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I read blogs, as well as write one. The 'blogroll' on this site reproduces some posts from some of the people I enjoy reading.

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But Their Own They Tolerate Quite Well

Blog & Mablog - Sat, 06/10/2018 - 02:00

“Secularism is incoherent, like a plane made out of spherical cubes. What has our tolerant state done? Well, they have outlawed discrimination. They are intolerant of intolerance, which means, in effect, that the only intolerance they will tolerate is their own, and this on the condition that nobody ever admits out loud what they are actually doing” (Same Sex Mirage, pp. 115-116).

The post But Their Own They Tolerate Quite Well appeared first on Blog & Mablog.

Categories: People I don't know

Church in Wales sees 15% decline in attendance in five years

Anglican Ink - Sat, 06/10/2018 - 01:35

Statistics released at last month's meeting of the Governing Body shows the Church in Wales in demographic freefall

Are We Winning or Losing?

Mises Institute - Sat, 06/10/2018 - 00:35

Presented at the Mises Institute's 2018 Supporters Summit in Auburn, Alabama. Recorded on September 28, 2018.

Categories: Current Affairs

Your Questions for Ron Paul and Lew Rockwell

Mises Institute - Sat, 06/10/2018 - 00:35

A special Question-and-Answer period at the Mises Institute's 2018 Supporters Summit in Auburn, Alabama. Recorded on September 28, 2018. Emceed by Mark Thornton.

Categories: Current Affairs

Murray Rothbard in the 21st Century

Mises Institute - Sat, 06/10/2018 - 00:35

Presented at the Mises Institute's 2018 Supporters Summit in Auburn, Alabama. Recorded on September 28, 2018.

Categories: Current Affairs

Political Correctness as Misesian Destructionism

Mises Institute - Sat, 06/10/2018 - 00:35

Presented at the Mises Institute's 2018 Supporters Summit in Auburn, Alabama. Recorded on September 28, 2018.

Categories: Current Affairs

Dr. Peter Klein on Silicon Valley Socialism

Mises Institute - Sat, 06/10/2018 - 00:35

Silicon Valley used to be a hotbed of libertarian thought, a place where innovation mattered more than government. Today, companies like Twitter and Facebook serve as de facto editors, banning users like Alex Jones for "wrong-think." Google dominates search, but may steer search results. And Amazon serves nefarious clients like the NSA with its cloud infrastructure. And all of them employ plenty of lobbyists to avoid the kind of government anti-trust suit Microsoft faced nearly 20 years ago.

Libertarians oppose regulation, but also oppose censorship and politically correct culling of opinion. Dr. Peter Klein recently addressed these topics and more, in a talk illustrating how the technology sector has drastically changed in recent years—and how tech firms evolved into media companies focused on influence instead of innovation. He argues that social-media companies put on a public facade of being private and free of government influence, but behind the scenes they really lobby for protection against competition.

Categories: Current Affairs

What Austrian Economics Can Teach Historians

Mises Institute - Sat, 06/10/2018 - 00:35
Volume 11, No. 3 (2008)

Abstract: Austrian economics is a valuable resource for historians. Scholars informed by Austrian insights can make better sense of historical phenomena, and can provide far better insight into economics history, than those who lack this background. It is impossible to understand events such as the Great Depression with the assistance of no theory at all, so it is essential that the historian adopt the correct one. Sound theory also prevents the historian from falling into a wide array of fallacies — about the stimulative effects of public works projects or the economic benefits of war, for instance — what have insinuated their way into so much scholarly and popular writing.

Keywords: economic history, business cycles, war, methodology

When in the early twentieth century history began to emerge in the United States as a professional discipline rather than merely an avocation to be pursued by amateurs and dilettantes, the ideal of objectivity was proposed as a central value of the historian's craft (Novick 1988). The historian, according to this ideal, should in assembling his narrative be committed above all to recording the objective truth, without allowing his own sympathies or allegiances to divert him from his solemn responsibility before the facts. He should be fair-minded and judicious, careful not to favor or unduly disparage any one side.

Eager to make history into a respectable science, some historians made explicit reference to the empiricism of Francis Bacon — who, they said, advocated approaching the object of study without any preconceived ideas, content to consult empirical data and observation as unmediated raw material. Some defenders of the ideal of objectivity went to the extreme of expressly disavowing all preconceived ideas in their approach to the past. Edward Cheyney criticized the practice of "beginning the examination of historical facts ... with any theory of interpretation." Instead, he argued, the "simple but arduous task of the historian was to collect facts, view them objectively, and arrange them as the facts themselves demanded." An honest and competent historian was capable of producing a record of facts that ''when justly arranged interpret themselves" (Novick 1988, pp. 38 39).

But no record of facts, no matter how judiciously arranged, interprets itself. "History,'' wrote Ludwig von Mises, "cannot be imagined without theory. The naïve belief that, unprejudiced by any theory, one can derive history directly from the sources is quite untenable. ... No explanations reveal themselves directly from the facts" (2003, pp. 107–08).

An epistemological dualist, Mises denied that methods appropriate to the natural sciences could be employed in the social sciences, where man, rather than inanimate objects, was the object of study. For one thing, the historian did not have the natural scientist's advantage of a laboratory in which he could observe the consequences of isolating a single factor. "Historical experience," Mises wrote, "is always the experience of complex phenomena, of the joint effects brought about by the operation of a multiplicity of elements" (Mises 1957, p. 208; Mises 1949, p. 31). With laboratory methods unavailable to him, if he was to make sense of historical events the historian could not approach his subject with his mind a tabula rasa but instead needed some acquaintance with social theory, lest he be overwhelmed by data he was helpless to interpret. "The 'pure fact' — let us set aside the epistemological question whether there is such a thing — is open to different interpretations. These interpreta­tions require elucidation by theoretical insight" (Mises 1990, p. 10).

Against the Gennan Historical School and all manner of positivists since, Mises held that there were laws of economics that transcended time and place, and that could be derived by deduction from the so-called action axiom (which holds that human beings act) along with certain subsidiary postulates. Although the laws thus derived were exact, Mises believed that economic analysis was necessarily qualitative rather than quantitative, and that it was a category mistake to expect from them the quantitative precision of physical laws. Because these laws were absolutely true, moreover, they were not subject to revision or rejection on the basis of historical data, which in any event involved the confluence of a multiplicity of events, some amplifying others and some working at cross-purposes with others.

Economic theory, said Mises, is "the indispensable tool for the grasp of economic history. Economic history can neither prove nor disprove the teachings of economic theory. It is on the contrary economic theory which makes it possible for us to conceive the economic facts of the past" (Mises 1990, pp. 11–12). To approach economic history in the absence of theory would surely not bear fruit:

Nowadays [1929] the economic historian seeks to emancipate himself from theory altogether. He disdains to approach his task with the logical tools of a developed scientific theory and prefers to content himself with the small measure of theoretical knowledge that today reaches everyone through the newspapers and daily conversation. The presuppositionlessness of which these historians boast consists, in reality, in the uncritical repetition of eclectic, contradictory, and logically untenable popular misconceptions, which have been a hundred times refuted by modern sciences. (Mises 2003, p. 110)

Mises suggested to his students the example of the comings and goings of people at New York's Grand Central Station (Mises 1957, p. xiv; 1990, pp. 48–49). A purely empirical analysis of this phenomenon would amount to a record of human movements hither and thither, a veritable crazy quilt of data that would shed no light whatever upon the events it studied. Yet if we understood that the human actors we were observing were purposeful beings who aimed at certain ends, we would discover in short order that this seemingly uncoordinated series of movements amounted in most cases to people traveling from their homes to work and back again.

Some level of rudimentary theory — even if at times only a basic understanding of cause-and-effect relationships — is unavoidably present whenever any historian practices his craft. Technically, history comprises anything that has happened in the past — that is to say, its raw data consists of everything that has ever occurred. It is only based on a level of understanding that transcends the raw data that the historian may sensibly discriminate between events that belong in his narrative and those that do not, or whose exclusion would not affect the coherence or accuracy of his account.

A sound theoretical grounding is all the more critical in the study of economic history, for this is a case in which two disciplines meet. Economic historians are typically more knowledgeable about economics than are historians with other specialties, but it is usually the latter who write textbooks for classroom use. Lacking any grounding in economic theory, when such historians inevitably reach those parts of their narratives that require them to delve into economic history they typically adopt whatever appears to be the consensus view of the episode in question, or even whatever view is most in accord with their own political prejudices.

