Peter Schiff at the Mises Institute's 2009 Austrian Scholars Conference

myp said:

This is an excellent speech made by Peter Schiff (for those of you who don't know him he is lauded for predicting the housing crisis before it happened) at the Austrian Scholars Conference. He talks about the current crisis and why President Obama and Bernanke are doing the same thing that Bush and Greenspan did with the bubble that they inherited. He also covers what will happen if we continue to spend like we are and if we continue to push big government, bailouts and stimuli. Really a great video for those of you who still believe in the big government fallacy.:
http://www.youtube.com/watch?v=EgMclXX5msc&eurl=http://www.mirajpatel.com

Click to expand...

Very nice post MYP, I heard that Peter was also Doctor Ron Pauls economic advisor?

Extremely Diverting!

Okay, interesting guy, this Schiffer, with an interesting father. Now I'm buried in researching him, making sure I have a better grasp of the discussion. Interesting that the Austrian School is considered marginal these days, but one of its proponents is the darling of the moment.

Since I am currently delving into history of late 19th and early 20th centuries, this happens to be a quite pleasant and useful diversion. If I get a better grasp of the fundamentals of the Austrian School, perhaps I will find out why it is considered to fail the test of falsifiability, which I was relatively unaware until very recently.

:shy:

The reason that Austrian Economics fails the falsifiability test is that they just don't do much math or even theory in their work. I believe most Austrian work just boils down to "the market is too complicated...so just let the free market do it." They would be able to get their work published if they could actually make more predictions or studies that met the standards of the industry.

The other problem might be that they don't have a monopoly on any theory. Things that might be Austrian are usually just standard economic ideas. One jumps to mind. Specifically, it was a method devised to deal with the "Tragedy of the Commons" surrounding elephants in Africa. We want to stop poaching, but can't exactly have a 2,000 man guard protecting their entire range.

The solution was to start giving the elephants to tribes in their area. They could then have exclusive rights to safari trips in the region. That alone has started to make the locals fight to protect their elephants.

The point is that that sounds quite Austrian in principle, but it wasn't just Austrian.

The thing to remember is that Government programs don't always look for top profits. They are often trying to accomplish a bunch of different interests. Private enterprises are free from such obligations (for the most part).

The one problem that I have with Austrian on those grounds then, is that the supporters seem to believe that economists are ignorant of this. A lot of the biggest developments in economics are based around finding effective ways to increase efficiency. This often means privatization, but it can mean government aid when it comes to things like public goods.

myp said:

No. Name me one program in which the government is more efficient than its privatized counterpart. As for the government not looking for profits, I understand that and that is part of my point. How do you think the government covers the losses on those businesses? By taxing the people and the markets and in the process hurting successful parts of the market and stunting growth.

Click to expand...

I agree 100% The dang government has it's beak in too much stuff now. And it is not because they do it so well.

MYP - There are a lot of them that are more efficient on the whole. I'll get to them in a second. You are ignoring the important part of the whole "not looking for profit" thing. Profit would just refer to the actual business' profit. Government is looking out for the public good. For example, they subsidized Amtrac because they felt that supporting the failing railroad would provide an external benefit that made up for the cost. That's a big part of both local and national government. They are there to collect taxes and spend them on things that aren't necessarily valued on the personal level, but provide great value to society as a whole.

It's the basic problem of externalities. They can obviously mess this up though. They have in the past and we generally do want to keep them out. Enough talk though. Example time .

The Postal Service is the best example. It's just about as good as it can be. The private sector does an alright job as a faster alternative, but their system for national and international correspondence is above and beyond what we could expect from a private firm. I know too. I shipped a whole lot of books around the world as part of a side business last year. Never had a single problem *knock on wood*. This is also a good example, because it's what the government is supposed to do. Having the postal service cover the entire country (regardless of regional profits) provides a huge externality in the form of reliable and easy communication and shipping. Our representatives have decided that it is worth any losses from possible subsidizing (I don't believe it runs at too much of a loss though).

