Peter Schiff on how government drives up college tuition

Very good analysis on how the best of intentions and programs that otherwise seem wildly beneficial are in fact both failures, according to the goals set by those whom originally enacted the programs, and the cause of vastly worse problems than the initial deficiencies they were set out to alleviate.

Video Blog here.


Jake Towne for Congress!

It all clicked when Jake informed me that he was a graduate of the 2009 Mises University Class. Ah...so that's why I agree and am impressed with virtually every article or stance you have on political and economic issues! The man knows his stuff. For those interested in supporting a real liberty-minded candidate with concrete solutions to the abhorrent problems of our current interventionist economic and foreign policies be sure to check out his website, sign up, and get involved in the discussions.



The irony of granting the State enough power to prevent "free-market monopolies."

Tom DiLorenzo wrote a fantastic paper titled, "The Myth of the Natural Monopoly" which shows that the instances generally referred to as examples of how monopolies can occur in the free-market, and thus we need government to protect us from this, were all actually government-created monopolies in one form or another. Murray Rothbard contends that not only has there never been an instance of a free-market monopoly, but also that there never even could be a monopoly that emerges on the market without the assistance or intervention of government in some way.

Anyways, this is relevant to my post today because I always find it hilarious when supporters of the State cite monopolies as their greatest fear of a free-market system. Therefore let's create the most massive monopoly known to man in the form of the State, to protect us from the possibility of a smaller monopoly that could theoretically one day emerge if we left the market unchecked. Well there are other problems besides the redundant theoretic ones with this solution. Not least of which is the State can be used in manners not originally intended (shocking, I know!) See recent events, or the article below for one example of these "unfortunate side effects" to the legalizing of a monopoly known as the State.

"In October of last year, a Goldman Sachs Vice President, Neel Kashkari, was named by former Goldman CEO and then-Treasury Secretary Hank Pauslon to oversee the$700 billion TARP bailout. In January of this year, Tim Geithner hired a former Goldman Sachs lobbyist, Mark Patterson, to be his top aide and Chief of Staff. In March, President Obama nominated Goldman Sachs executive Gary Gensler to head the Commodity Futures Trading Commission, which regulates futures markets, even though (or "because") Gensler confessed to lax regulation during the Clinton administration over the very derivative instruments that caused the financial crisis. In April, Goldman hired as its top lobbyist Michael Paese, the top aide to Rep. Barney Frank on the House Financial Services Committee which Frank chairs."

"The bailout of AIG -- which resulted in massive federal government monies to Goldman -- was engineered at a meeting between Paulson, Geithner and Goldman CEO Lloyd Blankfein. Last year, Goldman paid top Obama economics adviser Larry Summers $135,000 for a one-day visit to Goldman."

The full article is absolutely mind blowing reading:
Another Goldman executive named to key government post as its profits skyrocket.


"Tu ne cede malis sed contra audentior ito."

Mises would be proud, Congressman Paul. For 26 years his request for a hearing on the Federal Reserve was denied and buried in the corruption-laden bureaucratic abortion of a republic that is the United States Congress. Today with a mind blowing 295 co-sponsors of the bill, he gets his hearing. Few men could persevere so vigilantly for 26 long and lonely years with no end in sight, we owe much to the heroism of Ron Paul.

Feel free to watch only the first five minutes of the hearing below to verify my accusations of deliberate manipulation to deny Ron Paul his hearing, as explained by Chairman Rep. Barney Frank.
House Financial Services Cmte. Hearing on Regulatory Overhaul

Afterthought. There is this illusion of representation or power that the citizen has over his government under democracy. Obviously this is a horribly mistaken concept and has been dis-proven quite thoroughly in a variety of forms, perhaps best in Democracy: The God That Failed by Hans Herman Hoppe PhD. However, even if one is not familiar with such concepts, if an elected official, such as Congressman Ron Paul can be so completely ignored for 26 years, how effective really is this concept of political representation for those of us whom aren't in Congress?


Schools Kill Creativity

My wonderful friend Jenna shared this video with me and I wanted to post it here because I feel it is of monumental importance.


Capital Theory and some comments regarding the supremacy of the Austrian School of Economics.