By bringing theoretical knowledge to his study of the past the historian is not approaching his field in a spirit of partisanship that might prejudice his scholarly work. He is merely equipping himself with the kind of intellectual apparatus without which historical scholarship can become either a sterile catalogue of discrete occurrences or — in the hands of an incorrect theory — a misleading record of the past whose poor analysis may encourage unwise policies in the future. No scholar can shed light on economic history if, in a discussion of events A and B, he believes A causes B when A actually inhibits B, or if he does not know the relationship that exists between A and B when in fact a relationship does exist between them. Lacking the proper knowledge in a case like this is sure to lead the historian, and the reader, to erroneous conclusions. One Austrian economist argues that "the benefits to be gained from the study of political economy and philosophy by the historian" include the knowledge he gains "of pure — a priori — social theory, which enables him to avoid otherwise unavoidable errors in the interpretation of sequences of complex historical data and present a theoretically corrected and 'reconstructed,' and a decidedly critical or 'revisionist' account of history" (Hoppe 2001, p. xix). This is how knowledge of Austrian economics can assist the historian.

A monetary history of the United States not informed by sound economics, for instance, would be perfectly useless. The colonial period alone, in which countless newspaper editorials and men of prominence repeatedly urged that a "scarcity of money" in the colonies be resolved by the introduction of paper money (Rothbard 2002, pp. 52–53), is perilous ground for a scholar lacking economic knowledge. The argument in favor of government-issued paper currency as a remedy for a purported scarcity of money appears with such frequency in colonial times that modern historians, lacking any theoretical reason to hold a position to the contrary, have often accepted it at face value.

The Austrian School holds that since the purpose of money is to facilitate exchange, a process that is neither enhanced nor inhibited by its greater or lesser supply, any supply of money above a certain threshold is optimal. Increasing the supply of money serves only to dilute the value of the monetary unit. lts consequences are only negative: distribution effects, calculation problems, even the erosion of traditional moral norms (Woods 2005, pp. 94 97). The historian informed by Austrian economics will therefore be skeptical of historical claims of "shortages of money," as well as of the effectiveness or wisdom of paper money as an appropriate remedy for that alleged problem.

The Austrian historian also possesses his school's theory of the business cycle. No historian worth reading would discuss, say, the Great Depression without so much as a word about what may have caused it. But he can scarcely expect to accomplish that task without the assistance of theory. Murray Rothbard (1983, p. 11), speaking about the historical study of business cycles, wisely cautioned: "Study of business cycles must be based on a satisfactory cycle theory. Gazing at sheafs of statistics without 'pre-judgment' is futile."

Thus the Austrian historian knows that artificially low interest rates created hy the central bank's injections of new money into credit markets deform the economy's capital structure and interfere with the interest rate's normal function of coordinating production across time. The artificially low rates, by artificially stimulating earlier or higher-order stages of production, create an unsustainable mismatch between future­oriented investment plans on the part of entrepreneurs and present-oriented consumption plans on the part of consumers. When confronted in history with an economy-wide downturn, therefore, the Austrian historian knows to tum his attention to monetary factors.

In addition to understanding the causes of the initial downturn, the Austrian historian is also better equipped to think about the recession or depression itself. The recession or depression, he understands, is not the problem per se, but rather the necessary if unfortunate correction process by which the malinvestments of the boom period, having at last been brought to light, are liquidated. Unpleasant as it is, the recession is in fact the period in which the economy restores itself to health, sloughing off and redirecting (where possible) the misdirected capital of the boom. The diversion of resources into unsustainable investments that are out of conformity with consumer desires and resource availability swiftly ceases as unsound investment projects are abandoned.

The Great Depression presents the historian with two truly fundamental questions: what caused the initial downturn, and why did that downturn last as long as it did? For the first of these, as we have seen, the Austrian historian benefits from his knowledge of the Austrian business cycle theory. For the second, he has the advantage of still other insights, each of which leads him to ask the right questions about the historical data. An especially important such insight is that for prosperity to be restored, prices and wages must be permitted to fluctuate freely. Interference with either one of these will hamper the adjustment process, which consists of the reallocation of capital and labor into those lines that most correspond to consumer desires.

The Austrian understands the market's tendency to clear, and thus when it fails to do so, and (among other things) surpluses of labor sit idle for years at a time, he becomes interested to uncover any exogenous impediments to the natural adjustment he expects from the unhampered market. This is not the place to recount in detail all the ways in which government inhibited recovery from the Great Depression, a task that has been ably performed elsewhere (Powell 2003; Rothbard 1983; Vedder and Gallaway 1993, pp. 74–149; DiLorenzo 2005, pp. 156–205; Higgs 2006). In brief: prices and wages, far from being left free to fluctuate, were frozen or otherwise manipulated by government or (later) by the trade associations established under the aegis of the National Recovery Administration. The unmistakably antibusiness posture of Franklin Roosevelt and his advisers also appears to have delayed the recovery, as few entrepreneurs were willing to risk their capital in a radically uncertain environment. Still other policies — sweeping tax increases, special privileges for labor unions, the increased labor costs created by Social Security — ­likewise inhibited recovery.

Each of these factors is a datum of history, but connecting them to the persistence of the Depression requires knowledge of economics. It likewise requires that the historian understand the nature of wages, and that increasing them through threats of state violence is not a way to provide laborers with more "purchasing power" and thus restore economic prosperity — as indeed just about every mainstream historian takes for granted. Artificial wage increases lead to less employment than otherwise, as simple demand-curve analysis makes clear; and as Jacob Viner put it, "An unemployed laborer has no purchasing power at all, however high may be the wage rate he would get if he had a job" (Phillips et al. 1937, p. 225). ("It would be very nice," said another critic, "if simply by doubling or tripling all wage rates overnight, we could end the depression, but its effect would be rather to make unemployment complete rather than partial" [Phillips et al. 1937, p. 229].)1

Still another Austrian insight — or, at least, a point particularly emphasized by Austrians — that can inform sound historical judgments involves the importance of evaluating contrary-to-fact scenarios. Such scenarios involve consideration of what events might have occurred had a particular action not been taken. Had someone not spent his money on a turkey sandwich, for instance, he might have spent it on a ham sandwich, a salad, or on nothing at all, preferring to save his money instead.

More to our purpose would be a case such as this, drawn from the popular press (and even, in some cases, from the professional economics literature): the government institutes minimum-wage legislation, or increases an already-existing minimum wage and, contrary to the warnings of the economists, employment does not fall, and either remains stable or increases. Such employment data, it is alleged, refutes the claim that the minimum wage causes unemployment.

Again, much has been written about the epistemological status of economic laws from an Austrian point of view, and whether or not the data of history can overturn them. Our point here, while not unrelated to that larger question, is more modest: employment under the minimum-wage regime, even if higher than it had been before the legislation was imposed, was still lower than it would have been in a contrary-to-fact scenario in which no increase in the minimum wage had taken place.

Or suppose we read that at some moment in the nineteenth century half of the New England textile industry had been destroyed in a horrific natural disaster, but we also read that the price of textile products was unchanged in the aftermath of this catastrophe, we would not be justified in concluding from this experience that supply has no effect on price. It is precisely because we possess a theoretical grasp of economic concepts that we know how to interpret — or at least how not to interpret­ — a case like this. Some other factor must have offset the supply cut in order to keep prices stable. And we know that the price of textile products was nevertheless higher than it would have been had this disaster not occurred (here again the counterfactual scenario aids in analysis).

Guido Hülsmann (2003, p. 93) has proposed that "economic science, as a science, begins with Frédéric Bastiat, who stressed the counterfactual relationship between what is seen and what is not seen in human action." Bastiat has himself been described as an Austrian or proto-Austrian on a variety of grounds, not least for his emphasis on counterfactuals. Thus a scholar of Bastiat sums up his major methodological point: "In their trade, economists must rely on deductive theoretical analysis (the unseen) and must not rely on history and statistics (the seen)" (Thornton 2001, p. 393).

Anyone, Austrian or not, can of course evaluate contrary-to-fact scenarios. But the central importance of the contrary-to-fact scenario in the conduct of economic inquiry is fundamental to the theoretical apparatus that informs the Austrian's thought. Economics, said Mises, was the best-developed branch of praxeology, the science of human action. Praxeology begins with the incontestable axiom that human beings act, and develops economic concepts in light of the implications of human action. One such implication of human action is the concept of cost, which in tum is intimately bound to counterfactual analysis (Woods 2005, p. 17). Since the human body is as subject to the constraints of scarcity as any other economic good, and since those constraints limit an actor's ability to pursue more than one course of action at a time, all human action involves cost — namely, the action that is necessarily foregone when the actor chooses a particular course of action. In other words, when an actor performs a, he does so at the expense of performing b. According to Mises, cost "is an element in any kind of human action, whatever the particular features of the individual case may be. Cost is the value of those things the actor renounces in order to attain what he wants to attain; it is the value he attaches to the most urgently desired satisfaction among those satisfactions which he cannot have because he preferred another to it" (Mises 1949, pp. 209–10). From a very early point in praxeological analysis, then, we come face to face with the seemingly obvious but easily overlooked fact that the act of choice always carries some cost: the next-most-valued end that was not taken because the most-valued end was. Because one thing was done, another thing that might have been done was not.