There are also the important things like Fire and Police service. Those could be private, but they aren't. We're doing just fine. National defense is another classic example. I'd also argue that utilities are effectively government corporations. A regulated monopoly is basically an independent government agency that happens to be a corporation. The road system is also a good example. Education may not be more efficient, but that's because it can't be selective (public good or private benefit). Lots of government services are government services because the government can do them better than any private group. Private businesses are private because entrepreneurs have always risen to fill the gap. The fact that things are in relative equilibrium now doesn't mean that the market is perfect.

We can't blindly ignore the potential value of the government running some things. It's a last resort, but it can work rather well.

It can also fail. Economists usually blame Amtrac's stagnation on government intervention taking away its incentive. Things like NASA show how inefficient the government can be actually doing the job (it was spread out with the idea of creating as many jobs as possible).

So...it just depends. Ideally everything could just be a private corporation guided by good morals or an omnipotent consumer base. I don't see that happening though, so government intervention is necessary in some fields.

You're right about the profit thing. That is a problem with government intervention or evaluating any non profit. There is no reliable way to evaluate what they are doing. That doesn't mean that a corporation would be "better" though.

First, the public good is real. It's a positive externality. Having a non-biased police service around helps everyone on a passive level. Having a good road system helps everyone. Having a phone system helps everyone. There are tons of examples.

Let's look at the Amtrak thing though. Yes, it's losing money. You are forgetting the external values though. You can't just hand wave away the public benefit of a service. Someone believes that having Amtrak around gives a lot of people benefits. They believe that the positive externality of having an active railroad around is higher than the cost of subsidizing it. I don't know if I personally agree but there is an argument to be made and one that I don't believe they take lightly (I would hope not, considering the criticism that it drew).

The post office is another good example. It would not be cheaper to have a private company do the routes to my old home. There are countless places in the country that would have terrible or expensive mail service because it just wasn't profitable. I know that neither UPS or FedEx is a good option for our shipping. This is another externality. The benefit to commerce that comes from having guaranteed postal service to any address in the country outweighs the potential losses from running the post office to every town.

Also, don't forget that private monopolies suffer from the same amount (if not more) of inefficiences. They have little incentive for innovation, have less of a drive to get the best employees, and they even have an incentive to actively hurt rising competitors. Don't assume that private business could do it better, just because its private. They kill that sacred cow fast in most econ classes.

Armies and police are just an example of a nearly perfect public good. These have to be provided by a government, because it would be inefficient for any private company to provide them in a non mafia manner. You can't have the army not protect someone because they didn't pay their taxes. Their meer presence makes the person safer from an invasion. This makes the equilibrium price zero per person. Just an example of a rare good that is truly public.

Again, public control is all about providing for externalities. We analze things and say that the benefit to society as a whole is so good that it deserves tax payer money.

The postal service could be privatized, but we would lose the benefit of cheap and reliable mail service from Nowhere, West Virgina to Anywhere, Colorado. Some routes just aren't profitable for private business to do.

Roads would never work though. It would take a monopoly to run it if you wanted any semblance of order. Monopolies are inefficient by their very nature.

Power is usually run by free market interests with a monopoly power added for this reason. It's the best option.

Nothing more to say about Amtrac. Someone believes that we can't let the rail industry die (because it would be easier to add to an existing system than start over again...I believe).

It's Econ 101 that monopolies are ineffective. Austrian economics is ridiculed because they won't acknowledge this. They are actually ineffective in 6 ways (a few of which I forget) and none of them require intention. It's easy to understand.

They won't lose costumers, because they've enacted enough barriers to make it effectively impossible for others to enter the market and steal said costumers. They wouldn't be a monopoly otherwise, since someone else would have entered the market and formed an oligopoly.

They don't have competitors to make them have the best product available. Look at Windows Vista. That's in an oligopoly. Imagine that in a true monopoly.

They do things like hiring less effective workers (friends, family, hot girls ) because it doesn't matter as much.

They don't produce at the most efficient price because they don't have to do so. This means higher prices for everyone. If it is deemed to be a good with a high positive externality, then that's a bad thing.

They will also do rent-seeking and waste money for the sole purpose of maintaining that monopoly.

