The Circle Bastiat
A change machine at Surf City Suds Laundromat in Santa Cruz, Calif. Even laundry can teach the importance of choice. (Newscom)
Folded laundry and the beauty of economic choice
The professional laundry I use just informed me that their shirt-folding machine has broken, so they now must fold my shirts by hand. This of course means "an up-charge" - or so they say. How much? $0.35 per shirt.
So I have to pay a higher price as a consumer because the laundry can't maintain its equipment? To hear this manager talk, you would think that this was somehow built into the structure of the universe, a mandate from the Almighty that I must cough up. It's no one's fault but I have to pay the price.
Of course this is what the laundry wants me to believe, that the price for service is nothing other than a bundling up of their costs of doing business, and, therefore, if their costs rise, it is only just and right that I should pay more.
In reality, the only institution that can really so easily pass its higher costs onto the consumer is the government itself. And that's because they have all the guns and the law on their side.
For the rest of us, we have a choice. We can pay or go elsewhere. The price for laundry is not determined by the costs of doing business; rather, as the Austrians have taught, the costs any business is willing to bear over time is determined by the price that that the firm believes it can charge on the market.
Specific to this case, the laundry management believes that it can increase it prices - and their breaking of the folding machine is actually an irrelevant detail. If I had been willing to pay $2.35 per shirt all along, they should have already been charging me price.
Perhaps it is true that the management really believes that it is passing on its costs. Or perhaps the broken machine is the excuse they had been waiting for to test their theory that they can charge more.
It is certainly a speculation. Obviously at some point, it is worth it for me to do my laundry and fold my own shirts. It all depends on how I value my time.
It so happens, though, that one block away there is another laundry service without a broken folding machine. I don't know what they charge but what the price increase has actually done is inspire me to absorb the search costs of looking at other services in the area.
If I stay with the current provider, it is not because I'm willing to take a hit because their machine broke. It is because I still value a clean and folded shirt more than the $2.35 I have to pay to obtain that. It is really no more complicated than that - from the point of view of the consumer.
As I was leaving the laundry, I noticed that their house computer was booting up. It said Windows 98. I'm thinking that this place could end up cutting its costs over time with an overall upgrade.
In any case, the beauty of the market is that with or without an upgrade, I'm free to decline to take the hit for their management problems. Life would be very different if government would give us the same option of shopping for other services or perhaps even governing ourselves.
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US snowboarder Shaun White won a gold medal in the men's halfpipe competition at the Olympic Winter Games. (Darryl Dyck/The Canadian Press/AP)
Winter Olympics and the diminishing value of performance
Given a fixed amount of money and increasing productivity, the value of money rises relative to the value of other goods (all caveats apply). The consumer sees this valuation change through falling prices at the checkout line.
Interestingly, given a fixed amount of points and improving performances in Olympic events, the value of each point rises relative to the underlying set of skills (jumps, spins, etc.). The viewer sees this through falling points at each subsequent Olympics.
So, while Shaun White's recent halfpipe performance was valued at over 48 points, the exact same performance will be worth something less in four years.
It's a wonder that the Chicago School hasn't advocated some standard (say 5%) increase in available points per year in order to achieve Olympic point stability.
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Is former Fed Chairman Alan Greenspan (shown here in a 2007 photo) a libertarian? (Courtesy of Jeffrey MacMillan/U.S. News and World Report / Penguin Books)
Greenspan the libertarian
Some errors die hard. In today's CNN Money, an interview with economist David Rosenberg featured this distortion:
The crisis came about because of excessive leverage, a misunderstanding of credit quality as linked to securitized products, and a general lack of appreciation for risk. Thanks to years of deregulation, the government created a wild west and never established a strong sheriff. The head of the Fed was a libertarian who believed that all economic problems would always be solved in the private sector and that the private sector would always adequately price risk. The degree of supervision never matched the extent of the regulation.
