The Austrian Economists

Shughart Review of After War

You can access Bill Shughart's review of After War here.  The review will appear in Public Choice.

Springer is currently offering free online access to Public Choice articles and reviews so be sure to take advantage of it while you can.

In Wal-Mart We Trust

Co-blogger Steve's research on the role of Wal-Mart in the post-Katrina period has been the subject of several media articles and interviews.  Here is an excerpt from the most recent article in the National Post regarding the actions of Wal-Mart:

This benevolent improvisation contradicts everything we have been taught about Wal-Mart by labour unions and the "small-is-beautiful" left. We are told that the company thinks of its store management as a collection of cheap, brainwash-able replacement parts; that its homogenizing culture makes it incapable of serving local communities; that a sparrow cannot fall in Wal-Mart parking lot without orders from Arkansas; that the chain puts profits over people. The actual view of the company, verifiable from its disaster-response procedures, is that you can't make profits without people living in healthy communities. And it's not alone: As Horwitz points out, other big-box companies such as Home Depot and Lowe's set aside the short-term balance sheet when Katrina hit and acted to save homes and lives, handing out millions of dollars' worth of inventory for free.

And from the conclusion of the article:

Aside from the public vs. private issue, Horwitz suggests, decentralized disaster relief is likely to be more timely and appropriate than the centralized kind, which explains why the U.S. Coast Guard performed so much better during the disaster than FEMA. The Coast Guard, like all marine forces, necessarily leaves a great deal of authority in the hands of individual commanders, and like Wal-Mart, it benefited during and after the hurricane from having plenty of personnel who were familiar with the Gulf Coast geography and economy.

Be sure to read the entire study and please join me in congratulating Steve in his success.

Into the Belly of the Beast

I was on Federal News Radio 1050am in Washington DC this morning talking about Wal-Mart and Katrina.  You can hear the 8 minute audio here.  I'm being interviewed later today by Homeland Security Today magazine.

I just hope there's no natural disaster up here that requires the attention of FEMA.  You can bet I'll be last on their list to help!

Protecting Asset Values in Times of Trouble

Can the value of assets be protected in times of economic trouble? In the free market system, asset values are under the consumers’ diktat. In this environment, one can only succeed at maintaining or growing asset value if one serves consumers better—asset values are never secure. In Western countries (let alone elsewhere), the state often adds uncertainty to that which exists in markets. The current situation is perhaps a good example of state-generated uncertainty. An important question is what to do to protect one’s own assets from (state-generated) inflation and economic turmoil?

What to do will depend on (a) how severe the meltdown is and (b) whether the rule of law and the institutions remain in place as the country goes through the crisis. Here are some ideas:

• Buy non-perishable commodities that hold value and can be stored and protected easily. Gold comes to mind immediately. Gold has been a good hedge against inflation in the last few decades.
• Buy and hold real property for a long time, plus diversify asset location. The Economist, which this week has an interesting article discussing the subject (p. 84), mentions buying a sheep farm in New Zealand. Other countries come to mind: Australia, Hong-Kong, Norway, Singapore, Sweden, Switzerland, and United Arab Emirates. There are others. Check the corruption index and the strength of the rule of law. Holding real property for a long time is a good way to go through the ups and downs of the market without losing money.
• Buy a basket of currencies from Central Banks with a solid (anti-inflation) reputation. Countries that have current account surpluses such as Japan (the Yen) and Switzerland (the Swiss Franc) are mentioned in the article. The New Zealand and Australian dollars could also be considered even though both countries have run current account deficits in the past decade because they are net borrowers and growing. The Euro should also be considered (as long as the Germans are in charge of it) as well as the British Pound. Another issue to consider is where to keep the money. Opening bank accounts in foreign countries is not terribly difficult these days and can be managed remotely easily via the Internet.
• Buy blue chip securities in the same countries you would buy land or currency from, and hold on to them for many years. As Jeremy Siegel has shown, stocks in the long run are a good hedge against inflation and many other economic woes. (And make sure your securities are in your name and not in “street name” so that if your brokerage firm goes bust, you are the true owner.)

Other suggestions? While it may be possible to protect oneself partially from a severe financial meltdown, ultimately, there isn’t much individuals can do to avoid losses when institutions break down.

Who Is Afraid of Ayn Rand?

Apparently several professors at schools such as Marshall University.  See the Chronicle of Higher Education piece here.

I have been teaching out of Ayn Rand's Atlas Shrugged since my graduate student days.  I usually contrast the book with other literary treatments of economic conditions. This semester the students are required to do a literary analysis of Atlas Shrugged and The Grapes of Wrath.  Next term the students in my Honors Course will be reading Defoe, Dickens and Rand.  And the literary assessment is to be grounded in economics.