Particular historical episodes, and their evaluation by historians, demonstrate the value of economic counterfactuals in the study of history. One of the New Deal policies that historians have most consistently supported — objecting only that it did not go far enough — is the public-works projects that were designed to provide employment for the jobless. Here, the implication goes, is a program on which all people of good will can agree. In addition to creating jobs, these programs provided important economic stimulus both in their mobilization of resources and in the money they made available to previously unemployed working men, who could now stimulate the economy through the spending that was now possible for them thanks to the income they received from these government-provided jobs.

Here is where the importance of contrary-to-fact scenarios is especially clear. If people are taxed $10 million to fund some government project, they now have $10 million less to spend on things they need. That decline in spending will cost other people their jobs, since taxpayers are now less able, to the tune of the $10 million taken from them, to carry on their previous consumption patterns. Economists John Joseph Wallis and Daniel K. Benjamin (1981, p. 97) have estimated that the public­sector jobs "created" by the New Deal's make-work programs either simply displaced or actually destroyed private-sector jobs.

Henry Hazlitt invited his readers to imagine a bridge project. We can see the bridge being built, and we can see the people doing the building. "The employment argument of the government spenders becomes vivid, and probably for most people convincing," he wrote. "But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers" (Hazlitt 1946, p. 33).2

The very existence of the bridge, says Hazlitt, is usually enough to win the argument "with all those who cannot see beyond the immediate range of their physical eyes." They can see the bridge, the direct consequence of the program, but they cannot see the indirect consequences: all the things that were never able to come into existence because the necessary resources were diverted to the bridge, like "the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs." Someone who understands how to assess both the direct and the indirect consequences of government programs — the seen and the unseen, the action that was taken and the actions that might have been taken instead — can see these things in the eye of his imagination, but "to see these uncreated things requires a kind of imagination that not many people have" (Hazlitt 1946, p. 34).

The Austrian historian likewise knows that on net these programs impoverished society, and did not, in a zero-sum game, simply divert jobs from some people to others, or capital from some projects to others. In the private sector, resources must be employed in line with consumer preferences if entrepreneurs wish to see a profit. Otherwise they make losses and must either change their business plans or see their capital slip out of their possession and into the more capable hands of those who are more adept at forecasting consumer demand and allocating capital accordingly. Government lacks this crucial feedback mechanism, since its revenue comes not by satisfying consumers but by the coercive means of taxation. Without having to pass the profit-and-loss test to which the private sector is always exposed, it can never know how relatively efficient or destructively uneconomic its projects are. How much of something is needed, if indeed it is needed at all? Where should it go? What materials should be used? Government cannot answer even these most basic questions of resource allocation in anything bu! an arbitrary manner, as Mises argued in Bureaucracy (1944). Transferring resources from !he private to the public sector, therefore, necessarily involves taking capital ou! of the hands of those who have shown themselves capable of satisfying demonstrated consumer preferences most efficiently, and placing it in the hands of an institution that has no way of knowing consumer preferences in the first place, much less how to satisfy them at the lowest cost.

Although its importance to historians may not be as immediately clear as that of Austrian monetary or business cycle theory, or some of the other examples raised here, the arguments in Rothbard's (1956) important article "Toward a Reconstruction of Utility and Welfare Economics" are still relevant to their discipline. Rothbard begins by emphasizing the subjective nature of value, and that utility cannot be measured, or compared across individuals. It makes no sense for someone to say that he likes his iPod 524.7 times as much as he likes moo goo gai pan, or that he enjoys talking a walk 3.1 times as much as another person does. Now if value is purely subjective, how can we know objectively whether an economic exchange has improved its participants' well-being? According to Rothbard, we are justified in concluding that an exchange has made people better off when both parties voluntarily enter into the exchange. The exchange would not occur in the first place unless each participant believed the exchange would make him better off. An exchange between persons A and B will take place if A prefers B's orange to his own apple, while B prefers A's apple to his own orange. We know that each person valued the other one's good more than his own because we sec their preferences demonstrated in action, in the form of their voluntary exchange of the goods. This is Rothbard's concept of "demonstrated preference."3

This insight carries weighty consequences for national income accounting (Rothbard 1983, Batemarco 1987). The Gross Domestic Product is determined for a given year by adding the dollar amounts of private consumption, investment, government spending, and net exports. GDP figures are typically cited as a kind of shorthand for a country's economic well-being, even if they are admittedly not a measurement of national prosperity. But if voluntary exchanges arc the only ones in which we can say for certain that the participants' well-being has increased, the inclusion of government expenditures, which being financed by taxation involve not voluntary exchange but coercion, calls GDP into question as a reliable proxy for a country's prosperity, defined as the well-being of the consumers who comprise it.

Rothbard suggested that government expenditures be altogether excluded from national income accounting, on the grounds that government spending constituted a depredation upon, rather than an addition to, national product. ("Any person who believes that there is more than 50% waste in government will have to grant that our assumption is more realistic than the standard one" [Rothbard 1983, p. 296].) In place of GDP figures. Rothbard proposed instead what he called private product remaining (PPR), which he arrived at by first ''deducting 'product' or 'income' originating in government and 'government enterprise' — i.e., the payment of government salaries-from Gross National Product." This figure is the Gross Private Product, from which Rothbard then deducted the resources that government activity drained from the private sector-namely the larger of either government expendi­tures or receipts — to get the private product remaining in private hands, or PPR (Rothbard 1983, pp. 296–97).

If economists want an idea of the American standard of living today, therefore, or if historians want to uncover its fluctuations over time, both groups are therefore much better served by calculating PPR per capita rather than following the Department of Commerce and its figures for per capita GDP (Batemarco 1987, p. 185).4

Once again, insights like these can help the Austrian historian to avoid just the kind of error that historians lacking such training have been so prone to commit. Among the most egregious is the view that World War II was responsible for economic prosperity, and even for lifting the U.S. out of the Great Depression — a position that, if anything, is even more widespread than the conviction that public-works projects during the New Deal were an economic boon. Seymour Melman summed up the conventional view of World War II: "The economy was producing more guns and more butter. ... Americans never had it so good" ( quoted in Higgs 2006, p. 68).

Insights from the Austrian School are especially helpful in this case, where carelessness and fallacy have combined to yield a conclusion — war makes us prosperous — as absurd as it is widespread. As we have seen, the Austrian has a particular interest in contrary-to-fact scenarios — in this case, what would have happened in the absence of the war? To what purposes might the pertinent resources have been employed? Second, equipped with Rothbard's PPR concept, the Austrian places special emphasis on the health of the private economy, and wants to disaggregate the national accounting figures in order to discover the degree to which the alleged prosperity was actually felt by the ordinary person rather than simply by those with connections to government and who benefited directly from its expenditures.

The best and most systematic work in this area belongs to Robert Higgs (2006). Higgs argues that even prior to any acquaintance with theory, simple common sense should have warned us that something was seriously wrong with official GDP data during the war years.

Consider that between 1940 and 1944, real GDP increased at an average annual rate of 13 percent — a growth spurt wholly out of line with any experienced before or since. Moreover, that extraordinary growth took place notwithstand­ing the movement of some 16 million men (equivalent to 28.6 percent of the total labor force of 1940) into the armed forces at some time during the war and the replacement of those prime workers mainly by teenagers, women with little or no previous experience in the labor market, and elderly men. Is it plausible that an economy subject to such severe and abruptly imposed human-resource constraints could generate a growth spurt far greater than any other in its entire history? Further, is it plausible that when the great majority of the servicemen returned to the civilian labor force — some 9 million of them in the year following V-J Day — while millions of their relatively unproductive wartime replacements left the labor force, the economy's real output would fall by 22 percent from 1945 to 1947? (Higgs 2006, p. 105)

There cannot be meaningful national-product accounting without market prices, for only market prices reflect voluntary exchanges aimed at improving the well­being of each party. During World War II, on the other hand, the U.S. had a command economy full of distorted prices. "In a command economy," writes Higgs, "the fundamental accounting difficulty is that the authorities suppress and replace the only genuinely meaningful manifestation of people's valuations, namely, free market prices" (Higgs 2006, p. 68). The prices the U.S. government paid for the goods and services it bought were essentially arbitrary in that they had no foundation in consumer choice, as all other prices do. Recalling Rothbard's point about voluntary transactions as the only ones we can be sure improve consumers' well-being, we may conclude that the greater the government's coercive power over the economy, the less meaningful in terms of consumer welfare its output statistics become.

