Celebrating Human Action—Ludwig von Mises’s Masterpiece



B976September 14 marked the 65th anniversary of the publication of Ludwig von Mises’s masterpiece Human Action. I have been studying Mises’s classic text very carefully the past two years, as I’ve completed the manuscript for a forthcoming Independent Institute book, Cooperation and Enterprise: The Economics of Choice, that crystallizes the essence of Human Action for an undergraduate reader. Fresh off of this journey, I wanted to summarize two of the main themes in Human Action.

Let’s begin with the title itself, which I remember struck me as an odd choice for a book on economics. Yet Mises explains in the opening of his treatise that the narrow subject matter of technical economics is not a self-contained discipline. Instead, Mises argued that the subjectivist revolution ushered in by Carl Menger (as well as Léon Walras and William Stanley Jevons) required placing the study of market phenomena within the broader context of a study of purposeful human behavior, or what Mises simply called action. Here is how Mises explains this development in the social sciences:

[T]he transition from the classical theory of value to the subjective theory of value was much more than the substitution of a more satisfactory theory of market exchange for a less satisfactory one. The general theory of choice and preference goes far beyond the horizon which encompassed the scope of economic problems as circumscribed by the [classical] economists.... It is much more than merely a theory of the “economic side” of human endeavors.... It is the science of every kind of human action. Choosing determines all human decisions.... The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology. [Human Action, p.3]

For the present post, I can’t do justice to Mises’s strategy outlined in the quotation above. Instead, let me summarize one of the arguments I made in defense of Mises’s methodology in my 2013 debate with David Friedman: Most economists would consider themselves very strong proponents of “free trade,” but how did they arrive at this conviction? Was it because they made falsifiable predictions about GDP after a trade deal was signed, then ran regressions after the fact to see if the observed outcome was close enough?

Of course not. Rather, people turn into “free traders” by thinking through the logical consequences of thought experiments. In this respect, Bastiat’s famous satire “Petition of the Candlemakers” is worth a thousand regressions. Notice that my remark doesn’t indicate that economics is really “ideological and not scientific.” Rather, my remark indicates that when it comes to economics, the truly scientific approach differs from what works in the hard natural sciences, like physics or chemistry. Those who criticize Mises’s views as being unscientific, dogmatic, or anti-empirical are clinging to a crude notion of how “science” must operate.

The other theme I want to highlight is the importance Mises placed on economic calculation. Other economists of his day recognized that the use of resources carried opportunity costs, and that decisionmakers—whether entrepreneurs in a market or central planners in a socialist commonwealth—had to reckon with these costs when forming production plans.

Yet Mises described the institutional prerequisites for accurate cost accounting: namely, private property in the means of production, and the use of money. (For this reason, I use the term monetary calculation rather than the shorter term calculation that Mises and his followers often employ.) The mental operations of double-entry bookkeeping are only a useful guide to action when the numbers emerge from a genuine market process. This insight is the starting point for Mises’s pioneering work on the problems with socialism, the function of entrepreneurship, and the driving force of money.

Now in its 65th year, Ludwig von Mises’s classic, Human Action, remains as relevant and insightful as ever. All serious students of economics should read this admittedly lengthy volume for a fuller appreciation of the market economy.

Obama’s Latest Hostile Takeover Target: Private Career Colleges



ObamaClassroomThe Obama administration’s latest college crusade claims it will help students. In reality, it’s a hostile takeover attempt by government of the private for-profit career college sector that will hurt students, taxpayers, and the economy.

Education Secretary Arne Duncan acknowledges that the “majority of career colleges play a vital role in training our workforce to be globally competitive.” Yet he insists that students must be protected from debt he says is foisted on them by a relative handful of bad actors.

Rather than hold those select institutions accountable through existing laws, since 2010 Duncan has been attempting to use his department to gain control of the private for-profit career college sector, which is the fastest growing nationwide increasing from 200,000 students in the late 1980s to 2 million as of 2010 (pp. 2, 5, 7-8).

This isn’t the Obama administration’s first attempted takeover of higher education.

