Unemployment Continues to Rise; Good Thing the Recession is Over

The October unemployment numbers were released on Friday, and they’re even worse than expected at 10.2%. If you believe the media, this is the highest rate since 1983. On the other hand, when the numbers are calculated as they actually were in 1983, the true unemployment rate is now at 17.5% (the chart below from ShadowStats.com shows a few alternate figures using different criteria).

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Does anyone remember back in January when Obama & Co. announced that unless we passed the American Recovery and Reinvestment Act (worth $787 billion), unemployment would rise to approximately 9%, and that the “stimulus plan” would keep unemployment below 8%? Well, we got that plan–and quite a bit of other government meddling with the economy–and things are even worse than the administration claimed they would have been had they done nothing. Harvard economist Greg Mankiw has maintained a nice graphic (below) to illustrate how things are progressing.

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This really isn’t all that surprising. Despite the common belief that FDR’s New Deal got us out of the Great Depression (after only 17 years!), the reality was that businesses could see the writing on the wall, and chose not to make investments in what they felt was a hostile environment. As Robert Higgs argued in his book, Depression, War, and Cold War,

[T]he insufficiency of private investment from 1935 through 1940 reflected a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns.  This uncertainty arose, especially, though not exclusively, from the character of the actions of the federal government and the nature of the Roosevelt administration during the so-called Second New Deal, from 1935 to 1940.

Now before you say that we’re lucky that businesses today aren’t so pessimistic, I call your attention to the chart below showing the current status of private domestic investment.

Gross Private Domestic Investment - 1948-10.2009

As the Washington Post reported on Friday in their article “Some Giants Sitting on Piles of Cash”, many business executives are smart enough to see that the climate being created by Washington is not one in which they should be taking risks. One of the businesses highlighted, Nucor Corp., is not investing because, as stated by their CEO Daniel DiMicco, “we don’t have a lot of confidence that the right things are being done in Washington to reinvigorate the economy…”.  On top of that, attempts by politicians to “stimulate” their favorite sectors of the economy are only ensuring that what investments are made, are made in the wrong areas.

It’s time for Obama & Co. to get out of the way and allow the economy to function as it should. The more politicians monkey with efforts to produce and to create real wealth, the longer it will take to see recovery. If this op-ed from the Wall Street Journal is any indication, things just may be beginning to look up.

November 8, 2009 at 12:57 am Leave a comment

2010 Calendars from the Mises Institute

A few months ago, I e-mailed Jeff Tucker at Mises.org suggesting that they create some kind of calendar with photos of important economists, quotes, significant dates, etc. I thought, “what better way to bring up the Austrian School of economics at work than to have pictures of old, dead economists on your wall?” Well, I’m happy to report that they took my advice and have made the 2010 LvMI calendar available in their online store. Now I’ll never forget Bohm-Bawerk’s birthday again.

Check out the calendar and be sure to order a couple for your home, your office…your car?

November 5, 2009 at 12:43 am Leave a comment

Answering the Objections to Capitalism

I always enjoy seeing competent economists answering the often-repeated, yet long-discredited objections to capitalism. Art Carden, adjunct fellow with the Independent Institute and professor of economics and business at Rhodes College has put together this wonderful article entitled “Common Objections to Capitalism”. Not surprisingly, he concludes that “Substituting elite power for voluntary exchange invites all sorts of epistemological problems and moral disasters. For these reasons, capitalism deserves to be defended.”

For those wishing to investigate further, I recommend the following articles:

“Anatomy of an Economic Ignoramus” by Thomas E. Woods, Jr.

“The Noneconomic Objections to Capitalism” by Ludwig von Mises

Also interesting is the video below, where a student gets Michael Moore to admit that America does not really have a free-market system.

November 3, 2009 at 3:40 pm Leave a comment

On the Broken Window Fallacy and the Benefits of War

Since the name of this blog is taken from an essay by nineteenth-century French economist Frederic Bastiat, it seemed appropriate that I comment on this posting by the Ludwig von Mises Institute.

One of the most famous examples of the difference between good economics and bad economics is the parable of the broken window I won’t spoil it for you by explaining the broken window fallacy (I’ll let you read it for yourself), but to give an analogy, politicians are always the first to claim that military activity is good for the economy because it encourages spending and gets money flowing. After all, we’ve all heard about how World War II got us out of the Great Depression (it couldn’t have been the drastic reductions in government spending by two-thirds at the end of World War II).

