Economics Travelogue #7

Day one at the Challenge of Liberty Seminar, source: Independent Student Network

Day one at the Challenge of Liberty Seminar, source: Independent Student Network

Independent Institute hosted their Challenge of Liberty Seminar this past week at UC Berkeley, and it was a great opportunity to network with other students and professors. Through the week, I saw lectures from Tom Bell, Mark Thomas, James Bailey, Lawrence H. White, Ryan Yonk, Robert Higgs, Abby Hall, and Kyle Swan, professors from various universities across the United States. Overall, the week was a blast and I enjoyed all the lectures that were given. I figure I would give my highlights and leave it at that.

Professor Lawrence giving his business cycle lecture, source: Independent Student Network

Professor Lawrence giving his business cycle lecture, source: Independent Student Network

One lecturer that I especially enjoyed was Lawrence H. White, a professor out of GMU and the author of several notable economic texts (one of which I am currently reading). His lectures touched on the history of economic thought and Austrian business cycle theory. Both lectures were fantastic and touched on topics that I especially enjoy. Austrian economics remains a heterodox approach to economics, and having someone skilled like Professor White lecture on Austrian theory was a definite treat. In the time between lectures on Monday and Tuesday, I also got to talk to Professor White, and I really enjoyed the conversations we had. Of the topics mentioned, the 2008 financial crisis was one (almost inevitable, given White’s status as a ‘free banking’ economist) and Professor White’s analysis was especially interesting. As best as I can remember, White suggested that instead of the bailouts provided by government, the Fed should have blasted an immediate round of quantitative easing to keep the money supply moving while letting the financial sector figure itself out. Despite my limited knowledge on such a complex event, I believe Professor White was right to recommend the hand off approach to the financial crisis. Rather than engender moral hazard, selective treatment by regulators, and possibly systemizing greater financial insecurity, the government should have allowed insolvent institutions collapse and selloff their assets. The one role government would have played would be to ensure nominal spending continued as stable as possible.

Professor Bailey giving his entrepreneurship lecture, source: me

Professor Bailey giving his entrepreneurship lecture, source: me

James Bailey is a young professor at Creighton University, and he specializes in healthcare and labor markets. Professor Bailey is a really cool guy, and on top of his great lectures, he also allowed me to talk his ear off on whatever topics came to mind. Of his lectures, I really enjoyed both his entrepreneurship and health-care lectures, both of which provided some great insight into topics I’m rather ignorant of. Professor Bailey was well versed in the current health-care/wage literature and was able to provide multiple sources to students, a fact I quickly appreciated for my own research and future reading.

Professor Bell giving his lecture on criminal law, source: me

Professor Bell giving his lecture on criminal law, source: me

Unlike many of the other professors who stayed a few days to speak and watch other lectures, Tom Bell came by Friday to provide the last round of lectures by himself. A professor of law from Chapman University, Mr. Bell is an awesome and passionate lecturer on legal theory. His lectures reflected his interests well by covering criminal law, special economic zones, and future forms of governance. Professor Bell is so involved with his work that he actually provides legal advice to Liberland, a nation-state-hopeful that exists between Serbia and Croatia.

Professor Hall on terrorism, source: me

Professor Hall on terrorism, source: me

Another professor who I have not seen yet and enjoyed was Abby Hall from the University of Tampa. Her lectures focused entirely on the issues of government surveillance, foreign policy, and government power in of itself. Like Professor Bell, you could tell that Professor Hall absolutely enjoyed her job and topics of research, and gauging by the intensity of student debates, her lectures clearly appealed to the audience at the seminar. Another fun fact of Professor Hall is that she works with Chris Coyne of George Mason University, another great professor and author of several books (one of which I will be publishing a review for soon enough).

Dr. Higgs giving his keynote lecture on Wednesday night, source: Independent Student Network

Dr. Higgs giving his keynote lecture on Wednesday night, source: Independent Student Network

Finally, but not lastly, was Robert Higgs’ keynote speech on Wednesday night. Mr. Higgs is the senior editor at Independent Institute, as well as a significant writer in the libertarian tradition of economic thought. His book Crisis and Leviathan is a major piece of literature in theories of the state, and Higgs has written on countless other subjects through the years. During the summer before my senior year of high school, I met Mr. Higgs in St. Louis FEE college and high school seminars. It was at the college seminar, where Higgs spoke and socialized, that I decided to switch to economics as a major. Robert Higgs is an amazing person to talk to, and I enjoyed the opportunity to meet him one more time before he moves off to Mexico.