None of this stretches the imagination.

To wrap up the post office...that's point. A reliable postal system is deemed to be necessary. So we have a government subsidized one. The market could fix it, but people would end up paying more in the long run. The positive public externality of everyone having good and cheap postage is greater than any cost (which I actually don't think is too bad...I've heard that they don't run at much of a loss).

I found the following interesting arguments "for" and "against" privatization in Canada:

Arguments for Privatization
Arguments in favour of privatization take many forms. One position is that Crown Corporations are inherently poor business performers, as governments have few incentives to ensure the enterprises they own are well run. Whereas private owners will lose money if their businesses are run poorly, this view contends that public money can sustain even the most inefficient enterprise. Moreover, the government may put off making any improvements to a given corporation due to political sensitivities (even when the Crown Corporation is well run). Similarly, governments are prone to ?bailing out? poorly run Crown Corporations when it may be better to let a corporation fold.

Another argument for privatization focuses on the opportunities for government corruption and patronage through Crown Corporations. To this end, in 2004 VIA Rail gained unwelcome notoriety in the aftermath of the release of Auditor General Sheila Fraser?s report surrounding the so-called Sponsorship Scandal; several VIA officials were implicated in the misappropriation of government funds to federal Liberal Party supporters.

Arguments against Privatization
This all said, there are many who feel that privatization is a short-sighted and ultimately detrimental policy approach. In this vein, supporters of Crown Corporations argue that publicly owned enterprises can exhibit a large degree of public accountability, which is particularly important in cases where a corporation offers goods or services that are vitally important to a society. As Crown Corporations are owned and operated by governments beholden to voters, citizens can influence the operation of Crown Corporations through their political participation. Such accountability is not present in private corporations, whom are beholden only to their private shareholders.

Supporters of Crown Corporations also customarily take the position that not all good things are profitable. A Crown Corporation may provide public goods or services that, while important, are not necessarily financially profitable. This would include important cultural goods, such Canadian television and radio content produced and transmitted by the Canadian Broadcasting Corporation.

Finally, those who favour Crown Corporations also point to the potential benefits of state intervention in the economy. Crown Corporations such as Export Development Canada assist Canadian businesses in the export industry, with the aim of growing the economy and increasing employment in Canada.

Click to expand...

Source: http://www.mapleleafweb.com/features/crown-corporations-canada

Pretty much the heart of the issue.

It's usually inefficient to have the government run things (hence why communism is bad) but it can sometimes be the only way to fix a market failure or provide a public good in an acceptable manner.

That's why you have to take it on a case by case basis.

The Parakeet said:

Pretty much the heart of the issue.

It's usually inefficient to have the government run things (hence why communism is bad) but it can sometimes be the only way to fix a market failure or provide a public good in an acceptable manner.

That's why you have to take it on a case by case basis.

Click to expand...

I agree totally. Especially for items such as public transportation and postal services. Also public parks, harbours and ferry services. For a good start.

Oh. Good catch. I forgot about parks. That's a really good example that captures the issue.

There are flavors in between private enterprise and government run enterprise. Highly regulated industries make good examples.

None of the southern states deregulated electric utilities. They waited, and watched, and decided that if you have the cheapest electricity in the country, and everyone else's costs went up with deregulation with no real benefit to the consumer, why change?

We can't even say that heavy regulation always crushes innovation. AT&T was one of the most innovative companies in the country. They ran Bell Labs, where a lot of physicists won a few Nobel prizes.

I think there have to be boundaries for a 'free' market to work. Companies are run for profit. And there are some industries where no regulation is tragic. Even with regulation, we get things like the thalidomide incident, and the recent decision by a peanut butter manufacturer that doing something about the salmonella would be too expensive.

curious said:

I think there have to be boundaries for a 'free' market to work. Companies are run for profit. And there are some industries where no regulation is tragic. Even with regulation, we get things like the thalidomide incident, and the recent decision by a peanut butter manufacturer that doing something about the salmonella would be too expensive.

Click to expand...

Which category would the Big Investment Banks that have just been bailed-out when they should have failed, fit in?