A Brief Opinion On The Role Of Government

“The government should…”

“The government should not…”

There is an easy way to decide what the government should and should not be doing.

The government should uphold equal rights and justice. This means securing to each citizen the right to use self-defense, and to penalize plunder and protect property. This means a court system to uphold property rights and a military to prevent foreign aggression.

The government should not operate on the basis of plunder. It should not take without consent the property of one group of people and give it to another group of people. Since the government should uphold property rights, it cannot at the same time violate property rights—government would then be a contradiction, for it would operate on the principle it is meant to prevent.

Here’s the brief justification for my opinion: governments (theoretically) are formed by individuals in order to protect individual rights. If the purpose of government is rooted in individual right, then it has no authority to do anything that violates the rights of individuals.

An ideal government is strictly a defensive institution, not an offensive one. It is meant to prevent injustice from reigning, rather than designing ideal social conditions.

What Do Employers Look For In College Graduates?

[Read the full article here.]

An article over at The Atlantic takes a fascinating look at how employers judge a college graduate.

While a student’s major, grades, and school of choice are factors in the hunt for a job, a study indicates that employers are more interested in other attributes. In fact, according to the Chronicle of Higher Education,

Employers place more weight on experience, particularly internships and employment during school vs. academic credentials including GPA and college major when evaluating a recent graduate for employment.

Here is a graph to illustrate this point:

Source: The Atlantic

According to the study,  “Media/Communications employers place the most weight on internships.” (This is the industry I want to go into.)

As the article at The Atlantic points out, this information is not to say that college and a student’s academic history are not important. The point is to illustrate that academic ability should not be a student’s only focus.

 

 

INSPIRING: A Young North Korean Girl’s Story About Escaping The Dictatorship

Listen to this girl’s story about escaping the dictatorship in North Korea…

[From the Oslo Freedom Forum]

What Is The Big Deal About Income Inequality?

A few elites are making a lot of money by warning people about the dangers of income inequality. Doesn’t it seem just a bit hypocritical for one group of rich people to say that other rich people have too much money? Imagine if Hugh Hefner created a program to stop other people from having so much sex…

I don’t understand why it’s an issue. I could not care less that Tom Brady makes more money than I do. I can’t think of a single instance in which his income has done me harm. In addition, I’d have to be crazy to believe that he owes me some of that money, and that rules should be placed on him restricting the amount he can earn each year.


 

“Income inequality” is a major issue only when people grow rich at the expense of others, especially when people are able to use political power to grant them special privileges, such as protective tariffs, subsidies, bailouts, contracts for wars, etc.

Interestingly, the plans to “solve” income inequality seem to consist of giving government officials more power. These selfless benefactors rarely never admit that their exclusive privileges and institutions are causing the problem in the first place!

For better ideas to deal with income inequality than central planning, read this book.

 

 

 

 

 

 

Krugman Hypocrisy

In September 2010, Paul Krugman wrote a brief article called “It’s Demand, Stupid.”

Krugman was trying to convince a very lavish frugal federal government to spend more money, because businessmen had expressed concerns that their main problems were caused by poor sales.

But, should Krugman really be consulting the opinions of businessmen?

In November 2014, Krugman wrote an article from Japan criticizing the notion that success in business means a person has special economic insight.

He wrote,

Some of the people I’ve spoken to here argue that the opposition of many Japanese business leaders to the Bank of Japan’s actions shows that it’s on the wrong track. In saying this, they’re echoing a common sentiment in many countries, including America — the belief that if you want to fix an ailing economy, you should turn to people who have been successful in business, like leaders of major corporations, entrepreneurs and wealthy investors. After all, doesn’t their success with money mean that they know how the economy really works?

Actually, no. In fact, business leaders often give remarkably bad economic advice, especially in troubled times.

Maybe the opinions of businessmen only matter if he agrees with them.

As for giving bad economic advice in troubled times…

Trying to Understand Austrian Business Cycle Theory

Hey man.

By the end of this you can brag to your buddies at the parent’s meetings that you are an expert in Austrian Business Cycle Theory. How cool is that?!

