“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.” Murray N. Rothbard, American economist, historian and political theorist (1926-1995).
Tag Archives: Economics
Let us suppose that the economy of the United States is in a recession (most likely due to a government-caused bubble, but that’s another story.) Benevolent Uncle Sam in Washington D.C. decides that he has to do something about it. After all, the people might start voting the congressmen out of office, and we couldn’t have that, could we? So he decides to go around randomly building bridges that no one needs in order to stimulate the economy and employ people. There is only one tiny problem with this policy: he has to pay for it. (If it wasn’t for this sad reality, think of how our economy would be flourishing thanks to our benevolent regulators!) He doesn’t want to pay for it with taxes because that would reduce aggregate demand (a fancy term his Keynesian advisers use to justify massive spending.) Also, raising taxes is bad for reelection campaigns. He decides to borrow the money on the loanable funds market. He then employs thousands of men to randomly build bridges across the nation. All is well. More people are employed. We have a couple of bridges that are good for… well, very little. Has the stimulus increased aggregate demand (and saved the campaigns of the congressmen)?
Uncle Sam says yes. He claims that thanks to his benevolent manipulation management of the economy, everyone is better off. Plus he inherited the problem from the previous administration. There is only one problem: an orphanage in inner city Detroit. The orphanage is having great success, taking care of over one hundred children. Their ministry is so successful that they are about the expand and build another orphanage next door. They can stimulate the economy and take care of more orphans at the same time. They have raised some money from their kind-hearted donors, and are planning to take out a loan for the rest. However, while they are on the way to the bank, Uncle Sam takes out his loan. This sudden huge increase in demand in the loanable funds market means that the price, in this case the interest rate, rises. Suddenly the interest rate goes from 5 to 10%. (OK so this couldn’t all happen while the orphanage administrators were on their way to the bank.) Suddenly, the administrators realize that new interest rate will dramatically increase the interest payments on their 1 million dollar loan, and that they can no longer afford to expand at this time. The administrators’ well-laid plans have been thwarted, aggregate demand goes down, and more orphans are out on the streets suffering. Multiply this by the thousands of businesses making decisions on whether to expand, the stimulus is not looking so good.
The financing for the government demand has crowded out the demand of private businesses. But no one notices. They think that Uncle Sam is doing his best. And they can see the bridges that he built. They can’t see the orphans that would be living in the orphanage that would have been built. So Uncle Sam is still in office, but the economy has not recovered. And don’t forget the orphans. (Did I mention that Uncle Sam seized the land on which the orphanage planned to build through eminent domain? But that’s another story.)
This video explains the problem of minimum wage laws, showing how unregulated “evil” capitalists can benefit society.
Wes Messamore of the Humble Libertarians has written a story about a bizarre law in Louisiana.
“Writing for the blog of Louisiana-based law firm Ackel & Associates, Thad D. Ackel reports on a bizarre and troubling development in Louisiana law, a statute that prohibits Louisiana’s businesses from accepting cash transactions if they qualify under the new law as “secondhand dealers.”
The statute includes the following language:
House Bill 195 of the 2011 Regular Session (Act 389)
“Anyone, other than a non-profit entity, who buys, sells, trades in or otherwise acquires or disposes of junk or used or secondhand property more frequently than once per month from any other person, other than a non-profit entity, shall be deemed as being in the business of a secondhand dealer.
A secondhand dealer shall not enter into any cash transactions in payment for the purchase of junk or used or secondhand property. Payment shall be made in the form of check, electronic transfers, or money order issued to the seller of the junk or used or secondhand property…”
Talk about overreach! As Ackel so eloquently puts it:
“The broad scope of this definition can essentially encompass everyone; from your local flea market vendors and buyers to a housewife purchasing goods on ebay or craigslist, to a group of guys trading baseball cards, they could all be considered secondhand dealers.Lawmakers in Louisiana have effectively banned its citizens from freely using United States legal tender.”
But the law doesn’t just stop there. It actually goes so far as to require “secondhand dealers” to effectively spy on their customers, law-abiding citizens who have given the state no reasonable suspicion that they are guilty of criminal conduct other than buying or selling used goods, which is obviously not an inherently suspicious activity.
You read that correctly. For every transaction they undertake, “secondhand dealers” as designated by the state of Louisiana are now required to obtain “the seller’s personal information such as their name, address, driver’s license number and the license plate number of the vehicle in which the goods were delivered,” and report all the information to the police on a daily basis.”
You can read the rest of his article here. Needless to say, this is very disturbing. It is difficult to believe that this could be passed here in America. Economic liberty is on the decline.
1. Economists are paid by satisfying companies or by publishing works that educate the public.
Politicians are paid by everyone, whether they wanted that politician or not.
2. Economists are paid to explain how the free market works and advise companies on how to compete.
Politicians are paid to “improve” or distort the free market.
3. Economists can explain how politicians work by discussing incentives, etc.
Politicians cannot explain economists by looking at power and electability.
4. Economists must give their full attention to pleasing their employer or audience by working constructively.
Politicians must divert a lot of attention to getting elected, and governing can become an afterthought.
5. Corrupt economists are a step away from damaging the economy; they must prove their ideas.
The role of idea man and legislator are united in the politician and corruption is easy.
[This is a guest post by my friend Daniel. He researched this issue and came to some conclusions that he wanted to share.]
At first glance, ethanol seems like a true renewable fuel. Why wouldn’t it? For years we’ve been pumping our fuel out of the ground; now, we can grow it. But is it renewable? Is it cost effective to grow? And even if it is, is it worth using? Does it leave oil “green with envy” because of its power or price?
