Friday, February 28, 2014

Hayek on Keynes

Via Bob Roddis:

In 1977, Hayek explained to Bill Buckley that Keynes' "General Theory" was an ad hocpolicy designed to reduce wage rates that were artificially too high as the result of prior government intervention regarding the value of the British pound and non-market privileges granted to labor unions:

Mr. Buckley:  Well, how would you account for the almost unanimous opinion of liberal Democrats that in order to reduce unemployment it is necessary for the government to pursue vast spending projects?  Since you speak of this as being almost manifestly ill-advised, the question arises why such superstitions should survive?

Mr. Hayek:  Well, it’s almost entirely the work of one man – in a way a genius, Lord Keynes – who is much more concerned about influencing current policies than about advancing the right sort of theories and he was operating then in a very peculiar situation.  Now in Great Britain, a successful attempt was made after World War I – which brought a good deal of inflation – to bring prices down to the pre-war level.  Prices came down but wages did not, so you had in the 1920s a position in Great Britain where wages were internationally too high and Britain had become noncompetitive on the world market.  The problem in Great Britain was to make Britain competitive again and it was clear that this required a reduction of real wages.  Notice these real wages had been artificially increased by increasing the value of the pound.  So because the pound was par to its former level, people receiving the same wartime salary and wages, or inflated wages, could buy much more.  Wages had not come down. 

Now, his first argument was wages must come down.  Then he found that was politically impossible, so he must find another way.  Instead of getting money wages down, we must depreciate the pound so that given money wages should correspond to a lower level of real wages and then by a curious intellectual somersault I would almost say he led himself to believe that even bringing down money wages was not of any use.  It involves a complex economic argument and all he concluded was that – well, we must inflate, in short. 

Now notice several things.  Keynes was a genius, but a genius who spent only a fraction of his time on economics – one of the busiest men I ever knew.  But he knew very little economics except particularly the Cambridge tradition, and he was much more concerned to influence policy at a particular moment than develop a true theory.  In fact, the last time I talked to him was after the war.  I knew him very well.  When I asked him wasn’t he getting alarmed about what his pupils who swallowed all this theory were doing after the war when the danger was clearly inflation, his answer was:

“Oh, don’t mind.  My theory was frightfully important in the 1930s.  Then, we needed an expansion to correct a situation.  Do trust me.  If this theory becomes dangerous, I’m going to turn public opinion around like this”. 

Six month later, he was dead.  And as usual, what happened is that the very doctrine – pupils of this man did apply to completely different situation a theory which was designed to influence policy in a particular situation.  The only thing I blamed Keynes for is to making his theory more attractive and effectivehe called it THE general theory.  In fact, he knew precisely that it was not a general theory, but it was an argument to persuade government in the 1930s to do particular things.

Mr. Buckley:  It was an ad hoc.......?

Mr. Hayek:  It was entirely ad hoc.  He was one of the most fascinating men I knew, but the personal magnetism of this man not only persuaded the younger generation of economists.  And if I had been a much younger man and a student, I probably would have been swept off my feet as were most of the people.

A Theory on the Hillary Is Sick Stories

Jay Stephenson emails:

I secretly think all these stories about Hillary being too old or in
bad health are probably coming from the Clintons.  It deflects from
other stories portraying her as a sociopathic thug and creates
sympathy with low information voters.

Whispers persist that Hillary won't run: Health may be worse than disclosed

Walter Block Responds to the Economic Policy Institute Support of the Minimum Wage

Employment Policies Institute
1090 Vermont Ave. NW, Suite 800
Washington, D.C. 20005
Tel: 202.463.7650

Dear Folks:

Congratulations on that splendid full page NYTimes ad (2/27/14, p. A9) featuring quotes from those signatories favoring the minimum wage law. Really magnificent.

I have a very slight constructive criticism. Next time you run that add, give a more full cite to this splendid article of theirs:
Neumark, David and William Wascher. 2007. "Minimum wages and employment.” Foundations and trends in macroeconomics. Vol. 3, No. 1-2, pp. 1-182;
Why make readers struggle? Make it easier for them to access this great survey.

I also have a substantive suggestion for a follow up ad. Several of the very prominent signatories of that support for min wages (I think Krugman and Stiglitz, maybe a few others) have also published textbooks on intro econ. There, they give the usual analysis: minimum wages create unemployment for unskilled workers. Period. 1. It would be good to quote from their texts, and juxtapose that with the fact that they signed the letter favoring the min wage. Do these people SUPPORT unemployment for unskilled workers? 2. Sometimes, they have been interviewed on this blatant contradiction of theirs. It is hilarious to watch them squirm in trying to reconcile the irrenconcileable. Do a bit of research to unearth these cases where they are caught with their (intellectual) pants down around their ankles.

