Keynesian Predictions vs. American History

Tom Woods is a very lucid and exciting speaker. I love this particular lecture because it reveals some monumental bits of hidden history.

Lecture begins @ 5:00.

@8:20 Tom Woods talks about how Keynesians predicted massive unemployment and a depression in 1946 because of demobilization of the military and huge reductions in government spending. In fact, 1946 was the single greatest economic year for the United States.

@18:00 Tom Woods talk about influential American economist Paul Samuelson who repeatedly praised the Soviet Union in an influential Economic text widely used in classrooms from 1973 to 1989. Samuelson wrote, among other things, that Soviet political oppression might be worth its economic gains.

In the 1989 edition he wrote “Contrary to what many skeptics had earlier believed, the Soviet economy is proof that a socialist command economy can function and even thrive.”

There was gigantic Soviet propaganda in the United States, and I like when people have the courage to point it out.

Technology and Social Change

I love this lecture by Jeffrey Tucker for its last ten minutes. Skip to 20:00 if you just want the best of it. He dispels the myths that progress is driven by government force or even by great individuals. Eli Whitney did not invent the cotton gin (people have been ginning cotton since the 5th century), and the Wright brothers did not invent the airplane. (They got one little patent, and sued the pants off everyone else working on airplanes. This set American aviation back so far that the U.S. had to buy planes from France during WWI.)

Progress, he argues, is made in little steps by ordinary people imitating success and making modest improvements. I found this very inspirational.

“It appears that the more liberty we loose, the less people are able to imagine how liberty might work. . . People can no longer imagine a world in which we might be secure without massive invasions of our privacy at every step.” -Lew Rockwell.

Farmers threatened to block traffic on major roads in Greece on Monday to demand full payment of subsidies they are entitled to and better prices for their produce.

The farmers announced the planned protest Sunday after meeting with a minister in Greece’s government, which is trying to pull the country’s economy out of its worst debt crisis in decades. (AP) (Read more from ynetnews.com)

Learn to recognize coercion. This example is what Frederic Bastiat called “rent seeking.” Rather than rely on the voluntary exchange of goods and services, these farmers seek to acquire wealth by bending for forceful hand of government. They demand subsidies. Subsidies are monies taken from the public by force or threat of force and redistributed.

They make everyone poorer. By keeping the money in private hands, new industries would emerge; industries which produce things society voluntarily consumes. Instead, society is forced to buy over-priced milk.

Other countries are also hurt by this. Perhaps some poorer nation can produce very inexpensive milk. When government subsidizes local milk (or restricts trade via tariffs), the economies of foreign nations are hurt. This is wonderful for statists. Not only do they get to redistribute wealth from the public to the milk farmers, but now they have reason to take more wealth from the public and spend it on foreign aid, all the while proving their benevolence.

* Reckless behavior by banks was not a CAUSE of the crisis, it was a symptom of massive government subsidy of irresponsible behavior and artificially low interest rates.

* The prime cause of the crisis was and remains artificially low interest rates.

* Obama is not preventing another crisis by regulating banks, he is causing one.

This video points to the same bit of government hypocrisy as the important broken window fallacy When money is taken away from people and spent on either unproductive jobs or the repair of a broken window, it is not a net gain for society. This principle comes up often.

Hard to believe this bullshit is in bloomberg, but here it is:

The 2010 census couldn’t have come at a better time for the U.S. economy.

The government will hire about 1.2 million temporary workers in the first half of the year to administer the decennial population count, possibly providing a bridge to gains in private employment later in the year.

The surge will probably dwarf any hiring by private employers early in 2010 as companies delay adding staff until they are convinced the economic recovery will be sustained. Money earned by the clipboard-toting workers going door-to-door to verify the government population survey is likely to be spent, giving the economy an extra lift.

This is several months old, but it is fantastic. How can anyone possibly oppose college tuition subsidies? Please listen and learn. Like most government programs, government tuition subsidies punish exactly the people they presume to help.

