LearnLiberty Audio Podcast

Although everyone agrees that freedom is important, political freedoms are often prioritized over economic freedoms. Many believe that the best way to maximize personal freedom is to furnish each individual with an equal voice in the democratic decision-making process. After all, the logic goes, how can you be unhappy with a choice that you had a hand in making? Professor Jason Brennan explains that an equal vote is not tantamount to personal freedom. In fact, he posits that many democratic outcomes are injurious to individual freedom. Unless it is limited by a constitution that protects certain rights, majority rule can make individual liberty all but illusionary. If we truly care about freedom, Professor Brennan argues, then individuals should be given the largest possible sphere of personal and economic autonomy. Only then will individuals be allowed to take full control by making choices about all facets of their lives - not simply which lever to pull on election day. As Professor Brennan concludes, economic liberty is about much more than dollars and cents; it's about allowing individuals to 'lead the lives that they regard as authentically theirs.'

Check out Prof. Cowen's popular econ blog: http://www.marginalrevoultion.com What is the central claim of Austrian Business Cycle Theory? Prof. Tyler Cowen boils down the Austrians' boom-bust explanation: when the government manipulates the money supply, entrepreneurs get false ideas about the economy and make unsustainable decisions. When the central bank inflates the supply of money, the real interest rate falls because there is more money to be lent out. Since money is cheaper to borrow, entrepreneurs ramp up investment and take on riskier long-term projects-a boom often follows. But the man-handled market environment doesn't hold. False hopes lead to failures and an apparent boom, well, busts. Tyler points to the housing bubble as a case study. Between 2001 and 2004, the Federal Reserve played fast and loose with credit. Booming borrowing to invest in housing inflated the housing bubble. But when house prices fell, these long-term investments proved to be unprofitable and brought on the bust. How can we escape the cycle? Austrians propose that we steer clear of inflation-institute a gold standard or a monetary rule to avoid financial disaster. The rationale: a tighter money market means a more stable monetary supply that will enable entrepreneurs to keep expectations and investments in check. For many Austrians, kicking inflation takes on additional urgency based on their claim that once inflationary effects occur, the only corrective is to let investments fail and re-allocate remaining resources. The Ideas in Action: Turning to the Great Depression and our current financial crisis, Cowen explains that Austrians and Keynesians explain the downturns quite differently. For Keynesians and monetarists, both big busts could have been avoided if there was an increase in aggregate demand. Austrians, on the other hand, blame the effects of loose monetary policy misleading entrepreneurs. Which theory does historical evidence support? One point in the Austrian corner: many credit bubbles, the Great Depression and recent recession included, correspond with periods of loose monetary policy. But the Austrian angle has its shortcomings. First, put yourself into the mind of a bright entrepreneur for a moment; if you can reliably predict that loose money leads to riskier long term investments, wouldn't you exercise caution while taking on new projects in easy-money times? Second, we have to look at more than two historical case studies; in a broader field of view, we can find many economic downturns that have been caused by monetary contractions rather than expansions.

Check out Prof. Cowen's popular econ blog: http://www.marginalrevoultion.com Tyler Cowen touched on the topic of Wage and Price Stickiness in 'Business Cycles Explained: Keynesian Theory.' In this video, he dives deeper into these core ideas. What makes wages sticky? In many economies, a large portion of the workforce is unionized and wages are legally determined through a voting process. In these cases, if you want to unstick wages, you have to run the gauntlet of the political process. In less unionized economies, wage stickiness hinges partially on expectations and morale. Cowen explains using 'The Parable of the Angry Professor': Out of all people, we would think that economics professors would advocate wage reduction in order to avoid unemployment.However, when the wages of the professors remain flat or decrease, morale falls flat. The results? Complaints, sub-par teaching, nasty departmental politics. While wage stickiness is pervasive, it binds to some industries more than others. In commission based professional spheres, wage expectations are conditioned to adjust. When you work on commission, you expect income fluctuation-wages don't stick. But in most professions, the opposite is true. Many workers are willing to work harder, even beyond employer expectations, for the security of consistent, predictable wages. While this security can boost productivity and morale, the promise of predictability translates into troublesome stickiness during economic downturns. Wages aren't the only sticking points-prices get sticky too. Why? One reason comes down to menu costs. The term 'menu cost' originates from the costs associated with restaurants changing their prices. When a restaurant changes prices, they have to print new menus. Menus, or course, are not free! In order to avoid these menu costs, restaurants often stick with constant prices. And there you have your recipe for sticky prices!

