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Radical Life Extension Won’t Cause Resource Shortages – Article by Reason

Radical Life Extension Won’t Cause Resource Shortages – Article by Reason

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The New Renaissance Hat
Reason
October 6, 2013
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That overpopulation exists at all is one of the most prevalent delusions in the modern world: thanks to the environmentalist movement, a cause that has ascended near to the status of civic religion, the average fellow in the street thinks that there are too many people alive today, that resources are stretched to breaking point, that the future is one of Malthusian decline, and that horrible poverty in the third world is caused by the existence of too many people. All of these points are flat-out wrong. Humanity is wealthier and has greater access to resources today than at any time in history, the variety and amounts of available resources are growing at an accelerating pace due to technological progress, the earth could support many times more people than are alive today, and where there is poverty it exists due to terrible, predatory governance and the inhumanity of man – it exists due to waste and aggression amidst the potential for plenty.

Even this pro-longevity piece by George Dvorsky subscribes, as many do, to the false idea that somehow we are consuming too many resources and will run out. This is silly: resources are infinite, because through technological progress we constantly develop new ones. People live in an age of change, with each new decade clearly different from the last, and yet live under the assumption that everything will remain the same going forward. Being worried about running out of anything that we use today is like being worried about running out of candle wax in 1810, or running out of room for horse breeding operations in 1840, or running out of food in 1940. All false concerns, and all false for exactly the same reasons: we are not static consumers of resources, we are net producers of resources.

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Make no mistake, it’ll take us a long, long time to get there, but we’ll eventually find a way to halt the aging process. Owing to advanced medical, regenerative, and cybernetic technologies, future humans will enter into a state of “negligible senescence,” a condition marked by the cessation of aging and the onset of everlasting youth. It sounds utopian, but as biogerontologist Aubrey de Grey has repeatedly noted, it’s simply an engineering problem – one that’s not intractable.

I’ve been debating this issue for the better part of a decade, and I’ve heard virtually every argument there is to be said both in favor of and in condemnation of the possibility. I’m not going to go over all of them here. But without a doubt the single most prominent argument set against radical life extension is the issue of overpopulation and environmental sustainability.

As a final note, there’s a certain inevitability to radical life extension. It’s the logical conclusion to the medical sciences. So rather than futilely argue against it, we should come up with constructive solutions to ensure that it unfolds in the most non-disruptive way possible.

Link: http://io9.com/no-extreme-human-longevity-won-t-destroy-the-planet-1440148751

Reason is the founder of The Longevity Meme (now Fight Aging!). He saw the need for The Longevity Meme in late 2000, after spending a number of years searching for the most useful contribution he could make to the future of healthy life extension. When not advancing the Longevity Meme or Fight Aging!, Reason works as a technologist in a variety of industries.  

This work is reproduced here in accord with a Creative Commons Attribution license.  It was originally published on FightAging.org.

This Isn’t the Way To Do Business: Review of John O’Hara’s “From the Terrace” – Article by Sarah Skwire

This Isn’t the Way To Do Business: Review of John O’Hara’s “From the Terrace” – Article by Sarah Skwire

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Sarah Skwire
October 6, 2013
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John O’Hara. From the Terrace. New York: Carroll and Graff, [1959] 1999. 897 pages.

John O’Hara’s From the Terrace, a sprawling novel of business and politics, traces the career of Alfred Eaton from his boyhood in small-town Pennsylvania to his work in business, banking, D.C. politics, and, finally, to his retirement in California. As Howard Thompson observed in his New York Times review of the 1960 film adaptation, its director “logically . . . settled for about fifteen years” of the story. And I’d like to focus in even more closely—on a single conversation.

After college and World War I, Alfred and his friend Lex Porter decide to start an aviation company. Lex and his family will contribute the funding, Alfred will serve as the business manager, and they will hire an outside designer. Their goal is to do for airplanes what Ford, Dodge, and others have done for cars. As Alfred explains in a conversation with his father:

“We’re not deceiving ourselves. All we know is that aviation is the coming industry in this country. In ten years everybody’s going to want aeroplanes.”

“Personally, I’d rather have some Dodge Brothers, common or preferred.”

“Who wouldn’t? That’s a sure thing, for those who like sure things, and I like sure things, too. But we’re hoping to be Dodges.”

With the perfect hindsight the 21st century offers, we know the enterprise is doomed from the moment we hear about it. Personal planes still haven’t replaced the car and aren’t likely to. But from the standpoint of an entrepreneur in 1920, it’s a pretty good idea.

It’s a pretty good idea, that is, until Alfred, Lex, and their designer Von Elm try to get down to business. While they begin with a fairly clear plan to “build a small aeroplane of up-to-the-minute design and highest quality workmanship, built to sell to men who could afford Rolls-Royce automobiles,” they rapidly move away from this plan into a deadlock between the demands of practicality and the desire for perfect design. Lex, who wants to experiment and constantly change designs, argues, “If we sell an aeroplane in, say, November 1921, and another one in December 1921, the December one may be so different that you wouldn’t recognize it as coming from the same maker.”

Alfred quite rightly protests that this is no way to do business:

Let’s not think we’re going to build custom-made aeroplanes. I don’t care how much we charge for the aeroplane, we’re not going to start making money until we can produce it in some quantity. We ought to build next November’s aeroplane and manufacture it, produce it, till we have, say, fifty sold. And a year later we manufacture the new model, with all those refinements you speak of. We don’t sit around waiting for some guy to come and ask us to build a special ship for him. We make fifty and sell them.