Keynes "Paradox of Thrift" states that if saving increases, there is a decrease in consumption. This is correct. If there is a decrease in consumption, retailers have unsold inventories on their store shelves etc. This is also correct. As a result of these newly created excess inventories in light of a shift away from consumption and toward savings, the retailers will devote less resources to investment not more. Thus the paradox of thrift where saving destroys the economy by reducing consumption, which in turn leads to a reduction in production, and so on and so on until either the government prints enough money to stimulate consumer spending back up, or the economy dies. My paraphrasing of John Maynard Keynes from his "General Theory of Economics." (1936)

Represented in the formulaic aggregate Keynes created: GDP = C + I + G, (where "I" represents investment, C is consumer spending, and G is government spending) one can justifiably come to this conclusion of the paradox of thrift.

Austrians Attack!

So if the Austrians do not view investment as the unit, I, and plug it into a formula as one lump sum, how do they view it? They view it as a structure of production. Specifically a Hayekian Triangle. Where Investment is broken down into stages; early stage production might be research and development or operating an ocean mining rig for oil, end stage production could be the gasoline station that sells the converted oil as gasoline or the CVS that sells the drug created in research and development, and all the various stages of production in between make up the middle areas of the triangle.  So what does this mean regarding Keynes "paradox of thrift?" Well most of what he said is correct. But since he fails to view investment in stages, he is unable to realize that because investment in retail goods is constantly falling as a result of reduced consumption, this does not mean total investment is falling. In fact, as a result of this increased savings, the interest rate will fall. This will have the effect of increasing early stages of production in the investment triangle, namely stages of investment that are far away from the final project and take years to complete and are highly sensitive to the changes in the interest rate.

The Austrian or I should say, the correct view of capital and investment as a structure, not as a simple aggregate, allows us to understand why a reduction in consumption and an increase in savings does not result in catastrophic failure for the economy, but rather simply shifts investment from one end of the production process (late stage) to other areas (early and middle stages). In fact, this increase in the earlier stages of production will lead to an increasingly more efficient and sustainable growth in the economy than would have otherwise been possible, had the previous level of consumption to investment been maintained. 

I find it quite absurd that was seems so apparently obvious and simple to me and virtually everyone I've discussed this concept with, namely that capital exists in stages of production and is not one giant homogeneous blob, is apparently radical thinking when you compare it to the mainstream and Keynesian school of thought. It seems as if it has become so desperate to apply mathematics to the science of human action, their theory is littered with massive amounts of truly debilitating and fundamental errors such as their misunderstanding of the nature of capital theory, their position to claim with total certainty that it was impossible to have both high inflation and rising unemployment simultaneously (this "impossibility" occurred in the US during the 70's and is now known as stagflation), their backwards understanding of the nature of money, to support and advocate Nixon's severing the last ties of gold to the US dollar, while forecasting a drop in price of gold from 35 dollars an ounce to 6 dollars an ounce as they believed it was the dollar that gave gold its value, not the other way around...Their total inability to forecast the current crisis, and more so not than just failing to predict it, but to be so misinformed to have made comments to the effects that "the era of recessions are over" and the "US economy is stronger than ever" "housing growth is supported by solid fundamentals" and so on as recently as a few months before the recession hit.

And these are the top economists! The head of the FED, the US Treasury secretary, Nobel Prize winning economists, and they all fail and fail and fail and get reappointed to their positions of power anyway. I can assure you in the free market that those whom are so terrible at forecasting are not rewarded with continued employment and gain, but are swiftly removed from the marketplace altogether. Yet, this is the essence of Government in a nutshell. Deny the profit and loss system. Remove yourself from the restrictions of having to engage in voluntary and thus mutually beneficial exchange, and instead substitute it for force and government decree. The result, widespread incompetence to the point that it is no longer even recognized as such by the majority.

F.A. Hayek speaking on the government created monopoly of monetary policy and production said "that is a system in which we can never again hope to get good money." That was over 50 years ago, and the story remains the same. The Austrians got it right, go on being ignored and marginalized, mainstream economics produce failures of truly catastrophic measures and the very same people whom created the errors are now being turned to as our saviors.I don't see how such a system can ever again restore our nation to one of true prosperity and sustainable growth.

