[jmherbener]

A healthy economy is one that satisfies our preferences. If we have higher time preferences, then we want the economy to growth less rapidly so that we can devote more resources to producing consumer goods now instead of building up a bigger capital structure to produce more consumer goods in the future.

One might claim that it’s better for people to have lower time preferences instead of higher, but economic theory makes no judgment about what people’s preferences are. Economic theory explains which means are suitable to attain the ends people prefer and which are unsuitable.

[jmherbener]

Yes, Americans have higher time preferences today than Americans a hundred years ago. Evidence of this is saving as a proportion of income. In the late 19th century Americans saved 20-25 percent of their income. Today it’s 5 percent. Other evidence would be personal debt per household. Their was almost no consumer debt in America before the 1920s. Now the personal debt per household is around $200,000. Of course, it’s also true that the average household hold much more valuable assets than it did a hundred years ago.

Here’s a Fed study on household debt:

http://www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q12013.pdf

[jmherbener]

It would be worth the present value of the future revenue stream generated by its contribution in satisfying consumers. In your example, that is currently $10 million (before reaching the ERE). In the ERE if the mall had a price of $10 million, then the factors of production used to build such a mall would have a value equal to $10 million discounted by the appropriate rate of interest.

[jmherbener]

Employment in manufacturing has fallen from just under 15 million in 2003 to just under 12 million today. Peak employment was in 1979 at 19.5 million.

http://data.bls.gov/timeseries/CES3000000001?data_tool=XGtable

Here’s a congressional study on U.S. manufacturing. No surprise, we’re still the biggest manufacturing country in the world. Although, U.S. share of world manufacturing has been falling.

http://www.fas.org/sgp/crs/misc/R42135.pdf

The trade statistics don’t break down the types of merchandise traded in the balance of payments, i.e., whether manufacturing, mining, agriculture, and so on. The basic categories are merchandise and services.

The shift away from manufacturing toward other sectors is likely a natural result of adaptation to our changing comparative advantage in the world. China has developed a large manufacturing sector because its more efficient to have them do this instead of us and its more efficient for us to do other things. People in both places gain. Employment in manufacturing would fall and its contribution to our overall production would shrink, but standards of living rise.

America went through a similar shift concerning agriculture last century. But hardly anyone today thinks it’s a bad thing for American society that only 2 percent of our workforce is in agriculture instead of 20 percent or 40 percent.

[jmherbener]

As a general rule, insurance companies do not control the costs incurred by producers whom they pay. Hurricane insurance companies do not control the costs of re-building when a hurricane strikes. If the clients buy insurance for replacing their structures, then the companies agree to pay the costs of replacement.

With health “insurance,” the companies agree to pay for medical procedures. They cannot then “control” the costs of providing the procedure. If the state is subsidizing the companies, then they have more money to spend to pay for the procedures and the price is bid up. If one company tries to keep it’s costs down by paying less or substituting a different less-costly procedure, then, other companies will move in to earn the higher profit. To get business, they will have to provide better terms. That means they spend more and healthcare prices rise.

This is one alleged justification for single-payer system. If there was just one “insurance” company, then the competitive process could be eliminated and healthcare prices held down. I’m not saying I agree with this assessment, only that some people argue this way.

On why the American healthcare system is so much more expensive than those of other countries, it seems to me that one has to entertain the possibility that the system is designed to be so. It has been, after all, constructed by doctors. What is cost for patients is income for doctors. So we have a system designed largely by doctors which makes doctors rich. When insurance companies try to reduce costs by offering limited policies, the state makes doing so illegal, as we’ve seen in the roll out of Obamacare. The state mandates that insurance companies cover all sorts of things because it means that more money will be spent on doctor’s services and other beneficiaries of the system.

[jmherbener]

Prices for the factors of production, labor, land, materials, etc. are determined by the demand entrepreneurs have to use them in their various production processes across the economy. The land has a price of $3 m because their are entrepreneurs who will pay that price to employ that land in their productive processes. The same is true of the price for labor and the price for materials. Prices for factors of production are determined by entrepreneur demands for them which in turn are determined by the revenues that consumers generate from the output produced and the productivity of the factor of production in producing those outputs.

The net income entrepreneurs earn in their production processes comes from the productive contributions made by the entrepreneurs: wages for their labor used; interest for their capital invested; and profit for their foresight. In the ERE, profit would be zero, but net income would remain because entrepreneurial labor and capital funding still has value in producing goods.

The spread between output prices and input prices in the ERE, then, reflects the interest return on investment. This must be uniform for a similar types of investments, because capitalist would invest more heavily in higher return areas than lower return areas. By expanding production in higher return areas, output prices decline and input prices rise, reducing the price spread and by contracting production in lower return areas, output prices rise and input prices fall, increasing the price spread.

As we approached the ERE, in your example, production of malls would increase because of the greater return. This would lower output prices and raise input prices. Which input prices rise by how much cannot be determined by theory alone. All we can say is that factors more specific to a production process would rise more and prices less specific to a production process would rise less. In your example, land prices probably would rise the most.

Prices of output do not move to conform to replacement costs. Prices of output fall because of the additional supply of entrepreneurs who are taking advantage of the profit opportunity. Prices of inputs rise for the same reason. Price spreads conform to the interest return.

[jmherbener]

In a division of labor each person produces to satisfy the consumptive ends of other people and has his consumptive ends met by them. Naturally, each person will run trade deficits with every person from which he buys their outputs and trade surpluses with every person to which he sells his outputs.

A person’s overall trade balance with all other people could be either in deficit, surplus or balance. If it is in deficit, it means that he has traded capital funding to others in exchange for their output. If it is in surplus, it means that he has traded his output to others in exchange for their capital funding.

