Tag: Mises Does Not Approve

I Guess We’ll Need a New Tax in Minnesota

At the beginning of this month a new tax on cigarettes took effect here in Minnesota. While proponents of the new tax claim it will help fund education the tax is actually being used to bailout billionaire Zygi Wilf since the proceeds from gambling having met the levels projected by the politicians who decided to provide public funding for the new Vikings stadium. Unfortunately, the politicians may have to find something else to tax now that cigarette sales have dropped:

DULUTH – After the Minn. state tax increase on cigerettes on July 1., Duluth tobacco shops and gas stations said their sales have decreased.

Some gas stations said cigarette sales are down by thousands of dollars a week.

Meklye Wahedi, a cashier at “Cigs for Less” said carton sales are especially down.

“People were buying 3 or 4 at a time, they would come in the next week and but 3 or 4 again, and yeah, it increased a lot,” Wahedi said. “When July 1 first hit, that’s when it was really slow.”

We will have to wait and see if sales increase but if they don’t the Minnesota legislation will likely have to create a new tax on something else. This demonstrates the issue with taxes, as taxes are increased individuals begin to avoid those taxes. If a new tax on cigarettes raises the overall price of cigarettes sufficiently less people will buy them and the state will take in less tax money, leading to more taxes. It’s a never ending cycle.

Let the Protectionism of Brick and Mortar Stores Begin

Brick and mortar stores have been begging the state to give them some kind of protection against online retailers for years now, and the Senate has seen fit to grant that protection:

WASHINGTON — The Senate sided with traditional retailers and financially strapped state and local governments Monday by passing a bill that would widely subject online shopping — for many a largely tax-free frontier — to state sales taxes.

The Senate passed the bill by a vote of 69 to 27, getting support from Republicans and Democrats alike. But opposition from some conservatives who view it as a tax increase will make it a tougher sell in the House. President Barack Obama has conveyed his support for the measure.

The brick and mortar stores played it safe and offered the state a method of protectionism that benefited themselves and the state, taxation. Online retailers have so far avoided requirements to collect sales taxes in states they lack a physical presence in. This bill would change that, which would require online retailers to know the sales tax laws of every individual state in order to collect the appropriate amount.

A far better solution, if evening the playing field was really what brick and mortar stores were after, would have been to lobby for the abolition of sales taxes. But leveling the playing field wasn’t what those stores were after, they wanted to make it difficult for online retailers to operate, hence they lobbied for a law that would require online retailers to know the tax laws of all 50 states. Imagine the strain such a requirement will put on very small online retailers. If you’re operating an online business by yourself are you going to be able to familiarize yourself with the tax codes of 50 separate states? This law really stands to put those small operators out of business, which is probably why Amazon supported the legislation. Sure, Amazon many have to pay money in taxes, but it will also crush small competitors in the process.

An online sales tax is nothing but a victory for protectionism.

Cooking the Books

I have some good news, the United States economy is going to show some improvement soon. I also have some bad news, the only reason the economy is going to show some improvement is because the state is going to manipulate the gross domestic produce (GDP) numbers again:

The U.S. government is about to tweak the way it measures the economy, and some of the biggest changes will affect the entertainment industry.

Under the current system, Sichel told me, Lady Gaga’s sales of concert tickets, online songs and CDs all count toward gross domestic product. But the value of the time she spends in the studio working on new songs isn’t counted. That’s about to change.

This is why one cannot rely on numbers put out by the state. When the numbers begin to look bad the state just cooks the books to make things appear better than they are. That’s why reported unemployment is around 7 to 8 percent but real unemployment is around 22 to 23 percent.

The Central Banks are Flying Blind

Are you ready for some surprising news? You may want to sit down for this. As it turns out, the central banks haven’t a clue as to what they’re doing:

Growing concern at the International Monetary Fund over the long-term side-effects of interest rates close to zero came as some of the leading figures in central banking conceded they were flying blind when steering their economies.

Lorenzo Bini Smaghi, the former member of the European Central Bank’s executive board, captured the mood at the IMF’s spring meeting, saying: “We don’t fully understand what is happening in advanced economies.”

But the best part of the article the following paragraph:

It is troubling for monetary policy experts that their crisis-fighting tools – rates stuck at zero, money printing operations to bring down longer-term interest rates and encourage private sector spending, and efforts to calm financial market fears – might have nasty side-effects.