I grabbed a quick photo with Dr. Higgs after his lecture and also got to tell him thank you for his early influence on me. Hasta  luego, senior Higgs! source: me

I grabbed a quick photo with Dr. Higgs after his lecture and also got to tell him thank you for his early influence on me. Hasta luego, senior Higgs! source: me

The speeches provided by Kyle Swan, Ryan Yonk, and Mark Thomas were also great, and I loved getting to talk with them on the side. Professor Swan comes from Sacramento State University, and he teaches classical political thought with an emphasis on ‘liberal neutrality’ and non-consequentialist political theory. Professor Thomas comes from Creighton, like Professor Bailey, and his lectures revolved around public choice theory and its implications on the policy making process. I have already talked about Ryan Yonk in a previous travelogue, and his presentations were basically the same as last time (I don’t blame him for not changing his lecture for the few KFP members there, haha).

Outside of the lectures, Independent provided socials, and I hung out with other students and the other fellows from Independent. It was a fun week, and I honestly learned a lot. UC Berkeley was a pretty campus and I enjoyed the student life in the town when I ventured down from the Clark Kerr campus. I will be posting soon about my reading updates and fellowship with Independent, but this is it for now. Till then.

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Debt, Greece, and Democracy

Joseph Stiglitz recently wrote in the Guardian how the European Union and International Monetary Fund’s treatment of Greece was anti-democratic.  I disagree, because the current ‘Grexit’ crisis is not a bug, but a feature of the political and democratic process of the European Union. Stuck between stubborn pensioners and angry non-Greeks, the government of Greece and leaders of the European Union are stuck in a zero-sum fight that promises no winners.

Greeks at a referendum protest, source: AP photo/Emilio Morenatti

Greeks at a referendum protest, source: AP photo/Emilio Morenatti

What exactly is happening?

With the consolidation of the European monetary union, most members of the European Union gave up their individual ability to manipulate their money supply to the supranational organization, the European Central Bank. As a result, this heavily constrains the ability of any E.U. monetary member to pursue excessive government deficits without the explicit consent of the ECB, and by extension, other E.U. nations.

Fast forward to 2015, add in out of control public spending, institutionalized tax evasion, corruption, and you have Greece.

A member of the European Union since 2000, in 2010 regulators discovered that Greece was at the brink of insolvency due to hidden debts it had incurred through banks such as Goldman Sachs. Consequentially, the European Union believed that bailing out the Greeks was necessary, and together with the International Monetary Fund, out on severe conditions of austerity reforms.

Since the initial bailout (and another in 2011), Greece has seen moderate success in restructuring its economy, but ultimately fell short of the severe austerity demands of its creditors. Come 2015 elections, and Syriza, a fringe leftist government, accomplished a landslide election on an anti-austerity, anti-Troika (a pejorative for the EU, IMF, and European commission), and Greek solidarity platform. Greece’s new leaders, Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, have since campaigned on the horrible mistreatment of Greece’s people and its economy.

Tsipras and Varoufakis, source: EPA

Tsipras and Varoufakis, source: EPA

Not so fast

However, this struggle is not as black and white as Tsipras and Stiglitz want you to think. While Greece has made many reforms since 2010, its public pensions and state enterprises still dwarf those of its poorer Eastern European Union neighbors. Countries like Lithuania have average public pensions that are less than one-third the size of their Greek counterparts, and their leaders have remained among the greatest critics of Greece’s government.

Making matters more complicated, other European nations that were recently bailed around 2010 (Ireland, Portugal, Italy, and Cyprus) all enacted the desired austerity measures and reforms from creditors, and have since made successful economic recoveries.

These differences in the European Union leads to a greater point, and my criticism of opinions like Stiglitz and Tsipras. As Jeffrey Sachs, a notable economist a Columbia University, said yesterday, Europe remains largely fragmented along nationalistic lines. European leaders are at odds with Greece’s government not because of some inner sadistic desire, but because their national constituents are fed up with financing the excesses of Greece’s economy and government.

The European Union, despite achieving much success with integration, still has its problems. A unified polity, or lack of, remains one of its largest weaknesses. Following this failure, debates over bailouts, debt, and economic reforms will remain at the whim of largely conflicting public and special interests. This is about as democratic as the federalist European Union can get. As I said at the beginning, this is a feature, not a bug.