A few observations:
Ron Paul, who is undeniably America's (if not the world's) most famous libertarian at the moment, has always opposed Greenspanism as a central threat to both liberty and economic prosperity. If both Paul and Greenspan are libertarians, then the word has no meaning.
Rosenberg blames the crash on a "lack of appreciation for risk" and "excessive leverage." Like all establishment economists, Rosenberg never bothers to ask why these two phenomena occurred. Could it have possibly been due to the Fed's repeated forcing down of interest rates that in turn led to mal-investment based on the wrong conclusion that savings and investment were plentiful? The common answer is just that it was greed, and for some magical reason, greed was worse all of a sudden in the middle of the last decade. Animal spirits will surely be blamed since animal spirits are the great deus ex machina of bad economics.
Rosenberg also states that Greenspan believed that "the private sector would always adequately price risk." Where was this fabled private sector? If by "private" he means the sector in which the government and its Fed set the interest rate, the money supply, reserve rates and lending standards, then the word "private" has no meaning either.
Update: Mr. Engelhardt raises a good point in the comments below. Rosenberg does seem to make a very weak attempt at providing a "why," although Rosenberg's explanation has almost nothing to do with his stated problems. He blames lack of regulation, yet, why should lack of regulation cause a private company to take on excessive leverage or to misunderstand credit quality or risk? The two aren't connected logically without invoking animal spirits since in an unregulated free economy, private owners are very much preoccupied with minimizing risk. No one cared about risk because of the Fed's policies and because everyone knew that the feds would bail out the GSEs. So sure, lack of regulation was a problem, but it was the governments and quasi-government agencies that needed to be reined in, not the "private" organizations.
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State and local governments going broke
The controller of Harrisburg, Pennsylvania's capital city, says "Bankruptcy is inevitable." Chapter 9 was put into the bankruptcy code in 1934 and gives municipalities protection from creditors while developing a plan to pay off debts.
"We can't raise taxes; they're already very high," Controller Miller says. "If we did, people would just leave. It's cheaper to move out to the suburbs."
The burden of paying union contracts prompted Vallejo, Calif., to file Chapter 9 in 2008 and the city has not yet emerged from bankruptcy.
In a related story, the WSJ reports that virtually all state retirement plans are underfunded.
While union membership has fallen in the private sector, many government employees work under union contracts. Combine that with the ability of union support to sway election results (and have union government employees serving in legislatures) at the state and local level and it's a recipe for fiscal disaster.
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The dangers of monetary reform
The current, Fed-driven, fiat-money system is on the verge of collapse. But however bad the current system is, a new system won't necessarily be better. The money cranks, too, have been unleashed. FULL ARTICLE by Kaj Grussner
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Government against capitalists
The governments of almost all countries are engaged in a campaign against the capitalists. They are intent upon expropriating them by means of taxation and monetary measures. FULL ARTICLE by Ludwig von Mises
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
The economics of Calvin and Calvinism
John Calvin's main contribution to the usury question was in having the courage to dump the prohibition altogether. He had only contempt for the Aristotelian argument that money is sterile. FULL ARTICLE by Murray N. Rothbard
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Antitrust Is Anti-Economics
The other day, a commenter chastised me for saying an "organization" didn't learn from its mistakes. Organizations, of course, can't make mistakes, only individuals. I completely agree. I was speaking in metaphor, but it's important to discourage the careless use of collectivist terminology when discussing economics.
And that brings me back to American Needle, Inc. v. National Football League, the antitrust case argued before the Supreme Court yesterday. The question is whether the NFL is a "single entity" or a collection of 32 separate, competing businesses for antitrust purposes. A single entity has greater freedom under the Sherman Act than "competing" entities.
The operative words are "for antitrust purposes." In the absence of antitrust statutes, nobody would care whether the NFL was one or thirty-two entities. But with antitrust statutes, this question suddenly becomes the "most important sports law case in U.S. history," to quote law professor Michael McCann.
