From the “Preface to the English Edition” of “The Theory of Money and Credit” by Ludwig von Mises: “All proposals that aim to do away with the consequences of perverse economic and financial policy, merely by reforming the monetary and banking system, are fundamentally misconceived. Money is nothing but a medium of exchange and it completely fulfills its function when the exchange of goods and services is carried on more easily with its help than would be possible by means of barter. Attempts to carry out economic reforms from the monetary side can never amount to anything but an artificial stimulation of economic activity by an expansion of the circulation, and this, as must constantly be emphasized, must necessarily lead to crisis and depression. Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit.“

Mathematicians of the day.

Posted on November 12, 2012 by Augustus Van Dusen | Leave a comment

The Absurdity of Mainstream Economics

Posted on May 16, 2013 by Augustus Van Dusen

From a blog post at the Mises Institute by Professor DiLorenzo titled “A Keynesian Monetary Politburo Member Speaks“:

‘The president of the Minneapolis Fed, one Narayana Kocherlakota, decided to devote the entire 2012 Annual Report to not one but two interviews with . . . . . . . . himself. The interviews are a celebration of economic stupidity. A few excerpts:

“Quantitative easing has the impact of pushing down on longer-tern interest rates. And that should be directly stimulative to the economy because by pushing down on market interest rates, people are led to think, ‘Hmm, maybe I shouldn’t be buying those assets that are paying such a low yield. I should spend money instead.’” No need to save, invest, or work and produce; just spend, spend, spend, like a nation of spoiled rich kids.

“We’d like to push it [interest rates] down further and can’t. That should be a signal to the fiscal authority to be more interventionist in the economy” with a “future consumption tax” to “encourage current spending.”‘

And thus we see the essence of mainstream economics: the disparagement of savings.

Let us take a different view of savings using insights from the classical economists and Austrians.

Savings is a necessary, but not sufficient, condition for economic growth. An economy must produce more than it consumes. The alternative, consuming more than is produced, leads to capital consumption and a lower standard of living.

Common sense informs us that in order to consume, production must come first.

In order for there to be production, there must be capital which comes from savings.

In order for the capital to be used efficiently, there must be entrepreneurs to guide savings into channels that will result in the production of goods and services that satisfy the most urgent needs of consumers. This is the required sufficient condition that when combined with the necessary condition, savings, results in economic growth.

Additionally, since the future is always uncertain, it is prudent to have a cash balance, readily available savings, to handle emergencies.

These are just two simple ways to understand the vital role of savings. Far more detail and nuances can be found in the Austrian economics literature.

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James Bovard: A Brief History of IRS Political Targeting

Posted on May 15, 2013 by Augustus Van Dusen

James Bovard puts the current IRS scandal into historical perspective in “A Brief History of IRS Political Targeting“. Abuse of authority from the IRS itself began in the 1920s:

‘The agency also has a long history of seeking to intimidate congressional critics: In 1925, Internal Revenue Commissioner David Blair personally delivered a demand for $10 million in back taxes to Michigan’s Republican Sen. James Couzens—who had launched an investigation of the Bureau of Internal Revenue—as he stepped out of the Senate chamber.‘

Political abuse of the IRS began with FDR:

‘President Franklin Roosevelt used the IRS to harass newspaper publishers who were opposed to the New Deal, including William Randolph Hearst and Moses Annenberg, publisher of the Philadelphia Inquirer. Roosevelt also dropped the IRS hammer on political rivals such as the populist firebrand Huey Long and radio agitator Father Coughlin, and prominent Republicans such as former Treasury Secretary Andrew Mellon. Perhaps Roosevelt’s most pernicious tax skulduggery occurred in 1944. He spiked an IRS audit of illegal campaign contributions made by a government contractor to Congressman Lyndon Johnson, whose career might have been derailed if Texans had learned of the scandal.‘

Bovard concludes:

‘With the current IRS scandal, we may have seen only the tip of the iceberg. Thorough congressional investigations would no doubt help reveal the extent of the operation, and the criminal investigation announced by the Justice Department on Tuesday may prove fruitful as well. Regardless of what these inquiries uncover, though, we can be almost certain that IRS audits will remain irresistible political weapons.‘

The entire article can be read here.

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It’s Time for Private Defense by Doug French

Posted on May 14, 2013 by Augustus Van Dusen

“It’s Time for Private Defense” is the title of a truly outstanding article by Doug French of Laissez Faire Books. In this article he uses the horrific kidnapping tragedy in Cleveland as an example of the failure of public defense agencies.

‘The police mostly ignored the tips, the neighbors claim.

Yet if the Cleveland Police Department had believed and convinced a judge that there were drugs being consumed or sold in the Castro home, a battering ram would have collapsed the front door years ago. A dozen cops from various agencies would have stormed the place. Police don’t take those kinds of chances with a less sexy crime like kidnapping.

So while government maintains a monopoly on policing power, its finances don’t allow it to do the job adequately. Police departments prioritize chasing drugs, cash, and terrorists. Because of asset forfeiture laws, those are the crimes that pay. Pay the departments, that is.‘

French also notes how the list of actions deemed crimes by the federal government continues to grow and this, in conjunction with the endless drug war, has resulted in the US having the highest prison population in the world.

‘According to the Heritage Foundation, “The number of criminal offenses in the U.S. Code increased from 3,000 in the early 1980s to 4,000 by 2000 to over 4,450 by 2008.” Bureaucrats are creating new crimes at a rate of one per week.

