I've come to the conclusion that if people made a point to move to one specific area then they could take over the local politics of the area either by taking control of the pre-existing construction or by building a new society entirely, could be through unionization or obtaining property, etc. The Free State Project is an example of people trying to do exactly that, the goal is to move as many people as possible to New Hampshire to create a libertarian paradise. What do you all think of this idea? Would you support this kind of endeavor and be willing to contribute to it yourself...why, or why not?

Link.

In a nutshell: college cost is mainly driven by federal student aid, especially among for-profit colleges, but then these private colleges perform (sometimes) worse than public colleges. Given the state of research and its current limitation, it's very unclear whether this outcome should be attributed to market failures.

I’d like to address a topic that impacts not only the Austrian economy but also the fundamentals of our economic systems more broadly

Critique

In my view, it’s problematic that state-founded and publicly funded companies—established to manage and supply essential resources (such as energy or heating)—are even allowed the option of privatization. These companies are often built up as monopolies through state investment to ensure essential resources can be provided to the public efficiently and affordably. However, when these companies transition into the private sector, the capital invested shifts away from its intended public purpose and into private hands. Although this money technically remains within the economy, much of the original economic value generated by the state’s investment is effectively lost.

The public funds initially invested in these organizations hold a far greater value to the economy as a whole than what a privatized company can return to society. Thus, privatizing these state-backed monopolies results in a significant economic devaluation of public investment. Instead of strengthening the economy in the long run, this shift could lead to higher costs for individuals and ultimately undermine economic stability.

Do you have other opinions or do you think that my train of thought depends a lot on this, then feel free to write me a comment

Note: I see a lot of threads here that discuss monopolies (in particular "natural monopolies") and the impression is that most (but not all) of you have a idealized, rigid and naive concept of the term - one that is not really very used in practice, either in economic analysis or in business. The notion of monopoly is very useful if you understand it correctly (i.e. not naively). The definition I will offer below is one that is consistent with microeconomics in general (i.e. its not exclusively Austrian, Marxian or Neoclassical, it is agnostic to the differences between these schools) and is the one that is typically implied when the term is used in real world business situations.

The naive way (and unfortunately the most common way) to understand the concept of monopoly is to assume it is a label that is only useful to describe a very unique and exclusive situation in markets. For example, a monopoly is a situation where a large group of customers demand some good or service that is only being supplied by a single entity. And that lead to infinite philosophical debates about whether the electric grid or railway operator is a "natural" monopoly, or if monopolies are always granted by the government as charters or things of that nature.

While that definition does help you start to understand the problem of monopoly, in terms of a certain structural scarcity of capital in the supply side, it is an artificially contrived definition, which can always or never applied, depending on the parameters you use for defining "large group of customers", "some good or service", and "single entity".

Consider for example a small neighborhood convenience store. Is it a a monopoly or not?

The immediate answer would be no, because monopolies are big companies that serve millions of customers and have no competitors. Sure - that is how most people today probably think when they hear the word monopoly - but it is a contrived and arbitrary definition because you just made an arbitrary parameter decision (i.e. millions of customers) that has no intrinsic economic reason to be important in itself for the concept. If the world had only 999000 people then no monopoly could exist?

The more intelligent way to think about it is to consider that every shop that doesn't have a very similar shop operating next door to it, offering the same products, is a "neighborhood monopoly", provided you assume customers are very lazy, and you define the neighborhood as the small area around the shop in which that particular shop is the closest shop around. And if customers are indeed very lazy the shopowner will be incentivized to increase its own margin above the average risk adjusted margin of his segment, and thus reduce his volume output below the what his cost of capital would lead him to go in a perfect competition world, because he can get higher profits like that.

That allows us to come up with a more intelligent definition for a monopoly, one that doesn't depend on arbitrary parameters like "sector, industry, large group of people", but applies to the general phenomenon we want to describe.

A market is more monopolistic when the supply side is able to increase profits by decreasing their output below the point where the marginal risk adjusted cost of capital equals the marginal risk adjusted revenue. A market is more competitive when the supply side is (forced by competitors) to operate close to the optimal point where marginal cost equal marginal revenue. So monopoly and competition here are not exclusive categories, but rather a spectrum of market circumstances that affect the supply side output decision, in terms of how it deviates from point where marginal cost and marginal revenue offset each other (assuming those are absolute known attributes of the inherent supply and demand dynamics)

A firm can be the single supplier of their particular good or service - say a restaurant with their own unique menu items - but they aren't a monopoly unless they can realize margins by reducing the amount of tables and meals they serve, even when their unit margin per incremental meal served is still positive. That means they control the supply and can extract a rent by creating a structural shortage of that unique meal they serve.