As he later points out, all this chopping and changing requires only one thing—and that isn’t entrepreneurship or business acumen. It’s an “inexhaustible bank account.” Lex’s response to such critiques is telling: “Jesus H. Christ! Are we going to build Dodges? I thought we were going to build a fine aeroplane.”

This criticism of the very company that Alfred calls a “sure thing” and that he takes as his model, along with the conflict the criticism suggests, are at the very center of their business. It leads to Lex and Von Elm buying expensive engines without Alfred’s approval. It leads to a rift in their perceptions of the business and their plans for its future, and it leads to the company’s eventual collapse.

In my last column I praised the entrepreneurial spirit. And I am an enormous fan of the guts and drive, the expertise and steadfastness necessary in order to start and run one’s own company. But not everyone should do it. Lex shouldn’t do it. He wants to build planes. He wants to design planes. He doesn’t care if he sells them.

We’ve heard a lot lately in the media about how everyone doesn’t need to go to college, and how the ever-growing burden of student loan debt sometimes turns out to have been a bad risk for students, particularly in our sluggish economy. But while I am deeply concerned about that, I am equally concerned about glossing over the rigors of starting, running, and maintaining a business. It would be irresponsible, no matter how much we love entrepreneurship, to let students think that it is somehow a sure road to success, or a straight line to the top, or easier and more certain than a college education. And not only is it irresponsible, it’s insulting to the entrepreneurs who know exactly how much work it takes to get to the top—or even the middle—of an industry.

Expertise in entrepreneurship, like expertise in metaphysical poetry or string theory, is hard to come by. You have to study it, work at it, fail at it, and then do it some more until you get it right. It is a great road for those who are drawn to it. But like metaphysical poetry or string theory, it’s not a road for everyone.

Sarah Skwire is a fellow at Liberty Fund, Inc. She is a poet and author of the writing textbook Writing with a Thesis.
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This article was originally published by The Foundation for Economic Education.
Mercantilism vs. Free Trade: The Early Years – Article by Chi-Yuen Wu

Mercantilism vs. Free Trade: The Early Years – Article by Chi-Yuen Wu

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Chi-Yuen Wu
September 27, 2013
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Note from the Ludwig von Mises Institute (reprinted with permission, pursuant to a Creative Commons Attribution license): This selection is from Chapter II of Chi-Yuen Wu’s An Outline of International Price Theory, available in paperback and ebook editions in the Mises store.

In Chapter II, Wu discusses some early controversies in Mercantilist thought, and their effects on our thinking about free trade. It is interesting to read Wu’s summary of the debate between the interests of England-based manufacturers of clothing and the importers of clothing from the East India Company. In both cases, they are arguing from the position of special interest groups, but the arguments made by the East India Company, while not made in the spirit of any true devotion to free trade, are harbingers of later advances in our understanding of the value of free trade.

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The overseas discoveries in the last decades of the fifteenth century had widened the boundaries of international trade and had given rise to a change in its nature and an expansion of its volume. As a result of the opening of the new silver mines between 1540 and 1600 in America, Europe was supplied with an abundance of money metals and thus the establishment of a real price economy was facilitated. That change in commerce together with the extension in the use of money accelerated the development of the new spirit of private enterprise and paved the way for the triumph of the moneyed classes. In fact, the time had come for a transition from a number of local economies to a national economy, from feudalism to commercial capitalism, from a state of comparatively little trade to an epoch of extensive international commerce. That change in the economic structure is sometimes called by economic historians the “Commerical Revolution.”

In the world of thought, that change in the economic structure found its expression in what is known as “Mercantilism.”

… First of all, all mercantilists considered the benefit of the State as the end and object of economic activities, in their view the interests of the State had always to take precedence to the interests of the individual. The aim of all mercantilistic doctrines is to increase the economic power of the State. Moreover, the interests of the state were, in their eyes, by no means necessarily in harmony with the activities of the individual. According to them, wages, interest, industry, and trade should be regulated so as to benefit the State. Finally, the importance of “treasure” to a State was greatly emphasized. The reasons given in support of their advocacy of the accumulation of the previous metals changed from one time to another, but all mercantilists agreed that a nation must try by all means to increase its “treasure.” In general, they recognized that countries which did not possess gold or silver mines could not increase their stocks of the previous metals except by an annually recurring favorable balance of trade (if peaceful means alone were adopted). Consequently, they gave foreign trade the foremost place among the industries of a nation. …

The protection versus “free trade” controversy at the end of the seventeenth century was connected with the East India trade. In the latter half of that century the imports of Indian textiles into England were increasing, especially in the last two decades. Owing to the high costs of production, the English textile industries could not withstand the competition of the Indian imports. The result was that in the last decade of the century the English woolen and silk industries faced a grave crisis. Those industries were experiencing depression and unemployment, and complaints were made by the weavers and the public in general against the East India trade.

The best spokesmen of the weavers’ interests were John Cary and John Pollexfen. Like other mercantilists, they based their contention upon the conception of the State as an economic entity and stood for a definite national economic policy for the benefit of the state. … Cary and Pollexfen … judged the benefit of trade … by the nature of the exports and imports [rather] than by their quantity and value. In other words, “that Trade is advantageous to the Kingdom … which Exports our Product and Manufactures; which Imports to us such Commodities as may be manufactured here, or to be used in making our manufactures; which supplies us with such things, without which we cannot carry on our Foreign Trade; [and] which encourages our Navigation, and increases our Seamen.”