Atlas Shrugged is a very sophisticated treatment of economic issues.  It is hard-hitting on both points of the moral foundations of capitalism and the logic of economic analysis. But the teacher need not be a preacher in using the book, he/she can use the book as a teaching tool.  Heck, I have used Nickel and Dimed as a teaching tool. That book is hard-hitting in its moral indictment, but unfortunately as unimformed on the basics of economic teaching as one could find.  It is actually a GREAT teaching tool for undergraduates because the book is so bad on economics, but so colorful on other aspects.

So here is my bottom line --- a set of empirical propositions about professors and protest on books.  Outsdie of the context of small liberal arts colleges (which I understand are different beasts) I would make the following observations subject to refutation:

(1) Professors that object to books being used in a class have not written a book of their own;

(2) Professors that voluntarily involve themselves with facutly governance and currciulum issues have not received an invitation to present their research at another university in the recent past;

(3) Any professor who spends their time worrying about the undue influence of books on students shouldn't be a professor because they don't understand what it means to really read and analyze a book.

Teaching is not preaching, it is trying to get students to think for themselves and critically engage the material.  Fast Food Nation, Nickle and Dimed, No Logo, Shock Doctrine, Downsize This, etc. have all been picked as freshman required reading by colleges across the US.  If an economist who had to teach from those books reacted the way the Marshall University "professors" are reacting, they would be rather poor economists and certainly abysmal professors.  A Marxist professor should embrace the challenge of taking Rand seriously and showing his/her students where Ms. Rand went logically wrong in her discussion of the consequences of on economic productivity of the new distribution rules at the 20th Century Motor Company, just as the middle-of-the-road liberal professor ought to cherish the opportunity to demonstrate the leaps in logic that Ms. Rand supposedly takes when analyzing the dynamics of interventionism she explains as the economy is wrecked by 1 regulation after another in her story.  To run away from this challenge is to admit intellectual defeat.

So who is afraid of Ayn Rand?  Only those who don't have the intellectual skill or gumption to meet the challenge of her claims on their world view.  And if that is the case, we don't want them teaching our college students anyway.

Hope and Change

Barack Obama sounds like a populist.  In fact, his rhetoric often sounds like classic class warfare populism of a William Jennings Bryan where the poor masses are extolled while the rich are ridiculed.  But Obama's actually policy advisors are more mainstream academics, if still more or less left of center compared to the US population.

But the reality is that he runs on a populist program that says very little of substance, except that he represents hope and change.  But why can't he run on the more "reasonable" policies that his economic advisors are designing to address the economic problems he deems as vital for implementing a program of hope and change?  Is this because even a fairly left leaning but respectable economist is more 'right wing' from the point of view of the population than is popularly acceptable?  I guess the recognition of scarcity, the necessity of trade offs and the importance of incentives is just too much.

No Folk Songs FOR Capitalism, But There Is At Least ONE That is Anti-Communist!

I have wondered aloud why there are no folk songs for capitalism.  And no Steve, Rush doesn't count!  But I recently was listening to an X-M radio station show hosted by Bob Dylan (my favorite 'folk singer') and he talked about a song by Hank Williams entitled "No No Joe", which was a song directed at Joseph Stalin.

Here are the lyrics:

Now look her Joe quit acting smart
Stop being that old brazen sort
Don’t you go sellin’ this country short?
No, no, Joe

Just because you think you’ve found
The system that we know ain’t sound
Don’t you go throwin’ your weight around?
No, no Joe

Coz the Kaiser tried and Hitler tried it
Mussolini tried it too
Now they’re all sittin’ around a fire and did you know
They’re saving place for you

Now Joe you ought to get it clear
You can’t push folks around with fear
Coz we don’t scare easy over here
No, no Joe

 What makes you do the things you do?
You gettin’ folks mad at you
Don’t bite off more than you can chew?
No, no Joe

Coz you want a scrap that you can’t win
You don’t know what you’re getting in
Don’t you go around leading with your chin?
No, no Joe

Now you got tanks some fair size tanks
But you’re acting like a clown
Cause man we got Yanks don’t mess with Yanks
And you might get caught with your tanks down

Don’t go throwin’ out your chest
You’ll pop the buttons off you vest
You’re playing with a hornet’s nest
No, no Joe

You know you think you’re somebody we should dread
Just because you’re seeing red
You better get that foolishness out of your head
No, no Joe

And you might be itching for a fight
Quit braggin’ about how your bear can bite
Coz you’re sitting on a keg of dynamite
No, no Joe   

I love the line "Just because you think you've found the system that we know ain't sound".

The song has a somewhat fascinating history, as Hank Williams didn't record it under his name, but instead under the name "Luke the Drifter" for fear of a counter-reaction against it that would impact his popularity.  His more religious, moral and political songs were recorded under this name.  What does this tell us about the biases in popular culture circa 1950s?

You can hear the song here: http://www.lulu.tv/?p=14420. Click on "No, No Joe".

What are your nominees for the best anti-state song?

More Evidence for Wal-Mart's Nobel Prize

Because you can never blog about Wal-Mart enough... 

