The Libertarians

Roundabout production crashes

Following up on the Austrian Business Cycle Theory (ABCT), Bloomberg reports that manufacturing “contracted in September at the fastest pace since the last recession as sales slowed, signaling the credit crisis is spreading beyond Wall Street.”

Ummm…what there doesn’t scream ABCT? Easy credit misleads producers into believing the public is demanding capital goods and encourages them to engage in more “roundabout production.” As professor Foldvary writes:

Productivity can be increased if some production is devoted to indirectly producing a product, such as making the tools that a farmer then uses to produce the final product, the crop. This is called “roundaboutness” or “roundabout production.” Production becomes even more roundabout if some production is devoted, say, to making the steel and wood that is then used to make the tools for use in farming. As production becomes more roundabout, it takes longer from making the highest level capital good to its final use in the production of consumer goods. This increase in roundaboutness thus lengthens the period of production, the cycle of time needed to make the final good.

So while producers were busy using credit to increase their roundaboutness with an eye toward increasing productivity, Americans really wanted more consumer goods now, not later. This imbalance is what is being rectificed now.

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Update: Hear, hear!

Boettke weighs in on Cowen’s position. Simple is not always so simple.

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O-for-Cowen

Marginal Revolution blogger Tyler Cowen has his summary statement on the causes of the crisis posted here. This one caught my eye:

I have a long and complicated view on the relevance of Austrian Business Cycle Theory which resists easy summation, but markets could have and should have been more cautious in response to Greenspan’s easy money policies.

Cowen’s “long and complicated view” is probably fascinating and well articulated. That said, I am curious why he thinks “markets” could and should have been suspicious of Greenspan’s policies. Markets don’t exist, just people. And if people as smart and well-read as Harvard professor Greg Mankiw are unfamiliar with the Austrian Business Cycle Theory and it isn’t taught in any major university and even those who have heard of it think it is bunk, why does Cowen think regular people ought to have been more cautious? Mainstream theory says there was nothing to be suspicious of and yet Cowen is suprised individuals weren’t more careful?

Again, Cowen wants to have his cake and chow down too. You can’t have a long, complicated view of the Austrian Business Cycle (that sounds a bit too much like, “I don’t believe it, but I like sounding Austrian now and again) and also expect individuals to have appreciated its main tenents. Of course “markets” could have been more aware, but then I could have invested in Microsoft in the early 1980s. The more interesting problem is why weren’t “markets” more careful? I would argue that it is precisely because most people have no concept of the Austrian Business Cycle Theory that they weren’t more circumspect about Greenspan’s policies.

So rather than go all passive-aggressive on the ABCT, maybe Cowen could or should get back to the classroom and make sure more people at least hear what the ABCT has to say.

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Gentlemen, need a loan?

Very funny.

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Only Marginally interesting

Am I the only one getting tired of Tyler Cowen’s wishy-washy, they’re right/I’m right/we’re all right, middle of the road, government is here to help except when it isn’t routine?

Now, professor Cowen is among the smartest, most literate economists on the planet. No doubt. But he seems obsessed with currying favor from all sides of the political/economic spectrum. Unlike his colleague Peter Boettke, who will say what he believes regardless (a bit Thomas Paine-esque), Cowen just shuffles between criticizing and defending government action. It is getting old.

I would like to know whether Cowen, after years of studying economics, actually holds a strong position on any aspect of monetary/fiscal or other public policy.

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Losers

Yes!

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Nice reasoning

McArdle has a post on the homeless and whether or not society should chip in to pay for these individuals’ medical care. Whatever the pros and cons of this debate might be, I despise this type of reasoning:

Yes, I know, the hardcore libertarians are protesting that we shouldn’t pay for their medical care.  Leaving aside the morality of this, we are going to pay for their medical care, because a majority of Americans are horrified by the idea of letting someone die outside the hospital door.  Assuming this is so, what should we then do?

Let’s just throw logic and principle out the window and hew to “workable political philosophy,” seems to be Megan’s answer to everything. But isn’t at least part of the job of a squawk-box like McArdle to lay out other possibilities to the American public? Those possibilities might not be “reasonable” or “practical,” but they could inspire someone in the great wide blogosphere to reconsider their position and discover a better, more principled, workable solution that doesn’t involve throwing taxpayer dollars at the problem.

Worse, how the hell does McArdle know what is workable? Clearly most of what she deems workable is failing (see her views on the bailout, for example).

McArdle admits defeat for libertarianism without even faking an attempt to provide a libertarian solution. Maybe that’s because she has no clue what an actual libertarian might propose if given the opportunity. Thanks for nothing.

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SNL is Funny!

Never thought I’d say SNL is funny, but, wow, is this skit hilarious:

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Update: Crisis and Leviathan

Robert Higgs’ classic Crisis and Leviathan should be mandatory reading in Washington and high schools around the country. As Stossel writes:

Crisis is the friend of the state. The politicians are desperate to be seen as “showing leadership,” so we’re surely in for a new round of government interventions. Watch for the equivalent of the Sarbanes-Oxley Act. There’ll be much posturing about how the new regulations “will keep this from ever happening again,” but that’s more nonsense because the root problem is not lack of regulation. It’s government social engineering of the housing market, which will be unchanged.

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Remember, it is always the market’s fault

When in doubt, blame the market. That seems to be the operating principle for politicians from Washington to Madrid to Tokyo. Despite the fact that nine times out of ten a political decision lies at the heart of a particular economic crisis, these elected demagogues refuse to take their medicine. Instead, they lay all the troubles at the feet of some terrible, insatiable market.

John Stossel has a wonderful piece here exposing the two presidential candidates to the unflattering light of fact and history. For example, the Barack is claiming the Bush administration has been deregulating night and day for the past eight years. But, as one of my favorite economists, Lawrence White, said:

What deregulation have we had in the last decade? Please tell me. On the contrary, we’ve had a strengthening of the Community Reinvestment Act, which has encouraged banks to make mortgage loans to borrowers who previously would have been rejected…

Stossel adds:

The government-backed Fannie Mae and Freddie Mac were created precisely to interfere with the housing and mortgage markets. In effect, Freddie and Fannie diverted money to people who wouldn’t have qualified for mortgages in a real private market.

Had actual private companies performed these activities, they would have been subject to market checks. But they were not. The results were predictable.

Here at TheLibertarians.org, we’ve been screaming moral hazard (in Stossel’s words, that “poisonous mix of private profits and taxpayer-covered losses”) since last year to little avail. The high-paid squak-boxes -looking at you Megan McArdle- didn’t think there was any problem in using tax revenue and the printing press to save her slick dressed Wall Street buddies from disaster.

This is a bi-partisan issue -in other words, the Republicans rage against the market machine as much as the Democrats (only highlighting the obvious fact that there is but one political party in the United States, the Republicrats). I won’t even bother with McCain because the old bat hasn’t a clue what he’s saying about economics. I’ll just end with another choice quote from Stossel:

Irresponsibility induced by government-created perverse incentives is the culprit. For decades politicians of both parties have relieved big companies of the responsibility that market discipline would have imposed. The promise — explicit or implicit — to bail out companies “too big to fail,” not to mention regulatory, tax, and trade policies that raise barriers to entry for new competitors — weakens market discipline. That invites recklessness.

Government bailouts, Federal Reserve currency manipulation and fractional reserve banking are responsible for every twentieth century financial crisis. Never forget it.

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