“All inherently wrongful conduct has been criminalized several times over, yet from 2000-07, Congress enacted 452 new criminal offenses.” Heritage estimates that 60% of new crimes “have inadequate criminal-intent requirements.” In other words, people have no idea they are committing crimes by breaking these statutes.‘

‘America has 5% of the world’s population and 25% of the world’s prisoners. America’s prison and jail incarceration rate is the highest in the world at 756 per 100,000 people. Russia is comfortably in second at 629, followed by countries not exactly known for their freedom, like Cuba, Belarus, Belize, Georgia, Kazakhstan, Suriname, South Africa, Botswana, Israel, Ukraine, and Chile.‘

French laments:

‘America’s criminal justice system has turned from a priority of keeping people safe to locking up as many people as possible to maintain jobs for the criminal justice industrial state.‘

The rest of the article concerns how the private production of security (ala Gustave de Molinari and Hans-Hermann Hoppe) would operate more efficiently.

The entire article can be read here.

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The Bernanke Pyramid

Posted on May 14, 2013 by Augustus Van Dusen
Hyperinflation in Weimar Germany. Image from http://semioticapocalypse.tumblr.com

Hyperinflation in Weimar Germany. Image from http://semioticapocalypse.tumblr.com

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1000 mph Bloodhound Super Sonic Car

Posted on May 14, 2013 by Augustus Van Dusen

From “Rolls Royce Backs Bloodhound Super Sonic Car” published at Crazy Engineers:

‘Rolls Royce PLC has announced that they’ll back the ambitious 1000 mph Bloodhound Super Sonic Car (SSC) project. The Bloodhound SSC will be powered by the Rolls Royce EJ200 jet engine along with a custom hybrid rocket that will propel the car to unimaginable 1600 km/h (Mach 1.4) speeds. The company will also provide financial backing to the project along with technical support.‘



Dark Roasted Blend has a fascinating two part photo series on land speed records: Part 1 and Part 2.

Below are photos of the Wingfoot Express, which set the land speed record at 413 mph (664.659 km/h) in 1964. When I was a kid, I had a book about land speed record cars and the Wingfoot Express was my favorite.

wingfoot express

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A Weekly Dose of Hazlitt: ‘Planning’—Ah! Magic Word

Posted on May 14, 2013 by Augustus Van Dusen

“‘Planning’—Ah! Magic Word” is the title of Henry Hazlitt’s Newsweek column from February 14, 1949. Here, Hazlitt shows us how socialists use obfuscation and demagoguery to propose socialistic policies while attempting to avoid being branded as socialists.

‘Few speeches of Mr. Truman’s have revealed as much
confusion of thought as his plea before the National
Planning Association for a planned economy. He
began by making a distinction, which he did not clarify,
between a “planned” economy and a “controlled”
economy. He implied that a “controlled” economy was
totalitarian but a “planned” economy was democratic
and free. The distinction is, in fact, purely verbal and
semantic. Fundamentally government planning and
government control are two words for the same thing.
If anything, “control” implies less government in the
economy than “planning.”

“I have been interested in planning,” said Mr.
Truman, “all my life . . . ever since I was old enough to
understand what the word meant. You know that we
plan our day’s work. We plan the houses in which we
are going to live. . . . But when we talk about planning
the things we want to do economically we are charged
with being Communists and fellow travelers.”

Continue reading →

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Bad Data: The Achilles Heel of Econometrics

Posted on May 13, 2013 by Augustus Van Dusen

The Austrian critique of econometrics, economic modeling and forecasting, is based on the fact that there are no fixed relationships between economic variables (see Economics Is Not Physics). While this is the most important critique of econometrics, there is also another fundamental problem: bad data.

Conventional mathematical models, such as those used in physics, cannot handle bad data. [1] Incorrect input data will lead to garbage as output. The type of mathematics used is not capable of correcting for bad data. This is a fundamental problem for econometrics as economic data is far from clean. Let us examine two examples.

First, consider the consumer price index (cpi) in the US. John Williams of Shadow Government Statistics explains how the government has altered the way it computes the cpi in order to produce a lower number that is politically palatable, see No. 515—PUBLIC COMMENT ON INFLATION MEASUREMENT AND THE CHAINED-CPI (C-CPI) and the following charts. [2]

cpi 1980cpi 1990

Which cpi measure should an econometrician use?

Second, consider Chinese economic data. For those paying attention, it has been known for a while that the economic data released by the Chinese government cannot be taken seriously. Thus, energy consumption figures have been used as proxies as they are less liable to government manipulation. “Chinese Power Consumption Collapses: Economic Growth Slowest Since Early 2009” is the title of a Zero Hedge article that shows the following chart of Chinese energy consumption: [3]

China power_0_0

This is certainly not the picture of an economy growing at 8%-10% annually. Again, the question for econometricians is what data to use?

If one is building mathematical models of the economy but the data is unreliable, then what does the output demonstrate? Who knows? But it is certain that any relation to economic reality is purely coincidental.

[1] In contrast with machine learning (narrow artificial intelligence) models, some of which can handle bad or missing data.

[2] Of course the very concept of a price index is nonsensical (See “The Errors and Dangers of the Price Stability Policy” by Pater Tenebrarum of Acting Man blog for a detailed explanation).

[3] I certainly do not claim that these energy consumption numbers are an accurate reflection of the state of the Chinese economy. However, they were composed with honest intent, unlike the official numbers emanating from the Chinese government.

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