Is Education A Waste?

…Mostly.

Take this excerpt from the book Human Action by Ludwig von Mises:

“In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained…. No special education is required for such a display of keen judgement, foresight, and energy. The most unsuccessful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal to their social functions of adjusting production to the most urgent demand. Because of these merits the consumers chose them for business leadership.”

Think of all the successful businessmen in the United States. We often laugh at the stories of famous billionaires who do not have a college degree. Bill Gates, Henry Ford, and John D. Rockefeller to name a few. So then why is it that, as a society, we continue to send children to school after school after school if the true success stories are born from those who have no formal education?

Well, the debate would be that the above men are just outliers. But the truth is they are not. Take for example, my mother and father, they never achieved anything past a high school diploma and now they are more successful than many of their peers with college degrees.

The truth is that the only place you can spend your money, in the United States, tax-free is on education. At the same time, millions of dollars in aid, loans, and scholarships are also being pumped into the system. And for what? So that the future entrepreneurs can be droned into mid-management?

The only advantage that an education can gain you after high school is getting you into an area of profession where the degree is mandatory. No degree is mandatory in most start-up businesses, so I would urge those to reconsider. Careers with some of the most unlikely places like fast food or retail sales can actually lead to very fruitful careers. Imagine putting in 4-5 years in with one of those companies versus a university that you are paying. Something tells me that in those 4-5 years you will be making more than you would with a general liberal arts degree.

And one thing to keep in mind as you roam the halls with the thousands of others who just like you are searching in a university for your career that just like with the housing bubble the government will continuing to subsidize education until the values hit rock bottom…

Timmy Wonka and the Chocolate Factory

Written by Justin Williams from NetRightNation.com

The Federal Reserve Board, at the behest of Treasury Secretary Tim Geithner, has now decided to initiate a new program that will lend up to $1 trillion dollars for anything from student loans to small business bailouts. And his began the ultimate blurring of the lines between a commercial bank and the role of the Federal Reserve.

It is all to be done under a new program known as the Term Asset-backed Securities Loan Facility, or TALF, created in October of last year. Significantly, TALF was set up not by Congress—which is, of course, answerable to those whose tax dollars it spends. It was created by the Fed itself, which is answerable to …well, itself. Commercial banks, which traditionally made TALF like loans, are defined as financial intermediaries. The Federal Reserve is supposed to be the lender of last resort. This means that the job of commercial banks (i.e. Bank of American, Wells Fargo, and BB&T) is to match those who are willing to save their money with those who are looking for a loan.

The Federal Reserve, on the other hand, is supposed to protect the fractional reserve banking system by supplying cash when banks get in trouble and people try to withdrawal all their assets at once. Now with Geithner’s new TALF plan, the Federal Reserve is in direct competition with these commercial banks. In short, in yet another major step in fulfilling the administration’s socialist agenda, the government is now preparing to use its fiat money printing press to compete with individual’s savings at private banks.

And there is no doubt that the Fed, having a monopoly on the printing press, will be able to destroy any attempt by the banks to fight back. For example, if Bank of America loans out money and the loan defaults, they lose money and learn that they should make their lending practices stricter. This is how the financial free market is supposed to work. If the Federal Reserve loans out money and the loan defaults, all they have to do is print money to make up for the loss. Commercial banks cannot print money they must raise their money from depositors, which is any person who holds a savings account or a CD.

Already with the constant pressure from the Fed to push down current rates of interest, today’s savings accounts lack any significant real rate of return. After the Federal Reserve gets done destroying the competition, the commercial bank’s real (minus inflation) interest rates will be nonexistent. In other words, there will be no real incentive for Americans to keep their money in a savings account. But not to worry: the Fed has even more tricks up its sleeves. As it prints more money to make more loans, the nominal (before accounting for inflation) interest rate will naturally rise with inflation.

Then as in the 1970s, the nominal interest rate gives people the illusion that they are making more money in their savings account, which is actually being devalued by inflation. This, of course, is a double whammy—because what actually matters is the real interest rate. This is the true amount of wealth an individual is accumulating. For example, if John Taxpayer puts $100 dollars in his savings account then he would be very happy if he receives a 7 per cent rate of interest (2008 average rate was less than 1 percent). Both this means that every year the bank will pay him $7 dollars on that initial $100 dollars.

