The Brothers Austrian

Have you ever stopped to think about how much efficiently you could have learned something? Or what about when you realize everything you thought you knew was wrong? I am sure some very smart people were convinced the world was flat and were quite perturbed when learned the world was actually round. Well I would say I just realized everything that I had been taught/thought about the history of the U.S. was dead wrong.

At Syracuse University, as a history major, I was taught that it was Roosevelt’s quarterbacking in the 30′s that helped the U.S. recovery from the depression. I was essentially taught, like the rest of us, that fiat monetary system created by the Federal Reserve was necessary to provide the economy the “flexibility” to soften the blows that were supposedly considered a natural occurrence of the market (this is painful to think about). If you are reading the blog, you probably have had the experience that I had when I discovered the plethora of readings that come from what is known as the “Austrian” school of economic thought. My first reading was Economic Policy: Thoughts for today and Tomorrow. From there it all just snowballed for me. Hayek, Hazlitt, Rothbard. But honestly it really only took me about the first 25 pages of that first Von Mises book and I was hooked. Like I had discovered a new religion and that I was saved….and then I immediately felt as if I had been robbed.

I thought to myself, “How could I not have heard of this school thought…I was a double major.” One would think that if you majored in both political science and history that I would have come across this “Austrian” school of thought. This just did not make sense.

What I do realize is that history is written by the victors. America came out of the WWII the strongest nation which had seemingly won WWII (no one really won, everyone lost in my opinion). We had amassed an enormous amount of wealth throughout the 19th and early 20th century. Subsequently although Roosevelt was in charge during the majority of America’s most prolonged down turn he and his “brain trust” are viewed as saviors.

What’s my point? I honestly believe that Mr. Obama and Mr. Bernanke are two of America’s best and brightest, however their current “humanactions” are a mold/consequence  of their life experiences. Obama happened to attend a college that teaches its students to believe that they know better than the collective. They believe can smooth out market upheaval with their policies rather than recognizing its their policy  their school of thought that caused the problems.   What if Mr. Bernanke was scientist that could have cured cancer but he was instead taught that cancer can’t be cured but merely slowed down and then at very end of his life he realizes he could have cured cancer all along but he was taught it can only be slowed down.

This is my glass have full post. I will try not to succomb to the idea (at least not tonight) that this mess came about because politicians and other self interested individuals were/are trying retain their power through inflation and wealth redistribution.

MisesBeliever Entrepreneurship, Federal Reserve, Free trade, General, History, Real Estate austrian, education, Federal Reserve, hayek, Hazlitt, syracuse university

One beautiful summer day, a young boy asks his mother if he can set-up a lemonade stand.  His mother acquiesces and takes the boy to the grocery store where she spends $10 getting him fresh lemons, sugar, ice, and disposable cups.  Before the boy is allowed to go sell his lemonade, she places a variety of rules on him: don’t talk to strangers if she isn’t around; set-up your stand close to the house; and stop selling by 2 o’clock.  That boy, eager to get started, quickly agrees and runs outside to set-up his stand.

The boy sets up his stand and begins selling lemonade for $2 per cup.  He doesn’t have any real sense of profit and loss, just knows that $2 can get him a can of Red Bull at 7-11, so that seems like a good start.  His mom said that he had to pay some of the money she lent him back, but he knows better.

As the boy begins selling an older gentleman out for a run stops and asks for cup.  The boy hesitates and then says,

“Sorry, but I cannot talk to strangers.”

“Well, how do you intend to make a profit and set-up shop again tomorrow,” chuckles the older man as he runs away.

The boy quickly scribbles ‘closed’ on his sign and runs in to ask his mom to join him outside so he can sell to the next older gentleman.  On their way outside he asks his mom if he can set-up his stand tomorrow if he doesn’t make a profit today.  His mom replies,

“Don’t worry sweetie, I’ll give you some more money tomorrow so that you can open up again.”

Contended, the boy resumes selling his lemonade.  As he sits in his stand, he cannot help but notice how quiet his side of the street is compared to the other side.  Across the road was a small local gym that seemed to have tons of people bustling in and out.  The boy seemed to think that all of the people coming and going looked very thirsty.  Sensing opportunity, he yelled to his mom asking if he could set-up his stand across the street.

“Didn’t you listen to my rules?  You need to stay on this side of the street,” replied his mother.

The boy manages to sell two or three cups of lemonade, before his mother calls him in at two.  Noticing the amount of activity on the street picking up in the afternoon hours, he pleads to stay out until 5.  His mother tells him that he cannot.  The disgruntled boy packs up his stand and heads inside.  He places the leftover lemonade in the refrigerator for tomorrow.