Thanks to an Obamacare provision the U.S. Department of Education took over direct lending to students. Duncan insisted that the feds would be more efficient and cost-effective than private lenders, but costs actually went up. In recent years the Obama administration has also pushed interest rate freezes on federal student loans, which have done nothing to make a college education more affordable.

The administration’s latest takeover scheme is attempting to impose onerous regulations on all private for-profit career colleges.

Back in 2010 the U.S. Department of Education unveiled a set of proposed “gainful employment” rules requiring private for-profit colleges to meet mandated loan repayment rates and debt-to-earnings levels before their students could qualify for federal student aid.

In 2011 the department unveiled the final gainful employment regulations, which deemed students’ employment “gainful” only if it was “in a recognized occupation.” The regulations further mandated that at least 35 percent of former career college students must be repaying their loans; the estimated annual loan payments cannot exceed 30 percent of their disposable income; or the estimated annual loan payments cannot exceed 12 percent of former students’ total earnings.

The regulations were supposed to go into effect on July 1, 2012, but they were struck down the day before by Federal Judge Rudolph Contreras for being “arbitrary and capricious.”

In 2013 the Obama administration revived its crusade against what Duncan called “predatory” career colleges with proposed mandates that are no less arbitrary or capricious than their predecessors. Under the new proposed regulations unveiled earlier this year, for students to qualify for federal aid for-profit career colleges must prove the estimated annual loan payments of graduates do not exceed 20 percent of their discretionary earnings, or 8 percent of their total earnings, and the default rate for former students does not exceed 30 percent.

Duncan justified the move saying that “of the for-profit gainful employment programs the Department could analyze and which could be affected by our action today, the majority—72 percent—produced graduates who on average earned less than high school dropouts. The Washington Post’s Fact Checker found that this claim didn’t come close to passing the Pinocchio Test:

Could attending a for-profit institution actually result in a three-out-of-four-chance of earning less than a high school dropout?...In straining for a striking factoid, the Education Department went too far.

Department of Education officials insist that 90 percent of career college students losing aid will find suitable alternatives, but independent research concludes the figure will be far lower.

Should the Obama administration succeed and gainful employment regulations take effect next year, more than 4 out of 10 students currently enrolled at private for-profit career colleges could lose access to federal financial aid. Over the next decade as many as 7.5 million students could lose access.

And who are these students?

Most of private career college students are older adults, more than half (51 percent) are low-income, and 80 percent of them are the first in their families to attend college (pp. 9 and 23). Moreover, close to half of all career college students (49 percent) are high-risk students, compared to less than 20 percent at public and not-for-profit institutions.

Compared to public institutions private for-profit career colleges enroll more women and minorities, not to mention more than one-quarter of military family members (28 percent).

These students seek out private for-profit career schools precisely because the public and non-profit sectors aren’t the right options for them, including not offering the desired degree programs or flexible schedules that help them balance family and career responsibilities. Forcing these students into schools and programs the feds (and their union allies) prefer won’t help them or taxpayers.

The net taxpayer cost of a private for-profit college student is $183 compared to more than $13,000 per public college student (2013 Fact Book, p. 40). If private for-profit options aren’t available, many of these students would have to transfer to public colleges at cost taxpayers nationwide an additional $1.7 billion annually. In the long-run gainful employment regulations could cost students and taxpayers even more.

As many as 23 million skilled and educated workers are needed over the next decade, and private for-profit career colleges specialize in offering degree programs in the highest-growth occupational fields (2013 Fact Book, pp. 37-39).

At a time when 90 million Americans are undereducated, 12 million are unemployed, and family incomes are down, a government takeover of education through gainful employment regulations is the last thing American students, taxpayers, or our economy needs.

 

Never Forget



Beacon...that 9/11 was successfully carried out because American government agencies with very large budgets, and with more than sufficient spying authority, ignored multiple reports that had been spoon-fed them by their own agents:

In a memo from the Phoenix FBI to headquarters, the agents recommended an urgent nationwide review of flight schools “for any information that supports Phoenix’s suspicions” of a terrorist connection. The memo reportedly cited Osama bin Laden by name.

