Category: Economic TheoryThe analysis published under this category are as follows.
Sunday, December 21, 2014
Mark Tovey writes: The unhampered market creates economic inequality. Free marketeers tend to concede this fact as an unfortunate defect in an otherwise laudable system. F.A. Hayek, however, in a chapter from The Constitution of Liberty, argued that inequality is fundamental to a society's progress. Hayek explained how, by purchasing luxuries unimaginable to the average man, the rich unwittingly perform a vital public service. Indeed so fundamental is inequality to economic progress that egalitarian societies, Hayek concluded, would be faced with no choice but to deliberately re-inflict upon themselves the very class systems they had sought to escape, should they wish to achieve well-directed economic advancement.Read full article... Read full article...
Wednesday, December 17, 2014
We currently face a monumental dilemma. How do we extract ourselves from all this excessive debt without crashing the world economy? There is a solution which is totally counterintuitive: print even more money. In other words, to get out of the deep, deep hole we are in, dig even deeper.
It is called the Chicago plan. With a stroke of a pen, money would be substituted for debt, without the negative consequences of printing money. Banking would be restructured so that it never again leads to boom and bust cycles, and most debt, public and private, could be cancelled. It’s basically a “one time” get out of jail card for the world economy.Read full article... Read full article...
Wednesday, November 12, 2014
Ken Zahringer writes: My dinner companion sounded indignant. “It’s a shame we have to tip the waitress,” she said. “The restaurant owner ought to pay the staff enough to live on.”
I imagine that is a common attitude among those steeped in our current cultural climate of envy and dislike of economic success — the anti-capitalist mentality, as Mises put it. It’s easy to fall into the trap of thinking that we tip waiters out of sympathy, due to their misfortune of having to work in an industry full of greedy restaurant owners who won’t pay a “living wage.” In fact, tipping is an elegant market solution to a particular set of circumstances, often present in service jobs, that makes determining an appropriate wage extremely problematic. The practice of tipping used to be more common, applying to many more service positions than at present, when it is largely restricted to waitstaff and skycaps. Part of the reason for its partial demise is just the wandering course of economic change, but many jobs that used to be paid primarily by tips came to be covered by minimum wage legislation and simply disappeared.Read full article... Read full article...
Sunday, November 09, 2014
Richard Ebeling writes: Eighty years ago, in the autumn of 1934, Ludwig von Mises’s The Theory of Money and Credit first appeared in English. It remains one of the most important books on money and inflation penned in the twentieth century, and even eight decades later, it still offers the clearest analysis and understanding of booms and busts, inflations, and depressions.
Mises insisted that the economic rollercoaster of the business cycle was not caused by any inherent weaknesses or contradictions within the free market capitalist system. Rather, inflationary booms followed by the bust of economic depression or recession had its origin in the control and mismanagement by governments of the monetary and banking system.Read full article... Read full article...
Thursday, November 06, 2014
The theoretical construct of Keynes’s monetary view of the world is known as the liquidity preferences theory of money. This theory is the foundation of many macroeconomic models and stands in stark contrast to the classical view of interest rates, the loanable funds theorem.
Much of Keynes’ work, including this theory, disproportionately elevated the importance of holding cash as a key economic variable. Income can be consumed, saved or held in cash. Consumption is for personal satisfaction. Saving is a transfer of claims on goods and services from consumers to investors. Holding cash, or hoarding, is the equivalent of stuffing money in your mattress.Read full article... Read full article...
Tuesday, October 28, 2014
Old Habits Reappear
Fighting the Fear of Fear
Myself Is after Me
Frayed Ends of Sanity
Hear Them Calling
Frayed Ends of Sanity
Hear Them Calling
Hear Them Calling Me
- Frayed Ends of Sanity, Metallica
Wednesday, October 22, 2014
I am thinking about the similarities between a financial crisis and for instance a family crisis, the death of a loved one or close friend, a divorce, or a personal bankruptcy.
And I wonder why in the case of our recent (aka current) financial crisis, we allow nothing to enter our communications, and our train of thought, but the idea of recovery and a return to growth. Has everyone always reacted that way after earlier financial crises – history is full of them -, or is something else going on?Read full article... Read full article...