A trade deficit, then, doesn’t reflect an unproductive or uncompetitive person. It indicates that he prefers to obtain goods from others by paying them in goods and capital funding and others prefer to receive his goods and capital funding in payment for their goods.

There’s no correlation between trade deficits and the performance of the economy.

From 1790-1860, America ran trade deficits almost every year.

http://www.nber.org/chapters/c2491.pdf (Scroll down to Tables 1 and 3)

After 1865-1900, America ran trade surpluses almost every year.

http://www.nber.org/chapters/c2491.pdf (Scroll down to Table 27)

[jmherbener]

The national debt is still growing.

http://research.stlouisfed.org/fred2/series/GFDEBTN?cid=5

Here is the federal budget:

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/tables.pdf

The federal deficit has been falling and is projected to fall further (table S-1).

But the burden of the government on the economy is its expenditures, which continue to rise (table S-5). The size of the deficit is a secondary matter. It’s being reduced by raising taxes. If it were being reduced by cutting expenditures, then it would be significantly beneficial for the economy.

The merchandize trade deficit has nothing to do with the health of the economy. It merely reflects the different preferences people around the world have for goods, services, capital investments, and money holdings. When taking all factors into account, the balance of payments accounts always balance.

http://www.bea.gov/international/

Click on “”U.S. International Transactions, 1960-Present” under “Balance of Payments (International Transactions)” to see the data.

[jmherbener]

Other people must save in order to have funds to lend to entrepreneurs. Entrepreneurs can be either self-financing, in which case they use their own savings, or obtain funds from financial markets, in which case they use other people’s savings.

[jmherbener]

The 1950s was a period of restructuring the capital capacity of the economy from the war economy to normalcy. The wartime controls were removed, the monetary inflation subsided, the government’s taxes, expenditures and indebtedness were receding. It took a few years in the late 1940s to transform the capital stock and then, the freer economy could operate normally.

Take a look at the seminal work by Bob Higgs:

http://www.independent.org/newsroom/article.asp?id=138

[jmherbener]

As a sociologist, Nisbet is using the term “capitalism” to refer to the historical system called capitalism. As economists, we use tend to use the “free market economy” or “unhampered market economy” as a synonym with “capitalism.” Nisbet is a champion of liberty and order, an order brought about without the state..

David Gordon lists Nisbet’s book as one of the 100 most important works on liberty:

http://mises.org/daily/1830

Here are a few appreciations of Nisbet:

http://www.garynorth.com/public/10962.cfm

http://www.lewrockwell.com/2001/05/gary-north/nisbet-rushdoony-and-rothbard/

http://antiwar.com/stromberg/?articleid=3371

[jmherbener]

He points to the 1950s as a case in which the economy performed adequately while income inequality was being reduced by high marginal income tax rates. Here’s his argument:

http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html

There are many problems with this line of thinking.

First, Krugman implicitly denies that higher incomes on the market are earned by those who bring about superior satisfaction of the consumptive ends of other people. Letting people keep their incomes furthers the social goal of using resources to satisfies the most valuable consumptive ends people have in society at large. Consider this analogy to Krugman’s argument. Suppose the government had a mechanism for allocating grant money to the people who made the most valuable scientific breakthroughs. Given that the ability to make scientific breakthroughs was not evenly distributed across all scientists, would Krugman advocate that 91 percent of the grant money be taken from the top 1 percent of recipients?

Second, Krugman seems to think that higher tax rates on the rich mean they pay more tax revenue. But this is not necessarily true. The top rate on federal income tax in 1980 was 70 percent, in 1986 it was dropped to 50 percent, in 1991 it was down to 31 percent, then rose again in 2000 to 39.6 percent, and today stands at 35 percent. The following charts document that even though top income tax rates have fallen from the 1970 and 1980s, the percent of all income taxes paid by the highest quintile has increased from 65 percent in 1979 to 86 percent in 2007.

http://www.cbo.gov/sites/default/files/cbofiles/attachments/Tax_liability_Shares.pdf

Third, Krugman ignores the fact that the richest depend more heavily on their investments for their incomes than the non-richest do. Therefore, their incomes move up and down dramatically over the business cycle. Krugman is a hypocrite. He claims to desire to reduce income inequality but is one of the biggest advocates of Fed monetary inflation and credit expansion, which generates booms and is a leading source of the elevated incomes of the richest. Of course, when the bust comes, their income plummets. This explains why the richest saw their income fall during the Great Depression and the WWII.

[jmherbener]

TMS is up 8.4 percent over the last year.

Here’s the updated data:

http://www.forbes.com/sites/michaelpollaro/2013/11/16/global-monetary-watch-u-s-true-money-supply/

[jmherbener]

Rothbard developed a measure he called the True Money Supply:

http://mises.org/content/nofed/chart.aspx

Investors who are typically interested in large time deposits are currently interested in other financial assets.

[jmherbener]

Standard monopoly theory says that instead of producing output at the competitive level at which Price = Marginal Cost, a monopolist will restrict production to the point at which Marginal Revenue = Marginal Cost. Any producer, whether monopolist or competitive, maximizes profit by producing output at the point where MR = MC. For competitive firms P = MR and therefore, profit maximizing means P = MC. For monopolistic firms P > MR and therefore, profit maximizing means MR = MC which implies producing less output than the point at which P = MC.

This theory of monopoly cannot be applied to the production of fiat money because the MR always exceeds the MC for producing more. It costs around $0.25 to print a $1 bill. If the state took profit maximizing as its rule of determining how much fiat money to produce, it would continue to produce more $1 bills until the prices of paper and ink, etc. used to print them rose to $1, then it would print $5 bills and so on into hyperinflation. But the premise of monopoly theory is that the monopolist produces the amount of the good that maximizes profit. In the case of fiat money that rule will not lead to a restriction of production but to producing indefinite amounts.

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