Judged by those criteria, the East India trade was said to be harmful and not beneficial to England … [Cary and Pollexfen] no longer valued foreign trade and the treasure brought by it for their own sakes but for the effects upon home industries and trade.

The ablest upholders of the East India Company were Josiah Child and Charles Davenant. They did not deny the obvious fact that the Indian trade was detrimental to certain industries, but they maintained that the fact was not a sufficient condemnation of the East India trade.

In place of those criteria, they tried to establish a new rule for testing whether a trade is beneficial to a state or not:

The best and most certain discovery … is to be made from the encrease or diminution of our Trade and Shipping in general. … Where-ever Trade is great and continuous so, and grows daily more great and encreaseth in Shipping, and … for a succession not of a few years, but of Ages, that Trade must be nationally profitable.

Using that criterion and facts that they had adduced to show that the East India trade had promoted the general prosperity of the nation, they were able to make out a case for the view that the East India trade was beneficial to the country.

Negatively, they tried to show that the proposal to prohibit the wearing of all Indian imported textiles in England would be detrimental to the nation.

However, they could not do so without sacrificing some part of their mercantilistic doctrines and approaching the doctrine of free trade. The following quotations perhaps sufficiently reveal their main arguments:

Trade is in its nature free, finds its own channel, and best directeth its own course: and all laws to give it rules and directions, and to limit and circumscribe it, may serve the particular ends of private men, but are seldom advantageous to the public.

For all trades have a mutual dependence one upon the other, and one begets another, and the loss of one frequently loses half the rest.

It should be noted they were not free traders at heart. They advocated leaving trade free from restraints only in so far as the argument served the purpose of their Company and their views constitute a mere case of special pleading.

Author Description from the Ludwig von Mises Bookstore:

Greatness often comes from the most unlikely corners. Chi-Yuen Wu began this treatise while a student at London School of Economics during the Great Depression, then returning to an anxious China, on the verge of war, and in the throes of economic instability, finished it from the remoteness of Western China after being displaced from his home.

Wu looked at the history of economic thought as a way to explain what was happening and why. Lionel Robbins, in the Preface, says “Few, can read his penetrating commentaries without feeling that he has added substantially to knowledge, both in his elucidations and in his presentation of the general perspective of development.”

Murray Rothbard considered Outlines of International Price Theories to be a seminal contribution to the theory of price and international trade.

Illiberal Belief #25: Immigration Must Be Restricted – Article by Bradley Doucet

Illiberal Belief #25: Immigration Must Be Restricted – Article by Bradley Doucet

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Bradley Doucet
September 15, 2013
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Those of us who believe in the rightness and the benefits of free markets spend a good deal of time defending free trade between countries. But aside from the free movement of goods and services across international borders, augmenting the free movement of people across those borders would, I believe, greatly increase the peace and prosperity of people the world over. Opening up our borders to increased immigration is in fact demanded both by considerations of economics and of justice.Unfortunately, immigration is not very popular. The Economist reported in 2008 on a November 2007 poll of Europeans showing that only 55% of Spaniards and 50% of Italians considered migrants a boon to their economies—and that’s the good news. The number for Brits and Germans was only 42%, and for the French it was a dismal 30%.

One reason we fail to appreciate the economic benefits of immigration is that we are predisposed to see the world in zero-sum terms. We assume, for instance, that there are a limited number of jobs available. Immigrants, we worry, will steal “our” jobs and depress the wages of those who manage to hang on to theirs. This worry is especially prevalent with regard to the poorest, least-skilled workers. In fact, there is little evidence to support this worry. Even the least-skilled migrants do not just suck up jobs; they also help create jobs, since as consumers they raise demand which itself gets translated into more jobs. They can also free up skilled workers to re-enter the workforce by providing childcare, for instance. According to The Economist, the numbers tell a similar story: “Studies comparing wages in American cities with and without lots of foreigners suggest that they make little difference to the income of the poorest.”

Fear of Foreigners

We humans also seem predisposed to fear those who are different from us, and events in recent years have not exactly been reassuring. From riots in France to devastating terrorist attacks in the U.S. and elsewhere causing massive damage and loss of life, we see people from different cultures causing various levels of mayhem, and our natural xenophobia is reinforced.

But the unrest in France is not so much evidence of a deep cultural divide between Western hosts and Eastern immigrants. There do exist important cultural differences, but it is also the case that France’s sclerotic employment regulations deserve much of the blame for recent unrest. By making it extremely difficult to fire employees, those regulations discourage the hiring of employees— especially the hiring of foreigners of whom one might already be suspicious. Sky-high rates of unemployment in an immigrant population, while not excusing violent demonstration, surely help to explain it.

As for terrorism, it is clearly just a fanatical fringe of Islamists who are so fervent in their beliefs that they would commit suicide and murder hundreds or thousands of innocents for their cause. There is no reason for a free society to fear the average Muslim immigrant. Nevertheless, the War on Terror will continue to be used to justify such projects as the building of fences along the Mexican border, despite the lack of Hispanic suicide bombers and fact that the September 11 terrorists did not sneak across the Rio Grande. And while fences will not keep many out, they might keep many in. As The Economist points out, “After all, the more costly and dangerous it is to cross, the less people will feel like leaving. Migrants quite often return home for a while—but only if they know it will be relatively easy to get back in. The tougher the border, the more incentive migrants have to stay and perhaps to get their families to join them instead.”