Here’s Rothbard’s summary of the Austrian Business Cycle Theory (ABCT):

“In sum, businessmen were misled by bank credit inflation to invest too much in higher-order capital goods, which could only be prosperously sustained through lower time preferences and greater savings and investment; as soon as the inflation permeates to the mass of the people, the old consumption-investment proportion is reestablished, and business investments in the higher orders are seen to have been wasteful. Businessmen were led to this error by the credit expansion and its tampering with the free-market rate of interest.”

I thought this paragraph was a good summary of the ABCT, and hopefully its meaning will be more complete to you by the time you finish this paper. When you get to the end of it, I want you to read that paragraph again—I guarantee it will make perfect sense.

So, before I start explaining what I’ve learned about ABCT, I just want to issue one caveat: the theory seems so absolutely simple and persuading that you may think to yourself that there is no point in reading about it. Why bother with the effort to learn something when it is already obvious? If only it were obvious! When you’re reading about ABCT I want you to think in the context of modern economic thinking (the Great Depression was caused by greedy capitalists; printing money stimulates the economy; government spending is needed to keep an economy out of depression; interest rates can be manipulated by a group of central planners for the good of the economy; interest rates should be 0%; spending is good for the economy, not saving; etc.). Basically, when you consider the lack of thinking on economic subjects in our day, ABCT won’t seem so obvious.

(Of course, I say it’s simple and obvious, but I was reading it from a writer of much better ability, Murray Rothbard. If you do find it confusing, I take responsibility for not expressing it in the same fashion as Rothbard. And obviously with any theoretical work you will need to think your way through it, and that’s not always easy. I just meant that when I finally understood it, I was like, “No shit!!! This is common sense!”)

Alright, I’m going to lie some of the framework for the theory before I actually get into it. This should make it easier to understand the theory.

Here’s some boring technical stuff that will help you understand the theory more completely:

Higher order goods and Lower order goods- This is also called stages of production. If you remember Peter Schiff’s children’s book!! the fish were consumers goods and the net was a capital good. Higher and lower order just means goods used in the initial stages of production of the consumers goods. For example: suppose one of the characters in that book created a machine that increased the production of nets, so that the character didn’t have to build them by hand. This would mean that the process of production had three stages, in order from higher order goods to lower order goods: machine—net—fish. The production process would be expanded as the character creates even more capital goods. A real life example could be when I worked at the factory. The higher order goods (also called capital goods because they are used to produce lower order goods) would have been the machines and the ingredients used to produce parts, a lower order good would have been the actual parts we produced, and finally the whole purpose of this process is to deliver the consumers good, which would be a car.

Capeesh? Again, not too difficult. High order goods produce lower order goods which produce consumer’s goods.

Alright, so the second technical category is what Rothbard calls Time Preferences. This is easy to understand too. Basically, time preferences are the degree to which people prefer present to future satisfaction. Another way to think of it is the proportion of savings to consumption. A high time preference means people want to consume now (a lower proportion of savings to consumption), and a low time preference means people would rather consume less now and more at some point in the future (a greater proportion of savings to consumption). This is where I thought it got interesting: time preferences determine what interest rates are. If people have high time preferences, meaning they want to spend their money now, then the supply of savings is low, meaning interest rates will rise; conversely, if people have low time preferences, meaning they want to save their money for future satisfaction, then the supply of savings is higher and interest rates will decrease. So, if you think about it, interest rates are set by the supply of and demand for money. When the supply of money (savings) available for loans is high and the demand for money is also high (meaning people want to hold on to money) then time preferences are low and interest rates are low; conversely when the supply of money available for loans is low and demand for money is low interest rates are high.

So, at this point, all you really need to understand is that the process of production goes from higher order goods to lower order goods (or from capital to consumer); and that low time preferences are reflected in low interest rates and high time preferences are reflected in high interest rates. (Also remember that time preferences are a proportion of savings to consumption.)

Now, let’s see what happens when time preferences are low. As I said, interest rates will be low. This sends a signal to businesses that they need to invest in longer term projects, since demand for consumption in the present is low. Thus, demand for resources is taken from the lower stages of production and shifted to the higher stages of production. These new investments will allow businesses to produce more goods in the future when time preferences rise (when people wish to consume more relative to saving).

