Economics

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Earlier this week, Robert Higgs, Senior Fellow in Political Economy at The Independent Institute, spoke about the similarities and differences between the Great Depression and the current recession at the Economic Liberty lecture series. Although he finds considerable differences between the two events, he feels there are only a few similarities between the Great Depression and the current recession.

Below are my notes of his presentation.

http://www.vimeo.com/6966224

There are some similarities as well as differences.

The media and journalists have rushed to see these similarities.

I was shocked.

The Great Depression was so much more horrible, devastating, than the current recession.

They were using this talk to sell some type of policy to the people who look to the government for answers.

I don’t feel the two events are fully comparable.

People would be much happier living through today’s recession than during the Great Depression.

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Last week, the minimum wage increased from $6.55 an hour to $7.25 an hour. From a strictly economic point of view this is troublesome. For example,

Minimum_Wage_Increase Anyone who has taken an introductory economics course is familiar with the idea that a minimum wage leads to a reduction in the demand for labor and an increase in the supply of labor in the relevant market — usually, the market for low-skill workers. The minimum wage removes the ability of some workers to compete by accepting lower wages and shuts them out of the labor force. As a result, it reduces job opportunities for these workers. A minimum wage breaks the hinges on the door of opportunity.

However, there are additional, hidden costs of these interventions, which are more difficult to detect but perhaps more insidious. For example, one effect of a minimum wage is to reduce the availability of on-the-job training, since more resources are required simply to hire and retain a workforce. And further interventions in the labor market (for example, safety regulations and payroll taxes) make it still more costly to employ labor. These burdens together reduce a firm’s willingness to hire laborers and — in the long run — must reduce the number of opportunities for those laborers to acquire valuable job skills. Far from increasing opportunities for the working poor, a minimum wage actually restricts their mobility.1

Speaking from personal experience, George Mason University Economics Professor Walter E. Williams taught about the impact minimum wage laws have on society in the following video.

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Sources:

  1. Carden, Art. “The Hidden Costs of a Minimum Wage”. 23 July 2009. Mises Daily. 24 July 2009.

Anatomy of a Train Wreck: Causes of the Mortgage Meltdown is a research report written by a University of Texas at Dallas economics professor about the cause of the current economic crisis. If you’ve read Pharaoh’s Dream – A Modern Interpretation by J. Reuben Clark, Jr., then you’ll be especially interested in this excerpt from the executive summary of the report:

Train_wreck Why did the mortgage market melt down so badly? Why were there so many defaults when the economy was not particularly weak? Why were the securities based upon these mortgages not considered anywhere as risky as they actually turned out to be? This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk.1

As Robert Higgs noted in Participatory Fascism:

In all cases a coalition of big business and the government has emerged, as “fascism’s abrogation of the market in favor of political control over the economy inherently favors big business at the expense of the small entrepreneur.” Characteristically there has been an “extensive interchange of positions between ranking civil servants and high corporate executives”.

If you have time, you might enjoy this video that explores the cause of the crisis from the PBS show McCuistion.

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Sources:

  1. Leibowitz, Stan J. “Anatomy of a Train Wreck: Causes of the Mortgage Meltdown”. 3 October 2008. The Independent Institute. 21 June 2009.

Case Against the Fed

The “Case against the Fed” by Murray N. Rothbard was posted on the Mises Daily last week. This is a must read for anyone who is concerned about inflation, savings, gold and silver coin as tender in payment, monetary and economic freedom, and fiat money (see Fiat Empire Videos).

Murray RothbardAs Congressman Ron Paul wrote in HR 1207 – Audit the Fed, “Fundamentally, you cannot defend the Federal Reserve and the free market at the same time.” Continuing that theme, Dr. Rothbard wrote in 1994:

By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It is true that the committee hearings and activities are closed to the public; but at least the people’s representatives in Congress insure some accountability for these secret agencies.

It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation’s vital monetary system, is accountable to nobody — and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.

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After a brief hiatus dealing with a broken computer just in time for tax season, it’s time to get back to business. So, here is one of those classic Hugh W. Nibley quotes that contains a wonderful statement by Brigham Young.