Be Our Guest

If there is little chance that developed countries will just throw their borders open anytime soon, guest-worker plans seem like a practical compromise. For one thing, our Ponzi-style welfare schemes, to which we are still very much attached, cannot support the whole world. Temporary migration, in which foreign workers come for a limited time just to work without drawing on government benefits, would still be appealing to those workers while alleviating concerns about breaking the welfare bank. So why are they not more popular?

Well, there is the concern that some guests might overstay their welcome. As The Economist Report reminds us, “The old joke that there is nothing so permanent as a temporary migrant has more than a grain of truth in it.” The historical record is mixed, with some countries running guest worker programs that function smoothly, and others failing to enforce the temporary nature of their arrangements.

The more serious problem is that even supporters of more open immigration, especially those to be found among well-intentioned elites, as often as not oppose guest worker programs. These critics lament the creation of a second-class of citizens. It is not right, they argue, to withhold welfare benefits from guest workers. They worry also about the possibility of those second-class citizens being taken advantage of and abused by unscrupulous employers. But is the answer to keep people out altogether, holding out for true open borders some day?

Harvard economist Lant Pritchett is the author of Let Their People Come. In an interview with Kerry Howley in the February 2008 issue of Reason magazine, he addresses concerns about second-class citizens: “The world now is divided into first-class citizens of the world and fifth-class citizens of the world.” He adds that, ironically, in places like the Middle East where people are not so concerned about denying migrant workers all the benefits of citizenship, immigration is high but far less controversial. “One of the awkward paradoxes of the world is that Bangladeshis and Pakistanis and Nepalis are enormously better off precisely because the Persian Gulf states don’t endow them with political rights.” [Emphasis in original.]

Internal Dissent

There are in fact some libertarians, most notably Hans-Hermann Hoppe, who argue against opening the borders to greater immigration. Hoppe has a case to make, but I don’t think it gets him nearly as far as he thinks it does. First, he points out that a truly free society would have no single, national immigration policy. Rather, the many private owners of land along the “border” would decide whom to allow onto their land, resulting in a patchwork system in which some areas would tend to restrict entry and others would throw their gates wide open. Under current conditions, though, Hoppe sees immigration as “forced integration” because, given existing anti-discrimination laws, people are forced to associate with others they might not wish to associate with. In a truly free society, people would be free to choose with whom they wanted to associate.

Until they are, however, governments should come up with second-best, least-bad national immigration policies. Hoppe argues that in order to minimize the harm to the rightful owners of the land in America (i.e., the current American population) the American government should follow a policy “of strict discrimination.” Immigrants should have “an existing employment contract with a resident citizen” and demonstrate “not only (English) language proficiency, but all-around superior (above-average) intellectual performance and character structure as well as a compatible system of values—with the predictable result of a systematic pro-European immigration bias.”

Of course, we all have an interest in keeping out hardened criminals and terrorists. The main problem I see with Hoppe’s logic, though, is that if America (or Canada) were a truly free society, many hard-working foreigners (and not necessarily Europeans or those of above-average intellect, either) would have bought into ownership of some of the land in North America. A system that tries to minimize harm to the rightful owners of the land should also minimize harm to these multitudes who would have been owners if the society were truly free. This suggests to me far more immigration than Hoppe envisions, and far more than is currently allowed into sparsely populated North America.

Slow But Sure

Lant Pritchett asserts that holding out for more sweeping change is the wrong way to go. “I think we’re going to move ahead on migration; people are going to become more and more exposed to the fact that people from other places in the world are, in very deep ways, human beings exactly like us; and eventually, in an unpredictable way, the attitude toward this will shift.” Small changes will beget more changes—with the added benefit of slower change being less disruptive for host countries.

Removing immigration restrictions, even if only a little at a time, is an excellent way to help the world’s poor. Immigrants themselves benefit, of course, but so do their families back home, through remittances. Says The Economist, “For most poor countries remittances are more valuable than aid. For many they provide more than aid and foreign direct investment combined.” And because money is remitted directly to families, it neatly sidesteps the problem of corrupt government officials siphoning off aid money to enrich themselves.

In the end, those who oppose more open borders must ask themselves by what right they would deny the freedom of movement of others? Put differently, by what right would they deny the freedom of association of those of us who want more open borders? Increased immigration would help the world’s hard-working poor, and without entailing the negative consequences we fear. But most of all, it’s just the right thing to do.

Bradley Doucet is Le Québécois Libre‘s English Editor. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also writes for The New Individualist, an Objectivist magazine published by The Atlas Society, and sings.
Mainstream Economists Prove Krugman Wrong About Hayek and Mises – Article by John P. Cochran

Mainstream Economists Prove Krugman Wrong About Hayek and Mises – Article by John P. Cochran

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John P. Cochran
September 13, 2013
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Paul Krugman has recently been critical of Friedman (and Phelps), the Phillips curve, and the Natural Unemployment Rate (NUR) theory in the process of arguing that due to the recent Great Recession, the accompanying financial crisis, and Bush-Obama-Fed Great Stagnation, Friedman has vanished from the policy front. Krugman makes this claim despite the fact there is an on-going vigorous debate on rules versus discretion with at least some attention to Friedman’s plucking model. While maligning Friedman’s contributions, Krugman manages a slap at Austrians and claims a renewed practical relevance for Keynes:

What I think is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back, even if that fact drives some economists crazy; Hayek is back in some sense, even if one has the suspicion that many self-proclaimed Austrians bring little to the table but the notion that fiat money is the root of all evil — a deeply anti-Friedmanian position. But Friedman is pretty much absent.

