Ask a D.C. insider what’s the best way to solve the debt crisis. Nine times out of ten, they’ll recommend taking on more debt. That’s how things operate in the Potomac swamp. Up is down, right is left, digging yourself into more debt is the best way to get out of it. But it wasn’t always like this. In fact, there used to be common sense when it came to the economy. So where did it all go wrong?
Politicians talk about the uninsured. Special interests argue on behalf of those with pre-existing conditions. But why is no one wondering how doctors are affected by the new law? They’re the ones on the frontlines dealing directly with new patients, as well as the red tape that makes bureaucracies go round.
Politicians proclaim the benefits of small business while on the campaign trail. But when they meet in the seedy halls of Congress, they have no problem doing whatever they can to stifle, regulate, and subdue their progress. Instead of siding with entrepreneurs, these politicians often side with political allies and cronies that helped put them into office.
Just because you’re retired doesn’t mean you have to stop working. Especially now that you have all the time in the world to do what you really want. Entrepreneurs don’t only come out of Silicon Valley. They come from all walks of life, from all different ages. If you’re retired and want to stay active while you relax, then find out the steps you need to take in order to start, manage, and grow your next small business.
Austrian economics does more than tell you what happens when the government disturbs market forces. In the hands of knowledgeable investors and entrepreneurs, it can tell you exactly what to expect from the market. Market behavior depends on how people behave. And how people behave is central to the Austrian perspective.
The U.S. dollar has been the world's reserve currency for almost a century, and already there are signs it may be in decline. But that doesn't mean it's not still valuable. On the contrary... As Chris Mayer explains, there are many reasons the U.S. dollar will remain relevant on the world stage for years to come. Read on...
World War II might have dragged the country out of the Great Depression, but it did so at a great price. Central planning took center stage, and politicans and bureaucrats suddenly knew what was best for America, the economy, and your life. On top of that, they replaced the free market with a new economic system… Creditism.
If you’re good at something should you be penalized so others have a chance at success? Should award winning actors and actresses be barred from future Oscar ceremonies to give other men and women the chance to succeed? Success should always be rewarded and encouraged. But what happens when you have a government that wants to even the playing field and take away the spoils of success. Gregory Bresiger finds out...
Practical people often pooh-pooh fiction reading as a time wasting dalliance, dominated by a Marxist coloring of the world. However, fiction readers were given a scientific reason recently for spending hours absorbing fanciful figments of someone’s imagination.
Argentina is suffering the ravages of government debasement of the currency -- i.e., inflation, the process by which government pays for its ever-increasing debts and bills by simply printing more paper currency. The expanded money supply results in a lower value of everyone’s money, which is reflected in the rising prices of the things that money buys.
When government expansion is allowed to continue unabated or when it casts a heavy regulatory shadow on America’s entrepreneurial spirit, the freedoms that we’ve come to know, and perhaps take for granted, slowly begin to slip away.
Its acceptance is as widespread as its justification is important, for it provides the rationale for the Federal Reserve’s unprecedented monetary expansion since 2008. While critics may dispute the wealth effect’s magnitude, few have challenged its conceptual soundness. Such is the purpose of this article. The wealth effect is but a mantra without merit.
Baron Rothschild, the famous French financier, was once heard to say that he knew of only two men who really understood money -- an obscure clerk in the Bank of France and one of the directors of the Bank of England. “Unfortunately,” he added, “they disagree.”
The new reality of Obamacare’s tax credits has left finance reporters to pen articles warning readers to “take care” when considering a tax credit and providing strategies for how best to “protect yourself.” So what do finance reporters know that the White House doesn’t?
Nihilo ex nihilo fit. Out of nothing, nothing comes. First put forward by ancient Greek philosopher Parmenides in the fifth century B.C., Thomas Aquinas and St. Augustine later used this axiom to prove that the universe needed a “first mover” to get things going. Even if the whole thing began with some kind of “Big Bang” moment, it still needed a banger to bang it. Who? God, of course.