I have also written quite a bit attacking the min wage law, see below. My most recent attempt (2014) I think is my best one.

This one: Block, Walter E. 2014. “The Minimum Wage Law.” January 17;

Perhaps you can make some use of it. It approaches the problem more via logic than Neumark and Wascher, who rely more on empirical studies, but it might be of some help to you.

Oh, permit me one more “criticism” of you: you don’t have any place on your website where people can contribute money to you. What’s the matter with you people? Don’t you need money? If you have too much, please send me some (J).

My publications on the min wage:

Badavas and Block, 1997; Block, 1983, 1985, 1986A, 1986B, 1986C, 1987, 1996, 2000, 2001, 2002, 2004, 2014; Block and Barnett II, 2002; Block and Blundell, 2006; Block, Dauterive and Levendis. 2007; Block and Quigley, 2002; Cappelli and Block, 2012; Greene, Henry, Nathanson and Block, 2007; McCormick and Block, 2000; Schuldt, Woodall and Block, 2012; Sohr and Block, 1997. 

Block, Walter E. 1983. “Why minimum-wage law is often against low-pay worker?” in Sexty, Robert W., ed. Issues in Canadian Business, Scarborough, ON: Prentice-Hall, Canada, p. 139; reprinted from 10/25/80 “Why minimum-wage law is often against low-pay worker?” The Financial Post, p. 24;,%201980.rtf/C58EA28C-18C0-4a97-9AF2-036E93DDAFB3/FIN%20POST%20(Min%20Wage)%20OCT%2025,%201980.rtf?attach=1

Block, Walter E. 1986B. “La conspiration du silence sur le salaire minimum,” June, 26 ; Point de Vue, p. B4.

Block, Walter E. 1987. “Minimum Wage Law No Help to Unskilled,” Dateline Canada: Understanding Economics Through Press Reports, pp. 37.

Block, Walter E. 1996. "Labor Market Disputes: A Comment on Albert Rees' 'Fairness in Wage Distribution,'" Journal of Interdisciplinary Economics, Vol. 7, No. 3, pp. 217-230;

Block, Walter E. 2000.  “Heritage Stumbles on Minimum Wage,” The Free Market, October, Volume 18, Number 10;

Block, Walter E. 2001. “The Minimum Wage: A Reply to Card and Krueger,” Journal of The Tennessee Economics Association, Spring,

Block, Walter E. 2014. “The Minimum Wage Law.” January 17;

Block, Walter E. and William Barnett II. 2002. “The Living Wage: What’s Wrong,”Ideas on Liberty, December, Vol. 52, No. 12, pp.23-24;

Block, Walter vs Boyd Blundell. 2006. “Unions: Social Benefactors or Gangs of Thugs?” November 10;;

Block, Walter E., Jerry Dauterive and John Levendis. 2007. “Globalization and the Concept of Subsistence Wages.” Journal of Income Distribution. Vol. 16, No. 1, March; pp. 74-88;

Block, Walter and William Quigley. 2002. New Orleans, LA, Loyola University, Debate between Professors Walter Block, Economics, and William Quigley, Law School on “The Preferential Option for the Poor: Free Markets vs. Government Intervention and the minimum wage law,” May 7, sponsored by the Economics Club and the Loyola Poverty Law Center

Cappelli, Peter and Walter E. Block. 2012. “Debate over the minimum wage law.” Economics, Management, and Financial Markets7(4), December, pp. 11-33;

Greene, Zoe, Sally Henry, Coby Nathanson and Walter E. Block. 2007. "Negative Impacts of Minimum Wage and anti Sweatshop Legislation" Humanomics Vol. 23, No. 2, pp. 83-92;

McCormick, Paul and Walter E. Block. 2000. "The Minimum Wage: Does it Really Help Workers," Southern Connecticut State University Business Journal, Vol. 15, No. 2, Fall-Spring, pp. 77-80;;

Schuldt, Robert, Davis Woodall and Walter E. Block.  2012. “Drowning the Poor in Excessive Wages: The Problems of the Minimum Wage Law” Humanomics, Vol. 28, No. 4, pp.258 – 269;

Sohr, Kevin and Walter E. Block. 1997.  “Minimum Wage,” Freeman, Vol. 47, No. 11, November, pp. 681-682.