If the inflation rate is at 6 percent, which was the average in the 1970s, then John is actually only making $1 dollar a year making the real rate of interest only 1 percent. Though government hopes, John just won’t notice Secretary Geithner and the Federal Reserve both believe that they can delude the American people, by creating another unsustainable bubble by printing money and competing with (while destroying) American savings. It’s a bubble that will be much bigger than the last.

And, it’s not only a bubble we cannot afford; it’s one we cannot survive. Unfortunately, unless the fiscal conservatives in Congress step in, the only thing that the American people can do is watch as their currency disintegrates. Or as Austrian Economist Ludwig von Mises said, “Money, like chocolate in a hot oven, [will be] melting in the pockets of people.”

But unlike chocolate the American people will be left with anything but a sweet taste in their mouths – or for that matter, sound money in their devalued bank accounts!

Justin Williams is a Contributing Editor of ALG News Bureau.

Deliberately Misplaced Blame by Sean Malone

The article of the day comes from Mises.org:

Let’s play a game. I have a not-so-famous quotation to share with you, and then you guess who said it:

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.

I’ll give you a hint; it was spoken by a sitting US president. Not quite enough? How about multiple-choice? Was the speaker

  1. Current president Barack Obama
  2. Overseer of the first-round, $700 billion bailout George W. Bush
  3. New Deal designer Franklin Delano Roosevelt
  4. “Hands-off” free-market supporter Herbert Hoover

Ponder that for a minute or two, and we’ll come back to the answer later on.

Geesh! Free-market, laissez-faire capitalism sure has been taking a beating in the press lately. The official story seems to be that everyone knows the financial crisis represents a failure of the capitalist system, and now only a “gigantic program of economic defense” will save us.

I suppose that would make plenty of sense, if only the details we’re being told day in and day out were actually true.

It’s rather amazing the lengths to which many of the people chronicling the economic crisis are willing to stretch the truth in order to ascribe blame to those they wish to be responsible, all the while ignoring those who actually are. One depressingly common tactic, seemingly en vogue at the moment, is to falsely claim that a person said or believed certain wrong-headed things in order to denigrate the person about whom one is making the claim. Examples abound, but the case du jour is Thom Hartmann’s traducement of laissez-faire’s “intellectual roots” in the Huffington Post:

The intellectual forefathers and mothers of the insane conservative economic policies that have brought us to where we are include Ludwig Von Mises, Friedrich Von Hayeck [sic], Milton Friedman, Alan Greenspan, Tom Freidman [sic], Robert Rubin, Larry Summers, and Ayn Rand.

Hartmann will likely get away with this slap-dash conflation of names, simply because the people he impugns are mostly dead and relatively unknown to the average reader. Hartmann isn’t alone either; it seems almost daily we read another set of distortions, myths, and outright lies trotted out by similarly minded writers.

The reality, quite unfortunately for Mr. Hartmann and friends, is that his claim is built on a wobbly foundation of misinformation. Why? (more…)

Book Review: Liberalism by Ludwig von Mises

Even though my semester hasn’t officially started and has been delayed by President-elect Obama’s events, I have completed the first book for a class called Constitutional Economics. This book is by the dean of the Austrian School of economic thought. It is a very short read of about 200 pages including the introduction, talking about the new dirty word in politics, “Liberalism.” It is not the type of liberalism that you think of when thinking of John Kerry. In fact, most of it is the complete opposite. Like most sensible people, unlike politics, Mises used the word in relation to its definition from the latin word “liber” meaning free.

Since there are many big ideas in this book that I will probably write future posts about, I will only give this a brief book review. The overarching main theme is that the Liberalist’s policies are those of a society build upon freedom and Capitalism. Capitalism has been the key to success bringing wealth to everyone, along with freedom. I think this is an important point that people overlook. Capitalism back in his time and still today is portrayed as only helping the rich. This makes no sense at all because none of the polices pursued by supporters of Capitalism support a certain class.

This leads to another great point Mises makes which is that when people talk and think of a monarchy, they always think of themselves as the king. In a oligarchy, they are always apart of the ruling class. In a socialist system, they are always the central planner. In Capitalism, they are always what? When someone talks about Capitalism, they never put themselves in any ruling class over someone else. This alone should make people skeptical of what these other people are coming up with as organization.

Capitalism is not complicated even though today people try to complicate it. It is simply, as Mises puts it,  private property as the means of production. This is completely opposite of communal property as the means of production or Socialism. This argument could go on and I am sure in his other literature, he continues these arguments. But it is without a doubt that this should be a required reading for all politicians and policymakers. Since very few of us are those, then this should be a good starting book into the literature of Capitalism. And I will end this with a great ending quote from the book:

” It [Liberalism] has no party flower and no party color, no party song and no party idols, no symbols and no slogans. It has the substance and the arguments. These must lead it to victory.”