Later that evening, he notices his mother and father sitting on the porch, laughing and drinking his lemonade.

“Hey,” says the boy as he watches potential revenue do down his parents’ throats, “why are you drinking my lemonade?”

“Oh, don’t worry sweetie, I will take you to get some more lemons tomorrow, besides I bought the lemons anyway” replies his mother.

The next morning, the boy asks his mom to take him to get more lemons and ice.  He pulls together $3 of his revenue from the day before, determined to pay for this next batch himself.  As they drive to the store, the boy notices that they are headed in the wrong direction.

“Where are we going,” he asks his mother.

“Oh, we’re going to go to the local grocer.  I heard he is struggling and could use our business,” replied his mother.

When they arrive at the store, the boy heads straight for the lemons.  Immediately, he notices that the lemons in this store are significantly more than at the other store.  When he complains to his mom that he doesn’t even think he has enough money for lemons at this store, she reassures him that it is alright and that she will give him the difference.  The boy begrudgingly agrees, knowing that he’ll have to wait another day to be free from his mother’s charity.

The boy’s bad fortune would not end there.  As soon as he had his stand set-up and lemonade ready to go, a huge downpour of rain began.  He hurriedly packs up his gear and headed inside.  Setting his pitcher down at the kitchen table, he notices that the lemonade looks significantly less yellow.  The rain seemed to have diluted the once fresh and flavorful concoction.

The next morning, the boy was ready again to go to the store.  This time, however, his mother was broke.  She had no money for him to purchase more lemons.  Sensing a catastrophic breakdown, she rushes next door to her in-laws and asks to borrow money.  She has a hot and cold relationship with them, but she senses that the stability of her child is at stake (at least for the day) and deems the move necessary.

The boy gets his lemons and has his best day of sales, 6 cups.  That’s $12 bucks in his pocket.  He is feeling pretty good until his mom asks him for some of that money right back so she doesn’t have to ‘owe’ her in-laws.  He obliges and looks at what is left … not much.

This time, however, rather than planning for the next day, he runs to 7-11 purchases a red bull and chips.  As he’s walking home, he starts to wonder how much his friend Johnny makes on his paper route.

Teacherman Entrepreneurship Entrepreneurship

I have a message for President Obama: If you want to save the economy, make the entrepreneur eager to invest.  If you want to create your two million three million (wait wait, we have hope, let’s make it…) four million jobs, stop wasting money investing in ‘public works’ and start reassuring the entrepreneur.

The problem is that everything this country has done in response to this economic crisis should scare the entrepreneur, not encourage him to assume risk.  It does not take an Austrian to realize the power and potential of the entrepreneur in the American economy.  First of all, what can the entrepreneur do?  According to Israel Kirzner the entrepreneur plays a critical role in the economy thanks to his or her ability to be alert to new and shifting opportunities.  After all, it is the entrepreneur who will create (and alter) what goods are produced as well as where and how they are produced.  Entrepreneurs, through their keen alertness to profit and trepidation of losses, will adjust production activities to best respond to market demands.  In other words, if you let the entrepreneurs among us go freely, we will sort out the bad assets from the good naturally.

There in lies the problem.  What entrepreneur can act freely at this juncture?  The stimulus bill hinders economic activity in many ways, not the least of which is its massive borrowing.  This capital could have been used by entrepreneurs for economic endeavors not based on the ruling class’s whims, but based on those insane ideas of profit and loss.  Let’s not forget the rhetoric of Washington these days: blame capitalism, blame greed, and regulate, regulate, regulate … and soon … nationalize!  With that coming from the statists in Washington, what entrepreneur is feeling confident in assuming risk in this country?  Let’s not blame Obama entirely, the Bush crew, also deserves some blame.  It was Paulson and Co. that bullied the largest banks in the country to take Federal money.  In the case of Bank of America, taking that money also meant taking all of Merrill Lynch’s assets at a price that the market had entirely rejected.  This is not an environment fostering entrepreneurship, it is one downright hostile to it!

There are a ton of ways in which the government foster entrepreneurship, I don’t think I could recommend them all here.  But I do have one idea.  One idea that is entirely not remotely a possibility, but one that would provide instant ‘stimulus’ is an immediate 25% cut of the minimum wage.  True, an abolishment would be better, but that wouldn’t have the same air of practicality now would it, let’s be reasonable.  There is obviously a surplus of labor in the country right now and given that surplus there is obviously a large number of unemployed Americans who would be willing to work for less, but are currently being priced out of the market.

Teacherman Entrepreneurship, Interventionism, Politics banks, bush, entrepreneurs, Entrepreneurship, miniumum wage, obama, stimulus