Like all state-made law, antitrust emphasizes categorization. Antitrust practitioners spend hours upon hours labeling every economic actor and activity as a precursor to dividing them into "good" and "evil" piles. Joint ventures are good. Cartels are bad. Single entities are good. Multiple entities "colluding" are bad.
The NFL's dilemma is that it thwarts the simplistic labeling scheme of even the brightest antitrust lawyer. Teams compete on the field. They compete for the services of players, coaches, and administrators. But they also cooperate - er, "collude" - on matters like scheduling, revenue distribution, and playing rules. The NFL is both a a floor wax and a dessert topping.
So is the NFL a single entity or thirty-two separate entities? The answer is neither. Well, the economic answer is neither. The political answer is whatever five Supreme Court justice say it is. At the end of the day, antitrust is just another form of state-made law: The court is simply acting as an ad hoc legislature in deciding what arbitrary and capricious rule to apply for now.
Although there's a lot of economic-sounding rhetoric in antitrust cases, there's rarely any economic content. The NFL's brief states that "economic realities, not matters of form, dictate whether" the Sherman Act applies to the NFL. That's nonsense. This case is all about matters of form - political form - and the "economic realities" aren't, er, real.
The NFL claims that its individual clubs are not independent "sources of economic power." American Needle, the NFL Players Association, and dozens of antitrust academics claim they are. Murray Rothbard knew better:
The first truth to be discovered about human action is that it can be undertaken only be individual "actors." Only individuals have ends and can act to attain them. There are no such things as ends of or actions by "groups," "collectives," or "States," which do not take place as actions by various specific individuals. "Societies" or "groups" have no independent existence aside from the actions of their individual members. (Italics in original.)
The National Football League is a metaphor for a group project encompassing thousands of individuals who contribute specialized services. The NFL is a division of labor. That is the economic reality.
The political "reality" is trickier. Antitrust further complicates things. For example, the NFLPA - the union representing all NFL players - opposes any expanded "single entity" definition that reduces the NFL's antitrust exposure. This is hypocritical, because the NFLPA itself is considered a single entity for antitrust purposes. More to the point, the NFLPA has monopoly power to exclude any competing union, and it can compel any present or future player to abide by its state-sanctioned authority.
How do antitrust statutes rationalize the inconsistent treatment of the NFL and the NFLPA? It's simple. Antitrust only applies to commodities and acts of commerce. The antitrust statutes clearly state, "The labor of a human being is not a commodity or article of commerce." So by definition, state-sanctioned labor unions can never violate antitrust rules.
But the NFLPA enjoys an additional layer of privilege not afforded most other unions. As long as the NFL is defined as thirty-two separate entities, if and when labor negotiations break down, the NFLPA can "decertify" itself as a union and file an antitrust lawsuit against the NFL for "restraint of trade." This is what happened after the 1987 NFLPA strike. It's why the NFL is eager for the Supreme Court to define the league as a single entity - it removes the antitrust weapon of mass destruction from the NFLPA's arsenal.
This is what the state has wrought. Two groups of individuals with related economic interests - the NFL can't exist without the players, and vice versa - are forced to take up political arms in order to satisfy the whims of an irrational antitrust regime. It's great for the law professors who will spend years deciphering whatever half-hearted "ruling" the Court issues in this case, but it does nothing for the NFL's owners, managers, players, or customers.
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Local businesses creating local currencies
The USA Today reports that a "small but growing number of cash-strapped communities are printing their own money."
The oracle for the nation's news insists that the printing up of local currencies "help consumers make ends meet and support struggling local businesses."
But, one of the people commenting on the article makes the point: "But the long and short of it is that it doesn't cost the business or the customer anything more - likewise it doesn't save them anything if they use the Chamber Bucks."
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Guest Bloggers are not employed or directed by The Christian Science Monitor and the views expressed are the blogger's own. Submissions are neither edited nor reviewed before they appear on CSMonitor.com. If you have any comments about a blogger, please contact us. To comment on this post, please go to the blogger's site by clicking on the link above.
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