Rating 10/10

~PCCapitalist

Why is Slavery bad?

This discussion was inspired by Ludwig Von Mises’ book called “Liberalism.” In the question above most people would answer that it is morally bad. That all men are created equal under god. This though is a religious argument and the original thought process would not be stopped by this argument. Not to mention that the slave owner could proclaim to be an atheist. The slave owner argument was always that the people would be worse off if they were sent out on their own. That with the slave owner they are assured a meal and a roof over their head.

Instead the economic argument against slavery is a simple one. Everyone will always work harder for themselves then they ever would for anyone else. It is elementary, those who receive benefits will do whatever it takes to continue to receive those benefits. This means that as a society and even as a individual farm, we are not achieving the maximum productivity that we could have.

In the pre-Civil War South, we find that there are many journals written by plantation owners who constantly complain that they cannot motivate slaves. It was even worse in Russia pre-Revolution, no one owned the slaves and they ran them into the ground. This was a classic example of the tragedy of the commons. The interesting question that has not been answered is why did slavery start in the first place, economically. We know that slave owners believe that they were superior and that the slaves would be worse off without them.

Slavery has been a practice for a long time and in order for the above thought process to work it must have been economically efficient at some time. The Economics of Slavery is more complicated then what can be dicussed in this one post. But the next time someone someone talks about slavery and why it is bad, you can sound educated.

~PCCapitalist

Published in: on January 12, 2009 at 5:56 pm  Comments (5)  
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The Question That Still Hasn’t Been Answered.

How are we going to pay for all of this bailout? The only answer we have been getting is that it will pay for itself. Some have said we could even make money out of this. This is not a sure thing so what is the plan if we don’t? Even if we do, how do we get the money to front this bailout before we make the money back? Someone could start a business tomorrow and make millions but they need the initial funds to start this business, this works the same way.What are the ways our government can raise funds to pay for this?

First, they can raise taxes. President Bush and the Republican candidate John McCain have both talked about keeping the tax cuts. McCain has talked about decreasing spending, but he would have to decrease it a lot to make it down to the level to pay for this bailout. The Democratic candidate Barack Obama has talked about increasing taxes for the highest bracket, but at the same time is talking about increasing spending. It is unsure if this will even balance out his own spending, let alone the bailout.

Second, they could borrow. We have borrowed a lot so far for the war and other types of deficit spending, so it is possible that this could work. The problem with this is that it is future taxes. At some point, Americans will have to pay this back and the more we borrow the higher the interest rate probably.

Third, they can print money. This may seem like the most attractive option to government bureaucrats but is probably the most scary for Americans. Inflation has been popular for years with the populist movement. It is an issue that has only died in the past 40-50 years in America. The idea was that the more inflation you had, the easier it was for people to pay off their debts. As a government bureaucrat and these people that are in troubled mortgages, this is very attractive. Not only have you found a way for this to get paid for but you are allowing loans to be easier to be paid back.

So why is this a huge problem for taxpayers? First, because it devalues everyone’s property. The more money that is in the economy, the less you can buy with the money you currently own. Prices and wages may go up but it is possible that this is not a helicopter effect. The helicopter effect is the idea that when money is printed it is given out pretty much evenly. Since they are doing this during a “credit crunch” then only those who have very good credit ratings will get it first. This is in fact a regressive tax. We are devaluing everyone’s property and giving the new money to the rich. Not to mention that there is a cost in dealing with money that is inflating. You can no longer hold as much money in your pocket and savings accounts will not even been able to keep up.

The way our “democracy” is suppose to work is that we vote in the people we believe holds our values. If they want to bailout these homeowners then they tax us. After all, we were the ones who wanted them in office in the first place. If there is a problem and we do not believe this bailout should have happened, we vote out those who supported it and install new leaders who will stop the bailout and lower our taxes. Instead, politicians have figured out how to borrow and inflate so therefore nothing costs too much. We are not feeling the direct effect and we are not going to vote them out.

I could guarantee that if Congress was only allowed to tax, instead of borrow or inflate, there would have been a lot more ‘No’ votes on the bill. They would know that this would significantly raise people’s taxes and it is an election year. This would end up being a big loss for many Senators and Congressmen. This is why many states have adopted Constitutional amendments that make it a requirement to balance the budget. States cannot print money, but they can tax.