Additionally, the more of the economy that the government places into the command system, the more tainted by arbitrariness do the output figures become. During World War II, at least two-fifths of national output was part of the war economy, and large classes of the remainder were controlled in one way or another (and thus arbitrarily priced). The sum of a great many arbitrary, nonsense numbers yields only a gigantic, arbitrary, nonsense number. And yet professional economic historians have relied on nonsense numbers like wartime GDP figures in painting their picture of wartime prosperity. Higgs contends that "the apparent super-trend wartime boom in output was nothing but an artifact of an unjustifiable accounting system" (Higgs 2006, p. 105).

Those figures also obscure the performance of the private economy, which suffered a severe setback during the war and recovered only in 1946. Of course, the official data, for reasons related to our analysis above, tell us that the economy did very poorly in 1946, a time when we know there was great economic prosperity: private output increased by 30 percent that year alone — by far the most extraordinary single-year jump in private output in American history. That, an Austrian knows, is a much better indicator of prosperity: not how much the government is spending, but how much the civilian economy is producing.

These examples give the reader an idea of the advantages that a historian schooled in Austrian economics enjoys vis-à-vis scholars with no such background. They also reveal that objective history and history informed by theory are not mutually exclusive categories. Mises, who described history without theory as impossible, believed that history could be conducted objectively, arguing that "outstanding historians" had managed to "combine scientific aloofness in historical studies with partisanship in mundane interests" (Mises 1957, p. 301).5 It is not the case, therefore, that impartial scholars approach their subject armed with no theory at all, while those who wish to plead on behalf of a particular cause employ that theory most likely to vindicate their cause.

The use of theory in the study of history docs not compromise the neutrality of the scholar in the face of historical testimony. To the contrary, no history worth reading can be written in the first place if the author divorces his work entirely from theory. Austrian economics in particular provides the historian with a theoretical apparatus that equips him with the ability to make disembodied statistics tell a coherent and accurate story.

  • 1. Vedder and Gallaway (1993) discuss the purchasing-power theory of wages in considerable detail.
  • 2. Thanks to Joe Salemo for reminding me of Hazlitt's chapter on make-work programs.
  • 3. Strictly speaking, we mean to say that in an ex ante sense the exchange has improved someone's well­being. It is possible that with the passage of time he may come to regret the exchange; it is also possible that he made a means-ends miscalculation, incorrectly believing that the good or service he acquired in the exchange would help him attain some end when in fact he later discovered that it was not suitable for that purpose.
  • 4. The argument that government services, even if coercively funded, may still possess some value, is both raised and ansered in Batemarco (1987, p. 185).
  • 5. Still, Mises held it to be neither reprehensible nor a violation of the norm of objectivity for historians to exhibit sympathy with their own party or nation. "The postulate of scientific history's abstention from value judgments," he suggested, "is not infringed by occasional remarks expressing the preferences of the historian if the general purport of the study is not affected." Thus if a historian, speaking of an ill-prepared general from his own nation, says that the man was "unfortunately" not up to his task, the writer "has not failed in his duty as a historian." Likewise, the historian "is free to lament the destruction of the masterpieces of Greek art provided his regret does not influence his report of the events that brought about this destruction" (Mises 1949, p. 301).
Categories: Current Affairs

Good Ideas Are Key in the War Against Bad Ideas

Mises Institute - Sat, 06/10/2018 - 00:35

Writing decades ago, Friedrich Hayek observed: “In all democratic countries … a strong belief prevails that the influence of the intellectuals on politics is negligible.”

Hayek conceded this was true to “the extent to which they can sway the popular vote on questions on which they differ from the current views of the masses,” but he warned that “over somewhat longer periods they have probably never exercised so great an influence as they do today. … This power they wield by shaping public opinion.”

Today, the role of intellectuals is more recognized, at least in the role of educators at schools and colleges, in shaping the ideology of the general public.

But the power of these intellectuals extends beyond even the schools. Indeed, it is impossible to turn to any institution, it seems, where people in positions of leadership do not push for greater and greater government control over our lives. The institutions permeated with these ideas include seemingly most cultural, educational, commercial, and religious institutions.

This is not an accident. The general public has been deeply affected over the decades by what Hayek calls “the professional secondhand dealers in ideas” who have ensured that anyone who comes into contact with these institutions are “educated” in the importance of modern interventionist ideology.

After all, as Hayek noted, “socialism has never and nowhere been at first a working-class movement.” Instead, it has long been the domain of artists, managers, school teachers, and religious leaders who continually insert these ideas into the daily lives of those under their influence.

Many opponents of socialism and interventionism often mistakenly assume that these ideas can be stopped at the political level — that if some lobbyists and political activists are employed, then the political system will be protected from bad ideas.

But by that stage of the game, it is already far too late.

Bad Ideologies Precede Bad Politics

In a democratic country, socialist and interventionist ideas gain traction only when they are supported — or at least tolerated — by a sizable portion of the general public. And how is the acceptance of these ideas manufactured? By years of opinion-shaping pushed by intellectuals in the cultural and educational institutions.

But how to confront these ideas?

The answer lies in countering bad economics with good economics, and by offering an accurate view of history in place of a false one.

After all, when it comes to history, we’ve all been relentlessly taught in school — and virtually everywhere else — that the history of the world shows us that capitalism and industrialization result in exploited workers, grinding poverty, and environmental pollution. And it is only through government intervention and regulation that these problems can be solved.

A more honest and accurate view of history, though, shows this is not true. In real life, capitalism and industrialization have led to unprecedented increases in the standard of living and the quality of life.

But where will people encounter this history? Certainly not in the schools, or in popular films, or on television.

With economics, the problem is similar. The public is constantly confronted with the idea that economic laws do not exist and that economic prosperity requires only the will to have government command that everyone becomes wealthier.

So long as this idea persists unchallenged, little can be done to advance true economic prosperity.

People's Political Agendas Reflect Their Views of History and Economics

And that, of course, is where the Mises Institute comes in.

We support scholars who offer a different view to what nearly everyone encounters nearly every day at school or in popular media. We offer a program of Austrian economics, freedom, and peace — and its something few are likely to encounter anywhere else.

With history, we support historians who write and teach the economic history and political history necessary to show that the history of capitalism is not what we’ve been told. Without good history to counter bad history, world views won’t change.

With economics, we support economists who write and teach sound economics which seeks to understand how markets work, and how government intervention in markets impoverishes us. Without good economics to counter bad economics, world views won’t change.

Support for good history and sound economics takes many forms: through our Fellows program, the Rothbard Graduate Seminar, Mises University, and through the mutual support shared by our students and scholars. The result is a global network of college faculty, school teachers, writers, and scholars who offer a worldview very different from what is pushed every day in schools and media.

Their scholarship is constantly being expanded, taught, and explored worldwide through countless online books and articles — freely available at mises.org — and in the classroom with historians and economists who have worked with us and taught with us over the years.

And we’re making progress. When Hayek was writing, he was a voice nearly alone in the wilderness. His ideas were being eclipsed. Few like-minded scholars could be found. Virtually no institution was interested in the scholarship of freedom and free markets.

Today, our books and articles reach a global audience. Our scholars teach at universities worldwide. Meanwhile, mises.org is visited by millions of readers each year. Not only is it possible to find honest history and sound economics if one looks for it — but even those who aren’t looking increasingly find themselves confronted with these ideas, whether from a friend or an educator.

You can help us make this movement even bigger. Please support our Fall Campaign donation drive today.

Categories: Current Affairs

Brazil's Coming Election: Can the Nation Embrace a Free Economy?

Mises Institute - Sat, 06/10/2018 - 00:35

On Sunday, October 7, 2018, Brazil holds its presidential election and will vote for the national deputies, the state governors, and the senators. Brazil has a diverse party system with tens of political parties. When no candidate reaches more than 50 percent in the first run, the two candidates with the highest score will compete against each other in the second vote few weeks later.

Political Polarization

The election of 2018 is not only one of the most critical in Brazil’s recent history, it is also the most polarized. This comes partly from the curiosity that the former president Inácio Lula da Silva takes an active part in the election campaign although he is in jail because of corruption charges. Lula, as he is popularly called, was sentenced to over nine years of prison but continuous to exert a strong influence on his followers and the media. He led the Workers’ Party (PT) to great victories in 2002 and 2006 and during his second term he was the post popular politician in Brazil. Fernando Haddad who is the candidate of the Workers’ Party visits Lula frequently and communicates with him to obtain directions how to lead the election campaign. On the campaign trail, Haddad even tries to imitate the distinct voice and mode of expression of the former president.