What about when time preferences are high? Interest rates will be high since people want to spend more in the present, which means the supply of savings goes down. This will shift demand back from higher order goods to lower order goods since businesses must concentrate on satisfying present demand, rather than invest in long-term capital projects.

Just a brief refresher here: the production process consists of higher order goods producing lower order goods which ultimately go on to produce the consumer’s goods. Interest rates (on a free market) are determined by people’s time preferences, or proportion of savings to consumption; a high time preference is reflected in high interest rates, and a low time preference is reflected in low interest rates and more investment in long term capital goods.

The final thing to understand before I go into the actual theory is the difference between a specific business fluctuation and a general business cycle.

Fluctuations may be expected all the time since we live in a society of perpetual change. Since people’s desires change, business data and markets are always subject to the chances of profits and losses.

However, fluctuations do not involve similar changes across the board. One industry may experience a time of losses while another experiences a time of profits.

On the other hand, a general business cycle features similar changes across the board. Many industries prosper and then fall at the same time.

Nothing complex there. Basic stuff!

But it raises the question as to why an economy should experience a general downturn or upswing all at once. Rothbard said that the first question for any cycle theory is: “Why is there a sudden general cluster of business errors?” Most businesses go along nicely making profits, so why all of a sudden do most businessmen make mistakes and suddenly experience losses? This is the question that ABCT seeks to answer.

Alright, enough of that technical information. Let’s use Rothbard to find the answer to that question.

Here’s the theory:

In the economy, there is a given stock of money at any given time. Some of it is spent on consumption, the rest is saved and invested for production. The proportion of saving to consumption is determined by people’s time preferences.

Now let’s suppose that banks print new money and loan it to businesses. This artificial bank credit expansion, argue the Austrians, is the igniter of boom and bust cycle. Rothbard said that the Mises theory is “the economic analysis of the necessary consequences of intervention in the free market by bank credit expansion.”

So, let’s see what the consequences are.

In the first place, the new money that was printed and loaned to businesses pours into the loan market and reduces the loan interest rates. When this happens, businessmen are under the false impression that the supply of savings has increased, making them believe people’s time preferences have fallen. “Businessmen, in short, are misled by the bank inflation into believing that the supply of saved funds is greater than it really is,” said Rothbard.

So, if you remember from some of the above information, when interest rates drop, businessmen think people’s time preferences have fallen, or that they desire to consume less in the present. Therefore, businesses invest less in lower order goods and more in higher order goods. Demand is literally altered because of this credit expansion. You may hear it said that these booms are unsustainable. Rothbard explains why: “If this were the effect of a genuine fall in time preferences and an increase in saving, all would be well and good, and the new lengthened structure of production could be indefinitely sustained. But this shift is the product of bank credit expansion.” That means that no circumstances changed regarding consumer demand or time preferences, only that interest rates were distorted by artificial credit expansion.

So after this bank credit expansion we have a shift in demand to capital goods industries, but we know that there won’t be a sufficient demand for what this industry supplies, since unnatural factors created the initial demand in the first place.

As this credit expansion creates a boom, people rush to spend their money, but when they do, they are spending at the same high time preferences as before, while businesses are still under the impression that a new lower time preference exists. From the businesses perspective, this is a rapid shift in time preferences (from low to high) which means they will have to suddenly end their investments in higher order goods to focus on satisfying current consumer demand. Basically, since people never expressed their desires to save more, businesses will find that they run out of resources when the supply of savings suddenly does not match their expectations.

At this moment, businesses will find that their investments in higher order goods have been in error, for no real demand exists for those goods at the present time. This malinvestment must be liquidated.

The crisis is not brought about for lack of consumer demand. Instead, it is a result of a lack of demand in the capital goods industries, because products were made that cannot be used. Who would want to buy them? Thus, Rothbard says that it is capital goods industries, and not consumers goods industries, that really suffer in a depression.