Best regards,


Walter E. Block, Ph.D.
Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics
Joseph A. Butt, S.J. College of Business                   
Loyola University New Orleans

Morning Joe: ”Rand Paul is singing my song! I love what he’s saying.”

Who the hell is running Rand Paul?

He is subtlety shifting the message from liberty to "inclusiveness."

This is very disturbing. I have said before that as we approach the 2016 presidential  primaries that Rand will get more interventionist in his views, but he is starting to sound like a leftwing nutjob. At a tea party event, yesterday, he said:
When we present our message, if we want a bigger crowd and we want to win politically, our message has to be a happy message, one of optimism, one of inclusiveness, one of growth. A message that actually brings up the people who are poor among us, brings up those who are longterm unemployed and finds them jobs. Our message is that, but we have to figure out a way to make sure everybody knows that that’s what we’re here for.
What about delivering the liberty message?

According to MSNBC,  “Morning Joe” co-host Joe Scaroborough said, ”Rand Paul is singing my song! I love what he’s saying."

Morning Joe's comment is an absolutely inedible comment for a  mainstream commentator to make. And it is about Rand's most absurd statement to date. This is bad, very bad.

Trouble In Paradise?...Fed's Fisher Blames Congress & The Voters

By, Chris Rossini

Is living off food stamps and disability "benefits" getting you down?

Well, you better get your filthy unemployed hands off that curtain, because there's nothing to see behind it. You and your so-called "representatives" need to get your acts together.

Dallas Fed President Richard Fisher unleashes quite a mouthful in a recent speech:
"If the fiscal and regulatory authorities that you elect and put into office to craft taxes, spending and regulations do not focus their efforts on providing incentives for businesses to expand job-creating capital investment rather than bicker with each other for partisan purposes, our economy will continue to fall short and the middle-income worker will continue being victimized, no matter how much money the Fed prints."
Hopefully the Internet is able to fossilize that statement for future generations. They need to see just how upside-down economic thinking can become. And, obviously, learn to never repeat these horrendous mistakes.

"Fiscal and regulatory authorities" are a nothing but a bane to business and job-creation, unless you're a politically-favored business. "Crafting taxes, spending and regulations" are all business killers. They do nothing but tilt the tables in the favor of some, at the expense of everyone else. "Electing" people to commit these legal crimes does nothing but give a veil of legitimacy to the whole thing.

Business needs to be freed from these shackles, the "incentives" exist in their absence!

I love how Fisher puts the counterfeiting Federal Reserve on a perch. It's as if this institution is trying its best to fix everyone's problems by destroying the value of the currency, but you and your elected boobs are messing everything up.

Bottom line? We don't need the elected "regulatory authorities". The free market is the ultimate regulator. It plays no favorites, bails out no one, and tilts the table in no one's direction. There is no tougher regulator than the free market.

We also don't need the non-elected central planners at The Federal Reserve.

What we need is Liberty.

Chris Rossini is on TwitterFacebook & Google+

Yale Prof: I Still Believe in Bitcoin

Stephen L. Carter a Bloomberg View columnist and a professor of law at Yale University writes:
Call me a dreamer. Call me a contrarian. I still believe in Bitcoins. 
The collapse of Mt. Gox -- and the evident disappearance of perhaps 6 percent of the world's supply of the virtual currency -- hasn’t put me off at all. And even if I’m wrong, and Bitcoin fails, I’ll probably support the next digital currency. The reason is simple: For those willing to take the risk, eyes wide open and fully informed, money without government carries a certain appeal.
This is simply absurd. Bitcoin is not a money without government. Bitcoin can be regulated at a number of different points, when bitcoins are bought or sold, at the point of a retail transaction, to just name two points of potential government intrusion.

Further, it is very difficult to successfully hide a stream of Bitcoin transactions from the government.

I am beginning to question whether any internet currency will ever be able to provide large scale anonymity to its users---Bitcoin, for sure, doesn't come close. Bitcoin didn't come about because of government, but government can get as deeply as it wants into the, regulation, tracking and identifying of Bitcoin transactions.

Krugman Leaving Princeton for de Blasio-Land

They really deserve each other.

Krugman writes:
Some news: I have informed Princeton that I will be retiring at the end of next academic year, that is, in June 2015. In August 2015 I will join the faculty of the Graduate Center, City University of New York, as a professor in the Ph.D. program in economics. I will also become a distinguished scholar at the Graduate Center’s Luxembourg Income Study Center. You can read all about it in theGraduate Center’s announcement.
None of this will have any effect on my work at the New York Times[...]
So, why am I doing this? It is in no sense a commentary on Princeton, which has been a wonderful place for me professionally and personally. In particular, I can’t praise Princeton’s intellectual quality enough: it has been a great honor to be affiliated with a superb public policy school and an equally superb economics department.