...that the attacks of 9/11 were followed by an avalanche of lies from the U.S. government, foisted upon the American public in support of unleashing invasive, “pre-emptive” wars and fueling the greatest growth of U.S. government power in history. Increased federal spending by more than 50% under President Bush ranged from pure pork—a farm bill larded bigger and better and an 80% increase in spending on education—to spy agencies that capture and indefinitely store every detail of every American’s life (including every nude selfie or other salacious tidbit from your phone or email now providing amusement for the otherwise bored boys at the NSA).

...that the U.S. government has propped up brutal dictator after brutal dictator in the name of fighting an “even worse evil:” Do Americans have no memories, or study no history? Can we not remember Stalin, Vietnam, the Shah of Iran, Saddam Hussein, and others petty and great? Backed by millions and billions of dollars of U.S. spending providing arms and training that have subsequently fueled the power behind the Taliban, al-Qaida, and others.

If not history, what about current affairs: Col. Gadhafi, rehabilitated by George W. Bush and Condeleezza Rice as “a model” for others to follow, killed under the Obama administration, and succeeded, with “our” arms, by the Islamic State.

“The enemy of my enemy is my friend” is not a Judeo-Christian value. It is reportedly taken from the Arthashastra—something of a 4th century precursor to Machiavelli:

a book that frequently discloses to a king what calculating and sometimes brutal measures he must carry out to preserve the state and the common good.

The U.S. government has failed, and badly, its established role of either providing our own security, or that of peoples around the world. It is time to say, “Enough” and insist upon a restoration of our Founding principles.

We can then concentrate on serving as “the shining city on a hill,” providing inspiration to the masses yearning to be free globally.

As President Reagan put it:

“[N]o arsenal or no weapon in the arsenals of the world is so formidable as the will and moral courage of free men and women.”

The Soviet Union fell in a “velvet revolution,” as the Poles and other enslaved peoples threw off their captors through such will and courage, inspired especially by Pope John Paul II.

China began its continuing, long journey from brutal repression to liberty by the opening of trade with the U.S., not economic sanctions or the dropping of bombs.

Homegrown opposition in Nepal has turned back the murderous Maoists threatening its people.

In Tunisia, birthplace of the Arab Spring, a new Constitution:

As he was signing the new constitution, Tunisia’s President Moncef Marzouki observed that “With the birth of this text, we confirm our victory over dictatorship.” It was not about trading in a “better” dictator for a “worse” one.

These are the pockets of hope that individual Americans and its politicians ought to hold up, and encourage their emulation.

Meanwhile, we the American people need to hold our own governments accountable to us and quit permitting their reckless endangerment of our lives, liberty, prosperity, and the future of our country and our children.

Arming Syrian Rebels—Afghanistan Deja Vu?



mccain-syria-rebelsConcerns over the Islamic State of Iraq and Syria, or ISIS, have continued to grow. Last night, President Obama addressed the nation on the “ISIS threat.” He announced his intentions to provide further assistance to opposition groups. More specifically, he is asking Congress for $500 million to arm and train “moderate Syrian rebels.”

The idea of sending weapons to fight a regime or group deemed “unfriendly” to U.S. interests is not a new phenomenon. In fact, between 1970 and 1979, the U.S. arranged for more than $74 billion in weapons to be sent abroad. This number has only continued to climb. The logic behind sending weapons is straight forward. By selectively equipping groups friendly to U.S. interests, the U.S. government is able to “tip the scales” in a particular conflict. The U.S. can effectively defeat the opposition with fewer or no American troops on the ground. Moreover, once the conflict has come to an end, those in power (i.e. those who received military assistance from the U.S.) will look to maintain relations with the U.S. so as to obtain more benefits. In essence, by providing arms, the U.S. is able to end a conflict, position a “friendly” regime to take power, and ultimately influence international policy.

As appealing as this narrative sounds, in reality it’s not that simple. The scenario suggested by the President and others falls prey to linear thinking. That is, such plans assume that the U.S. government can 1. identify a problem, 2. construct a solution, and 3. implement it. This type of thinking maintains that an intervention only impacts those areas which the U.S. government intends.

What this type of thinking ignores is that it is impossible for these kinds of interventions to do only one thing. When acting in a complex system like Syria, there are innumerable moving parts, literally millions of actors, each responding to their own unique incentives. It is impossible to know at the start how interfering in one part of the system will impact other parts, either immediately or in the future.

Take, for example, the Soviet occupation of Afghanistan in 1979. In an effort to drive out the Soviet Union, the U.S. chose to arm a rebel group, the Mujahedeen. Reflecting upon the conflict in 1983, President Reagan stated that,

To watch the courageous Afghan freedom fighters [Mujahedeen]...is an inspiration to those who love freedom....The West has no designs upon Afghanistan....All we seek is the restoration of peace and freedom for a noble and brave people

Arming the group may have had the desired short-term effects. The Soviet Union ended its occupation in early 1980 and the U.S. military sent no troops to the region. But the consequences of the policy had long-reaching effects. The Mujahedeen were able to gain control of the country. But those “freedom fighters,” once lauded as heralds of liberty, formed the Taliban. Afghanistan became a safe haven for individuals like Osama bin Laden and others, who not only opposed the interests of the U.S. government, but directly impacted the freedom of Afghan citizens.

The situation in Syria is no different in principle. Syria’s regime is unfriendly to the U.S. The country is in the midst of an ongoing civil war with a death toll considered tragic on any margin. But the idea that the U.S. can arm rebels and keep weapons in “responsible and moderate” hands is unfounded in theory and practice. If the U.S. were to send weapons to Syria, there are no guarantees how such weapons would be used, who would ultimately possess them, or how such an arrangement would change conditions over time. If Afghanistan and other U.S. ventures into the Middle East are any indication, there is a very real possibility that weapons sent to protect U.S. interests today could be used to threaten them tomorrow.

The situation in Syria is undoubtedly a difficult one. Mounting international concerns have placed new pressures on the U.S. government to “do something.” But before advocating or undertaking any action in Syria, it is imperative to understand that such interventions have costs. Many of these costs are not visible and won’t materialize immediately. Pretending otherwise will yield disastrous results.

Are Students Afraid To Be Free?



FreeBirdClass is back in session for most colleges and universities across the country. Last year, I had the privilege of teaching college economics courses for the first time. We discussed many issues, from the economics of War on Drugs and the War on Terror, to the minimum wage, to why airlines offer discounts to grandmothers but not, businessmen. It was during one of these discussions, when analyzing a particularly nefarious but common policy, that one of my students raised his hand. His question was simple:

WHY DO PEOPLE STILL ADVOCATE THIS?!”

The question was a great one. It gave us an opportunity to discuss how the incentives faced by policymakers may mean economically detrimental policies persist. But the student’s question got me thinking. Every year on campus there are always students staging some kind of demonstration. Sometimes it’s as innocuous as signing people up for a social club or organizing a sporting event. Other times, it’s a direct assault on what a university campus should be, a place where students can be free to express and explore ideas, a place where students are exposed to different kinds of people and new ways of thinking.

This second kind of activity is happening all across the country. From establishing “free speech zones” on college campuses, to school officials seizing Hanukkah candles from a student’s dorm because of a supposed “fire hazard” (note students were allowed to smoke in the same dorm), there is a disturbing trend of limiting liberties on college campuses. What’s more worrisome is that it’s not just political actors who advocate such polices, but students.

The question to ask is why? When there is no clear incentive for a person to advocate a particular policy, how do we answer this question? In one of my favorite papers, the late Nobel Laureate James Buchanan argued that individuals will continue to advocate for policies that reduce prosperity, cripple civil liberties, and grow the size of government. The reason—people are afraid to be free. He states,

[T]he attitude here is akin to that of the child who seeks the cocoon-like protection of its parents, and who may enjoy its liberty, but only within the limits defined by the range of such protection. The mother or father will catch the child if it falls, will bandage its cuts.... Knowledge that these things will be done provides the child with a sense of order in its universe, with elements of predictability in uncertain aspects of the environment.

[…]

[T]he state—steps in and relieves the individual of his responsibility as an independently choosing and acting adult. In exchange, of course, the state reduces the liberty of the individual to act as he might choose.