For a more thorough and in depth analysis of the importance of capital theory, from one of the great modern day Austrian Economists please check out Robert Murphy's fantastic article.

To view the PowerPoint slides I mentioned, which are extraordinarily illuminating and are a must viewing if one is interested in this material and is unfamiliar with what exactly a "Hayekian Triangle" is, click on the link titled "The Austrian Theory of the Trade Cycle" here.


A Free Market Perspective on the Online Poker Industry

I play online poker for a living. I recently lost a large sum of money as one of the sites I played on, Eurolinx, revealed itself to be of a dubious nature, to say the least, and quietly went bankrupt taking with it all the funds of players accounts held on the site. Without going too much into the details I want to look at this from a free-market perspective. First of all let me make one thing perfectly clear, this loss suffered is my fault. I trusted Eurolinx with my money, they proved to be untrustworthy and now I suffer the consequences. No argument there. I just want to examine the current competitve landscape of the industry and perhaps offer a solution to a superior one.

The situation as it stands right now can very easily be considered and compared to Prohibition. The United States of America's Federal Government has decided to stand alone from the rest of the world's major governments in actively trying to ban online gambling. Similarly to Prohibition simply saying you are no longer allowed to partake in this good, does not eliminate the demand for it. Things are made even more complicated given that the current legislature is muddled, unclear, and widely misinterpreted. However, the reaction to a government's decree that a good is no longer allowed is not unclear but rather is exactly what a student of history would have precisely predicted; we head "underground."

This underground or black market is notorious for being unsafe and filled with all sorts of unsavory characters. However the laws of Economics can not be repealed, no matter how desperately government tries to pretend that they can, and as such as long as there is sufficient demand there will be an attempt to satisfy that demand. Unfortunately for the consumers in these underground markets, the suppliers are oftentimes not of the highest quality that they might otherwise be. I feel the average reader probably understands that pitfalls of the black market well enough, so I will not digress further into extrapolating on this topic, but instead let us imagine an industry in which we require the government to simply do nothing and stay away, a free market industry.

I think the first immediate effect of the Federal Government repealing its laws banning online poker and then doing nothing else, would be that a tremendous amount of new US-based poker sites would begin to crop up, and the current sites would experience a greater volume of players. A common objection I hear to my proposal of removing the government completing from any industry is summed up with the question, "Well, what would keep us safe?" I feel this notion is a result of a lack of proper research and analysis and more a result of what I consider to be the spreading of misinformation and propaganda, namely that without the government we would be lost. If one tackles this subject of the history of regulation, it becomes immediately apparent that the private sector is quite adapt at handling this task, and the public sector (government) is notorious for its staggering failures and inadequacies. For those interested in this subject, a great starting off point is this fantastic article

Now here is where we get to watch the beauty of the free market do its work. Once the freedom is restored to engage in both playing and providing the service to play online poker, we would expect to see an immediate rise in the number of US based poker rooms. The first great thing about this, is the choices of poker rooms based in your own country, whose jurisdiction you are familiar with, increases drastically. And of course when a consumer is presented with a variety of choices, the laws of competition rewards him with a better product at a cheaper price. In this example, the cheaper price may not be immediately evident but certainly the higher quality product would be. For if demand remains high for a poker site that is safe, financially sound, trusted, etc. all the new poker rooms would be scrambling to meet these demands, and those whom were better at meeting them, that is to say, those that are financially sound, that demonstrate reliability and security would prosper, and those that weren't, would fail.

The private sector would even respond to the demand to create an online poker regulatory body. Obviously if financial stability, legitimacy, security and so forth are such big issues for consumers they will express it through their choices and sites certified as reputable by a well known and respected regulatory body would attract many more customers than their competitors. This of course provides profit incentive for competing regulatory bodies to become the most trusted etc, and reap the benefits of selling these coveted marks of certification to the numerous online poker rooms desperately seeking to satisfy the wants of their consumers. Through the eyes of one versed in free market economics we see our friend, profit, reemerge not as a negative concept, but rather as the unifying force which guides the efficient allocation of resources to satisfy the wants and needs of the consumer. Truly, consumer sovereignty is an appropriate term.

