It is possible that economics could once again become useful

The entrepreneur is the missing ingredient in economics about which I have written. What cannot be linked is the paper I did on “The Absence of the Entrepreneur in the Economic Theories of the English-Speaking World”. What there is a link for is Origin and Evolution of the Term “Entrepreneur” in English, unpublished alas but available online.

But when it comes to the study of entrepreneurship, the names that matter are William Baumol and Israel Kirzner. Baumol has unfortunately gone to his reward, but Kirzner, bless him, at 88 has now been formally recognised by the American History of Economics Association. The citation below virtually leaves out his work on the entrepreneur but still does focus on his Austrian perspective. But even in awarding him the Distinguished Fellow Award, they also added, “our recommendation is, of course, based on his scholarly contributions and not on his political views”. Heaven forfend that that anyone should think that his political beliefs should matter, but you may be sure that they did. Nevertheless, here we are. There is also finally recognition that mainstream economics has no penetration in allowing us to understand how an economy works. A straw in the wind, but a good sign all the same.

The 2018 HES Distinguished Fellow Award was presented to Israel Kirzner at the recent HES conference at Loyola University, Chicago. Several strong candidates were proposed by the membership this year. The nominating committee, formed by Robert Leonard, Jeff Biddle and Mauro Boianovsky (chair), unanimously agreed that the most deserving of these candidates was Israel Kirzner and recommended to the HES Executive Committee that he should be the recipient of the HES Distinguished Fellow Award in 2018. The nominating letter was submitted by Peter Boettke, together with supporting letters by Bruce Caldwell, Karen Vaughn and Mario Rizzo. Our recommendation resulted from our consideration of several aspects of Kirzner’s work and career.

Born in 1930, Kirzner is well known as a leading scholar in the Austrian economic tradition. His work forcefully illustrates how the history of economics can be used as an important heuristic tool to cast light on current economic research. In that sense, Kirzner shares with members (e.g. Stigler, Robbins, Dobb, Viner, Galbraith, Schumpeter, Hayek, Patinkin and Sraffa) of what Craufurd Goodwin used to call the “Golden Age” of the history of economic thought (HET) a commitment to understanding economic problems through the use of HET as an analytical device instead of a separate sub-discipline. As put by Bruce Caldwell, “precisely because he works within the Austrian tradition, Kirzner often draws on history to make comparisons between the view he endorses and those he criticizes, and often the criticisms are methodological”. This shows especially in his main books The Economic Point of View (1960), Essay on Capital (1966) and Competition and Entrepreneurship (1973).

The highlights of Kirzner’s specific contributions to the history of economics are his 1994 edition of Classics in Austrian Economics (which includes a number of essential translations) and several essays on Von Mises and particularly Carl Menger. As pointed out by Karen Vaughn, Kirzner has been instrumental not only in explaining Menger’s ideas as the founder of Austrian economics, but also in encouraging a revival of interest in his writings. Moreover, as observed by Mario Rizzo, Kirzner is not just a historian of Austrian economics – for instance, in his works on the theories of profit and capital, Kirzner discusses carefully contributions by J.B. Clark, F.B. Hawley, F. Knight, I. Fisher, J. Schumpeter and others.

Kirzner has produced a body of work deeply imbued with a historical-philosophical sensibility. Although our recommendation is, of course, based on his scholarly contributions and not on his political views, it should be noted that Kirzner has shown that it is possible to combine political beliefs and scholarly scruple, and that this has been a source of inspiration for his followers, in whom we see that same attitude perpetuated.

We’re from the government and we’re here to pick your pockets

From a Government’s perspective, there are only two things they want: your votes and your money. The rest is just rhetoric to get you to vote for them and to make sure you pay every last cent of your tax bill fully and on time. From Instapundit.

LAURENCE KOTLIKOFF: Did The Supreme Court Potentially Bankrupt Tens Of Thousands Of Small Online Businesses?