The Friedman-Phelps hypothesis was the heart of the policy effectiveness debate of the 1970s and early 80s. The empirical evidence developed during the debate over the policy implications of the NUR model, at least temporally, discredited active Keynesian discretionary policy as an effective tool to reduce unemployment in the long run. One result of the debate: monetary policy appeared to improve, especially compared to the Fed’s dismal record in the late 1920s and 1930s and the mid 1960s to the late 1970s. Central banks, à la Friedman, focused on rules-based policy and inflation targeting resulting in what many, following John B. Taylor, call the Great Moderation of the early 1980s to the early 2000s.

Krugman does recognize the “stagflation (of the 1970s) led to a major rethinking of macroeconomics, all across the board; even staunch Keynesians conceded that Friedman/Phelps had been right (indeed, they may have conceded too much [emphasis added]), and the vertical long-run Phillips curve became part of every textbook.”

My early work on Hayek and Keynes (see here and here) argued that this development was important, but misleading. The then current business cycle research and its newer variants could benefit from re-examining the issues at the heart of the Hayek-Keynes debate.

Money, banking, finance, and capital structure were, and still are, for the most part ignored in much of the new (post-Friedman-Phelps) macroeconomics including the new–Keynesian approaches. In this regard, Hayek (and Mises) had then, and has now, more to offer than Keynes.

Recent papers by respected mainstream economists are beginning to recognize that attention to Hayek and Mises can be useful. Guillermo Calvo of Columbia University, in a recent paper [PDF], has even gone so far as to argue, “the Austrian school of the trade cycle was on the right track” and that the Austrian School offered valuable insights and noting that:

There is a growing empirical literature purporting to show that financial crises are preceded by credit booms including Mendoza and Terrones (2008), Schularik and Taylor (2012), Agosin and Huaita (2012), and Borio (2012).

Calvo adds “[t]his was a central theme in the Austrian School of Economics.”

Claudio Borio highlights what Austrians have long argued is a key flaw in inflation-targeting or stable-money policy regimes such as many central banks either adopted or emulated during the 1980-2008 period. This flaw contributed to back-to-back boom-busts of the late 1990s and 2000s:

A monetary policy regime narrowly focused on controlling near-term inflation removes the need to tighten policy when financial booms take hold against the backdrop of low and stable inflation. And major positive supply-side developments, such as those associated with the globalisation of the real side of the economy, provide plenty of fuel for financial booms.

Borio thus recognizes that a time to mitigate a bust is (contra-Keynes) during the boom:

In the case of monetary policy, it is necessary to adopt strategies that allow central banks to tighten so as to lean against the build-up of financial imbalances even if near-term inflation remains subdued.

William R. White, another economist who has worked at the Bank of International Settlements (BIS) and has been influenced by Hayek, has come to similar conclusions as does Calvo, who argues “Hayek’s theory is very subtle and shows that even a central bank that follows a stable monetary policy may not be able to prevent business cycles and, occasionally, major boom-bust episodes.”

In the current environment, many, including Krugman, have argued for a higher inflation target or a higher nominal GDP target to jump start the current sluggish recovery.

Austrian business cycle theory on the other hand, as recognized by Borio and Calvo, provides analysis on why such a policy may be ineffective and if temporarily effective in the short run, harmful if not destructive, in the long run. (See here and here for more.)

An easy money and credit policy impedes necessary re-structuring of the economy and new credit creation begins a new round of misdirection of production leading to an “unfinished recession.” Calvo expounds:

Whatever one thinks of the power of the Hayek/Mises mix as a positive theory of the business cycle, an insight from the theory is that once credit over-expansion hits the real sector, rolling back credit is unlikely to be able to put “Humpty-Dumpty together again.”

It is too bad it took back-to-back harmful boom-bust cycles for the profession at large to begin to again examine Austrian insights, but it does illustrate how foolish Krugman is when he argues Austrians have nothing to bring to the table.

John P. Cochran is emeritus dean of the Business School and emeritus professor of economics at Metropolitan State University of Denver and coauthor with Fred R. Glahe of The Hayek-Keynes Debate: Lessons for Current Business Cycle Research. He is also a senior scholar for the Mises Institute and serves on the editorial board of the Quarterly Journal of Austrian Economics. Send him mail. See John P. Cochran’s article archives.

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This article was originally published by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

Paradoxes, Not Contradictions – Post by G. Stolyarov II

Paradoxes, Not Contradictions – Post by G. Stolyarov II

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G. Stolyarov II
September 10, 2013
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I am personally fond of Ayn Rand’s identification of certain matters as “paradoxes, but not contradictions”. In my view, contradictions do not exist in reality, though there may be elements that are difficult to reconcile mentally because of incomplete information or preliminary errors in one’s perception of existence.