Instead, my move reflects some hard thinking about how I can best make use of my time.

Fairly obviously, the center of gravity of my work has shifted over time toward more of a public policy focus; and of course I also have a fairly unusual role as an academic who is also a columnist at the world’s greatest newspaper. Meanwhile, I’m now 61, and I realized that it’s time to take a hard look at where I really want to be at this point.

In terms of geography, the answer seemed clear on reflection: somewhere near Zabar’s New York is the best place to pursue my current interests. Given that decision, I sought an academic base.

Why 'Ghostbusters' is the Most Libertarian Hollywood Blockbuster of All Time

By Philip Klein

After learning the sad news that comedy actor and filmmaker Harold Ramis had died, I remarked on Twitter that the 1984 classic "Ghostbusters" (which he co-wrote and co-starred in) was the most libertarian Hollywood blockbuster ever made. I assumed that this was perfectly clear to everybody and that I was making a non-controversial claim -- even asserting the banal conventional wisdom -- but a number of people evidently didn't see where I was coming from.

Read the rest here.

(HT Brad Aefsky)

The Con-stitution And The Power To Confiscate

by Ilana Mercer

Bolstered by the U S. Forest Service, Summit County authorities, in Colo., are scheming on seizing 10 acres of verdant land that belongs to Andy and Ceil Barrie.

The parcel of land is situated within the White River National Forest. The authorities claim the couple's use of a motorized vehicle on the preserved land risks "damaging the alpine tundra and streams and the habitat of the endangered lynx."

Since it is the nature of government to “turn a wormhole into a loophole,” the solution sought by the county’s commissioners and attorney general is to confiscate private property under the guise of “open-space” conservation.

On their side—and against the right of private property—the knaves of this Colorado county have a thing even more formidable than the U S. Forest Service: the U. S. Constitution.

Or, dare I say the Con-stitution?

Any discussion about the plight of the Barrie couple must be prefaced by noting the following:

There is no dispute as to the right of government grandees to grab private property.

What remains of some dispute is whether the county has exceeded its authority to steal. For the Constitution gives authorities the right to seize private property for the “common good—that catch-all constitutional concept. Has not the General Welfare Clause, in Article I, authorized all three branches of colluding quislings to do just about anything which in their judgment will tend to provide for the general welfare?

The term for state-sanctioned theft of private property is "eminent domain." A section of The Fifth Amendment to the Constitution reads as follows: "nor shall private property be taken for public use, without just compensation."

Understand: Compensating the individual if and when government confiscates his land for the ostensible greater good: that is not what's so wicked here. Rather, it is that implicit in the Bill-of-Rights clause mandating "just compensation" is the acknowledgement that government has the right to confiscate private property, in the first place.

Legal experts are agreed that when it comes to eminent domain, "The ambit of national powers is wide–ranging," as the Legal Information Institute puts it:

[Eminent domain] is a tacit recognition of a preexisting power to take private property for public use, rather than a grant of new power.” Eminent domain “appertains to every independent government. It requires no constitutional recognition; it is an attribute of sovereignty.” ... the Court [has] affirmed that the power was as necessary to the existence of the National Government as it was to the existence of any State.

The Anti-Federalists forewarned early Americans of the "ropes and chains of consolidation," inherent in the new, proposed Constitution.

Eminent domain is one example of the slow and surreptitious leap from the freedom of a loose confederation of sovereign states—"a league of friendship"—to the "ropes and chains" of a unified state.

True too is that the Anti-Federalists gave us the Bill of Rights. Without their insistence on instantiating individual liberties in the Constitution, we’d be bereft of the protections afforded by the first ten amendments appended to the U. S. Constitution.

Instead, property taken in "the pressing urgencies of government," the words, circa 1787, of an anti-Federalist named "Federal Farmer"—would be removed willy-nilly and without compensation.

Thus, while the Anti-Federalists deserve our gratitude for forestalling a measure of tyranny, these unsung heroes of the American founding must not be blamed for the defensive clause in The Fifth, stipulating "the right to receive just compensation when the government takes private property for public use."

The Anti-Federalists did not write the thing; Federalist James Madison was the one who introduced the amendments to the First United States Congress as a series of legislative articles.