Now, go back up to the top of this paper and read Rothbard’s quote. It should make more sense now…

So that’s the gist of the ABCT:

  1. Banks expand credit by printing new money and loan it to businesses
  2. Interest rates fall
  3. Businesses, under a false impression, invest in higher order goods to satisfy future demand
  4. People continue spending more and not saving (the opposite of the impression created by the bank credit expansion)
  5. Since people are not saving more the supply of savings will not be sufficient for businesses to carry out these investment projects
  6. The sudden shift of time preferences from the apparently low to high causes businesses to shift demand back from higher order to lower order goods
  7. Demand for those capital goods does not exist, so business malinvestments must be liquidated
  8. The economy goes into a crisis

ABCT in a nutshell. That at least explains why economies seem to experience a period of prosperity, only to suddenly fall into depression. I’ll write a separate piece on the Austrian view of the proper way of handling a depression, which is basically the opposite of what governments do today!

Please, any questions or points you would like to refute let me know. It’s all about understanding!!

6 Things To Take From “The Law,” By Frederic Bastiat

This is only a brief list. It cannot be stated too much that The Law is worth the read.

1. A definition of the law

“The law is the organization of the natural right of lawful defense; it is the substitution of collective for individual forces…to secure persons, liberties, and properties…”

The importance here is to realize that the only purpose of a law, or government (the institution which makes the law), is to protect people from force, i.e., that is why it was made in the first place.

2. The scope of the law– Yes, there is a limit to what laws my justifiably do. What did Bastiat have to say?

Collective right, then, has its principle, its reason for existing, its lawfulness, in individual right; and the common force cannot rationally have any other end, or any other mission, than that of the isolated forces for which it is substituted. Thus, as the force of an individual cannot lawfully touch the person, the liberty, or the property of another individual–for the same reason, the common force cannot lawfully be used to destroy the person, the liberty, or the property of individuals or of classes.

Does that make sense, republicans and democrats? You’re not allowed to use the law as a tool to mold people into your ideal view of society. As Bastiat continued,

For who will dare to say that force has been given to us, not to defend our rights, but to annihilate the equal rights of our brethren? And if this be not true of every individual force, acting independently, how can it be true of the collective force, which is only the organized union of isolated forces?

Mr. Republican, would you give yourself authority to march into your neighbor’s home, confiscate his property, and lock him in your basement, merely for inhaling a drug? No. Then don’t use the law to do it.

Mr. Democrat, would you give yourself authority to march into your neighbor’s home, confiscate a share of his bank account, and force him at gunpoint to buy health insurance for himself? No. Then don’t use the law to do it.

Of course,  in accordance with Bastiat’s principle, all individuals have a right to defend themselves when somebody has violated their property. It’s just that republicans and democrats seem to want to write laws which everybody should be defended from.

3. What is Legal Plunder?– Bastiat answered,

When a portion of wealth passes out of the hands of him who has acquired it, without his consent, and without compensation, to him who has not created it, whether by force or by artifice, I say that property is violated, that plunder is perpetrated.

What examples did he give to illustrate legal plunder? “Tariffs, subsidies, right to profit, right to labor, right to assistance, free public education, progressive taxation, gratuitousness of credit, social workshops…”

Bastiat went on to explain that the law should always be made to guard against plunder, and uphold property.

But, surely the law needs to be compassionate, right?

4. The Law cannot be Just and Philanthropic– Bastiat explained his interpretation of the socialist view of laws:

Here I am taking on the most popular prejudice of our time. It is not considered enough that law should be just, it must also be philanthropic. It is not sufficient that it should guarantee to every citizen the free and inoffensive exercise of his faculties, applied to his physical, intellectual, and moral development; it is required to extend well-being, instruction, and morality, directly over the nation.

Why did Bastiat oppose this? Did he not possess the most important characteristic a human being can ever have, ever: compassion? His judgment was less emotional:

But, I repeat it, these two missions of the law contradict each other. We have to choose between them. A citizen cannot at the same time be free and not free.

Bastiat came to the conclusion that, in order for a law to be philanthropic, it necessarily had to violate the property of one, in order to give to another. This, he said, is outside the scope of law, because no individual has the right to impose force on another.

5. The Social Organizers Place Themselves Above Mankind– Most of the second half of The Law addressed this phenomenon. Because he handled it with a great deal of depth, I can only provide slight pieces, and point you toward the book.