A paradox arises when a person’s initial intuitions do not appear to hold. This means that either the initial intuitions are wrong, or one’s information is incomplete. For instance, the famous “water-diamond paradox” of Classical economics was an inability to explain why the price of water, which is essential for life, was so much lower than the price of diamonds, which, at the time, only had uses in jewelry and decoration. The 1871 Marginalist Revolution (a development independently arrived at by Carl Menger, Leon Walras, and William Stanley Jevons) resolved the paradox by explaining a key fact about human valuation that the Classical economists had missed – namely, that a person does not evaluate the entire stock of a given good, but only considers particular quantities of goods at the margin. So the paradox was resolved in an entirely rational, non-contradictory manner, by demonstrating that the abundance of water has enabled its life-sustaining uses to be fulfilled for most individuals, while the relative scarcity of diamonds means that, for most consumers, any diamond they obtain would be put to the highest-valued purpose they would find for a diamond.
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I see the progress of human civilization as, in part, consisting of the increasing resolution of paradoxes. While, of course, it is possible that new paradoxes would arise as the old ones are resolved, these paradoxes arise on the boundaries of the new intellectual territory that is yet to be fathomed and incorporated into the domain of human mastery. Paradoxes, mysteries, and unresolved questions occur on the outermost edges of human advancement at any given time. As the edges expand, old mysteries and paradoxes are solved and new ones may arise in territory that was previously completely unexplored. In this sense, encountering a paradox can be seen as a challenge – a call to resolve the quandary and thereby score gains for human progress. As a meliorist who sees no limits to the potential of human reason and technology, I think that all questions are ultimately answerable and all paradoxes are solvable, given enough time, effort, and proper means. Sometimes the resolution of a paradox requires highly creative, unorthodox, and unprecedented thinking – which must transcend conventional dichotomies and posited antagonisms in order to arrive at a new understanding.

Bookstore Wars: Creativity versus Scale – Article by Sanford Ikeda

Bookstore Wars: Creativity versus Scale – Article by Sanford Ikeda

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Sanford Ikeda
August 22, 2013
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Independent bookstores appear to be making a comeback after several years of decline. As reported by MSNBC, the number of independent bookstores has risen significantly.

Some 1,000 independent bookstores went out of business between 2000 and 2007, according to the American Booksellers Association (ABA), as consumers turned to online buying, downloading e-books, or flocking to Barnes & Noble and (now defunct) Borders. But the ABA said that since 2009, the number of independent bookstores has risen 19 percent, to 1,971.

If my arithmetic is right, that still means the industry hasn’t rebounded to where it was in 2000 (about 2,600 stores), but it’s not bad. Meanwhile e-book sales, which had been rising at triple-digit rates, have evidently lost a bit of steam, last year growing at about 5 percent overall.

These facts perhaps illustrate two important lessons:  First, the scale of a business’s operations is not the same thing as its competitiveness; and second, the kind of competition that counts in free markets has much less to do with efficiency than with creativity.  Selling books and digital media in massive volume seems to make firms sluggish in addressing customer preferences for more personalized service and responsiveness.

Efficiency and Scale Are Important

Free-market economists are typically painted by friends and foes alike as cheerleaders for efficiency. Indeed, many economists do tout efficiency as the prime virtue of the free market, keeping prices low and employment high. In standard economics, efficiency refers to using the lowest-cost means to reach a given end.

If Jack is in New York and wants to be in Philadelphia, then among the alternative means available to him—walking, boating, flying, driving, or taking the train—efficiency implies that Jack chooses the one that minimizes the cost to him of getting to Philadelphia. In manufacturing, the production process that, other things equal, produces a given rate of output at the lowest cost is the efficient one.

(Note:  Cost, like benefit, always refers to the cost to someone of doing something.  Sometimes the chooser experiences the costs, sometimes someone else does, but neither costs nor benefits are ever disembodied.)

One form of efficiency is economies of scale. Economies of scale occur when using more of all inputs (scaling up) increases output so much that the cost per unit of output falls. (In econ-speak that’s when the long-run average-cost curve slopes downward.) Critics pick up on this and argue that the free market therefore necessarily favors big businesses over small businesses because the bigger a firm is, the more efficient in terms of unit costs it tend to be, and that allows it to charge lower prices and drive smaller firms out of the market.

But Not as Important as Competition

That story, however, only looks at the relative efficiencies of existing firms and markets. If the fundamental goal is to improve the well-being of people as they see it, then you have to pay more attention to competition, particularly entrepreneurial competition. In that sense, competition trumps efficiency (as Israel M. Kirzner has explained).

That’s because, again, efficiency means choosing from among given alternatives the one that achieves a given goal at the lowest cost. Where the standard economic concept of efficiency falls short is that in the real world neither ends nor means are simply given to anyone. Ends and means, outputs and inputs, have at some point to be discovered by someone. Yes, efficiency is a good thing, like having a clean and orderly workplace, but it’s entrepreneurship in the competitive process that does the heavy lifting of finding the work to be done and putting you in a position to do it.

The resurgence of independent bookshops in the face of book megastores, I think, is an example of how creative competition overcomes the scale efficiency of providing a particular product. There’s nothing inherently wrong or uncompetitive about megastores or inherently virtuous about small businesses. Big and small businesses have their niches, whether online or in brick-and-mortar shops. But central to the competitive process is the ability, whatever your size, to be aware of changing circumstances and to adjust appropriately to them. The MSNBC article quotes an independent bookseller as saying, “We learned how to get books that people couldn’t find online, and to cater as much as we could to the customer. When a customer walks in, we try to make them feel wanted and at home.”

Scale economies in both the online and brick-and-mortar parts of the industry do little to win over customers who prefer personalized service or the intangibles of local businesses. Independent bookstores are more flexible, for example, at staging readings of local authors and other neighborhood events. The giant bookseller Borders Books, one of the pioneers of book retailing, apparently didn’t do a good job adjusting and closed a couple of years ago (I wrote about it here). Today Barnes & Noble scrambles to cope with competition from the e-book, Amazon.com, and, it seems, local bookshops.

While the diminished growth of e-book sales is hardly a harbinger of decline—5 percent is nothing to sneeze at—it does suggest that sometimes the demand side of the market doesn’t change quite as fast as the supply side—that is, a lot of innovation is just discovering better ways to satisfy fairly stable tastes. Still, it’s competition—for new markets, new techniques, new resources, and yes, new tastes—and not efficiency that drives, and is driven by, the creative discovery of ends and of means.