Like a rattlesnake in winter hibernation, "the federal power of eminent domain lay dormant in the early years of the nation. It was not until 1876 that its existence was recognized by the Supreme Court."

Nevertheless, it is hardly incorrect to say that before 1791, the time of ratification by the states, Americans owned property they had homesteaded. After ratification, not so much.

Mt. Gox files for Bankruptcy Protection

Mt. Gox has filed for bankruptcy protection, with outstanding debt of $63.6 million, WSJ reports.

Mt Gox has previously stated that it had opened over one million accounts.


AP reports:

The exchange's CEO Mark Karpeles appeared before Japanese TV news cameras, bowing deeply. He said a weakness in the exchange's systems was behind a massive loss of the virtual currency involving 750,000 bitcoins from users and 100,000 of the company's own bitcoins. That would amount to about $425 million at recent prices.


Mt. Gox CEO Mark Karpeles bows in apology at a press conference at the Justice Ministry in Tokyo Friday night, Feb. 28, 2014.


"There was some weakness in the system, and the bitcoins have disappeared. I apologize for causing trouble" - Mt.Gox CEO Mark Karpeles.


Reports from some of the losers are starting to come out(Via Business Spectator)

"It is disappointing they hid so much for so long," said Jonathan Waller, a 30-year-old game developer who said he had had 211 bitcoin in Mt. Gox. "I hope they manage to become a fully-functioning exchange again, but their reputation is so damaged it may not be possible," he said.

William Banks, a website developer in Australia, said he lost about 100 bitcoins in Mt. Gox. He had been using the platform since the end of 2012, when he bought some bitcoins at $40 each. Recently, he bought more at about $800 a pop as he became more confident in the virtual currency. He said he has contacted a Japan-based lawyer to look into legal action.

About Mt. Gox's loss of bitcoins, he said, "That seems impossible to me. It's just such an astronomical amount of coins to lose."

Hayek Couldn't Get a Job Teaching in the Economics Dept at U of C, But It's No Problem for a Former Goldman Crony

Former Goldman Sachs banker Fabrice Tourre—better known by his self-assigned nickname, "Fabulous Fab"—is studying to get his Ph.D. in economics from University of Chicago. Per the Chicago Maroon, the school's student newspaper, Tourre will teach a class this semester, offering honors students the opportunity to learn "Elements of Economics Analysis 3," reports Mother Jones.

PBS Show 'Frontline" Putting Together Story on Ron Paul Inc.

EPJ has learned that Frontline, the investigative show aired on PBS, is putting together a show on Ron Paul Inc.

It is not clear the complete direction the show will take, but it appears that the show may focus on the alleged secret payoffs made to Kent Sorenson that involved Ron Paul Campaign 2012 deputy national campaign manager Dimitri Kesari.  Another direction the show may go in is with regard to various alleged illegal campaign efforts by the National Right to Work organization, which has strong ties to several people in Ron Paul Inc.

EPJ has also learned that the Washington DC grand jury investigating Kent Sorenson and parts of Ron Paul Inc continues to hear testimony this week. Apparently the government has flow in some witnesses from Iowa to testify before the grand jury and that other witnesses are from the general vicinity of Washington D.C.

EPJ first broke news of the grand jury investigation here: EPJ Exclusive: Washington D.C. Grand Jury Investigating Activities Surrounding Ron Paul Inc.

Several members in and around Ron Paul  Inc have lawyered up. Brace yourself, this is going to get real ugly. But please keep in mind that Ron Paul Inc and Ron Paul are two different things and that Ron Paul Inc. Ron Paul is a man of principle. Ron Paul Inc is filled with political operatives that do ugly political things. MSM will attempt to paint them as one in the same.

Bill de Blasio Transaprency

Capital New York  informs:
 In October the New York Times asked Bill de Blasio what a mayor’s resume should look like.
His response contained many words, but the nut of it was this: “It’s about ability to communicate. It’s about clarity of vision and ability to sense what’s going on on-the-ground, and listen.”
So far, "ability to communicate" has not proven to be one of the new mayor's strong suits.
Though de Blasio campaigned on the promise of governmental transparency, his actual approach to communication has tended, even on ostensibly comfortable subjects for him—and even in the cases of set-piece events that he would seem to have an interest in promoting—toward the opaque and unhelpful.
He often talks about strengthening community relations and, ironically, improving public communication as a proxy for revealing details. Frequently, his press office doesn't bother to respond to requests for comment, and the mayor regularly shows up 40 minutes late to press conferences. More times than one might expect in just two months of governing, de Blasio has left important meetings off of his public schedule (AIPAC, Valerie Jarrett), or included them but then barred the press (the Real Estate Board of New York, Pussy Riot).

