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Category: Economic Theory

The analysis published under this category are as follows.

Economics

Saturday, April 18, 2015

Inflation, Central Banks, and Business Cycles / Economics / Economic Theory

By: MISES

Jonathan Newman writes: The word “inflation” means different things to different people. One popular conception of inflation focuses on prices  —  all prices, actually. For these people, including some economists, “inflation” means a rise in the general price level, i.e., the goods and services we buy have higher price tags.

The other conception of inflation focuses on the money supply. Economists with this focus think of inflation as an increase in the amount of money in the economy. We’ll see that viewing inflation as a rise in prices can be misleading and ambiguous especially compared to viewing inflation as an increase in the money supply.

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Economics

Friday, April 10, 2015

How an Artificial Economy Collapses Organically  / Economics / Economic Theory

By: Dr_Jeff_Lewis

One of the biggest news stories, almost too perfect not to be timed, was released on a day when markets closed early: Good Friday. 

Conveniently not factored into major world markets was last week's horrible jobs report.

From the timing of the news, to the revisions and the real story, these numbers tell about the underlying economy. It says everything one needs to know about the broken monetary system. 

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Stock-Markets

Thursday, April 09, 2015

How Easy Money Drives the Stock Market / Stock-Markets / Economic Theory

By: Frank_Shostak

In a market economy a major service that money provides is that of the medium of exchange. Producers exchange their goods for money and then exchange money for other goods.

As production of goods and services increase this results in a greater demand for the services of the medium of exchange (the service that money provides).

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Economics

Wednesday, April 08, 2015

Economists in Glass Houses / Economics / Economic Theory

By: John_Mauldin

For many economists, the chicken and egg question is, which came first, consumption or production? What drives growth? Let’s continue with our series on debt, in which I have been contrasting my views with those of Paul Krugman.

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Economics

Monday, March 23, 2015

U.S. Economy and the Illusion of Prosperity / Economics / Economic Theory

By: Frank_Hollenbeck

President Obama and Federal Reserve chair Janet Yellen have recently been crowing about improving economic conditions in the U.S.  Unemployment is down to 5.5% and economic growth in 2014 hit 2.4%.

Journalists and economists point to this improvement as proof that quantitative easing was effective. They seem to have political blinders on. The boom is artificial and has been built by adding debt on top of excessive debt.  Total household debt increased 2.5 % in 2014 – the highest level since 2010. Mortgage loans increased 1.5%, student loans jumped by 6.6%, and auto loans swelled a hefty 9.6%.  The improving auto sales are based on a bubble of sub- prime borrowers. Auto sales have been brisk because of a surge in loans to individuals with credit scores below 640. Auto loans to individuals with strong credit scores, above 720, have barely budged.

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Interest-Rates

Sunday, March 22, 2015

The "Natural Interest Rate" Is Always Positive and Cannot Be Negative / Interest-Rates / Economic Theory

By: Thorsten_Polleit

Some economists have been arguing that the “equilibrium real interest rate” (that is the “natural interest rate” or the “originary interest rate”) has become negative, as a “secular stagnation” has allegedly caused a “savings glut.”1

The idea is that savings exceed investment, and that a negative real interest rate is required for bringing savings in line with investment. From the viewpoint of the Austrian school, the notion of a “negative equilibrium real interest rate” doesn’t make sense at all.2

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Interest-Rates

Thursday, March 12, 2015

Sub-Zero Interest Rates as an Endless Daylight Saving Time / Interest-Rates / Economic Theory

By: MISES

Brendan Brown writes: We all know about Milton Friedman’s money helicopter idiom and how President Obama’s architect in chief of Quantitative Easing used it to justify his “Great Monetary Experiment.” Less well known is Friedman’s idiom about daylight saving time, how he used this to illustrate the case for flexible exchange rates, and how it is now apparently justifying the plunge of money market rates in Europe to sub-zero levels.

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Economics

Wednesday, February 25, 2015

From London to China - Where is Today's Skyscraper Curse? / Economics / Economic Theory

By: Mark_Thornton

Super tall buildings, or skyscrapers, are being built at an astonishing rate. Ninety-seven buildings that exceed 200 meters (656 feet) high were constructed in 2014, setting a new record. The previous record was eighty-one buildings completed in 2011. The total number of skyscrapers in existence now is 935, a whopping 350 percent increase since the year 2000.

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Economics

Friday, February 20, 2015

Employment Does Not Drive Economic Growth / Economics / Economic Theory

By: Frank_Shostak

For the head of the Federal Reserve Board Janet Yellen — and most economists — the key to economic growth is a strengthening in the labor market. The strength of the labor market is the key behind the strength of the economy. Or so it is held. If this is the case then it is valid to conclude that changes in unemployment are an important causative factor of real economic growth.