Small business is supposed to be the engine of economic growth and the internet is now the engine of small business growth. Today’s Supreme Court’s decision is potentially the engine of small business death. This plus the looming global trade war may be more than enough to pull the plug on our economic recovery.

Yes, we’ve very badly needed to rationalize state-business taxation. But what was and is needed is a system in which a company can file one and only one unified state sales and income tax return, pay one and only one tax bill and then have the states divvy up the proceeds. This will no doubt require federal legislation. Absent such a solution, the little engine that could — small online business — may immediately become the little engine that can’t.

The Powers That Be seem ready to rein in the Internet, whether it’s free speech or free enterprise.

What’s this word “free” I keep hearing? If it’s from the Government, the last thing it will be is free, as in there is no such thing as free lunches, health care or education.  

The economic role of saving

There are two ways to understand the word “saving”. It is either:

(1) deferring the use of one’s purchasing power to a later date

OR

(2) that part of the capital, labour and other existing resources of a community that are used to maintain and extend the productive apparatus of an economy.

If you confuse (1) with (2) you will never understand how an economy works. (1) is of course modern and Keynesian, while (2) is classical and Austrian.

But these things are very very difficult to keep straight in the midst of analysis unless you really have the distinction absolutely clear.

Let me therefore take you to a sad example of how these issues became muddled in the midst of an interview with an Austrian economist who was trying to explain (2) to someone who thinks only in terms of (1). This is the title, Our Obsession with Consumption — while Ignoring Saving and Investment — Is a Big Problem. I have adopted his explanation from his Austrian treatment and translated into how things would be looked at from a classical perspective.

In economics today very little attention is given to the role of savings. This is a very curious situation.

There can be no production without prior saving.

Nature on its own provides us with only very few consumer goods eg apples on a tree.

For anything more, we must first produce the goods that we then afterwards can consume.

But to produce these goods we must first devise and construct tools, instruments or machines.

But to devise and construct tools, instruments or machines we already need a stock of already existing tools, instruments or machines. This stock is what is meant by “saving”.

Without prior savings no increase of future consumption is possible.

But then the interviewer asks this question, which transfers the issue from (2) to (1).

Do the current saving systems for retirement in the West work? If not, with what should they be replaced?

Suddenly the issue is about the future real potential purchasing power that lies behind money saving in the present. And from there the conversation never gets back to the need to widen and deepen our productive capabilities. They do go on to discuss who should make the decisions on what capital to build but by then it is too late.

The real problem for me is that even the interviewer, who was trying to provide soft questions so that the issues could be explained clearly, was too muddled himself and never allowed the interview to go where it needed to go, so another opportunity to make things clear disappeared.

Who’s the real free trader around here?

From America: A Prisoner of Our ‘Allies’. Hits the nail right on the head over tariffs, and much else beside.

The political class is screaming bloody murder over Trump’s performance at the G-7 meeting in Canada, where he reportedly spent most of the time detailing how much the US was paying for the defense of our vaunted “allies,” not to mention the high tariffs imposed on American goods. He then proposed a “free trade zone” in which member countries would drop all tariffs, subsidies, and other barriers to trade: the “allies” didn’t like that much, either. Nor did the alleged advocates of free trade here in the US give him any credit for ostensibly coming around to their point of view. Which reminds me of something Murray Rothbard said about this issue: “If authentic free trade ever looms on the policy horizon, there’ll be one sure way to tell. The government/media/big-business complex will oppose it tooth and nail.”

PDT is a specialist in uncovering hypocrisy and there’s plenty of it around.

[My thanks to Max for posting this in the comments.]

Which side are you on?