Bailouts in the eyes of non-Greeks appear as a waste of European money on a nation with leaders that pride themselves on political brinkmanship, a party that is Euro-sceptic, flirts with Russia for aid, and has no real plans for long term restructuring of its public expenses. Unfortunately for Greece, it does not make up the majority of Europe and will not be winning the public opinion contest.

Kal's Cartoon in the Economist

Kal’s Cartoon in the Economist

Despite their short fallings, Stiglitz et al. are right that, at this point, some debt forgiveness is necessary for a stable Greece and European Union. The barrier to this, however, is Stiglitz’s accursed democracy.

 

 

 

 

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Not Lacking Links

SCOTUS rules in favor of raisin farmer, overturns ‘New Deal’ era law

Created in 1937, The Agriculture Marketing Agreement Act was one of the several ‘New Deal’ laws passed under FDR’s administration with the intention of revitalizing the economy. After yesterday, a portion of the law has been ruled unconstitutional for violating the 5th amendment rights of a raisin farmer. Previously under the law, the Raisin Administration Committee claimed the right to take a portion of all raisin farmers’ crops in order to artificially raise the price of raisins, but the Supreme Court ruled that this fundamentally violated the property rights of farmers. There is a lot more to the ruling, but that’s the gist. Also, fun fact: the article I linked to was written by a Trevor Burrus, one of the speakers I had the pleasure of listening to at KFP’s opening seminar this early June. The guy knows his stuff when it comes to constitutional law.

NSA/GCHQ documents show they attacked security software providers to find vulnerabilities, intercept communications

I would say I am surprised, but….

This revelation goes with the fact that GCHQ actively participates in counter-information activities, such as creating multiple fake accounts across all of social media to belittle critics of surveillance, support proponents, plant misinformation, and create a general environment of confusion. Nothing but the best for the leaders of the free world.

Deidre McCloskey released her review/criticism of Piketty’s Capital

I have not read it yet, but McCloskey is always interesting.

WikiLeaks dumps countless documents on the Saudi Arabian government

Rand Paul’s flat tax is basically a value added tax (VAT)

Good article from the NYT, basically points out that Rand’s proposed tax plan (while overall good) is basically a dressed up VAT, meaning that its benefits come from its ability to comprehensively tax everything without fail. Still better than the archaic and inefficient tax code we currently have, imho.

While we’re at it, Jeb’s ‘4% GDP growth’ is crazy talk. My problem with his proposal is that he will never be willing to enact the necessary reforms that would spur the growth necessary to see such economic progress. At best, he’ll throw a few minor reforms and fall flat on his face when 4% GDP growth never shows. It is not that I do not believe high economic growth is possible, but that I believe Jeb would never be willing to do the things necessary to spur this growth.  A bunch of economists agree.

China’s version of the Nasdaq just experience a crash, losing over 13% of its value

Long over due for a market ‘correction,’ China’s major stock indexes experience a crashed over the weekend. The source of the correction comes from the overvaluation of several tech stocks, some of which have experienced an over 100x increase in value. This is the biggest correction the Chinese market has seen since 2008.

California rules against Uber in suit, claims driver is employee

If this precedence holds for larger rulings (as in, for all Uber drivers in Cali), then Uber’s cost of business will sky rocket will make its relations with drivers much more rigid. Employee classification entails that Uber provides all the various benefits of employment, such as medical insurance and mandatory time off, despite the very ‘consensual’ relation Uber has with drivers (they can work as much as they want, when they want, etc).

Greece is playing with fire

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Economics Travelogue #6

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I began working for Independent Institute (no longer The Independent Institute) last week here in Oakland, and the experience so far has been a real eye opener. Only 17 days into June, and I have already traveled the full length of the continental United States, have made tons of new friends, eaten all sorts of tasty ethnic food, and am working for one of the most established think tanks/publishers on the economic and political ‘right.’

A glimpse of Alameda Island, the area where I am staying

A glimpse of Alameda, the lovely island of my residency

At Independent Institute, I am helping with the re-branding of the Institute and reorganization of its website. Without going into too much detail, Independent is releasing a series of videos as a part of a larger campaign for outreach and informing younger audiences on government spending. When that happens, I will publish those videos here. Besides the rebranding, I am working with the other research fellows on completely reorganizing how Independent categorizes its articles and blog posts online. As Independent is over 25 years old and has been online for the past ten, there are thousands upon thousands of articles/events/news releases/etc in the website’s 60+ current categories. After this summer, the research fellows will have squeezed them into only 13 parent categories. If that sounds like a lot of reading, that is because it is.

Research fellows at work...