So fine dining restaurants are typically running some monopoly on the particularly fashionable dishes their chefs invent. People will often think they should expand because they have long lines and it is hard to make a reservation, and their margins are high enough per meal, but that is not necessarily the case - expanding could mean a reduction in total profit if the increased supply caused the net monopoly profit margin to decrease too much.

And in general any successful business operation that is not a standard commodity producer or broker-dealer will have some idiosyncratic feature in their products or geographic situation that should give them some kind of monopolistic edge, at least for a while, at least in terms of the risk adjusted expectations of their investors for the demand curve for that business. Otherwise the investors would just lend their money or buy stock in some other business, instead of operating their own venture.

So that is the way smart people think about monopolies. That is why Peter Thiel says he only "invests in monopolies". That is the underlying meaning of the word - i.e. a condition of structural shortage in the supply side that enables deployed capital to generate higher than ordinary returns on risk adjusted basis.

If anyone's interested, I've published two books on Austrian economics, specifically about monetary and capital theory, and the business cycle. They offer both criticism and praise for the Austrians, and synthesize the work of Mises, Hayek, and Rothbard with fellow travellers in monetary economics.

There are over 30 reviews for the books in total, and the average rating for each is 4.7/5. Austrian economist Juan Ramón Rallo has even recommended my first book, Monetary Kaleidics, to those interested in monetary theory.

Here they are:

Monetary Kaleidics

The New Austrian Society

So I've heard the "natural monopoly" argument by about a million times now by opponents on this sub and elsewhere. Unlike others, I won't deny it exists - there are certainly sectors where average total costs increase with more entrants and the barriers to entry are too high as a result.

However, there's a solution to this - moving with your feet. Because even if a firm has a monopoly within a certain area, that doesn't mean it has a monopoly everywhere. Let's say as an example the country is carved up between 10 utility providers, and there's free movement between each region. If people don't like the pricing and quality offered in a certain region, they can move to another region where they prefer what's offered. So consumers can still choose what's best for them, with no government intervention necessary.

This way, there can still be competition, even between monopolies. A utility provider still has an incentive to offer a better product because that will maximize his profits. If he doesn't, people will move to other utility providers.

However, for this to happen, a few conditions need to be met:

• homeownership shouldn't be subsidized or encouraged, because homeowners are less mobile than renters are
• there need to be enough providers in a country so collusion won't be effective and there's sufficient competition.
• in order to maximize mobility and therefore competition, there should ideally be free movement across borders, so people have choice in other countries and states as well
• utility providers should be integrated across multiple utilities (water, gas, sewer services etc.) because if you are content with one utility but not with others moving is more complex, it should be an all in package preferably

What are your thoughts?

(PS: Another way to deal with natural monopolies is for them to be corporations that issue equity and then encourage everyone to buy their equity (directly or indirectly) so they profit from the dividends they pay to their owners. Although monopolies might not have an incentive to issue equity because they don't need it or feel the pressure to do so)

Republican proven incompetence in Economics

One recurring question of  European friends and family, who are nearly all trilingual EFG (English, French, German), watch CNN, read NYT, Le Monde, TheGuardian, Frankfurter Allgemeine. and generally a local paper (like Darmstaedter Echo) is: are you stupid to become Republican, or are you becoming stupid after you become Republican?

Whereupon I say: put yourself through watching Fox news for 3 months and ask the question again.

The one or 2 Republican Voters I know (in my district Trump got a grand total of 4%, so I am lucky; bonds for general improvement are, to the lament of the conservatives in my 2 counties always approved) I treat with data.

Data Block 1: Trump-induced Inflation vs. Biden-Harris-cured Inflation

The rapid rise of inflation, before the other G7 countries, is clearly (following Eisenhower's dictum of the finances in the first year of a presidency) due to Biden's predecessor Trump. Because by declaring Covid a hoax, Trump not only condemned an additional 600,000 Americans to death, he also set the economy on a death spiral. The US economic decline then punched through, with the Eisenhower 1-year delay, to the other G7. Study the inserts in the plot to understand what Biden-Harris then did to fix the problem.

Data Block 2: Percentage Employment change, by President

Looking at the historic economic performance of Democratic Presidents versus Republican Presidents, you ask yourself: how low has the IQ of a voter has to be to prefer a Republican President for economic reasons. Would an IQ of 75% maybe even too high?