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Economics

Wednesday, February 18, 2015

Why the Austrian Understanding of Money and Banks Is So Important / Economics / Economic Theory

By: MISES

Jörg Guido Hülsmann writes: The classical economists had rejected the notion that overall monetary spending — in current jargon: aggregate demand — is a driving force of economic growth. The true causes of the wealth of nations are non-monetary factors such as the division of labor and the accumulation of capital through savings. Money comes into play as an intermediary of exchange and as a store of value. Money prices are also fundamental for business accounting and economic calculation. But money delivers all these benefits irrespective of its quantity. A small money stock provides them just as well as a bigger one. It is therefore not possible to pull a society out of poverty, or to make it more affluent, by increasing the money stock. By contrast, such objectives can be achieved through technological progress, through increased frugality, and through a greater division of labor. They can be achieved through the liberalization of trade and the encouragement of savings.

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Economics

Sunday, February 15, 2015

How Truly Free Markets Help the Poor / Economics / Economic Theory

By: MISES

Ryan McMaken writes: Discussing poverty as an advocate of free markets is tricky business in today’s world. If one takes poverty seriously and points out the very real plight of the impoverished, it is often assumed that one must therefore be advocating for government “solutions” to the problem. The knee-jerk reaction of many defenders of free markets is to simply deny that poverty exists much at all, or that if the poor just try a little harder, or aren’t so lazy, they won’t be poor anymore.

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Economics

Friday, February 13, 2015

Bad Economic Idea of Devaluing Currency to Help Exporters / Economics / Economic Theory

By: Frank_Hollenbeck

Frank Hollenbeck writes: The European Central Bank's (ECB) decision to shortly print over 1 trillion euros has reignited concerns over currency wars. The euro has dropped almost 20 percent over the last six months after endless hints from the ECB.

We are in a currency war, and have been since 2008. Our current global monetary system is deeply flawed in spite of the International Monetary Fund (IMF), which was supposedly created to foster monetary cooperation and financial stability. Yet, the IMF has been eerily silent lately, which has not gone unnoticed by those who butter the IMF’s bread.

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Economics

Tuesday, February 03, 2015

Why the Government Hasn’t Yet Managed to Destroy the Economy / Economics / Economic Theory

By: MISES

John P. Cochran writes: Pierre Lemieux wrote an indispensible book (Somebody in Charge: A Solution to Recession) for anyone who wishes to understand the before, during, and immediate aftermath of the “Great Recession.”

The book’s importance is greater than just his analysis of the crisis. He thoroughly exposes the underlying weaknesses and fallacies of the whole Keynesian policy-activism agenda driven by the “animal spirits,” the irresistible urge to action of those who wrongly deem themselves in charge.

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Economics

Tuesday, January 27, 2015

Austrians and the Mainstream Economists / Economics / Economic Theory

By: MISES

John Cochran writes: Mises Institute: You recently retired after a long time at Metropolitan State University of Denver, where you were both an economics professor and the dean of the Business School. How did you end up there, and end up as dean?

John Cochran: I had a good guardian angel who helped me come to Metro State. I’m not sure about that on becoming dean, though. I received my undergraduate degree in economics from Metro State. Gerald Stone, then chair of the econ department, and Ralph Byrns were two of my professors there. As I worked on my graduate degrees at University of Colorado-Boulder, I would occasionally stop by Metro just to touch base. In spring 1981, I was just completing teaching my first principles course at UC-Boulder and had just completed the requirements for an MA in economics. The first edition of the Byrns and Stone principles book would be available for fall 2001. Metro had an open visiting position and had offered the job to a recent CU PhD. He had told them he would take their job, but wouldn’t use their book. Ralph and Jerry were talking it over and Ralph said to Jerry, “We can’t hire him.” Jerry said, “We can’t not hire him just because he said he won’t use our book.” Ralph replied, “But he is telling us he will be a ‘lunch tax’.” Jerry said, “Yes, but who else can we get?” [A “lunch tax” is a high-maintenance employee. — Ed.]

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Economics

Monday, January 26, 2015

Why Private-Sector Services Seem to Be More Expensive / Economics / Economic Theory

By: MISES

Predrag Rajsic writes: Imagine you are a promising car mechanic who wants to open a new car repair shop. You would like to provide basic services to low-income citizens at affordable prices. You would charge a bare minimum for your labor, and you would buy used (but decent) replacement parts. This service would be great for people who just want to keep their cars running for a couple more years — nothing fancy, just bare functionality.

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