Sources of market power

Market power arises from two sources: violence which avoids competition from other market participant and the favor of the people with which the market powerful trades. There is no third source whatsoever.

The road to legalizing drugs

Do you want to legalize drugs? Allow the government to have a monopoly on them.

Market is the most efficient mechanism

The interaction of the information of agents with, in principle, different plans is the very definition of what a market is. It is true that a market could incorporate not all conceivable information, but markets do incorporate all possible information. If information is not already in the market, nobody (in particular, not the government authorities) can incorporate further information.

A market reaches all possible efficiency. There is no further informational, operating, or allocative efficiency beyond the market. In that sense, if you accuse the market of being inefficient, automatically you neglect the possibility of any further possibility whatsoever of improving that inefficiency.

If you do find a possibility of improving efficiency, you automatically become part of the market, not something beyond it.

There is, for instance, no way of reflecting new information faster than through the market. To put another way, the quickest way in which new information can be reflected is precisely what a market is.

No risk free assets

If

1) A security's risk is defined as the variability of return, and
2) US government T-bills' return is not fixed, and
3) a risk-free asset is defined as one with zero risk,

then

T-bills are not risk-free assets.

An explicit bet

By November 2012, the unemployment rate in United States was 7.7% and inflation, as measured through the Personal Consumer Expenditures Index (core), was 1.6%.

The Fed members seemed to agree that unemployment was to high and that they were ready to concede a slightly higher inflation in order to reduce the unemployment rate.

This is how on its December FOMC statement, the Fed decided to undertake a monetary policy which basically increases the quantity of money in the economy. The goal was that more money means more credit and more general activity and, at the end, more employment (less unemployment) and production, even if recognizing a cost through more inflation. But the Fed is more explicit: the statement asserts that a reduction on the unemployment rate is going to be pursued as long as inflation doesn't reach 2.5%

The Phillips curve is a supposed relation between unemployment and inflation. What is the shape of that curve at any point in time? What does it shift (changes the shift) of that curve? Those are empirical questions over which economists have debated for years.

With their very explicit, quantitatively measurable policy, what the Fed members are telling amounts to bet that the Phillips curve has a specific shape, a shape such that lays under the point {unemployment: 7.7, inflation 1.6}. This is so, because only such a curve (drawn as the green curve in the graph), allows to reach an unemployment rate of 6.5% or less before reaching an inflation of 2.5% or more.

However, if the Phillips curve lays over the point {unemployment: 7.7, inflation 1.6}, i. e. if the Phillips curve has a shape as that of the blue curve on the graph, then the Fed is going to reach the 2.5% inflation milestone before reducing unemployment under 6.5%, being therefore unable to reach the undartaken goal of having an unemployment of 6.5% or less with an inflation of 2.5% or less.

Next months and years are going to be really interesting in matching reality against the Fed view on the Phillips curve, is going to be a rarely good contribution to the empirical debate, and is going to give a very clear case study to economics teachers.

Green or blue? Make your bet!

A praxeological modelling of government

Every right is exclusive: it aims to exclude all others from commanding that over what the right is invested.

A right is only meaningful when there are means, available (included being to the knowledge of) to the right owner, to successfully defend it against any other attempt to violate it.

A rules structure is any list of all not conflicting rights.

Conflict comes from the confronting of two or more different rules structures.

Conflict is a case of absence of cooperation (the only other case of absence of cooperation being autarky).

The set of actions, either by one agents or by more, aimed to defend a rules structure, i. .e. to attack any other rules structure, conforms a government.

A government is, by definition, in conflict (i. e. in war) with any other government.

Two apparent governments which are in no conflict whatsoever, i. e. which defend the same rules structure, are not two governments but two parts of one same government.

One apparent same government which changes a rules structure, i. e. which enters into conflict with a previously defended rules structure at least in some part, it is not the same government than before but other government, therefore an enemy of the former, even if it is composed by the same people, and governs in the same place than the former. A change in the rules structure is, in kind and regardless of magnitude, akin to a coup d'état.

The apparent "meta-right" of having the right to change other rights amounts to the effective non-existence of those other rights. As long as some have the effective power to change others' rights, the others don't have rights but only the some.

Government, Inc.

Wouldn't be better if government ownership were embodied on stock? After all, elections are already driven by little more than financial power.

Respect for the public authority

Holding the hand of the public authority in your own hands and then kissing it... The whole idea is avoiding that he can move it.

Krugman economics

If some agent has been stealing from another and a policy of avoiding  stealing is imposed, the robber losses. So, by worsening some agents, such a policy is not unambiguously good for the economy and maybe it should even be avoided.

This is how I interpret Krugman economics from his book on international trade. Some agents "lose" because they are not allowed anymore to benefit, say, from protectionism (until here, we agree), so a trade liberalization is not unambiguously good for the economy (with which I disagree). Plus, how is that trade liberalization should be undertaken if no (necessarily artificial) protectionism had been imposed before in the first place?