Looking at the GDP as a function of president, makes you wish Democratic Presidential candidate Kamala Harris would openly say: I will continue the Biden-Harris policies in the economy.  It is clearly implicitly shown in her  balanced budget proposal, in contrast to a $5trillion corporate tax cut by Trump.  Among other things, the Bidenomics policies have skillfully produced the only soft landing known to mankind from a classical inflation fight with raising interest rates.  Preferred would have been what the 16 US Nobel prized Winners in Economy recommend: raise taxes. Raising taxes slows the churning of the economy, and gives the Government the means to improve the infrastructure.

While the right-wing claim that the individual handles money better than the Government, this generally is not so, and therefore in the last century all Republican presidents with an early tax cut for trickle down effects have done badly, while the Democratic presidents have done the better the high initial tax increases were. But this is not only true for the US. Merkel did very well with an immediate tax increase when she became Chancellor. Reason: keep the interest rate on Government bonds (the "Bund") low.

The only exception is Reagan: when he realized that his initial tax cut of 6% of  the budget did not work, he disregarded the screaming of trickle-downers and raised taxes.

A semi-exception is Obama as the lowest Democrat performer, because (a) he got a lousy economy handed from Bush 2, and (b) he missed the opportunity to just let the Bush tax cuts expire. He did not have enough backbone in view of the Republican screaming.

In his 'defense of extreme a priorism' rothbard writes :

Whether we consider the Action Axiom “a priori” or “empirical” depends on our ultimate philosophical position. Professor Mises, in the neoKantian tradition, considers this axiom a law of thought and therefore a categorical truth a priori to all experience. My own epistemological position rests on Aristotle and St. Thomas rather than Kant, and hence I would interpret the proposition differently. I would consider the axiom a law of reality rather than a law of thought, and hence “empirical” rather than “a priori.”

What is the epistemological position he references and how does it vary from the Neo Kantian position of Mises?

Recently have been listening to Rothbard’s America’s Great Depression, and while it covers the twenties up to FDR getting in well, there’s a couple of parts

One being Rothbard explicitly notes that the FDR new deal era has been so covered that there wouldn’t be much of a point in covering them; however, even as an American there really isn’t much that I’ve been exposed to regarding that 13 year period especially from the Austrian perspective.

I vaguely know some of the things that were tried like the first half being more of a “we have to do something” attitude that continued the bizarre crop withholding practices (that I didn’t know started with Hoover and even earlier), the WPA, various public works stuff like the TVA (which is a dam network?). Apparently later on they tried more direct command economy rationing measures starting in the late 30s and then especially when the war started but again I really don’t know much about this. It’s especially ironic given that I live here and the events weren’t so long ago but such is life.

On another note, Rothbard says that Mises had somehow figured out that specific factors and conditions don’t explain as much as thought experiments, the explanation being something like the impossibility of isolating all of the factors in something like economics making experimental data impossible to truly find. This doesn’t seem right though, it seems clear that something that makes sense in the mental could easily not bear true in the real one. I understand Rothbard gave a shorthand version of the argument but I can’t really see why not testing things outside of the mind is somehow better. The Keynesian way of equations and whatnot doesn’t work in reality either, nor does the Marxian but not testing things in the real world seems like a poor way of thinking even if the principles of Austrian economics are better. Can anyone explain the argument or what mises was thinking better?

A Redditor on another subreddit posted this earlier -

"On the contrary, the only cogent explanation for the origin of the value of money comes from government spending. The government decides what it will issue it or exchange it for. The base money is a liability of the government - or at last, of the central bank, which gets that authority directly from the government. It is the government, or its agent the central bank, which originates the money. Without them demanding money in taxes, what incentive does anyone have to accept the money in the first place? And without spending, how can we know the value of the dollars?"

Does anybody here want to take a crack at it? I think it's pretty absurd. I don't know where this reasoning comes from.

The prevailing narrative, corroborated by a "large body of research", suggests that the rise of China was a consequence of natural comparative advantages that China always had, but that were suppressed by Mao's regime and eventually released by the post-Mao's CCP approach. As the story usually goes, you are supposed to attribute the success to a simple reason: Capitalism works, Communism doesn't work.

This story isn't wrong, but to assume it tells you everything you need to know about what happened it is misleading. Yes, capitalism indeed is a better system for wealth production than communism. And yes, China indeed had a large population that could become very productive once their supreme leaders allowed them to participate in the global markets. But that alone doesn't explain why in 30 years their GDP grew at double digit rates and allowed their per capta income to quickly leap frog other developing world candidates like India, Brazil, Pakistan, Indonesia, post-soviet Russia, and to eventually catch up and overtake the US in total GDP. Very few people would predict that was possible in 1985 or even in 1995. But by 2005 it was clearly a possibility and by 2015 it was a foregone conclusion.