Mouna and Me

Some are questioning whether I showed up at a gay bar in West Hollywood, The Abbey, with two Ethiopian girls.

An emailer even questioned whether I even know any Ethipoian girls.  Here's a pic from a few years back. In the pic with me is the beautiful, bright and classy, Ethiopian-born, Mouna.

This pic was taken at some Russian restaurant in Pasadena. Everyone else in the place was speaking Russian. The place actually had a Russian mafioso feel to it. But, the food was good and the music even better. We closed the place. As we were leaving, the owner came up to us and said, "You are two very classy people. You are welcome anytime. Please tell your friends."

Thursday, February 27, 2014

Ashton Kutcher Denounces Business-Crushing Regulations

Very cool. In addition to his acting career, Ashton Kutcher is a managing partner in an investment fund which works with the Uber car service and the AirBnB hotel.

(ht Jay Stephenson)

Real Austerity versus Obama Fairy Tale Austerity

By Mark Thornton

President Barack Obama has recently released his budget in which he calls for an “end of austerity.” This is an amazing statement from a president whose government has spent the highest percentage of GDP in history and added more to the national debt than all past presidents combined. What must he mean by austerity?
There are demonstrations around the world over austerity on an almost daily basis. It is condemned as an evil poison for tough economic times while others tout it as the elixir for economic depressions.
The president’s rejection of austerity represents the Keynesian view which completely rejects austerity in favor of the “borrow and spend” — increase aggregate demand — approach to recession. What he really is rejecting is the infinitesimal cutbacks in the rate of spending increases and the political roadblocks to new spending programs.
While the 2009-2012 budgets have been relatively flat, they are still more than 15 percent higher than in 2008 and 75 percent higher than in the previous decade. This four year leap in spending was financed with a $5 trillion increase in the national debt. No austerity here!
The type of austerity that gets the most worldwide press attention on a daily basis is that promoted by economists at the International Monetary Fund. This “austerian” approach involves cutbacks in government services and tax increases on the beleaguered public in order to, at all costs, repay the government’s corrupt creditors. This pro-bankster approach is what generates a massive amount of media attention and sometimes violent demonstrations.
Austrian School economists reject both the Keynesian stimulus approach and the IMF-style high-tax, pro-bankster approach as counterproductive. Although “Austrians” are often lumped in with “Austerians,” Austrian School economists support real austerity. Real austerity involves cutting government budgets by reducing salaries, employee benefits, and retirement benefits. It also involves selling government assets and even repudiating government debt. Instead of increasing taxes, the Austrian approach advocates decreasing taxes.
Despite all the hoopla in countries like Greece, there is no real austerity except in the countries of Eastern Europe. For example, Latvia is Europe’s most austere country and also one of the fastest growing economies. Estonia implemented an austerity policy that depended largely on cuts in government salaries. In contrast there simply is no significant austerity in most of Western Europe or the U.S. As Professor Philipp Bagus explains, “the problem of Europe (and the United States) is not too much but too little austerity — or its complete absence.”
Real austerity for individuals means living a highly restricted lifestyle. The best example is the monk who lives on a subsistence-level diet, wears simple clothing, possesses a few basic pieces of furniture, and uses only necessary utensils. His days consist of long hours of work and prayer with no leisure activities and he may not even enjoy indoor heating or plumbing.
Austerity applied to whole countries, is not necessarily so harsh or ascetic. It simply means that the government has to live within its means.