Trump blasts Canada’s Trudeau for ‘false statements’…
Rough talks sour G7 mood; Confrontations…
Trump refuses to back declaration calling for tariff reductions…
Holds rare solo news conference, defends bashing press…

Comes with this:


TRUMP APPROVAL TOPS OBAMA AND REAGAN AT SAME TIME IN PRESIDENCY…

I actually cannot understand why anyone with sense would have preferred Hillary to PDT but by now, if you are not completely persuaded that Trump is our last chance for the West to hold itself together, then your political judgement is good for nothing. Like this in particular:

“The EU understands that the only way with Trump is strength,” said one European official. “If you give in now, he will come back tomorrow for more.”

Hope things continue with his meeting with Kim (the other Kim) on Tuesday.

Supply-side economics in real time

The American economy is bursting bounds almost previously unknown. From Instapundit where a discussion of the supply-side foundation for this transformation is found.

THOSE JOBS NUMBERS LOOK EVEN BETTER: The Washington Post grudgingly admits one amazing thing about today’s excellent jobs numbers – the black unemployment rate is now closer than it ever has been to the white unemployment rate. As the Post notes, in the past when the numbers got close it was because white unemployment was rising. That’s not the case today. Meanwhile, the New York Times says, “We Ran Out of Words to Describe How Good the Jobs Numbers Are.” It’s shocking what a supply-side cocktail of lower taxes, less regulation, and allowing businesses to get on with their jobs can do.

You are looking at the effects of classical economic policies, one more example of how not just useless but actually harmful modern macroeconomic policies are and how beneficial their removal is. All this is discussed on my Quora post: What is the difference between Keynesian and classical economics? which has just passed 1500 visits.

For a more complete story, let me again suggest you have a look at the third edition of my Free Market Economics. On the back cover you will see the following words written by the man who brought supply-side economics to the world:

‘This book presents the very embodiment of supply-side economics. At its very core is the entrepreneur trying to work out what to do in a world of deep uncertainty in which the future cannot be known. Crucially, the book is entirely un-Keynesian, restoring Say’s Law to the centre of economic theory, with its focus on value-adding production as the source of demand. If you would like to understand how an economy actually works, this is one of the few places I know of where you can find out.’
– Arthur B. Laffer, Laffer Associates, US

There seems to be a deep state in economics as well as in politics, where the economy is run for the benefit of crony capitalists, with governments parcelling out our savings either on their own pet projects or to their friends. This is serfdom and the road to poverty. Letting entrepreneurs make their own decisions on what to produce and how to do it actually seems to work. It’s not just balancing the budget; it is removing as much as possible the unproductive hand of government spending and over-regulation that is the only way to make an economy blossom.

They have Trump surrounded the poor bastards

Read it all, of course, but this is one of the nicer parts. From Secretary Wilbur Ross Heading To China June 2nd through 4th – Likely Authorized To Strip Bamboo Forest…

This helps to understand how significant the economic aspects of the Trump Doctrine are to the geopolitical engagements with North Korea.

Chairman Xi has made a strategic decision in his adversarial approach toward President Trump.  Again, listen to the briefing by Secretary Pompeo – Panda China is telling him they too want to see peace, Korean stability and denuclearization.  However, Dragon China is using the panda mask, and simultaneously leveraging Chairman Kim to aid their trade objectives.

Beijing has made a fatal mistake; they have exposed too much dragon face and did not expect President Trump to call them out on it publicly.

Secretary Ross now heads to China with •Steel and Aluminum tariffs; •auto-sector 232 evaluations; •intellectual property penalties; •over $150 billion in additional trade sanctions/tariffs pending; •and financial sanctions against Chinese banks as economic arrows in his dragon slaying quiver.

Don’t doubt for a minute that based on Chairman Xi’s maneuver with Chairman Kim, Wolverine Ross is not about to fire one -or several- of those arrows directly into the heart of Beijing.

Chairman Xi made a strategic mistake.  Xi genuinely has no idea the level of hurt President Trump is looking for an excuse to deliver.  Things are fixing to get ‘Old-School’.

Hope so. Our way of life is better than anyone’s with the economic benefits only the start of it.