The Lesson Applied

The other day a friend told me that, when she told her fiancé she couldn’t understand why a mildly alcoholic beverage called “Chu-hi,” which is very popular in Japan, isn’t sold in stores here, his response was something like, “If there were a demand for it, it would be.” Knowing that I write this column she then said to me, “That’s the free market, right?”

Okay, class, what do you say?

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.
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This article was originally published by The Foundation for Economic Education.
Bernanke’s Farewell Tour – Article by Ron Paul

Bernanke’s Farewell Tour – Article by Ron Paul

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The New Renaissance Hat
Ron Paul
August 17, 2013
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In mid-July 2013 Federal Reserve Chairman Ben Bernanke delivered what may well be his last Congressional testimony before leaving the Federal Reserve in 2014. Unfortunately, his farewell performance was full of contradictory comments about the state of the economy and the effects of Fed policies on the market. One thing Bernanke inadvertently made clear was that the needs of Wall Street trump Main Street, the economy, and sound money.

Quantitative easing (QE) and effectively zero interest rates have created paper prosperity, but now the Fed must continuously assure Wall Street that the QE spigot will not be turned off. Otherwise even the illusion of recovery will disappear. So Bernanke made every effort to emphasize that the economy was not doing well enough to end QE, while lauding the success of Fed policies in improving the economy.

Bernanke was also intent on denying that Fed policies directly boost financial markets. However, the money the Fed creates out of nothing in order to buy mortgage-backed securities and government debt for the QE3 program, benefits first and foremost the big banks and the financial class — those people who are invited to the Fed auctions. This new money then fuels stock bubbles, bond bubbles, agricultural land bubbles, and others. The consequences of this are felt by ordinary savers, investors, and retirees whose savings lose value because of the Fed’s zero interest rate policy.

As if Wall Street favoritism and zero returns for savers isn’t bad enough, the Fed wants the rest of America to bear a greater inflation burden. The Fed thinks you should lose two percent of the value of your dollar this year. But Bernanke is not satisfied with having reduced purchasing power by ten percent since the 2008 recession. The inflation picture is actually much worse if we look at the old consumer price index —the one that did not assume that ground beef is a perfect substitute for steak.

Using the old CPI metric, as calculated by John Williams at Shadow Government Statistics, we’ve lost close to 50 percent of the purchasing power of our money in just the last five years. So what you were able to buy with the $20 in your pocket before the financial crisis costs more than $30 today. That might be peanuts to Wall Street, but that’s real money for working Americans. And it’s theft by the Fed. It is a direct consequence of the trillions of new dollars the Fed has “not literally” printed—as Bernanke put it.

Bernanke’s final testimony before Congress confirms that the Fed has blatant disregard for the extra costs and the new bubbles it is creating. The Fed only understands paper prosperity, not how middle-class Americans and the poor suffer the consequences of higher prices, resources misallocations, and distortionary bubbles as well as insidious unemployment.

The only way out of this tailspin of monetary favoritism is to restore sound money, which would end the Fed’s ability to put Wall Street first and to manipulate currency. The Fed has proven over and over again that it has no respect for the real money that preserves the value of people’s labor, their wealth, and their ability to live free and prosperous lives. It is beyond time for the Fed, Wall Street, and the federal government to stop manipulating money and stealing from the American people under the false guise of paper prosperity.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission.

Let Market Forces Solve Organ-Transplant Crisis – Article by Ron Paul

Let Market Forces Solve Organ-Transplant Crisis – Article by Ron Paul

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The New Renaissance Hat
Ron Paul
July 16, 2013
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Ten-year-old cystic fibrosis patient Sarah Murnaghan captured the nation’s attention when federal bureaucrats imposed a de facto death sentence on her by refusing to modify the rules governing organ transplants. The rules in question forbid children under 12 from receiving transplants of adult organs. Even though Sarah’s own physician said she was an excellent candidate to receive an adult organ transplant, federal government officials refused to even consider modifying their rules.

Fortunately, a federal judge intervened so Sarah received the lung transplant. But the welcome decision in this case does not change the need to end government control of organ donations and repeal the federal ban on compensating organ donors.

Supporters of the current system claim that organ donation is too important to be left to the marketplace. But this is nonsensical: if we trust the market to deliver food, shelter, and all other necessities, why should we not trust it to deliver healthcare—including organs?

It is also argued that it is “uncompassionate” or “immoral” to allow patients or insurance companies to provide compensation to donors. But one of the reasons the waiting lists for transplants is so long, with many Americans dying before receiving a transplant, is because of a shortage of organs. If organ donors, or their heirs, where compensated for donating, more people would have an incentive to become organ donors.

Those who oppose allowing patients to purchase organs should ask themselves how compassionate is it to allow those people to die on the transplant waiting list who might otherwise have lived if they were able to obtain organs though private contracts.

Some are concerned that if organ donations were supplied via the market instead of through government regulation, those with lower incomes would be effectively denied access to donated organs. This ignores our current two-tier system for allocating organs, as the wealthy can travel overseas for transplants if they cannot receive a transplant in America. Allowing the free market to alleviate the shortage of organs and reduce the costs of medial procedures like transplants would benefit the middle class and the poor, not the wealthy.

The costs of obtaining organs would likely be covered by most health insurance plans, thus reducing the costs directly borne by individual patients. Furthermore, if current federal laws distorting the health care market are repealed, procedures such as transplants would be much more affordable. Expanded access to health savings accounts and flexible savings accounts, combined with generous individual tax deductions and credits, would also make it easier for people to afford health care procedures such as transplants.