Check out Prof. Cowen's popular econ blog: http://www.marginalrevoultion.com Moving to the world of Monetarism, Tyler Cowen introduces Milton Friedman and evaluates the case for creating monetary stability. Monetarism claims that money supply fluctuations drive the rate of inflation and deflation. Notable monetarist Milton Friedman proposed that stabilizing monetary supply would prevent excessive highs and lows that lead to inflation on one hand and economic downturn on the other. The monetarist theory wins points for historical support; we can find plenty of evidence that deflationary pressures lead to economic downturns. Cowen takes us to the period of stagflation in the 1970s to show the monetarist theory at work. During this period, interest and inflation rates ramped up. When the Federal Reserve decreased the money supply, deflation and unemployment followed, just as the monetarists would have predicted. But monetarism falls behind when it comes to practical ideas about how to control the growth of the money supply. How do you go about measuring money supply? Perhaps more importantly, how do you convince central banks to follow general rules limiting money-supply growth?

Check out Prof. Cowen's popular econ blog: http://www.marginalrevoultion.com What is the central claim of Austrian Business Cycle Theory? Cowen boils down the Austrians' boom-bust explanation: when the government manipulates the money supply, entrepreneurs get false ideas about the economy and make unsustainable decisions. When the central bank inflates the supply of money, the real interest rate falls because there is more money to be lent out. Since money is cheaper to borrow, entrepreneurs ramp up investment and take on riskier long-term projects-a boom often follows. But the man-handled market environment doesn't hold. False hopes lead to failures and an apparent boom, well, busts. Tyler points to the housing bubble as a case study. Between 2001 and 2004, the Federal Reserve played fast and loose with credit. Booming borrowing to invest in housing inflated the housing bubble. But when house prices fell, these long-term investments proved to be unprofitable and brought on the bust. How can we escape the cycle? Austrians propose that we steer clear of inflation-institute a gold standard or a monetary rule to avoid financial disaster. The rationale: a tighter money market means a more stable monetary supply that will enable entrepreneurs to keep expectations and investments in check. For many Austrians, kicking inflation takes on additional urgency based on their claim that once inflationary effects occur, the only corrective is to let investments fail and re-allocate remaining resources. The Ideas in Action: Turning to the Great Depression and our current financial crisis, Cowen explains that Austrians and Keynesians explain the downturns quite differently. For Keynesians and monetarists, both big busts could have been avoided if there was an increase in aggregate demand. Austrians, on the other hand, blame the effects of loose monetary policy misleading entrepreneurs. Which theory does historical evidence support? One point in the Austrian corner: many credit bubbles, the Great Depression and recent recession included, correspond with periods of loose monetary policy. But the Austrian angle has its shortcomings. First, put yourself into the mind of a bright entrepreneur for a moment; if you can reliably predict that loose money leads to riskier long term investments, wouldn't you exercise caution while taking on new projects in easy-money times? Second, we have to look at more than two historical case studies; in a broader field of view, we can find many economic downturns that have been caused by monetary contractions rather than expansions.