So far, two prime candidates for the presidency have emerged: Fernando Haddad of the Workers’ Party (PT) and Jair Bolsonaro of the Social Liberal Party (PSL). Beyond their fierce clash in promoting extremist right- and left-wing political positions, the two candidates have an ardent populism in common. As current polls indicate, the voter must (Brazil has compulsory voting) make a decision between the populist right (Bolsonaro) and the populist left (Haddad) in the final vote that is scheduled for October 28.

After he suffered a knife attack in early September and had to spend weeks in the hospital, Bolsonaro’s star rose. At the same time, Haddad also moved ahead, leaving the rest of the field of the candidates behind him. Hostility is rising, and the confrontations have become more aggressive. Whoever wins the presidency will face tough opposition, not only in the Congress and the Senate but also from large parts of the population. The mutual rejection in the population of each candidate are consistently higher than their acceptance. Aversion and hatred have become stronger feelings among the voters than sympathy and support.

Missed Opportunities

Brazil is in need of urgent reforms which have been neglected since the Labor Party took power under the leadership of Inácio Lula da Silva in 2003. Lula was reelected in 2006 and then launched Dilma Rousseff as his successor in 2010 and 2014. Dilma Rousseff, however, never gained the same degree of popular support that Lula had enjoyed. She was forced out of office in 2016 after an impeachment against her.

Under the presidencies of the Workers’ Party, the government turned populist state capitalism into the leading economic model. The beginning of the thirteen years of the rule of Workers’ Party coincided with a commodity boom and a deepening economic symbiosis with China. Brazil’s exports boomed. At home, President Lula pursued an economic policy that fostered mass consumption and public spending. Under his rule, the government launched a far-reaching program of redistribution that provided public money to millions of families. This policy of almsgiving found praised by many, including foreign observers and international institutions . At the height of the populist wave towards the end of his second term in 2010, Lula da Silva was able to boast of high growth rates, full employment, and moderate inflation.

Yet during the phase of good economic performance, the government did very little to promote the productive capacity of the country. The planned infrastructure projects ran aground or fell victim to corruption. The Brazilian boom was based on the export of commodities and on domestic consumption. As demand from abroad declined, the government sought to stimulate domestic demand through credit expansion. Although this policy secured the election for the Workers' Party and Rousseff’s presidency, this policy prepared the current slump.

Since 2011, the economy has been sinking. Instead of catching up to the advanced economies, Brazil is falling back again. The mean economic growth rate of the past five years is negative (Figure 1) and the unemployment rate has reached more than 12 percent since 2017. In terms of economic freedom of the Heritage Index of Economic Freedom, Brazil stands at number 153 between Uzbekistan and Afghanistan.

Brazil. Gross domestic product. Annual rates of growth, 2013-2018 brazil1.png

Source: IBGE. tradingeconomics.com

The Workers Party precluded sustained economic progress by prioritizing redistributive policies. This project had to fail because it plundered the middle class, which is still weak and relatively small in Brazil. Instead of fostering new enterprise and liberating the entrepreneurial spirit, a stifling bureaucracy and high taxes have hampered economic development.

Paying the Price for Failed Policies

In the 20th century, Brazil was the country of Latin America that made the most progress in industrialization. The economy benefited from the immense wealth of raw materials and agricultural resources and the way seemed open to catch-up to the rich countries. Yet after the great advancements of industrialization from the 1940s to the 1960s, the country fell into the trap of foreign loans in the 1970s and became a victim to the international debt crisis in the 1980s.

In response to the military rule that dominated the country from 1964 to 1985, the democratic forces created a Constitution that is packed with social utopia. The resulting political system is a hodgepodge of welfarism, presidentialism, and democratism. The Constitution of 1988 created a new privileged class in the form of the judiciary which enjoys privileges beyond belief and gives provincial judges almost unlimited authority to make decisions that concern the whole country.

After the ‘lost decade’ of the 1980s, the country slowly regained new ground and in the second half of the 1990s with an effective currency reform, privatizations, and expenditure control the economy begin to grow again.

That was the time when Brazil should have said goodbye to its interventionist economic model. Yet instead, the government put the country on the path to its current misery through Keynesian development policy. Expansionary fiscal and monetary policies have not brought relief but exacerbated the problems. Excessive public spending and monetary expansion have led to imbalances between production and demand. Without enough technological progress to offset the lack of savings, the economy lacks vitality and has remained stuck in stagnation.

The Workers’ Party did not accomplish any of the overdue reforms. When the crisis hit, the traditional weaknesses of the Brazilian economy reappeared in full force. The list of miseries ranges from the education system to pensions, from bureaucracy to labor legislation, from extreme economic and social inequality to the immense privileges of the civil service, and especially the privileges enjoyed by the judiciary in Brazil. Numerous unnecessary regulations burden the economy. Unclear and contradictory laws provoke incalculable bureaucratic and fiscal encroachments of the authorities on business. The labor market is extremely rigid. Workers are hard to dismiss. Public servants enjoy exorbitant salaries and generous benefits.

The high tax burden weights heavily on companies, consumers, and the working population. The public service is expensive and inefficient. The retirement regulations for civil servants are paradisiacal. The strong influence of the state on the economy and the numerous state and semi-state enterprises has opened the door to exorbitant levels of corruption.

The fact that Brazil has survived these burdens and still maintains a relatively good standard of living is due to its immense wealth of natural and agricultural resources. Yet this abundance is a blessing and a curse at the same time. The easy exploitation of the natural resources entices the country’s elite to pay little attention to productivity, efficiency, and thriftiness. The capital formation in Brazil is weak, savings are low, and the rate of innovation is poor. Without fundamental reforms towards a market economy, the future looks bleak.

Outlook

A few years ago, at the height of the impeachment process against President Dilma Rousseff, it seemed for a while that the old ideology of state interventionism had abated, and that free market philosophy was on the rise. The country was hungry for new ideas. The representatives of the established elite had lost their legitimacy. The investigations that brought an immense corruption scandal to light had aroused the will of the population to establish a clean democracy. Yet the closer the next election came, the more the old forces regained strength up to the point that now Lula can direct an election campaign from jail.

The chances of a reversal after the election are small. Poor economic policies tend to produce even worse economic policies, and false ideology provokes more false ideas. Brazil is stuck in the swamp of interventionism which is typical of the populist state capitalism. At universities and schools, socialist and communist ideas dominate. Brazil needs a profound change in its economic structure, replacing its state capitalism of a top-down development strategy with a model of an entrepreneurial economy. The strange thing about Brazil is that with some persistence most of the country’s ailments are to cure but that hardly anyone in the political arena has the will to begin with the treatment and is determined enough to carry it out.

Categories: Current Affairs

Austrians vs. Market Monetarists on the Housing Bubble

Mises Institute - Sat, 06/10/2018 - 00:35

We Austrian economists frequently cross swords with our Keynesian foes on all manner of economic analysis and government policy recommendations. Yet the standard Austrian analysis of the business cycle is also sharply at odds with that of the “Market Monetarists,” a new school of thought coming out of the Chicago school tradition and now gaining traction at places like the Mercatus Center. In particular, prominent Market Monetarists have challenged the Austrian narrative of the housing bubble, arguing that the claims of “malinvestment” and the need for reallocation of resources do not fit the data. Yet as we’ll see, it’s the Market Monetarists who are defying common sense with their alternate version of history.


 
Scott Sumner’s Critique of “Malinvestment”

In the standard Austrian view, when the banking system (nowadays led by a central bank) injects credit and pushes interest rates artificially low, it sets off an unsustainable boom. However, the distortion is not merely monetary: During the boom, malinvestments occur. Because the capital structure of the economy becomes internally inconsistent, eventually some entrepreneurs must abandon their projects because there are insufficient capital goods to carry them all to completion. This appears to us as a “recession,” in which many firms lay off workers and scale back their operations, if not close shop altogether. Although painful, the recession period is necessary for workers and other resources to get reallocated to more sustainable niches of the economy. (In what has come to be known as my “sushi article,” I give a fable explaining all of this, and in my longer follow-up response to Paul Krugman, I spell out Austrian capital theory and business cycle theory more methodically.)

In a recent post on his personal blog, Scott Sumner (one of the leaders of the Market Monetarists) criticized the Austrian perspective, as least as it pertains to the housing boom and bust. (In this post, I showed that it made sense to apply ABCT to the housing bubble.) Here’s Sumner:

When I first started blogging, a number of Austrian commenters told me the real problem was not tight money.  Rather there had been “malinvestment” in housing, especially in the “sand states”. The recession was the price we had to pay for all of this poorly thought out investment.