Economic theories don’t lend themselves to laboratory testing, so the work of a national appraisal firm is especially enlightening. A new study lends support to the Austrian business cycle theory, which says that the less government is involved, the faster a market will recover.
What positive steps can we take? The energy that is now expended by well intentioned, freedom-seeking individuals on the destructive course of politics can be turned into powerful steps that will have a positive effect on the future. All are moral, right and just. None require aggressing. Consider the following...
The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk.
Politicians and bureaucrats are notorious for manufacturing euphemisms -- clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Some of our courageous friends in government couldn’t bring themselves to say “tax hike.”
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Facts are easy. You can check facts. What supporters of the Affordable Care Act are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.
The east coast and parts of the southern U.S. were to varying degrees paralyzed by blizzards a few weeks ago. The snow as expected rendered the roads treacherous, and in anticipation of slick streets, shoppers flocked to the grocery stores in advance.The rush into grocery stores, and its aftermath, offers worthwhile lessons in economics.First up, […]
The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self-sufficient.But our systems of state charity — aka welfare — have too frequently had the opposite effect: They have actually created dependency. It is time to rethink the way we help people.I’m going to […]
Last year was quite the year for Bitcoin. We’ve seen exponential growth in Bitcoin’s exchange rate and extensive coverage in the media. Another phenomenon we have witnessed is the proliferation of alternative cryptocurrencies, five of which we’ve provided below.What all of these cryptocurrencies have in common is that they rely on a decentralized network to […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the HealthCare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor supply issues. Given the mounting difficulties with and growing concerns about the […]
The instant the Fed announced QE3, an unlimited program of bond buying with fake money until the end of time, the speculation about what it would mean went viral.
Does this mean that recovery is around the corner? Or does it signal a coming hyperinflation? Or perhaps more deflation stemming from liquidation?
The reaction of the leaping gold market gives a clue. But let’s ask some more fundamental questions and return to the Fed’s actions when we are finished.
In general, what can we know about how the future will play out? Economists are forever swinging between two poles. Some assume that markets know all things worth knowing, but these “rational expectations” theorists are invariably proven wrong. World events, it turns out, are full of bad information, poor predictions, and surprises. Still others, like post-Keynesians who assume no fixed economic laws, are left inventing scenarios unbound by logic of cause and effect.
Reality as we know it takes the middle way. You have to know what that middle way is to make reasonable forecasts, so that you don’t find yourself tipped one way or another. So let us look at how predictions about the future play out in reality.
“Mayhem is coming,” warns the commercial for auto, life, and home insurance. It features a series of terrifying scenarios, freak accidents, bizarre events that come out of nowhere. An actor says he is a raccoon who destroys your house. He is a deer who jumps in front of your car. He is a thief who wrecks your motorcycle.
The advertiser hopes for this response: get insured and fast. Chances are that these things won’t happen, and the insurance company will make a profit from your premiums. But if they do happen, and it’s not something that’s due to your own willful negligence, you are paid out. It’s an economic exchange like any other, only it involves trading on the uncertainties of life. Insurance companies make it their business to know the future, so it makes sense that they are generally better at it than anyone else.
But notice what is not in these ads. You don’t see a guy at a Las Vegas craps table. You don’t see a commercial baker sitting there with no customers. You don’t see a person lighting a fire to his own house. You don’t see a kid playing online poker.
That’s because there is no insurance for these scenarios. Why are some events insurable and some not?
The question is absolutely crucial, especially in times when the word “insurance” is flung around recklessly to describe so many government programs that are actually just robbing some people to pay others. Medicare is not insurance. Social Security is not insurance. They are just called that to deceive the public with a gloss of commercial legitimacy.
Let’s take a plunge into some hard-core high theory, by visiting a chapter from Hans-Hermann Hoppe’s book The Great Fiction. The chapter in question is called “On Certainty and Uncertainty.” It deals with what is an insurable risk, what can and can’t be known about the future, and the failings of economic models that assume people know everything or nothing.
This chapter is an important reminder of why it is important to dig into serious books. They challenge your mind in a way that no Facebook post or Tweet ever can, and, in so doing, help you see through the fog of opinion and blather throw in front of us all day, every day.