Economist Ludwig Von Mises fought with this very same issue over 70 years ago and here is what he had to say:

“A socialistic or semi-socialistic government needs money to operate unprofitable enterprises, to subsidize the unemployed and to provide the people with cheap food supplies. Yet, it cannot raise the funds through taxes. It dares not tell the people the truth. The pro-statist, pro-socialist doctrine calling for government operation of the railroads would lose its popularity very quickly if a special tax were levied to cover the operating losses of the government railroads.”

So how should we pay for this? Maybe we should make the Congressmen and Senators who voted “Yes” to raise the taxes in their area to pay for this. This way they would only vote for bills in which were very popular in their districts. If you do not like your new taxes, then you should vote you representative out.

~PCCapitalist

Video on Mises Institute

I have been asked about a video I watched a while back. I am in kind of a rush but I think this is the one:

~PCCapitalist

Published in: on October 24, 2008 at 6:49 am  Leave a Comment  
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Has the Populist Party found Libertarianism?

Usually, Populists are considered to be completely opposite like pictured. It seems that the Populist Party of America is supporting the readings of Mises, Rothbard, and Ron Paul. This is in light of the recent bailout. Here are some from the post:

Last Monday the markets showed what they thought of the bail-out bill!  And the whole situation was created in the first place by allowing our government, in association with a cartel of private bankers (The Federal Reserve), to print money at their whim for almost a century. Now, of course, the situation is much worse, we have now given the government and bankers even more authority to print even more money out of thin air.

Here is an appropriate analogy;  There has been a massive and incredibly destructive campaign of arson all over the country.  Finally, after trillions of dollars of damage is done, they find the arsonist.  He is then tried and found guilty with irrefutable evidence.  It is then up to the people’s elected representatives to make a decision of what the punishment will be.  Next, the people let their representatives know emphatically what they think, and the people of course respond with common sense, and their responses are almost 95 to 1 in favor of stopping the arsonist from ever being able to repeat his crimes again.”

This may seem initially weird but in fact it isn’t. Libertarians and Populist both hate the central bank but for some different reasons. Libertarians hate the central bank because it inflation money without any control of any specie. Populist hate banks because they charge money for money. They want inflation.

The Populists were most strong during the William Jennings Bryan years and the silver movement. Most of them were farmers who took out loans and with deflationary pressures could not pay them back. See, inflation helps people who take out loans, while deflation helps banks and loaners. That is because inflation devalues the money that they had to pay in the future.

Of course, what doesn’t make any sense to me is why this populist is denouncing the Fed for printing money at a whim. This would help the loans. So have the Populist Party lost it’s roots, like the Republican Party?

The rest of this post is here, it includes very good links to free books and article to read.

~PCCapitalist


Explanation of the Austrian Business Cycle: Part 2

This was originally posted here by me.

As Dr. Peter Leeson has put it in a lecture that I attended the Austrian business cycle is often referred to as being the “Hang-over Theory.” This is where the withdrawal symptoms kick in and stage five begins with the short-term investments bidding back labor and capital from the previous long-term investment. Shortly thereafter, we see prices go up and interest rates rise to their true state. This is when the housing boom began to bust. This completes the Austrian business cycle with failures and layoffs. This is where the legislators have tried to come in and fiscally stimulate the economy with rebate checks totaling at $168 billion. This is as housing sales continue to fall due to the busting of the bubble that was created by artificially low interest rate. It has been reported that housing sales are down 20.1% in the past year[1]. Kevin Logan, who is a senior market economist at Dresdner Kleinworth said, “There is less incentive to purchase when prices are falling. With banks restructuring the availability of credit, it is more difficult to get a loan.” He makes a valuable observation that the banks are loaning less money out than they were but this is due to the adjustment in the interest rate. This is not because of some “restructuring.” As Mises states in “Human Action” that “The banks fare faced with an increase in demand for loans.” Mises continues to describe the problem within that “The banks believe that they have done all that is needed to stop “unsound” speculation when they lend on more onerous terms” and that they actually continually feed into the problem.