Bastiat observed a troubling aspect of those philosophers who are always out to reform the world, by means of force, according to their desires.

The modern politicians, particularly those of the Socialist school, found their different theories upon one common hypothesis.

They divide mankind into two parts. Men in general, except one, form the first; the politician himself forms the second, which is by far the most important.

In fact, they begin by supposing that men are devoid of any principle of action, and of any means of discernment in themselves; that they have no initiative; that they are inert matter, passive particles, atoms without impulse…

Moreover, every one of these politicians does not hesitate to assume that he himself is, under the names of organizer, discoverer, legislator, institutor or founder, this will and hand, this universal initiative, this creative power, whose sublime mission it is to gather together these scattered materials, that is, men, into society.

Bastiat goes on to say that the socialists regard society as a playground for their own social experiments. That they regard individuals in the same manner that a chemist regards his raw materials.

In any case, they’re just all so special, and the rest of us need them to save us from ourselves.

Whilst mankind tends to evil, they incline to good; whilst mankind is advancing toward darkness, they are aspiring to enlightenment; whilst mankind is drawn toward vice, they are attracted by virtue. And, this granted, they demand the assistance of force, by means of which they are to substitute their own tendencies for those of the human race.

Ready to pull your hair out, yet? The arrogance of these people!

6. Socialism Distorts the Libertarian Position– How so?

Socialism, like the old policy from which it emanates, confounds Government and society. And so, every time we object to a thing being done by Government, it concludes that we object to its being done at all. We disapprove of education by the State–then we are against education altogether. We object to a State religion–then we would have no religion at all. We object to an equality which is brought about by the State then we are against equality, etc., etc. They might as well accuse us of wishing men not to eat, because we object to the cultivation of corn by the State.

Boom!

 

If “Fantasy Economics” Becomes a Thing, Which Economist Would Be My First Round Pick?

The quick answer: Frederic Bastiat!

“Never heard of him,” you say. “Who is he?”

That’s a great question. I’m thrilled that you asked.

The second quick answer: He was an exceptional economist, writing in France during the mid 19th century.

If you think the rule for being an economist requires a dull personality and a propensity to make a living hell for students, then you’re correct. Nice job!

But, if you notice in my second quick answer to your question about Bastiat, I submitted to you that he was an exceptional economist. As in “exception to the rule.” I even italicized exceptional to foreshadow importance in this scenario.

Economists, like aged women, were at one point very fascinating people.

The science was young in Bastiat’s day, but the fallacies haunting the relationship were, in Bastiat’s eyes, wrinkled after a lifetime of long agonizing years.

While most of the French officials were infatuated with the outward grandeur of these fallacies, Bastiat, with a mind incapable of the superficial, peered through to the insides of these fallacies and exposed them for the annoying old hags they would become.

Bastiat did this by the simple practice of reminding people that behind every “seen” effect is another effect that goes “unseen.” When passion in the affairs of men reaches high altitudes, thought can become clouded and harmful unseen consequences that lurk just over the horizon will be ignored. But Bastiat cautioned men, with incessant vigor, to keep these “unseen consequences” in mind when judging which policies to pursue.

In fact, Bastiat said that the difference between a good and a bad economist is that “the one takes account of the visible effect; the other takes account both of the effects which are seen and also of those which it is necessary to foresee.”

Imagine the case of a cheap woman. Of course, the supposed important benefits will be immediate. “This effect blinds all eyes,” Bastiat would say. But it is only after some time passes that the effects which could have been predicted–but for the sake of an immediate good were ignored–will become a great evil (I’m talking about gonorrhea, people).

To the point of pursuing actions or economic policies on the basis of immediate benefits, Bastiat warned: “It often happens, that the sweeter the first fruit of a habit is, the more bitter are the consequences.”

Although Bastiat was not in the business of curing sexually transmitted disease, he did offer enough remedies to obliterate another disgusting illness: economic illiteracy.

He didn’t do this by using sophisticated mathematical models or statistics; he used logic and satire.

As an undergrad econ student, I still await the day to hear his name pronounced in a classroom. I won’t hold my breath, though, for the visible effect of that action alone is enough to convince me otherwise.