Check out Prof. Cowen's popular econ blog: http://www.marginalrevoultion.com Does the 'Real Business Cycle Theory' have a corner on reality? Cowen gives us a crash course. Real Business Cycle Theory holds shocks to technology are the real causes economic downturns. According to these 'realists,' technology shocks emanate from events that prevent an economy from producing the goods and services that it produced in the past. In the simplest form of the model, we trace the ripples from one major negative event. Cowen highlights the 2011 Tsunami and earthquake in Japan as an example of a negative shock to technology. At the epicenter of the disaster we find loss of life, property, and wealth. In economic aftershocks or ripples, we find price adjustments, and interrupted work and investment decisions. Further out we find effects reaching sectors that weren't immediately affected by the disaster. As the shock spreads, massive economic downturn takes place. One of the strengths of Real Business Cycle Theory is that it applies to almost every downturn in history. However, as the economies grow in size and complexity, the task of determining the size and relevance of a technological shock correspondingly grows more complex. Take the recent financial crisis as an example-what initial negative shock reverberates through our current recession?

Check out Prof. Cowen's popular econ blog: http://www.marginalrevoultion.com In the Keynesian corner, Tyler Cowen examines the Keynesian theory of the business cycle. According to the Keynesian model, substantial economic slumps come from falling aggregate demand-the sum of overall consumption, investment, and government spending within the economy. When Aggregate Demand falls, producers of goods and services lose revenue and are forced to adjust. How does the market handle this economic adjustment? In order for businesses to maintain profit levels, they must reduce production costs. But cost cutting is difficult because of what economists call 'sticky wages and prices.' Cutting wages can cut morale and, in turn, cut productivity. In the end, employers wind up cutting people altogether in order to escape the sticky situation. So stickiness translates into higher levels of unemployment. Unemployment leads to decreased spending and further depresses aggregate demand. Falling aggregate demand combines with wage stickiness, dragging the economy into systemic crisis. Cowen awards the Keynesian model points for accurately describing real-world business fluctuations. Falling aggregate demand has paved the way to major downturns, including the Great Depression. However, Cowen notes that aggregate demand is not the primary culprit in all crises. And when it comes to curing crises, the Keynesian model comes up short.

Check out Prof. Cowen's popular econ blog: www.marginalrevolution.com Big crises raise big questions. In the wake of the recent financial crisis, economists are asking million-dollar macro-economic questions: What causes market fluctuation? What causes business cycles? In this series of videos, Professor Tyler Cowen vets the contenders for the 'top macroeconomic theory' title. Tune in to discover the strengths and weaknesses of four theories-and find out who earns the crown from Cowen.

LearnLiberty is a resource for learning about the ideas of a free society. Our goal is to provide a starting point for conversations on important questions: · What is the nature of man and society? · What are the best ways to organize human society? · What is the proper role for government?

Today, many define 'exploitation' as taking unfair advantage of others' vulnerability. Based on this definition, many suspect that capitalism exploits workers. Professor Matt Zwolinski examines whether this is accurate and finds two points against it: 1. Capitalists may not want to pay workers close to the value of what they produce, but they do because competition requires it. 2. Exchanges in free markets are voluntary. This means that even when 'exploitative' transactions take place, the institutions of a free market ensure they are mutually beneficial. Markets may not be perfect, but what's the alternative? Many believe that to prevent exploitation we need more political regulation and control, but Professor Zwolinski explains the problems with this solution. Bureaucrats, lobbyists, and elected officials are tempted to exploit citizens for the benefit of the politically well connected. Transactions between people and the state aren't voluntary, so they may not be mutually beneficial either. When politics is involved, one party's gain usually comes at someone else's expense.

Many think capitalism exploits the masses for the benefit of a small minority. Professor Matt Zwolinski says that even if this is true we should be asking what the alternative to capitalism might be. The common suggestion is to increase government regulation and control over businesses. But does that alternative really make sense? The history of government regulation shows that citizens are in an extremely vulnerable position in relation to the state. Lobbyists and government officials are often tempted to exploit that vulnerability, by lobbying for and rewarding bailouts and subsidies. Governments frequently pass laws that benefit the economically powerful and politically well-connected at the expense of citizens. When the government wants to use your money to bail out GM, you don't have the right to say no. But in the marketplace, no one can force you to spend your money. Which is more exploitative? Zwolinski wonders: if we really want to reduce the amount of exploitation, is increasing the power of the state really the best way to do it?