Monday, October 20, 2014
Challenge to Keynesians 'Prove Rising Prices Provide an Overall Economic Benefit' / Economics / Economic Theory
The ECB has been concerned about falling consumer prices. I propose that's 100% stupid, yet that's the concern.
When the euro declined vs. the US dollar, the ECB was happy that inflation would inch back up. The fear now is that falling oil prices will take away the alleged gain of a falling euro.Read full article... Read full article...
Tuesday, October 14, 2014
Mateusz Machaj writes: Recently, the Polish economy experienced its first price deflation since the 1980s, which sparked in the country deflationphobia (or, as Mark Thornton calls it, apoplithorismosphobia).
Media sources and many economists focus on price inflation and price deflation as the source of various economic ills, but, contrary to much of the rhetoric, price inflation and price deflation are always “optimal” in the economic sense. At first, such a claim may seem controversial, since virtually all economists have something negative to say about either inflation or deflation. This concerns almost all schools of economic thought, mainstream and heterodox, including the Austrians.Read full article... Read full article...
Monday, October 13, 2014
Adam Smith and the Ponzi Economy
Like the archetypal images of love that were handed down by early Greek philosophers, of Erotic love, Parental love, and what later became Christian or Dutiful love towards fellow persons and living things of all kinds, the supposed “classic image” of the economy is the “Wealth of Nations”. Taken by the “Neolibs” of the 1980s and their surviving throw-offs as a timeless ode to invisible but all-powerful “market forces”, this classic model was handed down by their guru – Adam Smith.
Thursday, October 09, 2014
Claudio Grass writes: Most believe that expansionary monetary policy helps ease crises. Austrian School economists argue that central banks don't help in smoothing the amplitude of the cycles, but rather are the cause of cycles. In this microdocumentary video, we look back at four major busts in the last 100 years and explain how central banks created them. We also clarify why we believe the next bust is just around the corner. This video will not explain the mainstream view, but rather the view of the Austrian Business Cycle Theory (ABCT).Read full article... Read full article...
Tuesday, September 30, 2014
This Friday is Yom Kippur, the day when Jews around the world ask forgiveness for their transgressions from the year past. Rabbis remind the penitent to dwell on their sins of omission, in which they did nothing when a more thoughtful and proactive action was needed, and sins of commission, in which they actively participated in an unjust action. And while not all economists are Jewish, Gene Epstein the economics editor at Barron's, offered his thoughts on how this applies to the group.Read full article... Read full article...
Friday, September 26, 2014
In 1633 Galileo Galilei, then an old man, was tried and convicted by the Catholic Church of the heresy of believing that the earth revolved around the sun. He recanted and was forced into house arrest for the rest of his life, until 1642. Yet “The moment he [Galileo] was set at liberty, he looked up to the sky and down to the ground, and, stamping with his foot, in a contemplative mood, said, Eppur si muove, that is, still it moves, meaning the earth” (Giuseppe Baretti in his book the The Italian Library, written in 1757).Read full article... Read full article...
Wednesday, September 24, 2014
Mario Draghi, in one of his latest speeches, prodded governments to ease austerity to spur aggregate demand (an oxymoron). The IMF director, Christine Lagarde, recently urged the ECB to continue its easy monetary policy until aggregate demand picks up. U.S. Treasury Secretary, Jack Lew, has, for years, suggested government actions to boost aggregate demand. He has in turn lectured Germany, Japan, and China on the need to encourage demand. It is sad that such economic nonsense is constantly promoted by some of the world’s most influential people, including many leading economists, and that this continues to serve as the foundation of much of contemporary macroeconomic theory.Read full article... Read full article...
Tuesday, September 23, 2014
Shortly after the current Great Recession started, I wrote a Globe Asia column, “A Great Depression?” (December 2008). In it, I stressed the findings contained in Robert Higgs’ important book Depression, War and Cold War: Studies in Political Economy (Oxford University Press, 2006). Higgs concluded that, because of regime uncertainty, investors were afraid to commit funds to new projects. They simply didn’t know what President Roosevelt and the New Dealers would do next.Read full article... Read full article...