 

The Most Influential Book I’ve Read On Political Philosophy

Imagine a task of great importance is placed in your hands. You must deliver people from ignorance.

How do you propose such a task could be completed? Where would you begin?

Perhaps you would encourage people to read books. Books that have enlightened you.

No doubt reading books is an effective medicine for those subjects that infect us with ignorance. The problem, however, lies in convincing somebody to swallow the medicine. In our time, who wants to read more than one hundred forty characters at a time?

What if I told you that, in the realm of economics and political philosophy, one book could achieve your assignment?

What if, unlike many books written on economics, this book does not require a professional to translate the content down into the layman’s terms? In fact, this book does not even include a single mathematical formula.

This book is written with the same quality of unobstructed clarity as a tropical sea.

If you were aware of this book, do you think you could convince people to read it?

If this project had been assigned to me, my sales pitch would have been as follows:

For the next two hours of your life, you could sit in idleness and stroll through meaningless Facebook posts, only to come out on the other side no better off than when you went into it.

Or, you could invest your next two hours in productive education and reap dividends on the other end.

The choice is yours. Log off of Facebook and Twitter. Read The Law, by Frederick Bastiat.

Then log back on to Facebook and Twitter and post about it.

Why Ayn Rand Is Still A Thing

John Oliver’s show, Last Week Tonight with John Oliver, has a segment titled, “How Is This Still A Thing?” One of these segments focused on Ayn Rand.

It is a very funny video. The writers did a good job.

However, the video never answered the question. It never answered why Ayn Rand is “still a thing.” It offered criticisms of her, and of her fans, such as her philosophy being an excuse for narcissism and self-entitled people, like the rapper Drake.

Although the video is meant as comedy, many people take it seriously. I thought it would be useful to explain why people, including myself, still like Ayn Rand.

Why is Ayn Rand still a thing?

I’ll give you a hint: it has little to do with her good looks and warm personality.

The reason goes far deeper.

Ayn Rand wrote about timeless events and characters; events and characters that will always be of interest and relevance to people.

For example, she wrote her novels from a viewpoint of what she called “romantic fiction.” She said that romanticism “does not record or photograph; it creates and projects. It is concerned…not with things as they are, but with things as they might be and ought to be.”

Just as her themes were pressing issues when she was writing in the middle of the century, so they continue as issues today. These include the individual versus the collective, individual rights, the importance of the mind in existence, and the role of money, among others.

Furthermore, regardless of the era people live in, happiness will always be a human need. She held that happiness is the highest moral purpose of life, and that one gets there by achieving his values.

Such topics will never cease to be relevant. They will always live on.

Along with writing about timeless issues, Ayn Rand captured and honored a beautiful sense of life.

For instance, consider the type of people she wrote about. What does Howard Roark, Dagny Taggart, Hank Rearden, John Galt—what do these characters all have in common?

They love their work.

They are good at their work.

They take responsibility for every action they take.

They don’t make excuses or look for breaks. In fact, they despise the businessman who goes to the legislature to receive special privileges.

They are people who identify what they want in life, and then work with exceptional focus to get there.

They are people who find joy in producing, and make it their life’s work to always achieve something.

The kind of people Rand admired had focus, drive, and lived for achieving values. That is why Ayn Rand is still a thing. People admire her works because they seem to say that great things lie ahead—and you have the capacity to get there.

She teaches people—individuals—that they have a great deal of power, and that their mind is capable of achieving great things.

Ayn Rand is still a thing because she successfully portrayed a heroic sense of life that is difficult to find elsewhere.

Even Ayn Rand’s personal story is heroic and inspiring. She was born in Russia in 1905, escaped communism at age 21, came to America, learned English, got a job in Hollywood with Cecil DeMille, discovered her own philosophy, and went on to write best-selling books.

That’s an amazing life, and she did it all in less than 80 years.

People say, “Ayn Rand is something you’re supposed to grow out of.” But ask yourself what that means. Rand represented hard work, dedication to values, independence, living by reason, accomplishing desires, etc. Are these traits that anybody should want to grow out of?

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