After all of this the constant need is to do it all over again. Most people see the boom as being the good part of this cycle when actually that is the bad part. The good part is when the mal-investments readjust correctly. Just this year the Fed is trying to halt the economy from going into a recession by doing just that. The Fed cut the rate to 3%, which was not more than a week after they cut the rates the first time[2]. Now the short-term interest rates have fallen to 2.25%, while inflation is running around 2%.[3] What the next bubble is can be a very hard thing to spot. The Federal Reserve should not continually mess with the market of loanable funds. This in itself is wishful thinking as Mises points out that terminology often betrays us in economics. In this case he says that the bad artificial interest rate is characterized as “good business, prosperity, and upswing.” While the readjustment period that is actually good for the economy in the long run is called “crisis, slump, bad business, and depression.” This is obviously the root cause of how people turned their backs on capitalism in the 1920s and 30s. It was easy to blame capitalism for the bust, when it actually was the Federal Reserve policies.


[1] “Times Online” http://business.timesonline.co.uk/tol/business/economics/article3888223.ece

[2] “Aggressive Activism; American interest rates. (The Fed cuts again).” The Economist (US) (Feb 2, 2008)

[3] See footnote 12.

Explanation of the Austrian Business Cycle: Part 1

This was originally published at NetRight Nation here.

Lately in the news, we have seen varying explanations of the credit crisis. Some people blame the lenders, some the consumers, some the government, and some all three. Congressman Ron Paul along with many economists have argued that it was the central bank that messed up the financial markets, which is usually called the “Austrian Business Cycle Theory.” First, you are probably wondering why it is called “Austrian.” This is because of the school of economics it is derived of. In Ludwig Von Mises’ Human Action, he explains this business cycle theory, which will shed light on the current situation. Even those who do not usually subscribe to the Austrian school of thought have mentioned Austrian-like explanations for the current situation. For example, famed author of “The End of Poverty,” Jeffery Sachs recently came out saying “To a large extent, the US crisis was actually made by the Fed, helped by the wishful thinking of the Bush administration.[1]” I agree with Sachs on the first part of his statement, however I do not think that even the Bush administration could “wishfully think” us into a recession.

Most people remember the housing boom that swept the nation and drove our economy. President Bush even ran in 2004 on the platform that more people now have owned their own home in American than ever. The first step of the Austrian business cycle is that the central bank, in this case the Federal Reserve (Fed), expands credit. They can do this by adjusting the reserve rate, the federal funds rate or making open-market operations. If we look back around June of 2001, we can see that the Fed lowered the federal funds rate to 3.75%, which was a .25 percent cut. The short-term interest rates at this time had fallen 2.75 points since the beginning of the year[2]. It was also being reported that consumer confidence was being raised and the housing sector continued to climb with these falling interest rates. New home sales at that time were up 8.8% from a year before that.[3] This then completes the second part of the Austrian business cycle, which is that firms, in this case the housing sector for the most part, borrows more for long-term project. This is because they believe that the lower interest rate is because of the consumers saving more money, which means long term spending preferences. The third stage of the Austrian business cycle is that capital and labor are bid away from short-term projects to move to these longer-term projects, as seen in stage two. One thing that was found to be interesting is during this move towards housing investments we saw car interest rates cut to zero and created a mini-boom in the car industry that was contributed to the growth of GDP at the beginning of the year 2002[4]. As I mentioned consumers’ confidence was on a continual rise and this completes the fourth stage of the Austrian business cycle, which is labor will spend money on current consumption and in turn will raise short-term profits. The housing market is continuing to rise with the low interest rates from 2001-2002. According to The Economist, the housing boom was and is bigger than the stock market bubble of the late 1990s and they believe it could be the biggest bubble in history.[5] Since 2001, over two-fifths off all the private sector jobs where in the housing industry[6]. This includes the construction, real estate and mortgage broking areas. It is also important to note that in other countries, they are feeling the effect of a failed housing market bubble. Japan has kept interests rates low while their housing prices fall constantly. Prices there have fallen for 14 years in a row and by 40% since the early 1990’s[7]. Germany has seen the same thing and both of these economies have been plague with lower consumer confidence. This is more proof that, in the reverse, consumer confidence will grow with a boom from an interest rate created boom in the economy. The next stage is when the pain begins.


[1] “Comment is Free” http://commentisfree.guardian.co.uk/jeffrey_sachs/2008/03/the_roots_of_crisis.html

[2]“Another shot from Dr Feelgood; Monetary policy; Greenspan cuts rates again” The Economist (US) (June 30,2001)

[3] See footnote 5.

[4] “Saying that America’s prospects for economic recovery have improved, the Fed left interest rates unchanged at 1.75%.” The Economist (US) (Feb 2,2002)

[5] “In come the waves – The global housing boom.” The Economist (US) (June 18,2005)

[6] See footnote 8.

[7] See footnote 8.

~PCCapitalist