That theory never even made sense in 2009. If the problem was malinvestment in housing, then resources would have shifted to the other 95% of the economy. Instead, output fell in almost all sectors. (I’m referring to 2008–09; resources did shift to other sectors during the 2006–07 construction slump.)

Today it makes even less sense. The NYT has an article on the housing market in North Las Vegas, which was the epicenter of the bust. It’s now booming…

Sumner then quotes from the NYT piece, explaining how the Vegas market now one of the fastest-growing in the country. Sumner goes on to write:

I agreed that there had been some excessive housing construction in the inland portion of the sand states. … But I argued that these cities were fast growing, and this problem was relatively mild. In my view the malinvestment is better termed “too early investment”—some houses were built a few years before they were needed. The Austrian counterargument was that these houses would remain empty for decades, and eventually depreciate sharply (in a physical sense.) It looks like I was closer to the truth. [Scott Sumner, bold added.]

Now, in the comments of Sumner’s post, you’ll see that I asked for an example of an Austrian making such a claim about the housing market. At face value, that seemed to be a silly thing to say; after all, the owner of an empty house, no matter how much he paid to build it, would eventually admit defeat and either sell at a loss or start renting it out to tenants. Sunk costs are sunk, as Austrians and other economists know. (You can see for yourself at the link that Sumner did not rise to my challenge, though in fairness perhaps he misunderstood what a fan of Hayek had been arguing years ago in his comments.)

But focus now on the part I’ve put in bold in the block quotation from Sumner. He seems to think this is a radical departure from the Austrian perspective, when in fact it’s not at all. Indeed, that’s what many Austrians would have said they meant by “malinvestment.” A related feature would be that many houses were built that were too big.

In his grand treatise Human Action, Ludwig von Mises explained the difference between “malinvestment” and “overinvestment” using—believe it or not—a metaphor of a house project. Here’s Mises, describing the situation during an unsustainable boom when artificially cheap credit has misled people:

The whole entrepreneurial class is, as it were, in the position of a master-builder whose task it is to erect a building out of a limited supply of building materials. If this man overestimates the quantity of the available supply, he drafts a plan for the execution of which the means at his disposal are not sufficient. He oversizes the groundwork and the foundations and only discovers later in the progress of the construction that he lacks the material needed for the completion of the structure. It is obvious that our master-builder’s fault was not overinvestment, but an inappropriate employment of the means at his disposal. [Mises, Human Action, Scholar’s Edition, p. 594.]

So contrary to Sumner’s perspective, when the Austrians speak of “malinvestments” during the housing boom years in the mid-2000s, they weren’t predicting that Las Vegas would be a ghost town for the next 30 years. Rather, they simply meant that too many houses were being built ahead of schedule, and further that many of these houses were bigger than they should have been.

For an analogy, Austrians would also say the moonshot under President Kennedy was a gross waste of resources. Yet someday, private companies will no doubt be profitably sending passengers and cargo from Earth to the moon. The fact that the moonshot was merely “too early” in the 1960s doesn’t change the fact that it was a bad investment—a misuse of scarce resources—at that time.

By the same token, the fact that the Las Vegas real estate market has rebounded after a huge crash—especially in the midst of rock-bottom interest rates—is hardly embarrassing for the Austrian worldview:

2018.09.29 Austrians vs Market Monetarists figure 1.png

To repeat, Austrians like me have been jumping up and down since 2008, warning people that Bernanke was blowing up giant asset bubbles just like Greenspan had done after the dot-com crash. So how in the world is the above chart supposed to show that the Austrians have been wrong? If we were right, isn’t the above chart exactly what things would look like?

More On the Reallocation Story

Now that I’ve clarified what Austrians mean by “malinvestment,” let’s circle back to Sumner’s claim that the Austrian story never even made sense early on. To remind the reader, here’s what Sumner said on this score:

When I first started blogging, a number of Austrian commenters told me the real problem was not tight money. Rather there had been “malinvestment” in housing, especially in the “sand states”. The recession was the price we had to pay for all of this poorly thought out investment.

That theory never even made sense in 2009. If the problem was malinvestment in housing, then resources would have shifted to the other 95% of the economy. Instead, output fell in almost all sectors. (I’m referring to 2008-09; resources did shift to other sectors during the 2006-07 construction slump.)

In the parenthetical sentence at the end of the quotation above, I believe Sumner is repeating a factual mistake that he made years ago. So I’ll repeat the correction I offered him at the time:

Sumner thinks there was a “construction slump” from 2006-07, and yet “resources did shift to other sectors,” because in January 2006, housing starts were 2.3 million while unemployment was 4.7%. But by April 2008, housing starts had plummeted to 1.0 million, yet unemployment was only 4.9%. This is why, to repeat, Sumner thinks the Austrian “reallocation story” makes no sense. In Sumner’s view, apparently the economy was able to jettison a huge portion of workers out of construction into other sectors, so long as the Fed kept nominal GDP chugging along, but once the Fed inexplicably tightened monetary policy, that’s when unemployment spiked.

Yet as I explained at the time, there’s a huge flaw in Sumner’s argument. It’s true that housing starts collapsed from January 2006 to April 2008, but that’s not true of construction employment, which fell from 7.6 million to 7.3 million. Even though housing starts fell by 57%, construction employment during that period only fell by 4%.

The following chart plots total construction employment (blue, left axis) against the national unemployment rate (red, right axis). Doesn’t this look exactly like the Austrian story?

2018.09.29 Austrians vs Market Monetarists figure 2.png

Regarding the above chart, I’m not merely referring to the tail end when the crash happened. Even going into the crazy bubble years, the above chart fits the Austrian story beautifully: As construction employment surged (blue line), rising from 6.7 million in early 2003 to 7.8 million by early 2006, the national unemployment rate (red line) fell from 6% to almost 4.5%. And then, when construction employment really did start plummeting—which happened well after the point that Sumner would have you believe—that’s precisely when the national unemployment rate starts rising rapidly. What would the chart need to look like, to vindicate the Austrians?

Let’s also remember a point that came up in one of my battles with Krugman. Krugman (like Sumner) had tried to pooh-pooh the “real resource reallocation” story of the housing boom/bust by pointing out that as of the end of 2008, year/year increases in state unemployment rates didn’t seem to match up with those states that had had the biggest housing price collapses.

But as I pointed out in my response, the housing bust (as measured by prices) had been well underway at the start of 2008, and so it was odd to use that as the start date. If instead we looked at the states from the peak of the housing price bubble, i.e., June 2006, through December 2008, then we found the following: Of the six states with the biggest drop in housing prices during this period, five of them were also on the list of the six states with the biggest jump in their unemployment rates during this same period. So that seems hard to reconcile with a theory that blames the recession on a drop in Aggregate Demand (Krugman’s story) or “passive tightening by the Fed” (Sumner’s story).

Finally, regarding Sumner’s question of why we saw a general downturn rather than a rapid and smooth sectoral readjustment after 2007: I explained this in great detail in my “sushi article.” But for this article I’ll be brief: During the boom period, entrepreneurs are misled by artificially low interest rates and make offers to workers that are too generous. So workers eagerly quit their old jobs and take the new, better ones. (And, some of those who were previously unemployed take the lucrative job offers.)

Yet after the bust, most people realize that they are poorer than they had thought. Workers get laid off from their desired jobs, and now have to decide which of less attractive options they are going to pick. There is uncertainty of course, as employers and unemployed workers engage in a giant process of search and matching. It’s not mysterious at all that during such an upheaval—and especially when the Fed and Bush/Obama administrations are wasting hundreds of billions while violating contractual arrangements—even people who kept their jobs would reduce their discretionary spending, and sectors all throughout the economy would scale back operations.

Mercatus Study: What Housing Bubble?

And so we’ve seen that Scott Sumner’s pushback against the Austrian view doesn’t really make sense. However, at least Sumner had the decency to admit that there had been too much (or at least too early) housing.

Yet Sumner’s colleague Kevin Erdmann, in a study for the Mercatus Center, takes the counter-narrative a step further. Far from too many resources going into housing during the bubble years, Erdmann argues that the US suffered from a housing shortage during these years! As Erdmann asks (and answers) in the opening of his study: How bad was the supply overhang [after 2008]? Surprisingly, the answer may be that there never was one.”

The reader can hopefully see why Erdmann’s thesis poses such a problem for not just the Austrians, but for most other analysts who have thought there was an artificial boom in housing from (say) 2002–2006.

For example, here is one of Erdmann’s key graphs:

2018.09.29 Austrians vs Market Monetarists figure 3_0.png Source: Kevin Erdmann, figure 1.

On the face of it, Erdmann is trying to demonstrate that if we use an objective measure, then it seems there was nothing unusual—from a historical perspective—about the growth in the stock of housing in the mid-2000s. After all, even at its recent peak, the particular measure of “Housing Units per capita” was still lower than it had been in the late 1980s.