Research fellows at work

The spat of entropy known as my work space

The spat of entropy known as my work space

Besides the mountains of articles being thrown at me, I have also done some more reading myself. I just recently finished Douglass North’s Structure and Change in Economic History, which I will be writing a review on soon, and have picked out new books. Making up that list is Lawrence H. White’s The Theory of Monetary Institutions, Philip Wallach’s To the Edge: Legality, Legitimacy, and the Responses to the 2008 Financial Crisis, and Christopher Coyne’s After War: The Political Economy of Exporting Democracy. If that sounds impressive, let me assure you, it is not. North’s book was definitely a challenging read (for good reasons), but these new books are much simpler in comparison, and altogether number up to less than 600 pages of literature. What is nice, however, is that I am starting to get a much stronger grasp of neoclassical theory, and of the smaller nuances that underpin it.

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In between my personal reading and work at Independent, the other fellows and I have managed to explore much of the peninsula and its related cities. San Francisco, Alameda, and Oakland are beautiful and diverse cities in their own ways, and California, as a whole, is treating us well with its beautiful bay weather. Rarely does it feel a degree above 75, and the nights are always cool and chill. On top of the beautiful weather, I have managed to try lots of different ethnic restaurants here, tasting cuisine from Thailand, Vietnam, Cambodia, Ethiopia, Pakistan, Arabic in general (Halal), and India. It is a struggle to watch my food intake when I am surrounded with this type of temptation, but I manage. Barely.

Garlic and Pepper Chicken

Garlic and Pepper Chicken

Chicken Kebab with Naan, Chutney, and a salad.

Chicken Kebab with Naan, Chutney, and a salad.

Spicy tuna hand roll (the best sushi I have ever had)

Spicy tuna hand roll (the best sushi I have ever had)

Altogether, the first week and half has been great. I am enjoying my time out here in Alameda/Oakland, and am staying occupied doing things I love. I miss my family and friends back home, but at least the time is flying as quick as it seems possible over here. Till next time.

Some pictures I took while in San Francisco

Some pictures I took while in San Francisco

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Economists Misunderstand What They Teach

A popular theorem within economics comes from Ronald Coase, an economist who won the Nobel for his analysis of the firm and revitalization of institutional analysis. The Coase Theorem, as vocalized by George Stigler, suggests that so long as transaction costs are low or non-existent and property rights are clearly defined, the initial endowment in market transactions should not matter. In other words, markets will naturally internalize any externality created by transactions and provide the optimal outcome.

What economics sort-of-kind-of is (not really), Source: Gustavo Rodriguez

What economics sort-of-kind-of is (not really), Source: Gustavo Rodriguez

As a student of new institutional economics, that statement really gets me excited! Why? Because Coase’s work shows how institutions matter and their effect on how market transactions occur. However, that point does not make it across for most undergrad students, and sadly, many professional economists as well. After a lecture at the KFP conference, I talked with Dr. Wenzel, an institutional and Austrian economist of Flagler College, and Mr. Marcoux, a business ethics professor at the University of Creighton, about how institutional analysis remains ignored by many economists, and, consequentially, how the lesson of the Coase Theorem is extremely misunderstood.

Dr. Wenzel called the Coase Theorem a ‘silver bullet’ for many pro-market advocates who do not fully understand the nature of Coase’s work. While the Coase theorem shows how markets can perform efficiently, Coase’s argument focused on how this efficiency only occurs under very special and rare circumstances. The reason why markets do not operate optimally is because of the transaction costs under different institutions. Laws, norms, legal agencies, and people themselves all add to the transaction costs of market exchanges, which violates a fundamental premise of the Coase Theorem. Making matters worse, property rights have historically been in public ownership and/or extremely inefficient, violating the second part of the Coase Theorem.

An example can be found in an analysis of waterways. Because there exists no clear boundary between one user’s ownership and the next, many users can lay claim to the water system making it difficult to assign responsibility over a segment of the river (poorly defined property rights). Individuals may try to litigate over pollution expenses, but the more individuals fighting over water rights, the more difficult and convoluted the process becomes (high transaction costs). This entire scenario provides a real life example of how markets often fail to exhibit clearly defined property rights and low transaction costs.

This reality means that both fundamental parts of the Coase theorem are violated on a normal basis, and that markets will actually behave sub-optimally. The greatest contribution of the Coase Theorem comes from the realization that we do not see these idealized property rights and non-existent transaction costs. Coase meant this to show how important institutions are for ensuring efficient markets and to explain economic phenomenon seen in the market, but even economists like Stigler and Samuelson, each Nobel laureates in economics, truly failed to appreciate his contribution. Institutions themselves are what determine how property rights are defined and defended, along with the various norms that dictate market behavior. Some institutions, like a free market, are better than others, such as pastures in feudal England, and result in more optimal outcomes.