God did not create China as the quintessential manufacturing hub for the world, and up until the late 70s they were struggling to even feed their population. So if it is true that today China has more to offer capital in terms of comparatives advantages than a simply regulatory and tax spread, that wasn't the case since the inception, and through out much of its recent past - and China was still industrializing very fast (even faster than now) regardless of its lacking infrastructure and human capital quality.

Here is something that should be completely obvious but somehow gets denied by the "body of research" - comparative advantages that come from the geographical concentration of capital (e.g. energy and transport infrastructure, skilled labor / human capital, and localized supply chain network effects) can only appear after a lot of capital has been deployed in that area, not before.

After chairman Mao died, Den Xiaoping and the CCP upper echelon didn't have any of that to offer. What they had was (i) a large pool of unskilled labor barely surviving, (ii) a consolidated single-party regime that ruled with an iron fist, and (iii) the US State Department willingness to make China an ally and prevent them from realigning with the soviets.

They developed a strategy to attract capital that levered what they had available at the time - i.e. cheap labor, and nearly zero tax and regulatory burden vis-a-vis worker safety, worker rights, or environment. That strategy created a large structural advantage (i.e. arbitrage) to those manufacturing segments that could use unskilled labor, or that were very dirty, or both. They attracted this kind of capital first.

That should lead to some gains in prosperity for the population, which under a floating currency regime and relatively free trade, would increase their purchase power of foreign goods and increase consumer imports in China. But that wasn't the case - the CCP instead ignored intellectual property protections and legalized the counterfeit domestic industry to simply run amok, with the party controlling the USD reserves and foreign exchange rates. That was possible because chinese workers were happy that they now could afford a better living standard (even if their consumer goods were poor quality counterfeit or knockoff brands), which allowed the party elites to use their foreign reserves to (i) import capital assets (i.e. raw commodities and industrial assets), (ii) to buy equity control of companies, as well as land and financial assets in western nations, (iii) fund higher education scholarships for chinese students (whose families were kept as hostages in order to force them to return) and (iv) lobby and bribe politicians world wide (to enable their intellectual property theft, and to create regulatory and tax conditions in their own countries that made China comparative advantages irresistible).

The CCP totalitarian system turned to be a great advantage - despite some inevitable losses from corrupt members, they were largely capable to reinvest most of their own party gains into increasing the party power to produce these capital inflow advantages, which included: (i) creating support infrastructure for industry (i.e. power plants, transportation), (ii) increasing the skill level of their workers (largely boosted by the foreign student program), and (iii) also by bribing and lobbying corrupt politicians in the west to adopt more regulations and to increase taxes, and to keep tariffs low or zero, and manipulating their exchange rate, in order to maintain the capital arbitrage spread that resulted in a massive flow of US and western investments to China.

(Side note: the soviets did something similar in the 1920s, and rapidly industrialized using foreign capital. But that ended with the Great Depression, and with Stalin's shiftting gears from NEP to a fully centralized economy, after seizing the industrial capacity needed to operate in a more autarkic capacity).

They basically found a way to hack capitalism, and I respect that. The CCP leadership is smart, pragmatic, disciplined and ruthless. You cannot underestimate their long term thinking.

But if you think that China's rise was just a feel good rags to riches story, where they lifted themselves from their bootstraps by just adopting capitalism and globalization (particularly "free trade"), without being helped by a massive wealth transfer that was facilitated by western politicians and large capitalists, and that ultimately served to squeeze the middle and working class of these countries, you are being naive.

They colluded with the corrupt elites in the West to create an arbitrage that would benefit both the CCP and their elite partners, at the expense of everyone else (i.e. the poor people inside and outside of China). However the poor people inside of China were already pretty screwed by maoism, so this new deal ended up being largely an improvement for most of them. They were oppressed and starving, and now they are oppresed and fat, with a much better living standard overall. The biggest losers were the US and European middle and working classes, who were forced to pay more rent for those who became arbitrageurs of this structural scam.

Libertarians are used to underestimate the economic sophistication of the communist regimes, and to overestimate the wisdom of western free markets to not be captured by their schemes. The Chinese just exploited the greed and corruption of western elites, by creating them a "free profits" opportunity that they couldn't refuse. And in doing so they convinced all the smart people to deploy their assets there, and now they have options that they didn't have before.

A very popular podcast amongst the actual Marxist left, The Deprogram, recently had a marxist economics TA from NYU on to discuss economics. They mention Austrian economics a surprising amount. Enjoy.

https://open.spotify.com/episode/20NDoFRSWNh4sw5I9XULfv?si=KcjKdNV1RGu49Q_Z8ji5Ig&t=18

has been overrun by statists. That’s a little win. If they feel the need to discredit AE, it means the ideas are speeding. Congrats.