Yale University

1810-1852 tuition = $33/year or 1.65 ounces of gold
1918 tuition = $160/year (dollars were inflated during WWI) = 8.4 ounces of gold = 32 days of manual labor
2009 tuition = $36,500/year or about 33 ounces of gold = 550 days of manual labor

This was caused not by freedom or greed. It was caused by reckless government subsidies.

Another great interview from Radio Free Market:

All the goods and services of modern life are the result of the division of labor carried to immense proportions. Self-sufficiency in anything, whether it be energy or toilet paper, means that we should restrict the division of labor to some extent. Think of our economic world as a bulls-eye. The small dot in the middle would be the goods and services represented by a subsistence economy, such as that of the North American Indian tribes. Small bands of people provided everything they consumed themselves. As capital and the division of labor expand, we move further out on the rings and the size of the economy grows exponentially larger. Instead of hunting our own food and weaving our own clothes, we rely upon the specialized skills of others, who perform only small pieces of the entire process but who perform their process unbelievably efficiently and productively. The division of labor expands to such a degree that we no longer understand how most goods that we consume are produced. We take all this for granted, yet it is a miracle of the free market. The more people engaged in the division of labor, the greater will be the total amount of goods and services available. Of course, the largest possible extension of the division of labor, until we trade with alien worlds, is the entire population of planet earth. (You can be assured that shortly after encountering our first alien civilization, entrepreneurs will be looking for trading opportunities!)

It is clear from this explanation that reverting backward from a more extensive division of labor society to a less extensive one means that society must accept a lower standard of living. There are two main causes for such an unfortunate occurrence—war and misguided economic policy. (Read more from patrickbarron.blogspot.com)

As a general concept, free trade has many supporters. Most of us agree that trade with other nations is a good thing. We get stuff that we would not otherwise have and/or it is much cheaper. Examples include many food items that grow only in special climates, such as fruits and vegetables. Some foodstuffs cannot be grown here, or they can be grown only in special climate-controlled facilities. If the U.S. prohibited the importation of these foreign foods, we would not have them at all or they would be very high priced and, therefore, not available on the mass market. Therefore, it is not difficult to advocate free trade in these items, although even here the U.S. shamefully prohibits the free importation of sugar cane from poor Caribbean nations and corn from poor African nations, just to name two of the most egregious protectionist policies. These are nothing more than gifts to mostly rich American sugar and corn producers, at the expense not only of the American consumer but also, perhaps more importantly, at the expense of poor farmers in the Caribbean and Africa. (Read more from patrickbarron.blogspot.com)

What he describes is a specific occurrence of the Austrian Business Cycle Theory — artificially low interest rates causing unsustainable booms.

I think this is a very inspiring talk. It taught me a lot about economics, life, and intellectual property. It’s inspiring because it makes me feel like we are capable of improving the world. We only need to not steal from one another.

The term hyper-inflation itself is interesting. It is a word which seems to universally mean the sudden, dramatic drop in the value of money (ie. the sudden, dramatic rise in prices). The word inflation is more contested.

The government prefers to consider inflation a rise in prices. Why? Because government measures inflation by the heavily manipulable consumer price index, which can be twisted to ignore food and fuel costs. The government hates bad economic news. It also adjusts its many redistribution of wealth according to the CPI, so having control over it helps.

Followers of the Austrian School (me) use the term inflation to mean, simply, an increase in the monetary supply. Price increases are merely a consequence of inflation, as is the wage/price spiral so many economists enjoy obsessing over. So when government, and government minions scrutinize about what they call inflation, my friends and I think they are paying attention to the sideshow of prices, and avoiding the real issue: the printing of money out of thin air.

We do lack a word, however, for the sudden, dramatic drop in the value of money (rise in prices), hence we rely on hyper-inflation.

What does it look like?

Here is a note for a hundred trillion Zimbabwean dollars. I don’t think it’s worth the paper it’s printed on. Initially, governments like printing money, because it transfers wealth more subtly than taxation, but eventually you get this: