Rent Seeking during Wartime: A Smithian View of Military Action

This from the Wall Street Journal:

“Lockheed Martin Corp. spent nearly twice as much on lobbying during the first quarter of 2009 as it did during the previous three months as it aggressively campaigned to save key weapons programs ahead of a budget shakeup in April.

Lockheed — the Pentagon’s biggest contractor by sales — spent $6.41 million during the first quarter, up 97% from the prior quarter’s $3.26 million, according to company filings analyzed by the non-partisan Center for Responsive Politics”

Adam Smith believed that British Imperialism was bankrupting the country. He believed that most of the time the cost of the action was much higher than the benefit for the public. This is an area of research I have done a lot in. Scholars from Hobbes, Sumner, Cobden, and Schumpeter have all concluded at one time or another the companies that benefit from war either foreign or abroad will lobby the government for the exclusive contract. This is no different than domestic lobbying from teachers unions to Department of Education. The lobbying will allow the politicians who support more war actions to stay put in place. This is likely why the Democrats have not been as strong in their actions as they have been in their rhetoric.

Lockheed Martin gains a lot of money from military action. It is in their best interest to do so. This is not to put complete blame upon the Corporations. They would not have the power to do this if their wasn’t a politicial system willing to allow this. This is why many Republicans will not talk about this. They are too afraid of abanding their business and corporate roots.

War is very costly. If the political system was not set up in a way in which allowed the benefits to be concentrated while the costs were spread out, we wouldn’t have this problem. Corporations, at stand alone, do not go to war with each other. We never see Coca-cola buying mercenaries to fight Pepsi. This is because they then have to face both the costs and the benefits. As long as their is a politicial system like this, there will be a chance of rent seeking to benefit from war.

The rest of the article is here.


Published in: on May 14, 2009 at 12:33 pm  Leave a Comment  
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Smithian Market: Spreadtweet

For those of you who do not know, every so often when I come across a story which shows that the market works in interesting ways I put it on here. Today’s Smithian Market is a website called Spreadtweet, which is a program for your computer.

This from their website:

“So, you work at a big corporate, huh?
And you’re not allowed to use Twitter
Wouldn’t it be awesome if there were a Twitter tool
that looked just like Excel?

Welcome to Spreadtweet.

It’s Twitter, disguised as a spreadsheet.
Choose between Office OSX, Office 2003 (Windows), and Office 2007 (Windows).”

This is an entrepreneurial way to do hardly anything at work.

picture-1The link is here.


Published in: on April 20, 2009 at 12:58 pm  Leave a Comment  
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A Word on Today’s Tea Parties

Today many people around the country will get together for a unified cause. This cause was voiced on the Chicago Exchange floor by Rick Santelli. He said what everybody had been thinking at the time, that we are fed up with the spending of government and it needs to stop. We all realize that Obama is going to raise taxes, print money, and/or create debt. None of these are good, especially considering it is always in the interest of the politician to do the last two.

It is true that in early Constitutional America there were a few tax revolts for taxes that were much smaller than the ones we are complaining about today. It is true that Americans have gotten used to the way their government is. But it takes more than just getting mad once to change the way our government is run. We need to win the intellectual battle, so I challenge you to read people like Adam Smith, F.A. Hayek, Ludwig von Mises, and many others. This way we as a society can further the belief in liberty to our children and so on.

Let us not forget today and continue with this on tomorrow. Let us not delude ourselves to think that any politician will save our hard-earned money. Instead let us wake from our apathy and realize that our government is set up in a way in which politicians stay in power by spreading the costs and concentrating the benefits. This is why every district hates Congress but loves their Congressman or woman.

We have to remember where we have stepped into a world where not littering and being political correct has been placed higher than liberty. The Boston Tea Party was one where white males dressed up as Indians and threw tea into the water. Today none of you will even think about doing that because of the consequences. I am not saying do those things but I just want all the supports of these tea parties to realize exactly where we are today.

Today is important but always be thinking about tomorrow!


Reversing America’s Culture of Debt By Ken Blackwell

Today’s article of the day come from RealClearPolitics:

America was built on individual opportunity. This is the core of the economic conservative agenda. The family unit is the core building block of American society. This is the heart of the social conservative agenda.

There is a key overlap here that many conservatives–and even their leaders–overlook. Living within your means and managing your finances to avoid long-term debt is part of building strong families, providing for your children and teaching them to provide for themselves. I recently attended a lecture given by Charles Murray at the Annual Meeting of the American Enterprise Institute (AEI), in which he said that the only four human institutions characterized by deep personal satisfaction are family, community, vocation and faith. Mr. Murray argues that the goal of social policy is to ensure that these institutions are robust and vital.

Many people have heard of Adam Smith’s most famous book, The Wealth of Nations, which helped lay the foundation for free market systems and classical economics. Fewer people have heard of another of Adam Smith’s books, The Theory of Moral Sentiments. He argues that humans possess a moral sense that causes us to approve certain actions while condemning others. The grandfather of modern economics believed that a sense of morality was necessary for a society to flourish. Both economic and social conservatives need to grasp the common ground here. Strong families are essential to strong economies, and financial management is a key family value. Recently, America has been moving from a culture of ownership to a culture of debt. (more…)

Is this the top ten most influential economists of all time?

Opposing Views put this out. I thought I would see what everyone thought:

10) John Locke – A pioneer in discussing the accumulation of private property (within God’s laws) in the mid 1600’s.

9) David Ricardo – Major writer in the early 1800’s on free trade (specialization and comparative advantage) and the rise of capitalism.

8) Irving Fisher – An American monetarist in the first half of the twentieth century, wrote ‘The Debt-Deflation Theory of Great Depressions’ in 1933, also wrote ‘The Theory of Interest’.

7) Joseph Schumpeter – Austrian economist specializing in business cycle theory, wrote ‘Business Cycles’ in 1939.

6) Friedrich A. Hayek – Member of the modern Austrian school, along with Ludwig von Mises, defenders of democracy and free-markets against socialist thought in the mid-twentieth century. Best books: The Road to Serfdom (Hayek, 1944) and Human Action (Mises, 1949).

5) Alan Greenspan – A pioneer in macro-economic modeling and forecasting, also a pretty good FED Chairman for almost two decades.

4) Milton Friedman – Recently deceased, modern day monetarist. A staunch defender of free markets and limited government intervention, he will be missed.

3) Karl Marx – Father of socialist economics. Very influential from mid-1800’s to mid-1900’s, but losing steam today.

2) John M. Keynes – Father of Keynesian economics. He introduced modern macro-economics in both theory and policy to the world. Keynes died in 1946, but is still intensely debated today.

1) Adam Smith – Revolutionized economics by writing ‘The Wealth of Nations’ in 1776. He is still revered today as father of economics, political economist and moral philosopher. Smith taught that pursuit of individual self-interest acts as an invisible hand to contribute to the common good. My hero!”

Now, of course, talking influential this is probably a very good list. I would imagine that if this is ranked by most compared to least. If this is true, I would imagine Smith would be much lower. Keynes would probably be number one next to Marx. If it was true that Adam Smith was more influential and Milton Friedman was number four, you would imagine our world would be more classically liberal than it is now. I wish it was the case that the most influential was Smith, Hayek, Mises, and Friedman.

This is a good thought in mind, when we think about who to read. Everyone should probably read at least 5 of the above, whether they agree or disagree and explore those thoughts. Of course, beware Greenspan is very different then the stuff he wrote with Ayn Rand.


Adam Smith meet Invisible Hook

This is from Princeton University Press. It is Dr. Peter Leeson, who I had for Austrian Economics and will have for graduate school, talking about the current situation of pirating. His new book “The Invisible Hook” comes out soon and many, like myself, have pre-ordered it:

“Lately it seems that barely a week passes without headlines of Somali pirates’ latest depredations and yet another, bigger, and more daring pirate attack. In November one crew captured a Saudi supertanker, the Sirius Star, along with the 25 crewmembers and $100 million in crude it was carrying—a prize big enough to make Blackbeard blush. Last week the pirates ransomed their prize for $3 million, releasing the ship and crew.