In discussing many current policy issues, from unemployment benefits, to healthcare, to education, to public prayer, there are really two courses of action. One course allows people the liberty to choose for themselves, to do as they will and not impose their preferences on others. The other option relegates these decisions into the hands of supposedly benevolent bureaucratic actors. In some cases, removing responsibility from individuals may sound appealing. But it is important to remember that such a decision involves costs. In many cases, the cost may be our individual liberties.

In my courses I aim to challenge my students. I want them to question their prior assumptions so they can critically examine the world around them. I encourage them to recognize that there are a variety of obvious and hidden costs to any policy, what Bastiat referred to as “what is seen and what is not seen.” College students should be lots of things. They should be curious, and question, and explore. They should pursue new passions and discover what the world has to offer. But there are things students shouldn’t do. I try to convince them they shouldn’t put off their homework until an hour before it’s due. They shouldn’t allow someone else to chart their course. They shouldn’t let someone else make their decisions. They shouldn’t be afraid to be free.

Long-Term Unemployment Benefits Expire; Long-Term Unemployment Falls



11252843_SThe unemployment rate has fallen from 6.7% at the end of 2013 to 6.1% in August 2014. That decline is primarily the result of the expiration of long-term unemployment benefits.

Unemployment compensation usually expires at the end of 26 weeks of unemployment, but during the last recession Congress extended that period, and many states paid benefits for well over a year. If we pay people to be unemployed, we should expect more unemployment, and that’s what we got. The long-term unemployment rate skyrocketed during the recession because we paid people to be unemployed longer.

In August 2013, when people were eligible for extended unemployment benefits, people unemployed for 27 weeks or more made up 38% of total unemployment. In August 2014, after extended unemployment benefits had been eliminated, only 31.2% of the unemployed had been unemployed that long.

Looking at this table from the Bureau of Labor Statistics, we see that the number of people unemployed for less than five weeks has actually risen from August 2013 to August 2014, while the number unemployed 27 weeks or more has declined by more than 30%.

The decline in the unemployment rate isn’t due to fewer people who are newly-unemployed, it is due to the shorter duration of unemployment for those who are unemployed. And people have shorter durations of unemployment now because we are no longer paying them to be unemployed for longer periods.

Many government policies have prolonged the recovery from the 2008 recession, and one was the extension of unemployment benefits. In hindsight, it is easy to look at the data and see that once long-term unemployment benefits were eliminated, long-term unemployment fell, and because of the shorter duration of average unemployment, the unemployment rate has fallen.

New Study Links Patent Trolls to Decline in R&D Spending and Other Ills



patent_trolls_180x270A new paper (“Patent Trolls: Evidence from Targeted Firms”) written by researchers from Harvard University and the University of Texas offers more evidence of the harm that patent trolls cause to the American economy. The data show that (1) trolls target companies flush with cash, (2) seek targets likely to settle rather than litigate, and (3) that troll suits have a negative impact on the future innovative activity of targeted companies.

This is but further evidence that substantive reform of our broken patent litigation system should be a priority if Americans are serious about encouraging innovation.

Misplaced Outrage over the NCAA’s Decision to Reduce Sanctions on Penn State



NCAA CartelIn a USA Today column published on September 8, Nina Mandell is livid about the lessening of sanctions imposed on Penn State two years ago in connection with charges of child sexual abuse against assistant football coach Jerry Sandusky. Those sanctions, which included a $60 million fine, a reduction in football scholarships, and a four-year ban on post-season play, led to Sandusky’s resignation and subsequent conviction, the resignation of Penn State’s president, as well as to hounding and untimely death of “Joe Pa” (Joe Paterno), the Nittany Lions’ iconic head coach.

The NCAA should never have gotten involved in the Penn State affair in the first place. It is a rules’ enforcing institution, not a law enforcement body. The charges against Sandusky should have been handled as a criminal matter exclusively by Pennsylvania’s public prosecutors and Sandusky’s guilty plea should have ended the scandal. For what purpose was Penn State fined, football scholarships cut, and football players not involved in the actions of one assistant coach denied the privilege of participating in conference championships and post-season bowl games? By what authority did the NCAA intervene?