Want To Outperform The Market? Just Track What SEC Employees Are Trading

Goodbye SAC Capital. Hello SEC Capital.
A new study released by Rajgopal of Emory and White of Georgia State confirms what most have long known: SEC employees are immaculate stock pickers and "that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular." But those wily regulators are tricky indeed: instead of frontrunning good news and outperforming on the upside, the "abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices." In other words, in a market in which hedge funds have given up on shorting stock, the best outperformer is none other than the very entity that is supposed to regulate and root out illicit market activity!
From the study's summary:
We use a new data set obtained via a Freedom of Information Act request to investigate the trading strategies of the employees of the Securities and Exchange Commission (SEC). We find that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular. The abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices. We find that at least some of these SEC employee trading profits are information based, as they tend to divest (i) in the run-up to SEC enforcement actions; and (ii) in the interim period between a corporate insider’s paper-based filing of the sale of restricted stock with the SEC and the appearance of the electronic record of such sale online on EDGAR. These results raise questions about potential rent seeking activities of the regulator’s employees.
What questions? By now it is abundantly clear that enforcing a fair and efficient market is the last thing on the minds of SEC staffers. It is now also quite clear that in such times when said staffers are not browsing porn on the taxpayers' dime, they are trading stocks on illegal, market-moving information.
Note: The above originally appeared at Zero Hedge. It should be clearly understood that because the SEC is a government regulatory body, this trading record smacks not only of insider trading by government employees, but the likelihood that agency enforcement actions in some cases may be driven by SEC employee stock positions. 
There is generally nothing wrong with insider trading in the private sector (SEE: Judge Needs a Lesson in Finance and Economics) but it is a particularly heinous act when done by government agents working at an agency where employees have the power to make life miserable for, or destroy, a company.

(ht Nick B)

Charlie Shrem Talks About His Arrest

During an exclusive interview with Emily Spaven CoinDesk, Charlie Shrem told her:

I didn’t know what was going on. One minute I was getting off my flight, the next I was being arrested.
The way they did it – arresting me at the airport in front of a ton of people – the whole thing was set up to make me look like a criminal..

According to Spaven, Shrem believes his arrest was carefully planned by the federal government to damage the public’s perception of bitcoin. He thinks the media hasn’t helped matters, either, by “making assumptions” and publishing articles “without knowing the full story”[...] A document published by the Manhattan US Attorney alleged Shrem knew 52-year-old Florida native Robert M Faiella was “operating a bitcoin exchange service for Silk Road users” and that the authorities have email correspondence to prove this.

The way Shrem sees it, Faiella allegedly advertised his services on Silk Road, and would send his customers on to BitInstant.

These customers would conduct the transactions themselves, then send the money to their own Mt. Gox accounts. Once on this site, they would buy bitcoins, transfer the bitcoin to their Silk Road account and buy illicit goods.

“Now how many times am I removed from that already?” he added.

I can understand Shrem's desire to attempt to get his side of the story out, but it makes little sense for him to personally talk about the arrest before trial. It is extremely dangerous. One slip up and he end up giving prosecutors the one item that advances their case.

Shrem also gave Spanven his take on the CEO of Mt. Gox:
I’ve known Mark Karpeles for a very long time. Mark is a very sweet guy. Very non-confrontational, but has he made bad business decisions? Yes. Has he failed to do everything he should have? Yes.

OUCH! David Weidner Slams Bitcoin

The WSJ columnist writes:
This is no way to run a currency.

The bitcoin panic this week sparked by the disappearance of Tokyo-based exchange Mt. Gox rattled the so-called cryptocurrency markets. At one point Monday, bitcoin value fell more than 20% in just a few hours. It has since stabilized, if you can call it that, to around $550. Bitcoin is trading at $578.80 as of this writing – oops, make that $584.40…

So, assuming it stays somewhere near that level, it’s either up 1750% in the last year, or down 53% from its late-December high. In other words, stable as a Richard Sherman interview or Vic Wild’s nationality.

This isn’t intended to make fun of bitcoin or its evangelicals. They make their own fun. We just watch[...]

In the end, bitcoin as an “alternative” currency is much like “alternative” music. It works for people with a narrow set of tastes, some who simply just want to be different. Dollars, like top 40 radio, may have its limitations (I’m looking at you, Drake), but it’s what most of us can agree on.

Bitcoin may indeed become the currency of the future. But today it’s like an indie band that always seems to use the wrong chord (hello, Arctic Monkeys).

WhatsApp's Co-Founder Shouldn't "Hate" Being Called An Entrepreneur

By, Chris Rossini

Sadly, it looks like another billionaire has been added to the ranks who do not understand the tremendously valuable role that entrepreneurs play in a market economy.

Here's a tweet from WhatsApp co-founder Jan Koum from 2012.

It was dug up by BusinessInsider:

BusinessInsider goes on:
Journalist Nastya Chernikova interviewed Koum at Barcelona's World Mobile Congress conference and asked him why he doesn't like the word.[...]

The interview was written for a Russian website. Here's Koum's Google-Translated response:

"I've been thinking about why I'm hurt that word. Looked in the "Wikipedia", word came from «entrepreneur», trying to understand what it means. As I understand it, the entrepreneur - a person who creates a company and the company with the task to make money. I am not one of those people.

