Default Economic Theory vs Austrian Economic Theory

Which explanation is more accurate?

Default:

The default market standard is a market working perfectly and peopled by rather dull individuals who can only respond to “given” market prices, wages, and interest rates – both currently existing and ‘rationally’ expected.

 

Austrian:

The default standard for Austrians is a market currently filled with all manner of errors, both of commission and omission, but populated by creative individuals who, although each has knowledge and information only very limited and local, identify opportunities to profit by arranging for markets to work better if never “perfectly.”

Can there be anything that is perfect? Of course not. But that is what the Default camp uses in their theories and economics courses. If does not reflect reality. There is a problem of limited knowledge.

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New Measurement for State Education Rankings

Stan Liebowitz & Matthew L. Kelly:

You probably think you know which states have the best and worst education systems in the country. If you regularly dip into rankings such as those published by U.S. News and World Report, you likely believe schools in the Northeast and Upper Midwest are thriving while schools in the Deep South lag. It’s an understandable conclusion to draw from those ubiquitous “Best Schools!” lists. It’s also wrong.

That’s right. Read on:

To better capture the real state of play, we recently conducted a detailed investigation of state education rankings. We built a new set of rankings based on students’ performance on the National Assessment of Education Progress (NAEP), a battery of standardized tests sometimes called “The Nation’s Report Card.” These tests are given to fourth and eighth graders as well as some high school seniors.

How they corrected the shortcomings:

We fixed two serious problems common to traditional rankings. First, we removed factors that do not measure K–12 student performance or teaching effectiveness, such as spending per student (intentions to raise performance are not the same as raising performance), graduation rates (which often indicate nothing about learning, since 38 states do not have graduation proficiency exams), and pre-K enrollment. . . .

Rankings that include these factors distract from true student performance. For example, under traditional rankings, states with inferior test scores sometimes outrank states with better ones simply because they spend more.

My bold.

Our second and more important change was to disaggregate student performance data so that we could compare likes with likes. Traditional rankings effectively reward states for not having many minority students. States do well simply because they are populated by families from more socioeconomically successful ethnic categories—not because they are actually doing a good job educating their various categories of students.

Student heterogeneity is precisely why traditional state education rankings can be so misleading. Small, largely white states in New England, such as Maine and Vermont, do very well in these rankings, but that status merely reflects their small black and Hispanic populations.

Traditional rankings do not compare students correctly. The new rankings do:

This is starkly illustrated by comparing Texas and Iowa. According to U.S. News and World Report, Texas, which ranks 33rd, is far surpassed in educational quality by Iowa, which ranks eighth. When only the test scores are examined at an aggregate level, the ranks shift somewhat but their relative positions don’t: Texas moves to 35th and Iowa to 17th. But when we disaggregate student performance scores by racial categories (white, black, Hispanic, and Asian), the rankings change dramatically.

By looking at test scores for students in fourth and eighth grade in math, reading, and science, and by separating students by racial category, we get 24 different possible bases of comparison. This allows us to measure how well states do for each specific student type—Asian fourth-grade math students, for instance. (We have adjusted our rankings to compensate for the fact that not all states report scores for every student group.) Giving each type equal weight, Texas comes in fifth and Iowa 31st—a remarkable reversal.

Simply spending more money is not a sign of educational success. As well, traditional rankings serve an injustice to minority students in predominantly white states.

 

Three Widely Believed Economic Fallacies

Steve Horowitz:

The Fallacy of the Zero-Sum Game

The first of these fallacies is the belief that market activities, especially exchange, are zero-sum games. Zero-sum games are those in which the total gained from playing the game is zero. So, for example, if each of five people playing poker buys into the game for $100, there is only $500 to be won.

. . .

We see this misperception of markets in a variety of forms. At the most general level, the belief that the rich get rich by impoverishing others is a species of zero-sum thinking.

 

 

The Fallacy That Order Requires Design

The second fallacy is the belief that economies require someone or some group to design and/or control them. Often this belief is linked to an argument from complexity: only a simple economy could be left to its own devices. Complex, advanced economies like those across most of the globe require human monitoring and regulation to function properly.

. . .

The flaw at the heart of this fallacy is that it ignores the idea of spontaneous or undesigned order.

 

The Fallacy that Consumption is the Key to Growth

The final fallacy is the belief that consumption is the source of economic growth. This belief is widely held by everyone from the citizenry at large up through economic journalists and politicians. We hear it every time the economy enters a recession and begins to recover. Pundits declare that consumers need to start buying things to generate a recovery, and reports about the latest data on consumer spending make the headlines.

. . .

In fact, consumption expenditures vary the least as economies go through booms and busts. The component with the greatest variation is private sector investment. If anything is needed during a recovery, it is more investment by the private sector, not more consumption.

. . .

The heart of the fallacy, however, is that consumption consumes things! When we consume goods and services, we destroy their value by using them up. Consuming food does not create anything valuable, it eliminates something valuable.