In reality (and as pointed-out by Tom Woods here), military spending does not do any favors for the economy. It diverts resources away from useful production to the production of goods that will be intentionally destroyed. That spending that is stimulated by war is spending that could otherwise have been used to invest in goods actually desired by the consumer; goods that could help to improve the quality of life.

November 3, 2009 at 2:58 am 2 comments

Left vs. Right: Can Anyone Tell The Difference?

I just began reading Ludwig von Mises’ Critique of Interventionism, and the first sentence of the preface jumped out at me:

The fighting between nations and states, and domesti­cally between political parties, pressure groups, and cliques, so greatly occupies our attention that we tend to overlook the fact that all the fighting parties, in spite of their furious battling, pursue identical economic objectives.

This was as true in the 1920s when this was written as it is today.  Sure, the Republican Party always plays the part of the free-marketeers when a Democrat attains the Presidency, but in terms of actually restoring free markets, they consistently drop the ball.  As economist Walter Williams put it,

Liberals believe government should take people’s earnings to give to poor people. Conservatives disagree. They think government should confiscate people’s earnings and give them to farmers and insolvent banks. The compelling issue to both conservatives and liberals is not whether it is legitimate for government to confiscate one’s property to give to another, the debate is over the disposition of the pillage.

Of course, since Williams wrote this, we’ve come to learn that both parties are just as comfortable giving other people’s money to insolvent banks, but the point remains.  Whether it’s redistribution of wealth, protectionism, or taxes, the Republican Party has proven again and again that it’s not the principles of the Democratic Party that they disagree with, just with the degree to which they’re implemented.

As for me, I’m still waiting for the day when tax rates are brought back to a reasonable level.  Franklin D. Roosevelt elevated the bottom tax bracket over 1.5% for the first time in 1932 and raised the top tax rate over 30%.  Since that time, no Republican has ever brought taxes back below the levels set by FDR (the current tax range goes from 10% to 35%).  How do we fix this?  Stop rewarding the Republican Party for their empty rhetoric by giving them our votes.  Show them that if they won’t stand up for freedom, there are other political parties out there who will.

November 3, 2009 at 12:56 am Leave a comment

Why a Public Option Will Kill Competition

Over at Cafe Hayek, economist Russ Roberts hits the nail on the head regarding why a public option in health insurance will kill competition.

[…]Obama uses the Post Office as an example of why the public option won’t hurt private competitors. His argument is that Fed Ex and UPS thrive even though there’s a Post Office. He forgets to mention that the Post Office has a legal monopoly on first class mail and still loses money. And he forgets that the struggles of the Post Office make it harder to claim that the public option will stand on its own without taxpayer support.

In countless examples throughout history, government attempts to provide competitive services have only served to make a laughing-stock of the politicians who naively believe that political decision-making can actually serve consumers best.

November 1, 2009 at 8:59 pm Leave a comment

Illinois Republicans Call for…Bigger Government??

On Monday, October 26, six Illinois Republican Senatorial candidates came together in Rockford for a candidate forum hosted by Concerned Citizens of America, a religious conservative organization. Noticeably absent was Congressman Mark Kirk, who has become persona non grata for his not-so conservative ideas. Given the crowd–and my hazy recollections of what being a Republican was all about–I expected to hear the candidates speaking on the merits of limited government. What I heard, though, only served to remind me of how lost the Republican Party is…and how much believers in liberty need a voice. Below is a collection of ideas (or lack thereof) I heard from these candidates.

  • Not a single candidate so much as mentioned the bailouts or government takeover of private businesses, two of the greatest contributors to the largest federal deficit in history.
  • A proposal to have politicians produce and air commercials nationally, in support of specific moral principles.
  • Centrally-mandated quotas on the number of low-income individuals insured by private companies.
  • A statement that we “need government big enough to do what it wants” [and to somehow control itself once it has the power to do whatever it wants].
  • Government subsidies to insurance companies when they spend more than usual [although last time I checked, subsidizing increased costs just encourages increases in costs].
  • Provide federal funding to expand educational programs for talented students, at-risk students, and teachers [apparently politicians in Washington, DC are the best judges of what local schools need].

Growing up, I always believed that the Republican Party was the party of limited government, but the examples above are more like the Republican Party I’ve come to know over the course of my life. Thankfully, there is one Senatorial candidate out there who understands what freedom means. Michael Labno, Libertarian candidate for US Senate, is ready to return the wealth stolen from working citizens by politicians. When Republicans and Democrats alike believe that they can better plan your life from DC than you can on your own, it may just be time to stop playing their game and start voting your conscience.

November 1, 2009 at 8:47 pm Leave a comment

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