There is also some hypocrisy in the argument against allowing market forces in organ transplants. Everyone else involved in organ transplantation procedures, including doctors, nurses, and even the hospital janitor, receives compensation. Not even the most extreme proponent of government-provided health care advocates forcing medical professionals to provide care without compensation. Hospitals and other private intuitions provide compensation for blood and plasma donations, and men and women are compensated for donations to fertility clinics, so why not allow compensation for organ donation?

Sarah Murnaghan’s case shows the fallacy in thinking that a free-market system for organ donations is less moral or less effective than a government-controlled system. It is only the bureaucrats who put adherence to arbitrary rules ahead of the life of a ten-year old child. It is time for Congress to wake up and see that markets work better in all aspects of health care, including organ donation, just as they work better in providing all other goods and services.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission.

The Extraordinary Business of Life – Article by Sanford Ikeda

The Extraordinary Business of Life – Article by Sanford Ikeda

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The New Renaissance Hat
Sanford Ikeda
May 25, 2013
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I heard it again from this year’s commencement speaker: the common mistake of thinking economics is just about business and making money. I know I’m not the only economics teacher who every year has to disabuse his students (and many of his own colleagues from other disciplines) of that same error.

Economics is not business administration or accounting. Economics is a science that studies how people interact when the means at their disposal are scarce in relation to their ends. That includes business, of course, but a whole lot more as well.

Where Does That Notion Come From?

Well, for starters, perhaps from one of the greatest economists in history, Alfred Marshall. He opens his highly influential textbook, first published in 1890, with this statement:

“Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.” (Emphasis added)

This definition more or less prevailed until 1932, when another British economist, Lionel Robbins, defined economic science as being concerned with an aspect of all human action insofar as it involves making choices, not with a part of individual action. Economics, in other words, is the science of choice. Its starting point is not the “material requisites of wellbeing” but a person’s subjective valuation of her circumstances. Ludwig von Mises got it, which is why he called his magnum opus, simply, Human Action.

Similarly, Libertarianism Isn’t Pro-Business

An equally common mistake is to think that supporters of the free market are “pro-business” and favor so-called crony capitalism. But a consistent free-market supporter is neither pro-business nor anti-business, pro-labor nor anti-labor. A free market to us is what happens when you safeguard private property, free association, and consistent governance and then just leave people alone.

Part of the misunderstanding here might stem from the term “free market” itself. Since people tend to associate markets with buying and selling, jobs, and making (and losing) money, it’s perhaps understandable that they would think that advocates of the free market must be concerned mainly about business-related stuff: profits and losses, efficiency, and creating and marketing new products.

Indeed, I’ve met quite a few who claim to favor “free-market capitalism” merely because they believe in making as much money as possible in their lifetimes. It’s not surprising that many of these folks do tend to be pro-business and supporters of crony capitalism. I want to ask them not to be on my side.

Connotations aside, the free market encompasses far more than the stuff of business or a money-making scheme. Yes, it does include the essentials of private property, free association, and stable governance. But a dynamic market process that generates widespread material prosperity and promotes the pursuit of happiness would not be possible if it were based solely on the relentless pursuit of one’s narrow self-interest. Markets would not have gotten as far as they have today (with per-capita GDP up more than fiftyfold since 1700) if people didn’t also follow norms of honesty and fair play, trust and reciprocity. Such norms are without question partly the result of self-interest; few would trade with us if we weren’t honest and fair. But, as Adam Smith taught us, these norms also arise in large measure from a sense of sympathy, of fellow-feeling and fairness, that comes from our ability to see others as we see ourselves, and vice versa. This is why in most contexts I usually prefer the term “free society” to “free market.”

Bourgeois Virtue

But I think one good reason the association between business on the one hand and economics and classical liberalism on the other has been so persistent is that business and the free society arose together. That is, the liberal idea—that certain fundamental individual rights exist prior to and apart from the State—sparked one of the most momentous social changes in history: the commercial revolution and the emergence of the modern urban middle class. 

The triumph of liberty, of personal freedom, unleashed the creative potential of people, who found expression in art, religion, literature, but most of all—or at least most visibly—in the Marshallian “ordinary business of life.” The changes that have taken place in the past 500 years—scientific revolutions, religious reformations, political upheavals, artistic rebirths—were driven by the same human propensities as the commercial revolution and fueled by the wealth it produced. Indeed, the social and political changes of the past century—for women, workers, and minorities—would not have been possible without the entrepreneurial pressures of competition and innovation that forced radical changes in conventional thinking and socially conservative attitudes.

Tradition’s Worst Enemy

In short, business is the most dynamic social institution known to mankind. The critical and competitive attitudes that enable business to flourish erode custom and break old ties even as they foster new ones. The products of business tend to offend people whose sensibilities were refined by generations of tradition. The free market is tradition’s worst enemy.

Business has become part of the default mode of modern society. We take it for granted. We don’t realize what a radical, subversive force it is, to the point where it sounds strange to say so. But try to imagine a world without businesses and commerce. A world like the Dark Ages of, say ninth century Western Europe: static, grindingly poor, strictly hierarchical, socially intolerant, and, apart from the occasional battle or beheading, boring like you wouldn’t believe.

So, while it’s still a mistake to think economics and classical liberalism are somehow about studying and promoting business, maybe at a deeper level it’s not such a bad one to make after all. Business is subversive.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.
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This article was originally published by The Foundation for Economic Education.