Who would have thought that artificially lowering interest rates to nothing, printing billions upon billions of dollars, and sucking people into malinvestment would have any harmful side-effects? Just everybody with an elementary school understanding of basic economics. Unfortunately the politicians decided that Keynes’s mysticism sounded much better than Mises’s deductive logic, which isn’t surprising since Keynes’s mysticism basically said anything the state does to bolster the economy is good whereas Mises said the state should take an entirely hands off approach. Needless to say the state liked the idea of monopolizing the monetary system and it has been downhill ever since.

Oh Krugman, You’re Always Good for Laughs

Paul Krugman has to be one of my favorite people in economics. Every time he speaks about economics, which is claims is his field of expertise, he says something so incredibly dumb that it makes one laugh our loud. In his latest opinion piece in the New York Times he claimed that Austrian economists are akin to cultists:

Substance aside — not that substance isn’t important — Austrian economics very much has the psychology of a cult. Its devotees believe that they have access to a truth that generations of mainstream economists have somehow failed to discern; they go wild at any suggestion that maybe they’re the ones who have an intellectual blind spot. And as with all cults, the failure of prophecy — in this case, the prophecy of soaring inflation from deficits and monetary expansion — only strengthens the determination of the faithful to uphold the faith.

What makes this statement so funny is that every one of those accusations can be aimed at Keynesian economists. Keynesian believe they have access to a truth that generations of classical liberal theorists have somehow failed to discern. Even in modern times the followers of Keynes believe that war is good for the economy. What they fail to see, as Frédéric Bastiat pointed out in 1850, is that which is unseen. When a Keynesian sees a destroyed building they see economic stimulus waiting to happen. In their eyes rebuilding the structure will employ people and require materials, which will result in economic growth. They fail to see that the people and materials used to rebuild a destroyed structure could have instead been used to build a new structure. Instead of merely replacing that which was destroyed real economic growth, that is the creation of new wealth, could have occurred.

Keynesian also go wild at any suggestion that maybe they’re the ones who have an intellectual blind spot. Whenever the programs they advocate fail they don’t admit they were incorrect, they merely claim that the program wasn’t done hard enough. When printing money (often referred to as quantitative easing) failed to stimulate the economy the Keynesians claimed that the Federal Reserve simply failed to print enough money. The Federal Reserve is now printing $40 billion a month because their last two bouts of printing new money failed to get the economy on track. Even with so much money being printed the economy continues to falter and the Keynesians aren’t admitting their theory is incorrect, they’re blaming the Federal Reserve for not printing more money.

Failing prophecies also strengthens the beliefs of Keynesian economists. Keynesians claimed that printing money was the solution to the economic depression and now that they’ve been proven wrong they hunker down and demand that more money must be printed. They never stop to consider that their predictions may be wrong. When it comes to economics Keynesians are the masters of demanding the same failing programs be tried again, only harder.

The best part of Krugman’s column is the final sentence:

It would be sort of funny if it weren’t for the fact that this cult has large influence within the GOP.

Honestly, that sentence would be sort of funny if it weren’t for the fact that it has absolutely no bearing on reality. Show me a single member of the Republican Party that has studied and advocates Austrian economics (and now that Ron Paul is retired he no longer counts).

Mainstream economics has failed, in part, because its practitioners try to shape economics facts to fit their hypothesis. Consider unemployment. Keynesians are quick to claim that the creation of government programs is the solution to increasing unemployment numbers. When the government created programs to employ people the unemployment rate failed to drop so the Keynesians in the state redefined unemployment. Entire sections of the unemployed population were removed from the statistic and that allowed the state to report improved numbers. The state now reports, what it calls, the U3 statistic, which doesn’t include individuals who have been unemployed for more than one year (removing those individuals from the statistic is justified by claiming those individuals are no longer looking for work and are therefore unemployed by choice). By massaging the numbers the Keynesians were able to make the economic fact of employment fit their hypothesis and therefore claim to be knowledgeable in economic matters.

Raising Minimum Wage

One of the things Obama urged during his State of the Union address was for Congress to increase the minimum wage to $9/hour:

He urged Congress to work with states to provide “high quality” preschool to all low- and moderate-income 4-year-olds, and he proposed raising the federal minimum wage to $9 per hour, up from $7.25 today.

Those of us who have studied the Austrian tradition of economics duly point out that increasing minimum wage also increases unemployment. Minimum wage laws create a barrier for entry, especially for those just entering the workforce and therefore unskilled.

Let’s look at minimum wage laws another way. If raising the minimum wage actually increases the average wealth of the lowest paid workers why stop at $9/hour? Why not make it $100/hour or $1,000/hour? Isn’t it time we stopped screwing around and made everybody millionaires? Wouldn’t that put everybody above the poverty line? No, it would make almost everybody in the workforce unemployable, at least legitimately. Most people don’t produce $100/hour worth of value let alone $1,000/hour. If raising minimum wage to $100/hour sounds preposterous and unworkable why do people think raising it to $9/hour is any different?