The market for protectionism

Protection from competition provided through coercion to competitors is like any other good. The producer will buy protection so long as he values better the income he receives than the expenditure he incurs in.

Government failure as a market failure as no failure at all

Some people say that there are government failures rather than market failures. However, one could ask how is that a already-so-well-working market allows for a failing government to appear and grow up. Or maybe, a failing State is not but a stage in the institutional development in the way of an ever-improving market.

Egalitarianism and constructivism in flat tax

In (even classical) liberalism, there's egalitarianism and constructivism. As I'm absolutely neither an egalitarian nor a constructivist, I happen not to be able to be a liberal. I'm a conservative.

Take for instance, taxes. Many liberals support a flat tax on grounds of egalitarianism (everyone paying proportionally for government) and, by believing they can re-design the spontaneous order of the tax constitution, they give themselves away as constructivist. They overlook the unintended consequences a tax reform (even a flat tax reform) can bring about.

Just to be clear

One thing is the moral obligation to help the needed. This is on what Christian love for others is based on.

Other thing is the right to demand the help of others. This is on what the State usually is based on.

On the one hand, the Christian teaching compels to help others, but doesn't promote any right to demand the help of others. Quite on the contrary, from its very origin, Christianity instructs to stoically put up with in facing need, without even trying to resort to others help, not to speak of doing it by force.

On the other hand, according to Bastiat, the State is a fiction through which everybody endeavors to live at the expense of everybody else. Government is usually the means through which majorities organize themselves in order to abuse from minorities.

Minimum wages

Minimum wages are of those blunt symptoms of general ignorance about economic laws. The existence of minimum wages isn't of benefit to anyone but to their professional defenders (ILO's advisors and similar apparatchiki).

Family is not a legal category

Everything which is really meaninful in the family, the mother's affection for his son, the son's respect for his father, the love among brethren, or the spouse's devotion are all values which are not ultimately defensible by compulsory law.

A man can be physically compelled to feed his son but not to love him, to avoid visiting a mistress but not to violate the eight commandment.

The family is based on values, thus can not be defended trough coercion but only through education on values, an education which itself can not be coercively imposed but only voluntarily accepted.

The article 51 of the Constitution of the Republic of Costa Rica accurately (though needlessly) states that the family is a natural element of the society as well as its foundation, however aspires to an utopia when it declares the State as its protector.

To be sure, the one thing the government can do for advancing the wealfare of the institution of the family is to laisser-faire-et-laisser-passer. Everything else is counterproductive.

Family is not a legal category. Therefore it can not be defended through coercion, this is: by government.

Teenage motherhood

Currently in Costa Rica there's a policy which looks for teenage mothers to remain in school.

By lowering the oportunity cost of teenage motherhood, this policy is encouraging teenage motherhood.

The more you help a teenage mother, the more you promote teenage motherhood, ceteris paribus.

Costa Rican policy on teenage mothers is a subsidy to irresponsibility.

Systematic failure of expectations

What is fundamentally relevant to answer in praxeology is not how agents form expectations but why expectations can fail systematically.

Since a systematic failure praxeologically analyzable can only occur with respect to the value of money and the interest, an expectations theory is only of avail in monetary theory and in theory of capital.

While a systematic failure of expectations on, say, choice of technology or industry be only viewed as a psychologic or otherwise statistic affair but not liable to praxeologic analysis, this failure is can't be a part of praxeology. By the way, historically people have learnt to avoid this kind of non praxeologic failure of expectations, so these failures tend to be more and more shortlived and innocuous.

The problem with systematic failure of expectations on money value and interest is precisely that the phenomenon is such that experience isn't enough guarantee of protection in the presence of governmental intervention.

Governments are market institutions

Governments too are institutions which are constrained by this complicated system of incentives, competition, consumer sovereignty, and (summing up) spontaneous order which we usually call the market.

Governmental institution, in its productive activities, depends on the same praxeologic laws which apply to any other firm. A government which sells its products at more expensive prices than other governments or gives less quality in exchange for a given amount of money compared to others will receive less and less resources till it goes, sooner or later, to the bankruptcy; this is, to a situation of revolution in which governmental structure is fundamentally modified.

Governments open to competition (in the form of at least free migration in and out, access to information on the performance of foreign governments, and checks and balances) are more suitable to perform well and finally survive than those trying to impose barriers of entry to competition.

Although usually the epicenter of central planning of society, government is itself a sort of spontaneous ordering and, as such, it evolves in ways which can't be predictable but on the point that they will tend to survive if satisfy consumer sovereignty or disappear otherwise.

So, quoting Mises at length:
"A statesman can succeed only insofar as his plans are adjusted to the climate of opinion of his time, that is to the ideas that have got hold of his fellows' minds. He can become a leader only if he is prepared to guide people along the paths they want to walk and toward the goal they want to attain. A statesman who antagonizes public opinion is doomed to failure. No matter whether he is an autocrat or an officer of a democracy, the politician must give the people what they wish to get, very much as a businessman must supply the customers with the things they wish to acquire." Theory and History, page 187.