The late Ronald Coase, economist extraordinaire, Source: law.uchicago.edu

The late Ronald Coase, economist extraordinaire, Source: law.uchicago.edu

Mr. Marcoux pointed to a very good paper by Deidre McCloskey, a Chicagoan economist, outlining the current misunderstanding of Coase in academia. In her article, “The So-Called Coase Theorem“, she has this to say:

Coase’s actual point, the core of a Coasean economics, was to note what happens in the many important cases in which transaction costs cannot be neglected. If the situation does have high transaction costs, then it does matter where the liability for pollution is placed. In Consequence, as Coase has stressed throughout his career, the economist’s preference for a simple, blackboard solution, taxing the party that “causes” the pollution (as Pigou and Samuelson suggest), is no longer defensible. [emphasis by author]

The Coase Theorem is not really a theorem at all, and to paraphrase McCloskey, the concept was already captured by Adam Smith himself and several other prominent economists. Even Coase agreed with this, and he actively discouraged the attachment of his name to the theorem! What Coase was trying to communicate was that the theoretical, ‘blackboard’ economics being taught by ivory tower academics did not match the real world. Neoclassical economics had completely neglected the institutional frameworks through which society and individuals operate. And despite his 50+ years of teaching, it seems that Coase still failed to reach out to the majority of academic economists. Policies and models are still based on the fanciful idea that transaction costs do not affect the patterns and transactions of society, that plain cut theory can explain away problems based in reality, and that economists can perfectly encapsulate the world in their recommendations.

Despite his ‘failure’ to express the complexities of institutions to all of economics, Coase’s efforts did not go in vain. New institutional economics has become a thriving force within the academic community and more economists are wising up to the reality of how institutions influence human action. The discussion I had with Mr. Marcoux and Mr. Wenzel only makes me more sure of this.

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The End of Death

This post was inspired by an article I read a while back on OrgTheory.net.

Texting While Driving, Source: Mike Luckovich @ The Atlanta Journal-Constitution

Texting While Driving, Source: Mike Luckovich @ The Atlanta Journal-Constitution

From drone deliveries to self-driving cars, automatization of daily life activities makes accidental death a thing of the past.

Car crashes are a normal part of life: humans are not perfect, mistakes happen, and people tragically get into wrecks. Despite the grim nature of car crashes, everybody uses these machines because of their obvious convenience and benefit. I do not need to remind you that it was not until the mid-1900s that most of the developed world finally transitioned from using horse carriages to automobiles as the main method of transportation. Where trains were limited to their obtuse infrastructure, and horses to their speed, automobiles traversed any landscape that had some inkling of a road.

People, for the first time in history, traveled hundreds of miles in a day, covered literal continents in a matter of weeks, and interacted with other humans over distances and at rates never imagined before. This automobile-zation of society resulted in people conditioning themselves to the idea of car related death. For everyone, the trade-off was worth it.

However, the problem of car crashes, and similarly related accidental death, is coming to an end. Inching closer to ‘immortality,’ humanity’s development of technology is reaching further into the social aspects of life…and death.

The self-driving Google Car, Source: Mark Wilson/Getty Images

The self-driving Google Car, Source: Mark Wilson/Getty Images

According to the Center for Disease Control, accidental deaths make up the fourth leading overall cause of death in the United States. Out of those accidents, over 30,000 come from car crashes and another 30,000 come from falling (roofs, stairs, etc). No one can avoid every single risk in life, but with the rise of more technically skilled machines, avoiding some sources of accidental deaths will become much more possible. These new technologies are so effective that problems like vehicle related death may disappear completely. Imagine a world without news of car pileups, drunk drivers, and people using their phone while driving. Helen Greiner, a CEO of a drone producing company, opines further that drones will also reduce auto related accidents as they diverge traffic from roads and into the sky, and will reduce accidental deaths by performing tasks notorious for injury, i.e. cleaning the gutters and putting up Christmas lights.

Amazon's drone, Source: Amazon/EPA

Amazon’s drone, Source: Amazon/EPA

While the issues and technicalities behind self-driving cars and delivery drones remain hefty and speculation is anything but fact, society is slowly moving closer towards a world where death does not exist.

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