Between January and October 2008, 63 pirate attacks were reported in the Gulf of Aden and off the coast of Somalia. Somali pirates hijacked 26 ships; fired on 21; and took nearly 540 sailors hostage. By contemporary standards, at least, these “pirate statistics” are remarkable.

But an equally impressive “pirate statistic” has gone virtually unnoticed: the number of seamen who survived their harrowing captivities by Somali sea dogs and lived to tell the tale. For example, all of the Sirius Star’s sailors were “in good health” when their pirate captors released them. And they’re not alone. According to data from the International Maritime Bureau, in stark contrast to the impressive number of assaults, only one sailor has lost his life at Somali pirate hands. This represents less than two-tenths of one percent of crewmembers taken hostage by Somali pirates between January and October and an even smaller percentage of the total number of sailors these pirates have attempted to capture.”

This shows that economics can be both fun and intellectually stimulating. Dr. Leeson takes something that most kids are in love with and applies economics to it. Every man is always using economic calculation to better themselves. In this case it is the Somalian pirates, so enjoy.

His book, as I understand, will actually focus on the golden age of pirating most people think about before recent events. He is going to take about the structure of how pirates organized themselves without government to ensure that they are not abused and still be able to have the Captain give orders, somewhat like a Constitution.

The rest is here.


Published in: on January 23, 2009 at 1:04 pm  Leave a Comment  
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The Economics of Children and Darwinism

This discussion comes from reading a passage in The Wealth of Nations by Adam Smith. Smith talks about how there can only be as many people as society can provide for. This made me think that since most children are made with purpose, that the parents are economizing. They figure out what there income and future incomes are along with their current assets and then decide whether to have the kids.

As the demand for labor goes up possibly due to less people so will wages. If the wages go up so does the income and assets of the parents. What doesn’t make sense is that people who are richer have less children. The probable explanation is that children are very useful for labor espeically back in Adam Smith’s time before child labor laws. They still are helpful today around the house and are helpful in the future when the parents retire. As you become richer you can hire other people to do housework and things like that instead of having children.

So what does this have to do with Darwinism? Darwinism is the survival of the fittest. Adam Smith mentions that poor women would have 20 children during his day but would only have 4 that would live past age four. This is because of poor living conditions. And now begs the question does the market intertwine with Darwinism? If society only allows children as much as it can provide for does that mean those it cannot die? I would imagine so. We could imagine this for any other animal and the supply of food.

Now we as humans have been able to reverse much of the survival of the fittest and we could imagine that many people today wouldn’t survive in nature without our advance brains. I am not sure about all of this but it is something important to talk about. Is there an invisble hand of life?


Published in: on January 7, 2009 at 6:45 pm  Leave a Comment  
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Wealth of Nations: Division of Labor

Even though it is not assigned in most undergraduate courses in Economics, all economists should read “The Wealth of Nations” by Adam Smith. This book is the formal foundation of Economics and every sentence is ingenious. You could spend hours thinking about one sentence in the Wealth of Nations and that is why instead of writing a book review on the whole book, which would do it no justice, I am going to discuss things I stumbled over or thought while reading it.

The first installation starts with division of labor. This is the single greatest invention man had ever invented. I believe it beats the wheel and fire by far. The division of labor allows someone who could maybe make one item of something a day, combine their labors with other to make many time what they could. The division of labor is what most people think of when they think of an assembly line. It also works in other ways as in a farmer can sell his corn to a distributor who then sells it to a grocery store. This is much cheaper and allows the farmer to produce more than for him to do all of those things on his own.

The interesting entrepreneurial aspect is that he believes that division of labor allows the worker to figure out how to innovate in their sector. This is because of the profit motive, which in this case is the worker trying to make as much money while doing the least possible. I know that I do this all the time when doing a boring job. It could be as simple as spacing papers that you are trying to stamp in a certain way so you do not have to keep flipping pages with every stamp. I am sure the possibilities get more complicated but I think you get the point.