What is an insurable risk? To be insurable, Hoppe explains, an event must be part of a class of random events that is outside an actor’s physical control. An example is a house fire. We can know that 1 in 10,000 houses will burn to the ground, but that says nothing about one house in particular. There might be features of the house that make it more or less likely to burn, and those probabilities are figured into the premium. Once all these are figured in, what’s left should be random and thus insurable.
What if a person burns down his own house?. You can’t game the insurer by having anything to do with causing the event against which you are insured. That’s called insurance fraud. See the film noir classic “Double Indemnity.”
An economically uninsurable risk is one over which the actor himself has full control. Consider a donut shop. The store can be insured against fire. But the shop itself can’t be insured against business loss because that has everything to do with the owner’s managerial discretion. If such insurance did exist, it would be silly because the premiums would be higher than any conceivable profit.
Another application is the case of gambling. The hand the gambler is dealt and the dice he rolls might be insurably random events. But the essence of the game is in the betting and strategy that is directly under the volitional control of the gambler himself. These are not random and hence not insurable.
What about flood insurance? The probability of a flood in a particular case can be calculated against a whole class of events. The premium is based on that. On a floodplain in which the event is nearly certain to happen, the premiums would be higher than the cost of declaring a total loss. In other words, no one would take the deal and hence it would not be offered.
So why are houses on floodplains insured? Only federal subsidies make it possible. This is what government specializes in: making the irrational part of reality. So every few years, we are supposed to cry and cry for the poor plight of homeowners living in places they would never be able to live with a market-regulated insurance sector.
Another example: health insurance. The event of sickness is very much in the control of the individual. The actuarial tables can reveal some pretty specific things about people’s likeliness to get sick. Randomness is hard to come by here. The only things that are really insurable are random health hazards. This is precisely why the idea — shared by both parties — that “preexisting conditions” should not be part of premiums completely contradicts economic reality.
Let’s take one more step into this thicket of thinking. What can we be certain about and what is uncertain. Hoppe begins his brilliant essay with a thought experiment. Here is the sweeping opening:
“It is possible to imagine a world characterized by complete certainty. All future events and changes would be known in advance and could be predicted precisely. There would be no errors and no surprises. We would know all of our future actions and their exact outcomes. In such a world, nothing could be learned, and accordingly, nothing would be worth knowing.”
Whoa. So there it is. The reason why we acquire information is to overcome a universal condition of life.
Of course reality is uncertain. But how uncertain? This is the core of Hoppe’s piece. “It does not follow from the proposition that human actors face an uncertain future that everything regarding our future must be considered uncertain.” Further: “it does not follow from the fact that we are capable of learning that everything about the future of human actions is unknowable.”
Let us now return to the Fed’s actions. What will be the effects? The laws of economics are not random. When you increase the quantity of money, and nothing else changes, no new wealth is thereby created; only the purchasing power of money will fall. When this will happen, what other sectors are affected, or what mitigating factors will cause this effect to reveal itself in unexpected ways…these are things we can’t know for sure.
In other words, we can make qualitative predictions with absolute certainty. But quantitative predictions are another matter. Those are born of experience, intuition, and good judgement.
More than likely, you are going to have a lot more success in your guesses if you know what is certain and hence not guesses. This is why it is enormously helpful to study economics. It gives us laws to trace and observe in real life.
Sometimes knowing economics can be a kind of curse. For example, anyone who has studied business cycle theory knew, with near-perfect certainty, that QE1 and QE2 would be flops. The same is true of QE3.
Another chapter in the Hoppe book speaks to this issue directly. It is called “Entrepreneurship with Fiat Property and Fiat Money.”
“States everywhere,” writes Hoppe, “have discovered a smooth way of enriching themselves at the expense of productive people: by monopolizing the production of money and replace real, commodity money and commodity credit with fiat money and fiat or fiduciary credit.”
The Fed ought to hang a sign above its door: Enriching Ourselves and Our Friends since 1913.
Whatever the grim results of E3, this is one result of which we can be 100% certain.