Business Cycles – The Libertarian Standard

Government stats now eyed with suspicion

By Ryan McMaken / June 1, 2012 / 2 minutes of reading

Another one of the positive side effects of the current economic crisis is that even the government’s statistics, once accepted uncritically by the media, are now faced with some skepticism. As someone who examines government statistics often, I can say that government stats definitely have their uses, assuming you consider the methods used, and take it all with a grain of salt. But for years, the stats had been accepted as gospel and as a reliable foundation for the practice of macro economics.

To be sure, this article at Fortune today doesn’t actually impugn the unemployment rate itself, but it does question its relevance. Titled “The increasingly irrelevant unemployment rate,” the article notes that the unemployment rate, touted for years by the government and the media as a reliable index of economic strength, doesn’t really give us a good picture of reality anymore – assuming it ever did.

With labor force participation at the lowest point in a generation, the addition of the few new jobs added in May hardly convinces us that the economy is improving, and indeed, as new jobs were added – some of those people who gave up on finding work rejoined the workforce and drove the unemployment rate up, not down.

So, the unemployment rate tells us nothing without an understanding of labor force participation, and that is a pretty iffy number. It’s now becoming well-known that the method used to generate the unemployment rate is fatally flawed. The survey method used in the Household Survey ignores all the underemployed and chronically unemployed people who would love to have a full-time job. The labor force then only really consists of recently unemployed and people who absolutely must have jobs now. This excludes recent college grads living in their basements and stay at home moms who would otherwise be wage earners, and earl-y retirees who can’t find another job.

This is a huge shadow inventory of unemployed people not picked up in the official unemployment rate. Who can take a politician seriously who quotes these stats as proof of anything?

And for that matter, who can take a macro economist seriously who attempts to manage the economy this way? The decline in the reputation of government stats also nicely follows the decline of faith in macro economists to manage the economy to perfection. Does anyone think that a macro economist feeding the unemployment rate into a computer model somewhere will know just what to do? That dream died in 2008.

Government stats now eyed with suspicion Read Post »

IBD: Mises Deserves As Much Recognition as Einstein

By Stephan Kinsella / December 14, 2011 / 1 minute of reading

Nice article in Investor’s Business Daily on Mises, which quotes extensively from TLS blogger Jeff Tucker and Austrians Bettina Bien Greaves and Mark Thornton:

Let Free Markets Work, Said Ludwig Von Mises

By PETER BENESH, FOR INVESTOR’S BUSINESS DAILY Posted 12/13/2011 01:47 PM ET

Ludwig von Mises was born in Ukraine, studied in Vienna, fought in World War I, and in 1940 landed in America, where he lectured and wrote books. View Enlarged Image

If he were around today to see the economic mess in the U.S. and Europe, Ludwig von Mises would be entitled to a big, fat “I told you so.”

Mises held that whenever government tinkers with the economy, especially the money supply, it screws things up.

Natural market forces do a better job of ironing out inflation, ending a recession and boosting employment, he said and wrote.

Though he lived to age 92, from his birth in 1881 in what is now Ukraine to his death in 1973 in New York City, Mises never drew the plaudits he deserved, says Jeffrey Tucker, executive editor of Laissez Faire Books, a libertarian publisher and bookseller owned by financial forecasting firm Agora Financial.

“Mises deserves every bit as much recognition as his contemporary, Albert Einstein,” Tucker told IBD.

Recessions are Dangerous

Business Cycles, Statism

By Jeffrey Tucker / November 30, 2011 / 1 Comment / 5 minutes of reading

The problem FDR faced in 1938 was not all that different from that faced by President Obama and the Congress today. The bad economic times stretch on and on, and there is open talk of high unemployment as far as the eye can see. After years of claiming to see “green shoots,” officials are downplaying the chance of substantial economic recovery.

And it’s not just in the U.S.; the problem exist in Europe too, where there is a widespread belief that the European Union, as symbolized by Euro, cannot last. The OECD just predicted a double dip recession pending in the UK.

At the midpoint of Roosevelt’s second term in office, a profound fear gripped the White House that there was no real answer to the depression that seemed to continue on and on. Every respite was followed by yet another plunge in productivity, and clearly unemployment would not improve. Unemployment was 18%, which was higher than two years earlier. (Note that the broadest measure of U.S. employment today is 17+%.)

It is a documented fact that his advisers were the first to draw his attention to the possibility of stoking international problems involving the far East. Japan was the target and a series of embargoes, demands, sanctions, and diplomatic moves reinforced that the point of inspiring a massive movement in the U.S. to push for peace.

Responsible writers at the time drew attention to the plot and speculated about what was really going on. The history of the journalism of this entire period came to be buried in the ash heap of history following the Second World War. But it remains a fact that historians cannot and do not deny: FDR saw advantages in war and dearly wanted the U.S. involved – and that is true regardless of whether you believe that Pearl Harbor constituted his “back door to the war.” …

Recessions are DangerousRead More »

Recessions are Dangerous Read Post »

Protesting Narrow Economics

Business Cycles, Education

By Wirkman Virkkala / November 11, 2011 / 2 Comments / 3 minutes of reading

I am pretty sure that, had I taken economics in school, I would never have developed an interest in it.

One of my hobbies is collecting economics textbooks. They are not uniformly bad — I have gained insights from those by Alchian and Allen, David D. Friedman, Gwartney and Stroup, and a few others — but they are not as good as the old “Principles”-style texts from days of yore. You know, general theory books covering a lot of ground for a wide audience including amateurs, written (in the best cases) in readable English (or other common tongue) and not littered with Q&As and “work problems” and “call-out” boxes of biographies of Adam Smith, David Ricardo, Karl Marx, and the ever-present Keynes. The best of the old-fashioned treatises, such as by F.W. Taussig, and especially the “anachronistic” efforts by Ludwig von Mises (Human Action) and Murray Rothbard (Man, Economy and State), outshine all econ texts used in colleges today.

Part of the problem is that the textbook industry is a mostly corrupt adjunct to the university system, the main idea being to milk as much money as possible from students. The often-annual revisions in textbooks are usually trivial . . . but quite necessary for the planned obsolescence of the media, allowing universities to renege on buy-backs, thus keeping multi-hundred dollar purchases coming into their revenue streams. Change a few pictures, charge $300+.

This perverse industry has arisen, in part, in response to the near-unlimited demand stemming from subsidized tuitions and student loans. …

Protesting Narrow EconomicsRead More »

Protesting Narrow Economics Read Post »

Forecasts vs. Policies

Business Cycles, Finance

By Wirkman Virkkala / July 14, 2011 / 2 Comments / 3 minutes of reading

Arnold Kling, at EconLog, relates Scott Sumner’s simple query as to why the 2008 financial crisis has caused such low or negative growth down even unto the present day, and offers four possible answers. I will comment only on one of them:

Because the Fed made forecasting errors. Right-wingers are fond of brandishing charts showing that the unemployment rate with the stimulus is on a worse trajectory than what was forecast without the stimulus. That may or may not be evidence that the stimulus failed, but it is evidence that standard forecasts were not sufficiently pessimistic about the economy. Assuming the Fed used standard forecasts, that would explain the inadequate monetary expansion back then. It doesn’t explain their reluctance to expand now, though.

There are several places where this answer (which Kling does not favor) goes wrong. Most noticeable, to me, regards the possibility that the forecasts “were not sufficiently pessimistic about the economy.” This is not the only possibility. It is not even the most likely possibility.

The problem was that the forecasts were too negative …

Forecasts vs. PoliciesRead More »

Forecasts vs. Policies Read Post »