Excellent work. Read it.

Congressional Republicans (and Democrats) Blind on Tax Reform

First, eliminating the state and local tax (SALT) deduction makes sense because it encourages those governing entities to raise spending, knowing residents can deducts it at the federal level. So, curtailing amounts to a tax increase. The deal is to reduce the amount of SALT deductibility and also lower the income tax brackets for all income brackets including the highest one.

Second, politicians in both parties take the side of the employer/producer in this debate. The federal tax code includes a deduction for “educators”, meaning teachers. They are not the consumer or employee or individual.

Third, there is no assurance that a small business owner or anyone else who gets a tax reduction will hire employees. They may simply give themselves a pay raise.

A broad tax credit for citizens themselves so they can re-train, educate, or otherwise learn new skills are what is needed. Examples are someone who wants to learn how to braid hair, be an electrician, software programmer, or building engineer, learn the nuts-and-bolts of starting a business. There are hundreds of job classifications someone can sift through to find the niche that fits him or her.

Here.

NFL Players’ Protests, cont’d

Next thought on this topic is this. If the players in the NFL and other pro sports are truly interested in police misconduct and helping their communities, they should consider getting more involved at the local level. Police are government agents and thus can overuse their power.

Find out which politicians in the executive and legislative branches have been in office that are directing the police to act a certain way. Rise above the partisanship that contaminates every social discussion. Ignore the obsolete left/right, Democrat/Republican debate. As I said, its obsolete. A new government program will not work.

Get involved in your communities. Start a program related to your sport with your friends or fellow players to get young people involved and out of mischief. Get them educated in academics or learning a trade.

The Democrats “A Better Deal”

Reading through their agenda, I conclude its the same old crap. More government control, rules, and bureaucracy. And, the results will be the very results they say they are trying to fix. For example, their first issue complains about special interests and so-called the rich getting the benefits of government largess. But, any legislation or regulatory change involves the input of special interests. In fact, Democrats welcome special interests to provide expertise in writing legislation. They are the experts and that’s why they’re involved. The Democrats invite the special interests that fit their agenda to help who then tilt the legislation to their benefit. The result is more bureaucracy and more complexity in the lives of the middle class they say they are trying to help. How much record-keeping do we already have for taxes, medical care, and on and on? Well, that is the result of the very government Democrats are pushing.

How about this:

Our plan for A Better Deal starts by creating millions of good-paying, full-time jobs by directly investing in our crumbling infrastructure and prioritizing small business and entrepreneurs, instead of giving tax breaks to special interests.

How are they going to “creating millions of good-paying, full-time jobs” Well, that crumbling infrastructure is located in states that have been run by Democrats, with an occasional Republican elected such as NY, NJ, CA, IL. The fiscal problem at the state level is that government employee pensions, public education, and Medicaid have consumed their budgets, leaving little budget dollars left for infrastructure. Having the federal government spend on infrastructure relieves the state governors, legislators, and judges of being responsible for the infrastructure in their states. No real reform here.

Next, “prioritizing small business and entrepreneurs, instead of giving tax breaks to special interests.” is funny because “small business” and “entrepreneurs”, from a political perspective, are special interests. “prioritizing” means giving special treatment to special interests. Democrats just hide it from the public by burdening firms with the rules then we get ticked off at the firms for acting the way they do.

Here’s another: “We will crack down on monopolies and the concentration of economic power that has led to higher prices for consumers, workers, and small business”. The monopolies in the economy are the federal, state, and local governments. Further, firms cannot raise their prices. The prices of products and services that are rising faster then general inflation are those with heavy government involvement such as college tuition and public education.

Another problem with their approach is that all this activity interferes with the peaceful, voluntary actions of the American people interacting with each other and others across borders. That interference tilts the playing field because that is how the Democrats view everything. In Progressivism, someone must lose for someone else to win.

Next, their plan “provides new tax incentives to employers that invest in workforce training and education and make sure the rules of the economy support companies that focus on long-term growth, rather than short-term profits.” That means more paperwork, meetings, and time taken away from concentrating resources on doing the work for the customers of the firm. As well, firms have strategies for the short, medium, and long terms. They may not be completely filled out, but that is not possible because the future is unknown. The details get filled in as more information is available and more knowledge acquired. That’s why 10 or 20 years plans are nonsense.

The funny thing is, if a firm invests for the long-term, the results might pay off in government antitrust action against it, see Amazon.com. They invested for the long-term by keeping the retail prices low to build market share. But, Democrats want congressional hearings on its proposed acquisition of Whole Foods Market Inc. So the people at Amazon.com invested for the long-term and they get rewarded with congressional hearings. That makes no sense unless of course the hearings are for show and graft. Ahhh, graft. Squeeze a firm so its employees make financial contributions to the party.

And let’s not forget the mess the Democrats created in the health insurance market with Obamacare — monthly premiums higher, deductibles, higher, insurers leaving markets. So all in all, the Democrats are pulling the same stunts they always do.