If you’re under 35 and are interested in monetary policy, this is your chance to win some $$ and a trip to the next Mont Pelerin Society meeting in Prague. Entries close on the 10th of June, so you’d better get writing. Click on the flyer below for more information, and good luck.
The International Society for Individual Liberty (ISIL) is hosting the Shanghai Austrian Economics Summit in July this year. If you can make the trek over, it looks like a good line up of speakers.
Last year, American funny-man Jon Stewart asked a series of questions to libertarians. Since then, plenty of people have responded, giving fairly comprehensive answers. I agree with some of those answers, but I thought I’d put together my own “short answers” anyway… only six months late.
1. Is government the antithesis of liberty?
We need definitions. If “liberty” means people being allowed to act voluntarily with each other (as I define it) then the antithesis is involuntary behaviour — e.g. violence, coercion, theft, murder. The government certainly does all of that, but they are not the only example (eg mafia, rapists). Further, some libertarians will suggest that if a limited government is able to decrease “private” violence & coercion, then they might even be a force for good. (This idea is known as the “night-watchman government” or “minarchism”.)
It’s worth quickly noting that government does not mean “governance”. You would still have much governance in a libertarian society (for example, cricket rules).
I’m currently on holidays and have decided to spend my time productively, watching Milton Friedman’s hit 1980s series Free to Choose. http://www.freetochoose.tv/ About two years ago, I stumbled across a copy of the companion book for this series in an OP shop. I quickly grabbed hold of the book and guarded it in case someone else wanted to buy it. Surprisingly, the book looked like it had been on the shelf for a while and it did not create the kind of excitement used copies of Harry Potter can cause. The bewildered shopkeeper seemed surprised at my excitement. On another another occasion a staff member at an op shop seemed amazed when I was clearly excited buying a TI-84 programmable calculator for only $10.
Anyway, Friedman in an episode about the welfare state raised the prospect of a negative income tax. http://en.wikipedia.org/wiki/Negative_income_tax I have provided a link to information on this idea but basically instead of having welfare payments and a massive welfare bureaucracy to administer it, you would instead get paid the equivalent of your tax free threshold and the low income offset in cash if you weren’t working and this would be phased out the more income one earns. The idea is that this would remove many of the perverse barriers to work that the interaction between the welfare system and the tax system currently produce. It would also be dramatically cheaper, Centrelink and the Employment Services industry would be largely abolished leaving only minimal paperwork to confirm how much income one earned.
I was thinking the other day, whatever happened to Iceland? At the beginning of the global financial crisis Iceland’s three banks collapsed leveraged beyond the small nations GDP. Total debt reached 9.553 trillion Icelandic krónur (€50 billion) compared to Iceland’s GDP in 2007 of 1.293 trillion krónur (€8.5 billion). Iceland went cap in hand to the IMF, its currency collapsed to about half its previous value compared with the USD. The world for the most part wrote off Iceland and the IMF required a significant austerity package in condition for their support.
So what has been the experience of Iceland since 2008?
GDP Growth: 2008 1.4, 2009 -6.9, 2010 -3.5, 2011 2.2, 2012 2.9.
Unemployment: 2009 7.2%,2010 7.5%, 2011 7.0%, 2012 6.2%, 2013 5.3%
Government Debt (% of GDP): 2008 102%,2009 120%,2010 120.2%
Government Fiscal Condition: 2008, -13.5, 2009 -10.0, 2010 -7.8 (Expected to return to surplus 2013)
(Source OECD, http://www.oecd.org/document/62/0,3746,en_33873108_33873476_45269950_1_1_1_1,00.html)
So what can be learnt from Iceland? First Iceland did not bailout its banks, choosing only to bail out its depositors and not the investors. Second, Iceland has managed to stage a slow recovery despite the ongoing crisis amongst its European neighbors. Thirdly, having a national currency that can respond to crises may help other industries stage a recovering. Large energy intensive investment projects and a residential construction boom has led economic growth. Finally, austerity measures that led to sustainable government debt levels may play a role in supporting the economic recovery.
While I can’t claim to know enough about Iceland’s unique situation or how it impacts on the sovereign debt crisis, I suspect that there has been little effort to learn any lessons from Iceland and instead the Government’s in Europe continue to look for a painless recovery.
So often in the news we hear of some formerly successful industry going bust. Trade unions and industry groups lobby hard for their industry to be saved through government intervention. A recent example in Australia and globally has been bookstores. I remember my excitement when the first Borders opened in the Brisbane CBD. I could buy a mocha caramel-latte at Gloria Jeans, choose from a range of specialty books that were never offered in Brisbane before. Having an interest in management literature, it wasn’t long before a had a large library of business titles and career development books.
Books would cost between $20-30 and textbooks could be up to the cost up $100. Now ten years on, Borders has gone bust and rumor has it that the building will become one of those ghastly Apple stores. Sorry, couldn’t resist. This is where creative destruction comes in. The Oxford economic dictionary describes creative destruction as, “A model of economic growth driven by quality-improving innovations that make old technologies or products obsolete.”
That pretty much describes my once beloved Borders, obsolete. I now have two new superior ways of buying books, first, Better World Books and second Amazon kindle. For my studies I have only bought one new textbook in 2 years. Others, I have bought secondhand on Better World books. Technology has allowed me to connect with bookstore all over America where slack students have foolishly sold their old textbooks allowing me to buy them for between $10-$20. Amazon Kindle has allowed me to purchase new books at a fraction of the price I would have paid at Borders.
This technological innovation has dramatically increased my consumer surplus. Not only in quantity but in quality. I recently was preparing for a job interview as a Business Analyst and realised I didn’t have sufficient skills using Microsoft Excel. In the bad old days, I would have driven to the bookstore, not found a book that really covered what I wanted and would have settled for some more basic book about Excel with a few accounting formulas in it. Instead, I went to the Amazon Kindle store, within five minutes I had a book called Business Analysis in Microsoft Excel 2010. I could read reviews about the book confirming the books quality and ensuring the author handled the topic well. This book covered everything I needed, there would have been almost no chance of me finding such a book in a bookstore in Australia.
From a bookstores point of view had they had such a book it would have sat on their shelf for months waiting for an econ nerd like me to come in, if I had come in at all. The price would have been significantly higher to cover the much higher costs of having that inventory sitting on their bookstores shelf for so long. So technological innovation increased the quantity of products I could choose from and lowered the price. Creative destruction.