Of course, this does not suggest that in a free market there would never be bankruptcies or losses that occur from them and so forth, it simply suggests that far from needing the government we rather need to get rid of the government, in the poker industry. And as the astute reader might have thought to himself by now, you could easily apply this to virtually all forms of industry. Professor Walter Block makes the argument that privatization is superior to government in literally everything.


Regarding Government "Stimulus"

I put stimulus in quotes because its a horrible misnomer and in fact is a major drain on the economy as opposed to ever offering any real stimulus. The most recent example is indicative of the single greatest and underlying error made in virtually all aspects of government stimulus programs. Which is to ignore Henry Hazlitt's one lesson and not look at the effects on all groups for both the short and long term, but simply focusing on the immediate effects of a policy on one specific group.

President Barack Obama and administration officials declared the program a success Thursday, saying it has revitalized the ailing auto industry and finally brought reluctant car buyers back to dealership lots. Originally a $1 billion program, Cash for Clunkers was boosted to $3 billion in early August after heavy customer demand nearly depleted its funds in just one week.

Transportation Secretary Ray LaHood said the program has been "a lifeline to the automobile industry, jump starting a major sector of the economy and putting people back to work." He said the department was "working toward an orderly wind down of this very popular program."

Now please let me know if you disagree with my understanding of this program and its alleged stimulus effects. The car industry is producing more cars than there is demand for. As a result of a lack of demand, the car industry must reduce its production to better align it to satisfy the actual demand for cars. This of course entails shutting down inefficient showrooms, laying off workers, and all the unfortunate negative events that come with a reduction in any industry. Stopping there, and not tracing things further, the government, and apparently the layman, view this as a net negative. People are getting laid off - this is bad! Of course, if we trace it further we realize that to attempt to prop up through artificial means (government deficit spending in this case) the inflated demand for cars to an inaccurately high level we are simply delaying this eventual reallocation of resources. While also either devaluing our currency through inflation, adding to the national debt, or both! If instead we allow this healthy and necessary liquidation of resources to occur, we free them up to be used in a productive and efficient manner to produce goods or services that there is legitimate demand for.

Which to be clear, is to say, allow them to create goods people want, instead of artificially allowing them to overproduce goods that there is not legitimate demand, or at least less demand for, than alternative goods.

In addition we are also increasing our debt while we are at it, both for the Federal Government (which is really the taxpayer as the government's debt will eventually paid for by us through either direct taxation or indirect taxation of inflation), and newly created personal debt for the marginal buyers of these cars whom could not afford to buy them without government assistance.

Viewed in this light, one immediately realizes that while if we look only at one specific group in the immediate term, (being the car industry) we see a stimulus. Yet once we broaden our view to encompass the economy as a whole as well as the long term effects, we see that far from providing legitimate stimulus we are in fact amplifying the original problems and aggressively preventing the necessary and healthy corrections that would otherwise occur in a truly unhampered free market.


WWII did not bring us out of the great depression: like all acts of destruction it made us poorer.

By now you should understand what caused the stock market crash of 1929. Austrian Business Cycle Theory (ABCT) - the Federal Reserve had created an artificial and unsustainable bubble which would eventually have to crash. You have 2 choices: never stop inflating the money supply and run the risk of hyperinflation higher and higher until it becomes inevitable, or you stop inflating the money supply, at which point the artificially created and unsustainable boom period or bubble comes down. The coming down effect is viewed as a crash. This is again because people are unable to clearly trace the effects of policies enacted in the past and only react to what is happening to them at this moment. It is not really a crash, depression, or a recession, but rather a healthy and necessary liquidation of unsound misguided investments. It is a process that is akin to taking medicine. It may not be pleasant tasting or enjoyable but it should be embraced not desperately avoided at all costs.

After the stock market crash of 1929 the market would have rebalanced itself shortly thereafter in the next 1-2 years. Unfortunately the policies of Hoover (massive government intervention) and then followed by FDR (even greater intervention) and his New Deal government spending, wage rate manipulation, creation of federal programs, and the literal destruction of food and crops to keep supply low and profits high for farmers, "farmer-relief programs" while US citizens were on the brink of starvation, had the effect of worsening to a great degree the severity of the Great Depression and extending its lifespan by an estimated 12-15 years longer. In April 1939 a full decade after the stock market collapse and FDR's mighty government interventionist and spending policy the New Deal had 8 years to take effect, FDR's closest adviser and the current US Secretary of Treasury, Henry Morgenthau gave the following quote:

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong.... somebody else can have my job. I want to see people get enough to eat. We have never made good on our promises... I say after eight years of this Administration we have just as much unemployment as when we started... And an enormous debt to boot!" 