In 2009, the government's budget deficit was $1.5 trillion. Many have suggested raising taxes on the richest Americans to help offset the budget shortfall. Economics professor Antony Davies uses data to assess whether taxing the rich could possibly make up the difference. First, Professor Davies shows that the richest 5 percent of Americans already pay a tax rate almost three times higher than the average tax rate of the remaining 95 percent. It's hard to argue that the richest aren't paying a fair share of taxes. Aside from that, for the richest Americans to shoulder the deficit, we would have to raise their effective tax rate to 88 percent. At 88 percent, a family earning $300,000 each year has only $36,000 after taxes-less than the average American earns. Professor Davies shows other scenarios that would be necessary to pay the $1.5 trillion difference between government revenue and government spending. Realistically, taxing the rich is not going to be able to solve this problem. 'The budget deficit is so large that there simply aren't enough rich people to tax to raise enough to balance the budget,' Professor Davies says. It is time to start working on legitimate solutions, like cutting spending.In 2009, the government's budget deficit was $1.5 trillion. Many have suggested raising taxes on the richest Americans to help offset the budget shortfall. Economics professor Antony Davies uses data to assess whether taxing the rich could possibly make up the difference. First, Professor Davies shows that the richest 5 percent of Americans already pay a tax rate almost three times higher than the average tax rate of the remaining 95 percent. It's hard to argue that the richest aren't paying a fair share of taxes. Aside from that, for the richest Americans to shoulder the deficit, we would have to raise their effective tax rate to 88 percent. At 88 percent, a family earning $300,000 each year has only $36,000 after taxes-less than the average American earns. Professor Davies shows other scenarios that would be necessary to pay the $1.5 trillion difference between government revenue and government spending. Realistically, taxing the rich is not going to be able to solve this problem. 'The budget deficit is so large that there simply aren't enough rich people to tax to raise enough to balance the budget,' Professor Davies says. It is time to start working on legitimate solutions, like cutting spending. Source

If Social Security and Medicare are constitutional, why isn't the individual mandate from the Affordable Care Act also constitutional? Law professor Elizabeth Price Foley explains that the Social Security and Medicare laws are based on a different congressional power than the Affordable Care Act. Social Security and Medicare fall under Congress's power to tax and spend on behalf of U.S. citizens, while the individual mandate is based on the power to regulate commerce. The question before the Supreme Court is whether the power to regulate commerce includes the power to compel people to participate in commerce. Is it within Congress's constitutional authority to require individuals to buy health care if they do not want to do so? Professor Elizabeth Price Foley says Congress could have solved the problem of access to health care for the uninsured without using its commerce power. It could have simply invoked the same principle it used with Social Security and Medicare. If that had happened, the Affordable Care Act would not be in a case pending before the Supreme Court.

Architects create blueprints for buildings; could a person create a blueprint for society? Could such a person choose how many people will be lawyers and how many will be policemen? Adam Smith discusses such a designer in his book The Theory of Moral Sentiments (1759). He calls this person the 'man of system,' saying that such man is 'apt to be very wise in his own conceit; and is often so enamored with the supposed beauty of his ideal plan of government that he cannot suffer the smallest deviation from any part of it.' Professor James R. Otteson explains Smith's man of system. The man of system faces a problem: individual people are not chess pieces to be moved only under someone else's authority. Individuals make their own decisions and move on their own. When individuals are constantly butting up against demands from the government that they find imposing or contrary to their desires, Smith says, 'society must be at all times in the highest degree of disorder.'

Most states require individuals to possess insurance for their automobiles. So why can't the federal government be able to set a similar requirement? According to Professor Elizabeth Price Foley, the Constitution outlines specific powers for the federal government. Any law Congress passes must be able to prove that it falls under these powers. States have different powers. The U.S. Supreme Court will ultimately decide whether the individual mandate for health insurance falls under the powers given to Congress in the Constitution. But just because the states have the power to establish mandates for health insurance or car insurance does not suggest that the federal government has the same power.