There are several responses I’ll give to this line of argument. First, who’s to say that the level in the late 1980s was correct? After all, there had been a devastating crash in the real estate market (and related crises in banking) following the “closing of loopholes” in the 1986 Tax Reform Act.

A second problem is that there is an admitted discontinuity in the data set, which is why Erdmann draws the dotted line in his graph. If we just start with the consistent data set beginning in 2000, then the chart is broadly consistent with the claim that there was an unsustainable surge in housing stock in the mid-2000s.

A third problem is that houses nowadays are much bigger than they were in the 1970s. Mark Perry reports that for new homes (of a certain category), living space per person has nearly doubled since 1973. A much more revealing statistic, then, would be something like, “Housing square footage per capita,” which I imagine would have been at all-time highs circa 2007 (though I couldn’t find the data needed to either back up or reject my hunch).

Finally and perhaps most serious, is the problem that Erdmann is playing central planner. We can’t look at aggregate statistics like “housing units per person” and decide whether “too much” or “too little” housing has been built in the country. If we could, then the socialist calculation problem would be a snap to solve.

Nobody denies that there was a tremendous surge in home prices up through 2006 or 2007 (depending on the index you use), followed by a large crash. How could such a volatile movement not have influenced actual investment decisions? Don’t Erdmann (and Sumner) think market prices guide entrepreneurs?

For example, check out the following aggregate statistic: the number of vacant housing units in the country:

2018.09.29 Austrians vs Market Monetarists figure 4.png

As the chart indicates, from 2001 to the eve of the recession’s official start, the number of vacant housing units increased from 13.9 million to 18.6 million. That certainly seems like “overbuilding” beyond what “the fundamentals” would justify. Over the years, the number has fallen, but slowly. Isn’t this exactly what the “housing supply overhang” story would look like? Maybe there are some real-world on-the-ground facts about the housing market that Erdmann’s preferred statistics are failing to capture.

Finally, let me use an analogy to show the danger in Erdmann’s approach. You know it’s become part of conventional wisdom that there was an OPEC embargo and an “oil shortage” in the 1970s? Well, if you grab the actual data on crude oil consumption and divide by the US population, you realize that this typical narrative is totally wrong:

2018.09.29 Austrians vs Market Monetarists figure 5_0.png

As it turns out, Americans consumed more barrels of crude per capita during the 1970s than at any time, before or since. The 1970s should go down in history as an energy glut.

Of course, I’m being facetious. Obviously, there were plenty of other changes in the oil industry over the last 50 years, so that you can’t simply look at a crude (no pun intended) statistic like “annual crude oil consumed per capita.” Among other problems, there were various layers of price controls on both gasoline and crude oil during the 1970s, which were responsible for the supply misallocations and the infamous lines at the pump.

My simple point is that if we wanted to talk about energy policy and discuss things such as supply bottlenecks and allocation problems, the above chart would be singularly unhelpful and in fact downright misleading. Yet that is analogous to what Erdmann is doing when he tries to argue that the alleged housing boom years were in fact marked by undersupply.

Conclusion

The Austrian perspective on the housing boom and bust lines up with common sense: Too many houses were built during the mid-2000s, and many of these houses were bigger than they should have been. The Austrians differ from most other analysts by blaming this outcome (largely) on loose Fed monetary policy.

Contrary to the claims of the Market Monetarists, the Austrian story fits the facts of the housing boom—and bust—much better than their preferred narrative.

Categories: Current Affairs

Leave your VPN and cURL secure APIs with Cloudflare Access

CloudFlare - Fri, 05/10/2018 - 19:30
Leave your VPN and cURL secure APIs with Cloudflare AccessLeave your VPN and cURL secure APIs with Cloudflare Access

We built Access to solve a problem here at Cloudflare: our VPN. Our team members hated the slowness and inconvenience of VPN but, that wasn’t the issue we needed to solve. The security risks posed by a VPN required a better solution.

VPNs punch holes in the network perimeter. Once inside, individuals can access everything. This can include  critically sensitive content like private keys, cryptographic salts, and log files. Cloudflare is a security company; this situation was unacceptable. We need a better method that gives every application control over precisely who is allowed to  reach it.

Access meets that need. We started by moving our browser-based applications behind Access. Team members could connect to applications faster, from anywhere, while we improved the security of the entire organization. However, we weren’t yet ready to turn off our VPN as some tasks are better done through a command line. We cannot #EndTheVPN without replacing all of its use cases. Reaching a server from the command line required us to fall back to our VPN.

Today, we’re releasing a beta command line tool to help your team, and ours. Before we started using this feature at Cloudflare, curling a server required me to stop, find my VPN client and credentials, login, and run my curl command. With Cloudflare’s command line tool, cloudflared, and Access, I can run $ cloudflared access curl https://example.com/api and Cloudflare authenticates my request to the server. I save time and the security team at Cloudflare can control who reaches that endpoint (and monitor the logs).

Protect your API with Cloudflare Access

To protect an API with Access, you’ll follow the same steps that you use to protect a browser-based application. Start by adding the hostname where your API is deployed to your Cloudflare account.

Just like web applications behind Access, you can create granular policies for different paths of your HTTP API. Cloudflare Access will evaluate every request to the API for permission based on settings you configure. Placing your API behind Access means requests from any operation, CLI or other, will continue to be gated by Cloudflare. You can continue to use your API keys, if needed, as a second layer of security.

Reach a protected API

Cloudflare Access protects your application by checking for a valid JSON Web Token (JWT), whether the request comes through a browser or from the command line. We issue and sign that JWT when you successfully login with your identity provider. That token contains claims about your identity and session. The Cloudflare network looks at the claims in that token to determine if the request should proceed to the target application.

When you use a browser with Access, we redirect you to your identity provider, you login, and we store that token in a cookie. Authenticating from the command line requires a different flow, but relies on the same principles. When you need to reach an application behind Access from your command line, the Cloudflare CLI tool, cloudflared, launches a browser window so that you can login with your identity provider. Once you login, Access will generate a JWT for your session, scoped to your user identity.

Rather than placing that JWT in a cookie, Cloudflare transfers the token in a cryptographically secure handoff to your machine. The client stores the token for you so that you don’t need to re-authenticate each time. The token is valid for the session duration as configured in Access.

When you make requests from your command line, Access will look for an HTTP header, cf-jwt-access-assertion, instead of a cookie. We’ll evaluate the token in that header and on every request.  If you use cURL, we can help you move even faster. cloudflared includes a subcommand that wraps cURL and injects the JWT into the header for you.

Why use cloudflared to reach your application?

With cloudflared and its cURL wrapper, you can perform any cURL operation against an API protected by Cloudflare Access.

  • Control endpoint access for specific users
    Cloudflare Access can be configured to protect specific endpoints. For example, you can create a rule that only a small group within your team can reach a particular URL path. You can apply that granular protection to sensitive endpoints so that you control who can reach those, while making other parts of the tool available to the full team.
  • Download sensitive data
    Placing applications with sensitive data behind Access lets you control who can reach that information. If a particular file is stored at a known location, you can save time by downloading it to your machine from the command line instead of walking through the UI flow.
What's next?

CLI authentication is available today to all Access customers through the cloudflared tool. Just add the API hostname to your Cloudflare account and enable Access to start building policies that control who can reach that API. If you do not have an Access subscription yet, you can read more about the plans here and sign up.

Once you’re ready to continue ditching your VPN, follow this link to install cloudflared today. The tool is in beta and does not yet support automated scripting or service-to-service connections. Full instructions and known limitations can be found here. If you are interested in providing feedback, you can post your comments in this thread.

Categories: Technology

So long folks

Adam Smith Institute - Fri, 05/10/2018 - 16:29

So after two and a half years today’s my last day at the Adam Smith Institute. Starting next week I’m off to join Philip Salter at The Entrepreneur’s Network as Research Director.

Being Head of Research (and before then Head of Projects) at the ASI has been a blast. There are few workplaces that can offer comparable opportunities and I’d like to thank the ASI’s co-founders Eamonn Butler and Madsen Pirie taking me on board as a graduate.

Soon after I joined I was writing op-eds in national newspapers and appearing on TV thanks to the awesome media-work of Flora Laven-Morris and the constant help and advice of Sam Bowman and Ben Southwood.

Over my two years plus, I’ve seen the office change a lot. Including seeing Sam, Ben, Flora, and Ellie Weston move on to new jobs and seeing Matt Kilcoyne, Daniel Pryor and Sophie Jarvis join leaving the Institute in good hands. That’s not forgetting a range of interns (Hunter, Olly, Amelia, Jonas and now Ananya) who have all left their mark in their own way and will surely go on to great things.