Brigham Young Academy In the quote below, President Young stated that the “scientific” theories of Darwin, Huxley, and Miall1 were actually being used to promote a political economic theory based on natural selection that thwarted the Saints from living the United Order. That was in 1875.

Last month I posted an entry on Charles Darwin which points out that over time the theory of evolution reaches far beyond a scientific or biological theory.

In any case, here is the quote as promised:

As if to counteract these growing heresies, the old Darwinian view is being puffed today for all it is worth in a half dozen prestigious TV documentaries in which we are treated to endless footage of creatures ranging from amoebas to giant carnivores stalking, seizing, and with concentrated deliberation soberly crunching, munching, swallowing, and ingesting other insects, fishes, birds, and mammals. This, we are told again and again, is the real process by which all things were created. Everything is lunching on everything else, all the time, and that, children, is what makes us what we are; that is the key to progress. And note it well, all these creatures when they are not lunching are hunting for lunch–they all have to work for it: There is no free lunch in the world of nature, the real world. Lunch is the meaning of life, and everything lunches on something else–”Nature red in tooth and claw.” Tennyson’s happy phrase suited the Victorian mind to perfection. He got the idea from Darwin, as Spencer did his even happier phrase, “Survival of the fittest.” Darwin gave the blessing of science to men who had been hoping and praying for holy sanction to an otherwise immoral way of life. Malthus had shown that there will never be enough lunch for everybody, and therefore people would have to fight for it; and Ricardo had shown by his Iron Law of Wages that those left behind and gobbled up in the struggle for lunch had no just cause for complaint. Darwin showed that this was an inexorable law of nature by which the race was actually improved; Miall and Spencer made it the cornerstone of the gospel of Free Enterprise–the weaker must fall by the way if the stock is to be improved. This was movingly expressed in J. D. Rockefeller’s discourse on the American Beauty Rose, which, he said, “can be produced . . . only by sacrificing the early buds which grow up around it. . . . This is not an evil tendency in business. It is merely the working-out of a law of nature and a law of God.”

In this divinely appointed game of grabs, to share the lunch-prize would be futile, counter-productive, nay immoral. Since there is not enough to go around, whoever gets his fill must be taking it from others–that is the way the game is played. “In Liverpool, Manchester, Preston, or anywhere else in England,” as Brigham Young reported the scene in 1856, workers knew that “their employers would make them do their work for nothing, and then compel them to live on roots and grass if their physical organization could endure it, therefore, says the mechanic, `If I can get anything out of you I will call it a godsend,’ ” and does what he can to rip off the boss. If he gets caught, he is punished, yet he is only playing the same game as his employer.

Three years after Brigham made his observation, the Origin of Species appeared, putting the unimpeachable seal of science on the lunch-grab as the Supreme Law of Life and Progress. And it was expressly to refute that philosophy on which Brigham Young founded Brigham Young University in 1875: “We have enough and to spare, at present in these mountains, of schools where . . . the teachers . . . dare not mention the principles of the gospel to their pupils, but have no hesitancy in introducing into the classroom the theories of Huxley, or Darwin, or of Miall and the false political economy which contends against co-operation and the United Order. This course I am resolutely and uncompromisingly opposed to. . . . As a beginning in this direction I have endowed the Brigham Young Academy at Provo and [am] now seeking to do the same thing in this city [Salt Lake City].” With his usual unfailing insight, President Young saw it was the economic and political rather than the scientific and biological implications of natural selection that were the real danger and most counter to the gospel.2

Sources:

  1. Thomas H. Huxley was an English biologist and is best remembered as “Darwin’s Bulldog”. Louis Compton Miall was a Professor of Biology at Yorkshire College and in 1883 delivered a lecture on The Life and Work of Charles Darwin to the Leeds Philosophical and Literary Society.
  2. Nibley, Hugh W. “Work We Must, But the Lunch is Free”. Approaching Zion. Salt Lake City: Deseret Book and the Foundation for Ancient Research and Mormon Studies, 1989. 205-207.

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