There was one last interesting idea in the first section and it was when he was talking about how climate has to do with trade. I took that he also said that countries would be very tempted to nationalize these industries. This is true when it comes to places like Cuba and it has been one of the laws I adopted long before I knew that this was going to be in the book. From what I understand, he later deviates from the climate advantage and Ricardo focuses more on it.

Division of labor should not be something that is overlooked even as simple as it may seem. When people think of the human race and why it is so far advanced than dogs or any other animals, the answer lies within the division of labor. Mass production and the progression of society has all been contributed to division of labor. The reason why we today can worry about which iPod to buy and not whether we are going to catch the food we are going to eat tonight or starve is due to division of labor.

This is the first installment of many writing on the Wealth of Nations and Adam Smith. I will of course space these out and not overload my posts with just Smithian comments.


Published in: on December 29, 2008 at 3:52 pm  Comments (1)  
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Smithian Markets: Got Breast Milk?

Tyler Cowen often does the “Markets in Everything” segment and lately I have been finding some myself so I am going to start calling them  “Smithian Markets.” This is because a lot what Adam Smith showed was even with stuff in the way, like government people still found ways to get around them and exchange goods. Not to mention the invisible hand is taking these rare markets and allocating them interestingly and efficiently.

For those who have been overly distracted by the latest financial market bailout, there has been a milk crisis in China. Here is from the Times Online:

“The Health Ministry said the number of children ill after being fed milk powder tainted with the industrial chemical melamine had soared to 12,892 from a previous total of 6,244. Many of those have already been treated and have left hospital. More than 80 percent of the sick were toddlers under two.”

No one really knows why it happened, but it has. All I can say is that this is a communist country with heavy regulations. The market that has been created is the selling of breast milk.

This information is from the Wall Street Journal.They are called Nai Ma or “wet nurse.” This is when a woman feeds her own breast milk to someone else’s child. Tina Huang, who produces more milk than her baby needs, says “It’s a pity that I waste my breast milk when I see on TV so many kids with no milk to drink because of the contaminated powder.”

Her old job paid just $146 dollars a month and she earns 12 times that now. There has also been a social back lash because people are treating it as prostitution. Since most people are poor that sell their milk, this is looked down upon. Some people even consider it exploitation but if you ask me I’ll be exploited for 12 times my current wage.


Published in: on September 29, 2008 at 5:48 pm  Leave a Comment  
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Ben Franklin on Economics and Currency

Ben Franklin was one of the great founding fathers of our country. He is seen on he 100 dollar bill and has invented many things we use still today. Ben Franklin actually wrote about currency in 1729 right before Adam Smith’s “Wealth of Nations.” So it is interesting to see what Mr. Franklin had to contribute to Economics before Economics really existed. It is called “A Modest Enquiry into the Nature and Necessity of a Paper Currency.”

Here are some parts I found to be interesting:

“First, a great want of money in any trading country, occasions interest to be at a very high rate. And here is may be observed, that it is impossible by any laws to restrain men from giving and receiving exhorbitant interest, where money is suitably scarce: for he that wants money will find ways to give 10 per cent. When he cannot have it for less, altho’ the law forbigs to take more than 6 per cent.”

This is important and reminds me of a part of Ludwig Von Mises’ “Human Action,” which they both realize tht there is a natural rate of interest. This rate cannot be controled by government due to the fact that there is a fixed amount of money in the economy and there is a certain demand for the use of that money, hence why banks were invented.

“Upon the whole it may be observed, that it is the highest interst of a trading country in general to make money plentiful; and that it can be a disadvantage to none that have honest designs. It cannot hurt even the usurers, tho’ it should sink what they receive as interest; becase they will be proportionably more secure in what they lend; or they will have an opportunity of employing their money to greater advantage, to themselves as well as to the country.”

This is obviously touching on inflation and how Ben Franklin is trying to figure out of the world works around him. He does continue to try to figure out who is hurt and helped with the increasing amount of money.

There you have it from the man that help found this country…


Published in: on September 7, 2008 at 3:08 pm  Comments (3)  
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