"I started WhatsApp, to build a product. I do not want to create a company around it, the goal was not to earn. Entrepreneurs -people using the time and opportunity to create a company that will be financially successful. [all sic]"
So as we can see, Koum went to Wikipedia to look up the meaning of the word "entrepreneur" and apparently stopped right there. Unfortunately, there were no friends around to point him to Koum has so far missed out on learning just how valuable entrepreneurs (of which he is one) are.

To summarize it for Koum, we live in a world with scarce resources (land, labor, & capital), and the very same world is populated with humans who have constantly changing values, choices, and desires. In such an interesting situation, how are the world's scarce resources to be allocated to satisfy the most urgent and most desired wants of the us humans?

For those who say "The State should allocate the resources," you're late to the party. Communism was tried, despite the warnings of Ludwig Von Mises who pointed out that when there is only 1 owner of all resources, there can be no exchange, no market prices, and no profit/loss signals. The central planners would have no way of knowing what to create, how much to create, where to create it, and what capital goods to use.

Sadly, people are not always satisfied with logical theory. They need empirical evidence. Well, the results of Communism gave that evidence good and hard. A tally of over 100+ million dead (not from war, mind you) at the hands of the planners was apparently what was needed to be convinced. Some are still not convinced, but their numbers are few (thankfully).

It should also be pointed out that The State has not given up either. The "elites" have moved from the failed idea of Communism to another idea that is destined for failure called Fascism. They've concluded that since government on its own can't allocate resources correctly, perhaps government plus politically-connected businesses will do the trick. They are wrong again!

If you can believe it, Fascism is actually a much more insidious enemy than Communism. For the veneer of a functioning marketplace exists, which makes the causes of each economic crisis harder to detect for the common person. Under Communism, it was easy as to where the finger should be pointed. Fascism instead creates a Vampire Economy, and Vampire hides behind lots of well-crafted curtains.

Fascism is doomed, but until that day comes, it is entrepreneurs like Koum who are keeping the boat floating. They are the ones who are sustaining life. They are the ones, who are using market prices (distorted as they are) as well as profits & losses, to guide them in creating what is most urgently desired.

Koum helped create a product that hundreds of millions flocked to. Government could never achieve something like that. Whether or not Koum knows it, the marketplace helped guide his decisions on what product to create. If the cost of using a computer were $100k, it is very unlikely that WhatsApp would have ever come into existence. Likewise if the cost of mobile phones were very expensive.

Koum surveyed the resources available, the costs of those resources, as well as the desires of consumers around him. He then went to work on satisfying them. That's an entrepreneur! Don't hate...celebrate! The stronger the consumer desire that is satisfied, the larger the profit. If Koum instead created a product that no one wanted, or not enough people wanted to justify the cost, he would not have received a call from Facebook.

The money that Koum received is nothing to be ashamed of. He did good great! One caveat though. We do live in a largely planned Vampire economy. One of Vampires hides in a marble palace known as the Federal Reserve. It may not be a bad idea (at the right time) to take a page from Mark Cuban. Sell the shares, take the money, and run.

Chris Rossini is on TwitterFacebook & Google+

Discrimination Means Freedom.

By Laurence M. Vance
The governor of Arizona has vetoed SB1062, which supposedly allows businesses to refuse to serve gays. The bill is actually an amendment to an existing law, the Religious Freedom Restoration Act (RFRA) of 1999. It has to do with claiming religion as a defense in discrimination lawsuits and proving that one’s religious practice is genuine. Here is everything you wanted to know about the bill, but didn’t bother to ask.
But let’s just suppose for a minute that the bill actually states something like: “Any business owner can refuse to provide a good or service to gays.” As you can see in all my writings on discrimination, I believe that anyone should be able to discriminate against anyone else for any reason and on any basis. If you want to discriminate against me because I am “a pro-life, Christian, culturally conservative libertarian,” then go right ahead. But do Christians have to refuse service to gays? No they don’t. As I said in my most recent article on discrimination: “A Christian’s acceptance of the Bible’s negative assessment of homosexuality does not necessarily preclude him from providing certain ‘services, accommodations, advantages, facilities, goods, or privileges; provide counseling, adoption, foster care and other social services” or providing “employment or employment benefits’ to gays or ‘other perverts.’” For example, a Christian landlord might refuse to rent an apartment to a gay couple (just like he might refuse to rent to an unmarried straight couple) and at the same time sell a broom to a gay couple at the hardware store he owns.
Discrimination means freedom. Without it there could be no Heinz 57 varieties. Try picking a spouse without being able to discriminate against every other woman in the world.
The above originally appeared at