As you have probably seen on TV and elsewhere, in September 2006, Wal-Mart launched its $4 prescription program.  Now, 18 months later, it reports that it has saved consumers over $1 billion (yes, billion) as a result of that program.  That's $1 billion that poorer consumers have to spend elsewhere on the things they need (or that is reducing insurance costs and premiums), not to mention they can now buy prescriptions they might not have been able to afford before or not have to cut pills in half to save money.  Moreover, that program prompted Wal-Mart's competition to create similar programs, the benefits of which can be placed on top of that $1 billion.  For some strange reason, the major media didn't cover this story when Wal-Mart's press release went out last Friday.

Is Wal-Mart my favorite place to shop?  Nope.  But then for me, price isn't the key variable.  For many Americans it is.  And it continues to astound me how so many on the left, who claim to be so concerned about the plight of lower-income families (the "working poor" included) nonetheless have no hesitation in turning Wal-Mart into the Great Satan of the 21st century economy. (UPDATE:  Oh, say, like the Reverend Jeremiah Wright.)  It's all about intentions vs. consequences:  you don't have to "like" Wal-Mart to realize the ways in which it has both dramatically increased the productivity of the US economy (and contributed to higher wages in the process) and reduced the cost of food and other basics for the people who need it most.  Then you can tack on the over 1 million jobs it's created and the legions of folks in the Third World it has enabled to escape poverty. 

If Wal-Mart were a government program that created that many jobs, lifted that many out of poverty through higher wages, and gave poor folks back a billion dollars to spend while providing them needed prescriptions, you better believe the left would call it the greatest anti-poverty and healthcare program ever.   But when the suppliers profit from it, the consequences take a back seat to the intentions. 

And folks on the left have the chutzpah to say conservatives and libertarians are uncaring and blinded by their ideology?

(See my earlier post on Wal-Mart and the Nobel prize here.)

Public and Private Sector Disaster Relief Summarized

Following up on my post from yesterday about my study from the Mercatus Center showing how Wal-Mart and other private sector retailers were extremely effective in their response to Hurricane Katrina, much more so than FEMA and every government agency except the Coast Guard, I found a nice visual illustration of that difference. 

At the end of the day, private retailers have to serve the customer or go out of business.  Even in a disaster like Katrina, they are concerned with ensuring that their customers' needs are met and that they have a customer base to come back to.  As executives from the big box stores said, we can't let the community suffer or we also have no community to come back to as a source of business.  Associates and managers at Wal-Mart may be motivated by profit, but they are also part of the communities they serve and have the local knowledge needed to know how best to respond in a crisis. 

By contrast, government agencies like FEMA have neither the local knowledge nor the incentives to get the job done right.  They are not invested in the community in the same way and they do not face the same immediate and dramatic punishments that private sector firms do when they screw up.  In fact, government agencies often use their own failures as a rationale for more resources on the grounds that if they had larger budgets or more power, they could get the job done.  Those perverse incentives are on display vividly in the picture above, just as Wal-Mart's incentive to help is illustrated next to it.

Wal-Mart, the Coast Guard, and Hurricane Katrina

In my relentless attempts at self-promotion, I'm happy to announce that my policy study for the Mercatus Center on the role of the private sector (and the Coast Guard) during Hurricane Katrina, focusing on Wal-Mart, is now available on the web. This study is part of Mercatus' larger project on Katrina, all of which is well worth perusing. Here's the link and the executive summary:

"Making Hurricane Response More Effective: Lessons from the Private Sector and the Coast Guard During Katrina"

Many assume that the only viable option for emergency response and  recovery from a natural disaster is one that is centrally directed.  However, highlighted by the poor response from the federal government  and the comparatively effective response from private retailers and the  Coast Guard after Hurricane Katrina, this assumption seems to be  faulty. Big box retailers such as Wal-Mart were extraordinarily  successful in providing help to damaged communities in the days, weeks,  and months after the storm. This Policy Comment provides a framework  for understanding why private retailers and the Coast Guard mounted an  effective response in the Gulf Coast region. Using this framework  provides four clear policy recommendations:

1.Give the private  sector as much freedom as possible to provide resources for relief and  recovery efforts and ensure that its role is officially recognized as  part of disaster protocols.

2. Decentralize government relief to  local governments and non-governmental organizations and provide that  relief in the form of cash or broadly defined vouchers.

3. Move the Coast Guard and Federal Emergency Management Agency (FEMA) out of the Department of Homeland Security (DHS).

4. Reform "Good Samaritan" laws so that private-sector actors are clearly protected when they make good faith efforts to help.

If  disaster situations are to be better handled in the future, it is  important that institutions are in place so that actors have the  appropriate knowledge to act and incentives to behave in ways that  benefit others. The framework and recommendations provided in this  paper help to provide a good understanding of the appropriate  institutions.

Crossposted at Liberty and Power.