A Proposal to Save the Australian Government Time and Money

I don’t claim myself to be a financial genius but I believe I can save the Australian government a lot of time and money:

Three American companies-Apple, Microsoft and Adobe-have been summoned by the Australian Parliament to explain why they charge higher prices Down Under than in other countries.

My proposal is to call of the hearing because I can provide the answer. The reason Apple, Microsoft, and Adobe charge what they charge is because those are the prices people are willing to pay. It’s as simple as that. If I manufacture a laptop, charge $2,000 for it, and enough people buy my laptop to turn me a profit I find acceptable then I know I’ve set the right price. Unfortunately the Australian government is unlike to find, “Because those are the prices the market will bear.” as an acceptable answer.

War is Good for the Economy

Apparently the United State’s economy isn’t doing any better. Gross Domestic Product (GDP) is done, which is used by most economists as a measuring stick for a country’s economic performance. Of course I have a hard time believing such metrics are useful when I read things like this:

The economy contracted at an annual rate of 0.1 percent in the last three months of 2012, the worst quarter since the economy crawled out of the last recession, hampered by the lower military spending, fewer exports and smaller business stockpiles, preliminary government figures indicated on Wednesday. The Fed, in a separate appraisal, said economic activity “paused in recent months.”

Emphasis mine. Did you get that? The reason the economy is in a slump is because the United States government isn’t spending enough money bombing brown people overseas. If we only spent more on bombs, missiles, and other implements of war things wouldn’t be this bad. This is why GDP is asinine, it includes government and private spending. Any measure of a country’s economic performance that includes government spending should be dismissed outright as there is no way to know whether or not government spending is actually productive.

How Laws Against Price Gouging are Causing Gasoline Shortages

After hurricane Sandy caused immense damage to the Eastern United States government officials moved in to prosecute price gougers. Anybody caught charing higher prices for goods faced prosecution and punishment by the state. What did this prohibition against raising prices lead to? Shortages. Many desperately needed goods, including gasoline, have been in short order. These shortages could have been avoided though if sellers were allowed to adjust their prices to match supply and demand:

Had gas stations been allowed to raise their prices to reflect the increased demand for gasoline, only those most in need of gasoline would have purchased gas, while everyone would have economized on their existing supply. But because prices remained lower than they should have been, no one sought to conserve gas. Low prices signaled that gas was in abundant supply, while reality was exactly the opposite, and only those fortunate enough to be at the front of gas lines were able to purchase gas before it sold out. Not surprisingly, a thriving black market developed, with gas offered for up to $20 per gallon.

Thank the gods for the “black” market for without it there would be no gasoline anywhere. The need for a “black” markt wouldn’t exist if the state didn’t prevent sellers from raising their prices to match the increase in demand. Furthermore the price of gasoline would likely be lower than it is now because “black” market entrepreneurs increase their prices partially in response to the risk they face. Anybody selling goods on a “black” market must make enough profit to outweigh the risks of being caught and punished by the state. Additional risk tends to transform into additional costs for consumers.

When the state implements prohibitions against raising prices they cause shortages.

Making the Poor Poorer

Yesterday the Federal Reserve announced that it would ramp up it’s war on the poor:

The US central bank has announced it will resume its policy of pumping more money into the economy via so-called quantitative easing.

The Federal Reserve said it will buy “additional agency mortgage-backed securities at a pace of $40bn per month”.

The central bank also said it could increase the size of its purchases if the economy does not improve.

The Federal Reserve is going to start printing a minimum of $40 billion a month for an indefinite period of time. Printing money inevitably leads to inflation, which is a decrease in purchasing power. If the entire economy was made up of $100 and the Federal Reserve printed another $100 it would effectively reduce the purchasing power of each dollar by half. What’s more insidious about this is that the devaluation doesn’t occur immediately, the first receivers of newly printed money enjoy it’s use at full purchasing power. It’s not until the money begins circulating that the reduction in purchasing power hit. Effectively the poor, being the last receivers of newly printed money, get hit the hardest.

With this latest announcement the Federal Reserve might as well have said, “Fuck the poor!” Those who are barely able to get by on the current purchasing power of their money will soon find themselves entirely unable to get by as prices increase due to dollar devaluation. If you’re holding Federal Reserve notes it would be wise to convert them to something tangible quickly.