So now you should understand the second fallacy that is passed off as economic history and fact, that FDR's New Deal saved us from the Great Depression, and of course this is the reasoning behind doing the exact same thing today with Obama's Administration.
The third fallacy which I have always known is wrong as I understand the broken window fallacy, is that despite all this failing we eventually are pulled out of the Great Depression by World War II some nearly 20 years later in the mid to late 1940s. 

This is completely false. I threw a rock through your store window. The window repairman now has employment and 20 dollars more money he can spend on other goods and services as a result of my action. My actions resulted in economic improvement! This is also false. For what one needs to look at is the 20 dollars you lost on the window. You didn’t demand or desire a new window. You needed one. Let us not confuse demand with need. You were quite content with the window you had and the 20 dollars in your pocket you were planning to spend on a new suit! Now I break your window. You pay 20 dollars for the new window, and are made whole. Except now you have one less suit and are that much poorer as a result. Let us look further at what else happens, but is so often neglected as it is not immediately visible to the naked eye. The tailor whom which you were going to purchase your suit from, now has lost your business and the 20 dollars he would have made. So all the benefits the window repairman gained are simply the ones the tailor has lost out on. You, where before my destructive act, would have had both a window and a suit, now simply have a window. The economy as well as the victim of this act of destruction are poorer as a whole. A fairly simple and easy to understand concept, that seems to get twisted around when it comes to massive destruction, namely War. 

Oftentimes we rely on government-provided statistics to tell us about the conditions of life and the health of the economy in the past, however in some cases these statistics can be misleading and in most cases they rarely tell the full story. Because if one were to look at the statistics it sure does look like the World War pulls us out of our depression. We now see how misleading these statistics really are. Let's focus first on Unemployment, then moving to GDP. Unemployment falls during war. Why? Well there were 100 men out of work, then there was a draft for 150 men. Now not only is there no unemployment we need workers so badly we are hiring women for the first time ever in factories! Great economy America! Those 100 workers however are not working in the army by choice. It is not their preferred avenue of employment. They also are not getting a meaningful wage for their work. They also are experiencing an increasingly higher possibility of sudden death, maiming, disfigurement, or mental and psychological injury and trauma, than they would have if they got a job selling hot dogs. They are also not providing the American economy with a good or service. Such as making suits or selling hot dogs, they are instead killing foreigners, this does not make our economy richer. Yet if we look at the stats, what a prosperous nation we are during this wartime, with barely any unemployment at all!
Statistic number 2, GDP, the gross domestic product. Our GDP rises during the war as well. Low unemployment, high GDP, wacky Rob is wrong again what a prosperous nation we have become. What is the GDP? Total spending by consumers, businesses, foreigners, and the government. Hint: I left the best for last there. Immediately we should see a serious problem with this statistic. So government spending skyrockets during the war, meaning our debt is skyrocketing as well, since it's the only way the government can increase their spending, and our GDP skyrockets right along with it! Well so what, spending is spending, as a Keynesian whom has returned from his intellectual decapitation in 1972 as an annoying zombie might say, why is government spending so bad? Well quite simply because government spending is much less likely to find the best product for the best price. I direct you to MTV's super sweet 16 tv show, where spoiled rich girls will frequently make less than prudent investments and buy some purse no matter what the price or how effective it is, simply because she has access to an infinite supply of funds. So here we quickly see that 1 billion in government spending can not be equally compared to being as beneficial to the economy as 1 billion in private spending, which further casts the impact of an increasing GDP stat into more and more dubious light.
So now we see that despite the popular belief to the contrary, the entry into the world's second war, did not give us economic prosperity. We can also see that the old adage, "those whom do not know history are doomed to repeat it" could not be more applicable than to our current situation as we are literally going through the motions all over again just as we did 80 years ago...

[This post was inspired by reading Dr. Robert Murphy's phenomenal new book, "The Politically Incorrect Guide to the Great Depression and the New Deal"]