Rome conquered it. For a thousand odd years it was lost; then it rose again in Europe. Now it comes to us. Its migration to this hemisphere is a fundamental event and one mighty for change. World supremacy is not by golden chance. Such an idea was the bad star of Spain 400 years ago.”

The Bureau of Labor Statistics reported today that the Producer Price Index (PPI) rose .4% last month.  This inflation is exactly what Austrians would expect to result from Helicopter Ben running his dollar-printing presses at full speed.

BERJAYAThough everyone who buys things should be concerned about this inflation in finished goods, the talking heads on CNBC and other news outlets are telling everyone to pay no attention to that man behind the curtain. They tell us that we shouldn’t be concerned about inflation because if one excludes food and energy, inflation of finished goods is a measly .1 percent.  Economists and journalists refer to the PPI without food and energy as the “core PPI” and assure the public that the core number is much more important than the overall PPI. This is true–so long as you aren’t one of those people who eats food or uses fuels to heat your home or commute.

Take a look at this story from MarketWatch.

“Over the last ten months, core prices have increased 0.1% seven times, hardly sufficient to warrant concerns about inflation,” said Dan Greenhaus, chief economic strategist at Miller Tabak.

“It remains very, very difficult to believe the Fed should be concerned about inflation in the economy (in the aggregate) when the tools they use to measure inflation continue to suggest a very moderate pace of price appreciation with the prospect of further declines more generally.”

Food prices rose 1.2% in September. The price of meat climbed 5.2%, accounting for two-thirds of the increase in the food category. Prices for dry and fresh vegetables also rose, and the cost of processed young chickens saw the biggest one-month increase since 2006.

Energy costs, meanwhile, increased 0.5% as natural gas prices ticked higher. This category is driven mainly by changes in price of natural gas for home heating and gasoline for motor vehicles.

Producer prices have risen 4.0% over the past 12 months on an unadjusted basis, but the core rate has grown at a much slower 1.6% pace.

So we are not supposed to worry about inflation because most of the inflation came from meat (5.2% last month) and gasoline (6.1 % last month)? They conveniently neglect to mention that a significant portion of household expenditures are on food and energy. They also neglect to point out that lower income households spend proportionately more of their income on food and energy than do higher income households. This means that the poor are hit the hardest by the inflation categories that “experts” tell us we should ignore.

Entrevista com Mark Thornton em São Paulo from Mises Brasil on Vimeo.

Whenever you hear talk from the Fed about the grave threat of deflation, it usually portends a bad inflation report, such as this month’s PPI

Check out the trend in intermediate and crude goods.

BERJAYABERJAYA

A fantastic piece in the WSJ by Daniel Henninger.

If those miners had been trapped a half-mile down like this 25 years ago anywhere on earth, they would be dead. What happened over the past 25 years that meant the difference between life and death for those men? Short answer: the Center Rock drill bit. This is the miracle bit that drilled down to the trapped miners. Center Rock Inc. is a private company in Berlin, Pa. It has 74 employees. The drill’s rig came from Schramm Inc. in West Chester, Pa. Seeing the disaster, Center Rock’s president, Brandon Fisher, called the Chileans to offer his drill. Chile accepted. The miners are alive.

And there were other contributions: cell phones, socks, cables, and much more, from all over the world – innovations from the private sector. Meanwhile, Henniger writes, the US President is running around denouncing people’s “blind faith in the market.”