To start, ethanol technically is renewable in the sense that it can be regrown. Ethanol is ethyl alcohol, also called grain alcohol. Usually, in the United States, Ethanol comes from corn, a starchy crop, but ethanol can also come from sugary crops, like fruit or sugarcane, and cellulosic plants, such as trees or wild grasses. In Brazil, most ethanol is made from sugar cane. In the U.S., corn is the easiest to grow in large quantities. But corn production in the U.S. erodes soil about 12 times faster than the soil can be reformed, and to irrigate corn, groundwater is pumped 25 percent faster than the natural recharge rate of ground water. This degrades both soil and water at an alarming rate. Corn should not be considered a renewable resource for ethanol energy production, especially when human food is being converted into ethanol.
Is ethanol cost effective to grow? David Pimental, a leading Cornell University agricultural expert has done extensive research to answer this question. He calculated that powering the average U.S. automobile for one year on gasohol (ethanol blended with gasoline) would require 11 acres of farmland, the same space needed to grow a year’s supply of food for seven people. To produce corn and convert it into ethanol, 131,000 BTUs are needed per gallon. (BTU stands for British thermal unit. A BTU is the amount of energy needed to heat 1 pound of water 1 degree Fahrenheit). One gallon of ethanol contains only 77,000 BTUs. Thus, 70 percent more energy is required to produce ethanol than the energy that actually is in it. Every time you make one gallon of ethanol, you lose 54,000 BTUs. About 7,110 pounds of corn can be grown per acre. At approximately 21 pounds of corn per gallon, 328 gallons of ethanol can be produced But planting, growing and harvesting that much corn requires about 140 gallons of fossil fuels and costs $347 per acre, according to Pimentel’s research. Thus, even before corn is converted to ethanol, growing it costs $1.05 per gallon.
At the processing plants, where the grain is crushed and fermented, up to three distillation steps are needed to separate the 8 percent ethanol from the 92 percent water. Additional treatment and energy are required to produce the 99.8 percent pure ethanol for mixing with gasoline. The total energy cost of both corn production and its conversion to ethanol is 131,000 BTUs per gallon. One gallon of ethanol has an energy value of only 77,000 BTU, which means about 70 percent more energy is required to produce ethanol than the energy that actually is in ethanol. Production costs for ethanol from corn are about $1.74 per gallon, compared with about 95 cents for gasoline. This helps explain why fossil fuels -not ethanol- are used to produce ethanol. The growers and processors can’t afford to burn ethanol to make ethanol. U.S. drivers also couldn’t afford it if it weren’t for government subsidies that artificially lower the price. In addition, economic analysis of corn-to-ethanol production usually overlooks the costs of environmental damages, which add about another 23 cents per gallon.
Not only do consumers pay approximately $1 billion a year in current federal and state subsidies (mainly to large corporations) for ethanol production, but subsidized corn results in higher prices for meat, milk and eggs because about 70 percent of corn grain is fed to livestock and poultry in the United States. Increasing ethanol production further inflates corn prices. Not only do consumers pay tax dollars for ethanol subsidies, they also pay significantly higher food prices in the marketplace.
However, some drivers still would rather see their cars fueled by farms in the Midwest than by oil wells in the Middle East. So David Pimentel also calculated the amount of corn needed to power an automobile and found that the average U.S. automobile, traveling 10,000 miles a year on pure ethanol (not a gasoline-ethanol mix) would require about 852 gallons. This would take 11 acres to grow, based on net ethanol production. If all the automobiles in the United States were fueled with 100 percent ethanol, a total of about 97 percent of U.S. land area would be needed to grow the corn feedstock, including Alaska and Hawaii. Corn would cover nearly the total land area of the United States. At this time, ethanol is not cost effective.
So, if ethanol isn’t cost effective, is it even worth using? Probably not, unless you like getting less for more. According to the data in the previous section, fueling cars on ethanol is expensive, and requires gasoline to produce ethanol which in turn gives off less energy than the gas used. It also requires incredible amounts of land, and uses vast amounts of human food. Finally it is costly, as you have to pay the taxes used to pay for it, and higher food prices because less corn is used for food.
So, to conclude, why are we using ethanol? It’s not cheap, it’s less powerful than gasoline, and it uses up tremendous food and land resources. According to Russell Huebsch, the reason many fuel stations put ethanol in gasoline automatically is due to a U.S. law that demands 36 billion gallons of alternative fuel be made available in the United States by 2022. Ethanol isn’t completely worthless, but we can do better. We must thank ethanol for opening our eyes to the realities that alternative fuels are possible. Now it is time for us to find a fuel which won’t starve us or leave us broke in order to run our cars which we Americans love.
The following article by Aaron Smith appeared on the Ludwig von Mises Institute recently. It analyzes the market’s inherent ability to judge the quality of education provided through private institutions instead of government schools. It contains a great argument against state-run education and for education controlled by parents and the market.
Here is the link: Education in Seven Questions
The following is a the sequel to the video on property previously posted on this blog. It explains the concept of legal plunder, which is the government’s greatest tool to destroy private property rights. The Foundation for a Free Society has done a great job on these videos.
The following is a great video about property rights from the Foundation for a Free Society. (Although it does not consider God’s ownership of us, this has little relevance to its point that we have the right to the fruits of our labor.)
Here is a video from LearnLiberty.org that explains this classic fallacy as explained by Bastiat and Hazlitt. I should add that where the video says that society is worse off to the tune of one window, it should say one less suit (or some other good), for the window exists in both scenarios, being replaced if the original window is broken.