The late Gary Becker and other economists have called the NCAA America’s strongest cartel, sharply criticizing its policies limiting college athletes’ compensation to a “full-ride” scholarships, regulating recruiting practices and many other aspects of the college game under the laughable pretext of “preserving amateurism.” The rents generated by such regulations flow primarily to coaching staffs and to the central administrations of big-time college athletic programs, not to the athletes who are responsible for producing billions in revenue for athletic budgets nationwide from ticket sales and TV broadcasts.

In the Penn State matter, the cartel went far beyond its organizing principles and stated purposes, giving a new meaning to the term “bureaucratic mission creep.” The NCAA’s administrative staff has a hard enough time ferreting out rules violations. It is ill equipped for and therefore should not be in the business of enforcing criminal laws.

After $26 Billion Paid Out, Meaningful Use of Electronic Health Records Only 4 Percent of Target



EHR_stethoputerAt a September 3 meeting of the Obama administration’s Health IT Policy Committee, officials disclosed that only 3,154 eligible professionals (doctors, dentists, et cetera) had “attested” to so-called “meaningful use stage 2″ to get their bounties from the federal government for installing electronic health records. Only 143 hospitals had attested.

One healthcare leader, who was at the meeting, was disappointed:

“The numbers are very low, particularly for Stage 2 attestation. I mean they are like 4 percent of [providers] that should be currently going for Stage 2,” HITPC member and Intermountain Healthcare CIO Marc Probst commented during the meeting.

This new data reinforces the case made here in March: The billions of taxpayer dollars paid to doctors and hospitals to install electronic health records was wasted. The cost-benefit analysis of federal subsidies to this effort just doesn’t add up.

“Hunger” Games



Screen Shot 2014-09-08 at 10.46.10 AMAs with their measurement of “poverty,” federal officials not surprisingly similarly play creatively with their definition of “hunger”—that is, “food insecurity.”

As James Bovard explains in The Wall Street Journal, in releasing figures showing nearly 15% of the U.S. population as “food insecure,” the USDA has in fact polled Americans on their feeling that the “quality and variety” of available food isn’t what we’d prefer:

The USDA defines a “food insecure” household in the U.S. as one that is “uncertain of having, or unable to acquire, enough food to meet the needs of all their members because they had insufficient money or other resources for food” at times during the year. The USDA notes: “For most food-insecure households, the inadequacies were in the form of reduced quality and variety rather than insufficient quantity.”

Unfortunately, the media doesn’t appreciate this distinction, and when they report on the USDA’s findings, they have a tendency to substitute the word “hunger” for “food insecurity,” resulting in scare headlines such as the Washington Post’s:

Hunger a growing problem in America, USDA reports

and, from the New York Times:

Hunger in U.S. at a 14-Year High

President Obama is similarly in the dark about the distinction, announcing in 2009 that “hunger rose significantly last year” and promising to reverse “the trend of rising hunger.”

The President and others in political power, of course, have good reason to play fast and loose with how they label such statistics, since, as Robert Higgs has brilliantly documented, crises make for great job security, resulting in increasing budgets and more power.

Lies, damn lies, and statistics, indeed.

There are of course many people in need in this country and others, and a multitude of selfless non-profits and others working diligently to help move those in need from dependency to self-sufficiency whenever possible. Unfortunately, government programs are not among these efforts:

A 2013 Harvard School of Public Health study also found that enrolling in the food-stamp program failed to significantly boost participants’ food security or dietary quality.

No government employee, bureaucrat, or politician has the least incentive to reduce dependency, and in fact is rewarded for producing the opposite results that they are achieving.

If any of our do-gooders in the public sector wanted to actually reverse food insecurity trends, there are any number of simple immediate solutions: end marketing orders that make food less abundant and more expensive, remove fuel taxes that drive up transportation costs—the single highest component of food’s cost, end any of the thousands of regulations that impede sellers from entering the marketplace, end the war on drugs that has made inner cities war zones and driven food retailers out. Or, to best achieve food security: abolish the USDA.

And if Mrs. Obama really wants to end childhood obesity, she would do well to quote the USDA’s own survey in lobbying her husband to end the food stamp program:

The most recent survey (2009-10) revealed that children ages 2 to 11 in households with less than $25,000 in annual income consume significantly more calories than children in households with incomes above $75,000.

Such households need home ec, not food stamps.