I leave knowing that the ASI remains a research powerhouse (2nd best Domestic Economic Policy Think Tank in the World!). We’re a small team but through our brilliant fellows and associates (like Anthony J. Evans and Kevin Dowd) we punch well above our weight. Over the past year we’ve published top quality agenda-shifting research on immigration, financial regulation, monetary policy, vaping and, my personal favourite, the case for abolishing the MOT test. We’ve got a whole load of great papers and reports in the works (I count 8 including one by yours truly) to release in the coming months too. So watch this space.

The Adam Smith Institute is needed now more than ever and I’m excited to see what happens next.

Categories: Current Affairs

Parental rights vs. the equality duty: what the law really says

Christian Concern - Fri, 05/10/2018 - 16:26
The Christian Legal Centre’s Roger Kiska discusses how British schools have moved away from teaching basic primary education, instead choosing to focus on teaching the ideology of 'inclusivity'. Roger explains the reality of their legal obligation and how many schools are not fulfilling it. Parental rights vs. the equality duty: what the law really says

The Christian Legal Centre’s Roger Kiska discusses how British schools have moved away from teaching basic primary education, instead choosing to focus on teaching the ideology of inclusivity. Roger explains the reality of their legal obligation and how many schools are not fulfilling it.
 

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Action Alert: respond to the government's consultation on changing transgender laws

Christian Concern - Fri, 05/10/2018 - 16:22
The government is currently consulting on whether or not to amend the Gender Recognition Act 2004, asking - amongst other things - if it should be easier for people to change their gender in England and Wales, and potentially forcing the Church to accept same-sex 'marriage'. The proposed changes could both threaten religious freedom and punish people for telling the truth. Here, we give a quick guide to responding to the government's consultation. Action Alert: Respond to the government consultation on changing the Gender Recognition Act

The government is currently consulting on whether or not to amend the Gender Recognition Act 2004, asking - amongst other things - if it should be easier for people to change their gender in England and Wales, and potentially forcing the Church to accept same-sex 'marriage'. The proposed changes could both threaten religious freedom and punish people for telling the truth. Here, we give a quick guide to responding to the government's consultation.

 

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All port, no policy?

Adam Smith Institute - Fri, 05/10/2018 - 16:10

Having never been to the Conservative party conference and not being a member of the party myself, I was expecting it to be rather, dare I say, aloof.

There was plenty of drinking, plenty of port for sure, but the policy coming out of the main hall seemed a little bit light. Yet that wasn’t what struck me most. No, reflecting the recurring trend in politics of late I was pleasantly surprised by what I found in Birmingham.

I had the opportunity to debate, present and articulate ideas to ardent High Tories who rallied under the banner of "Church in Danger" as well as uber edgy (both in persona and on the political spectrum of the left) Labour party members of the ‘free markets...BUT’ persuasion.

Though this civil discourse is rather cute, the pinnacle of polite conversation occurred as Owen Jones heartily laughed as a group of young Conservatives for Liberty members announced they would ‘privatise him’ and responded he would ‘nationalise them’ with an even heartier laugh.

The Conservative party’s conservatism is notorious for having a historically inconsistent dogma, from Disraeli to Thatcher; reflected by Boris Johnson speaking of One Nation Toryism and Thatcher in almost the same sentence. So when I attended a fringe event with a presentation slide titled ‘Origin of the term ‘Conservative’’ I was hoping for some clarity. But the lecture (and a quick glance over my A level history course) reminded me that Conservatism is only as good as what it conserves. Paradoxically this may be why the Conservative party has been Britain’s most successful political party – but that is a topic for another blog.

Regardless of the party’s past, the conference was particularly promising for the future of the free market faction. And I mean conference and not party there. It was at the business stalls and fringe events – those attended by entrepreneurs and academics – which is where I found showcases of driverless cars, AI in financial services, and housebuilders showing they’re not just jaw-jaw.

Naturally, this meant they were popular and the temptation to parallel the ‘one-in-one-out’ entrance policy at some events with the proposal of some Tories’ immigration strategy was too tempting to resist. The opportunity for intra-party dialogue, bolstered by the tieless teens, the Truss enthusiasts, and even the tweed-wearing Tories of the youth wing of the party was both fruitful and friendly.

And so, fruitful and friendly it was, evident by the copious amounts of literature from think tanks, various organisations and charities which I had the pleasure of taking home. However, the question of whether it was all port, no policy depends on whether the literature is seriously considered by the government in the near future.

Categories: Current Affairs

There’s an App for That

Blog & Mablog - Fri, 05/10/2018 - 14:29

The post There’s an App for That appeared first on Blog & Mablog.

Categories: People I don't know

How to Suffer with Joy

Children Desiring God - Fri, 05/10/2018 - 14:00

by John Kimbell

Is it your expectation that as you give yourself to obedience to Christ and to loving service for others that you will suffer? Or are you surprised by this?

  • Do you assume that volunteering to serve in the children’s ministry should bring no difficulties or inconveniences whatsoever into your life?
  • Do you assume that committing yourself to consistent, servant-hearted care for the members of your small group will just happen at no cost to you?
  • Do you assume that parenting and discipling your children should be trouble-free?
  • Do you expect all your neighbors to break down your door to ask you about the gospel, or will it take sacrifice and effort to move into their lives in order to make Christ known?
  • Will the unreached peoples of the world hear the gospel without toil and struggle on the part of the church?
  • Fill in the blank with the ministry that God has set before you as ask yourself, Do I expect to suffer?

We must not be surprised that the way of Christ and the way of ministry is a pathway of suffering. Paul wrote to the Colossians, “I rejoice in my sufferings for your sake” (emphasis added), and he rejoiced that through his toiling and struggling to make the Gospel known, and all of the difficulties that were necessary for him to do that, people would hear about Jesus and trust Him as Savior and be saved from their sins.

Paul suffered for the sake of the Gospel. But Paul is not the only one called to share in Christ’s sufferings. He wrote,

Now I rejoice in my sufferings for your sake, and in my flesh I am filling up what is lacking in Christ’s afflictions for the sake of his body, that is, the church, of which I became a minister according to the stewardship from God that was given to me for you, to make the word of God fully known, the mystery hidden for ages and generations but now revealed to his saints (Colossians 1:24-26).

When we suffer in our efforts to make Christ known, and to love others in His name, and simply to live as faithful followers of Jesus, we too are called to rejoice. We don’t rejoice in our sufferings for themselves. That would be weird. That would be wrong. Suffering in itself is not something to delight in; instead, we rejoice in how God works through our suffering.

Additionally, we rejoice in how those sufferings confirm our personal identification with Christ. Romans 8:16-17 says,

The Spirit himself bears witness with our spirit that we are children of God, and if children, then heirs—heirs of God and fellow heirs with Christ, provided we suffer with him in order that we may also be glorified with him.

This means that when you suffer as a Christian, your suffering is not meaningless. It is not purposeless. God uses it to serve others. Christ identifies with you in it. He does not look lightly upon your suffering. He even regards it in some sense as His own. This is why you can rejoice in your suffering.

But more than this. Do you realize that this costly pathway is also the pathway of true and lasting joy? Eternal joy will be multiplied in the lives of others through your ministry, and every sacrifice that you make, Jesus says “will be restored to you a hundredfold in this life, with persecutions, and in the age to come eternal life” (Mark 10:30).

This will not be easy. Paul himself had to toil and struggle and suffer in the proclamation of Christ. But he also knew the glory of the riches of this mystery—Christ in you—so that we don’t do this on our own. We toil and we struggle, yes. But we do so with all of Christ’s energy that He powerfully works within us as we trust and depend on Him.

That’s why the apostle Paul was able to rejoice in his sufferings with Christ for the sake of the body of Christ. We, the church, are called to follow His example, for joy.

 

John Kimbell is the preaching pastor for Clifton Baptist church.

Categories: Christian Resources

Responses to 'One Scotland' 'hate crime' posters

Christian Concern - Fri, 05/10/2018 - 10:32
Dear 'One Scotland', Do you really think that churches are teaching people to be hateful towards others? Or to be violent towards people we disagree with? Why not pop into a church sometime and find out what we really think? Love, Some Christian friends

'One Scotland' - a joint campaign of the Scottish government and Police Scotland has recently started a campaign targeting 'hate crime', featuring posters addressed to 'bigots', 'homophobes' and 'transphobes', among others.

David Robertson, a Church minister and Director of Solas CPC first brought the posters to public attention. He explained some of the problems with the poster campaign:

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