Hi everyone,

I will assume that everyone here understands tariffs for dummies, i.e. why tariffs and old-school protectionism are overall bad for consumers and the economy in general (i.e. they subsidize inefficient businesses).

Now I will do something that will blow your mind. I will show you how tariffs can do the exact opposite, i.e. benefit consumers and the economy by neutralizing subsidies for inefficient business. And once you understand this example you will graduate from a naive ideologue repeating sophomore slogans and being manipulated by this or that side of the argument, to someone who really knows how economics work.

Start from the following simplified premise:
- I am an american capitalist, and I have 100M dollars of capital to deploy
- I see a strong demand for xyz widgets by american consumers
- I can either deploy my 100M capitals into producing these widgets in the US, or in Mexico
- If I do it in the US, my earnings will be taxed (by the USG) at 40% and if I do it in Mexico, by the government of Mexico, at say 10%.
- All else is equal (i.e. labor factors, and other raw inputs). Also consider all the costs of deployment and of logistics to be negligible.

If free trade is the policy, I will definitely deploy my capital in Mexico, and sell back to my US customers, and claim back my 30% tax difference. I can then pocket this difference, or even use that margin to offer lower prices than my competitors who are US based and have a 40% tax impact.

A simple difference in tax created an opportunity for the american capital that can be redeployed in Mexico to earn an arbitrage. So american capitalists who sell to american customers will move their assets to Mexico and employ Mexican workers just to reduce their tax burden.

Now what you are thinking is this: so what? That's great, these capitalists are being smart and using the system to their favor! More power to them! Everyone should follow their lead, and force the USG to lower their tax burden!

Well, that is one view. Another view is the following - since relocating your operation offshore has overhead costs, it is not something that can be done at any scale. So the arbitrage is only available to the largest operations that are able to absorb the fixed overhead into their volumes. Because they can capitalize on the arbitrage and others can't, they become monopolies.

Also consider the fact that the tariffs and income tax offer a revenue trade-off for the government. But the real government burden is government spend. And if government spend is not met by revenue, government runs a deficit, which ends up monetized and creates inflation.

So when you say "Tariffs always bad" what you are really saying is that you want the largest corporations to rent seek on the tax difference, and leave the government burden to be carried by the likes of you and anyone who doesn't have offshore tax efficiencies. You pay for the government with income and inflation, and they rent seek the monopolistic profits of this adversarial structure.

Now how tariffs fix that problem?

Say you simply add a tariff on these products such that it doens't matter whether you deploy your capital in the US or Mexico, you still end up with roughly the same tax burden (i.e. roughly 40% of your gross income). Now the arbitrage vanishes, and capital will likely only deploy offshore if Mexico labor is much cheaper or somehow Mexico has a much more efficient supply chain for your business to justify the move.

Tariffs can be used to address artificial advantages created by other taxes and regulations (the argument for regulation is completely analogous and I leave it as homework for you).

Does that mean that your "Tariffs for dummies" lesson that protectionism is bad therefore tariffs is bad was wrong? No it wasn't. Protectionism is still bad, and if used as the rationale for tariffs, then tariffs are indeed bad.

But the structure of taxes and regulations can create a situation that is the opposite of protectionism, i.e. subsidies for imports. So domestic capital redeployes as foreign exporters to arbitrage it. And in that situation tariffs can be the best tool to fix the problem.

QED.

PS: Read it multiple times until it makes sense.

So I have done some reading on the side bar. Interacted with AEs in person and read many of the cases that people who follow the austrian economics ideas. I have been successfully pushed out of any economically conservative position I had taken growing up and find the leftist positions way more relatable and better for human life. I have gone to vote and decided to go straight blue as I cannot do the back flips this sub does to justify dictatorship.

Further the gross lack of academic integrity and lack of reality is disturbing. There is gas lighting about AE being value free when there is clearly a political end goal it wants to see (makes sense why neo-feudal types feel comfortable with these ideas as opposed to those left leaning). Also people often engage with this very open minded and the austrians are so toxic and have terrible answers. It is reasonable to ask how roads would be kept, how education would be provided or healthcare. People want to know how their rights will be kept and be included in the new society. Nothing but dismissal saying "free market solves it" and pretend that their concerns are not a big deal. Often someone will reply with historical and modern economics data that converges to disprove that AE will address issues people have. What does this sub do? Flat earth style thinking.

I am just a normal white kid from a conservative suburb. I felt it all made sense, but now that I engaged with it and the history its all just so backward. Thank you all for pushing me to the left