NC Sentences Citizens to Shortages and Misery

We are all very aware that hurricane Irene is coming to North Carolina.  As we prepare for the coming storm, the NC government has declared a state of emergency.  The effect of this declaration is that law GS 75-38 comes into full effect.

What's GS 75-38? you ask.  Good question.  It is the NC Anti-Price Gouging law.  If "the price charged by the seller exceeds the seller's average price in the preceding 60 days before the triggering event" then the seller can be fined $5,000 per violation and the injured parties can attempt redress.  Additionally, the law stays in effect for another 45 days after the "triggering event" is over.

If the hurricane does hit NC and suppose that it does knock out basic services like electricity, water, etc. then what is the best way to communicate to the rest of the economy that we are in desperate need of water, etc.?  The market uses the price mechanism to alert everyone that we need these supplies.  The price rises and screams to the world that we need water.  It shouts that we need food.  It raises a ruckus that we need generators. 

When these evil laws come into effect they completely shut off this market mechanism.  It not only cuts off the encouraging signal to entrepreneurs to send these vitally needed supplies to NC, but it actively discourages such behavior.  "If you dare go to NC, we will be watching you!"

When the price is not allowed to rise, shortages occur.  That means there is nothing left to buy at any price.  Period.  Some people think that at least the price won't be too high.  SO WHAT!  If there is nothing to buy, then who cares what the price is?  We have to shed this idea that a high price constitutes someone ripping someone else off. 

The price is a signal.  Getting mad at a high price is like getting mad at the thermometer for it being a hot day.  "How dare you get so red, thermometer.  I don't want it to be so hot!"  Ridiculus!  The price is a reflection of the scarcity of the good in question.  When the price goes up, it is because it is more scarce.  Without the high price, the goods are sold out and then there is nothing left.  These Anti-Price Gouging laws are a sentence to shortages and misery. 

Do not be fooled into thinking that the politicians are doing this to protect the "little guy."  In fact the result of this law is to make the government itself (e.g., FEMA) the major supplier of relief.  In other words, I am unable to look forward to my neighbors in Tennessee coming to my aid, instead I will have to rely on FEMA and the other bureaucratic state agencies to relieve my suffering and that of my family and neighbors.  The bottom line is that we become more dependent on the government and less on our neighbors.

The science of political economy is a powerful tool because it demands that we look beyond the stated intentions of the politicians.  It forces us to look at not just what is seen, but we need to imagine the unseen.  We are forced not to be content with looking at the intended consequences, but the unintended consequences need to be considered as well.  It is in this manner that we can find a true path to recovery and protect our liberties as well.

Real Meaning of Say's Law

Last March I gave a talk at the John Locke Foundation in Raleigh, NC.  The topic was on Say's Law.  In this interview I explain the real meaning of Say's Law and contrast it with today's Keynesian point of view.




Here is the clip from that talk last March.  (I also posted this last March.)

Austrian Economics Forum Fall 2011 #0--Prequel

Well we are getting closer to that time of the year again, the Austrian economics reading group at NC State University!  Yes more readings in Austrian economics!  Who doesn't look forward to this?  (Crazy people, that's who.)

For the Fall semester, we have 6 scheduled meetings starting on 4:30pm September 2, 2011 at Nelson Hall, Rm 3220. 

The group, the Austrian Economics Forum, has decided to read and discuss Kirzner's classic Competition and Entrepreneurship.  It was first published in 1973, the year that Mises died, the year before Hayek won the Nobel Prize and the IHS conference in South Royalton, Vermont.  It has been a centerpiece of the Austrian revival of the the last 35+ years.

Since the book has 6 chapters and we have 6 meetings, we will do one chapter per meeting.  I welcome you to the discussion.  I will post, as best I can, a summary of the discussion and my thoughts as well.  If you want to continue the discussion or bring up new points from the readings, please post them here and I will encourage the members of the AEF to comment and reply. 

I am looking forward to this series of readings and to your comments.

New Yield Curve Numbers

So I have been tracking the Yield Curve closely this month.  The spread between the long and the short rates are closing.  In other words, the curve is flattening.  Right now this movement is due to the long-rates falling because the short-rates are pinned to the floor by the Fed.

The short rates I have been tracking are the 3-mo and 1-yr T-Bills.  I am looking at their spread with the 10-, 20-, and 30-yr bonds.  As of today (Aug. 18), the spreads with the 10- and 20-yr bonds are smaller than they were before QE2.  The 30-yr spread is 8 and 9 basis points above the low, less than a year ago.

While some may argue that the spread is still fairly wide, and it is, I do not think that this is a stable gap.  Some spreads this large took more than a year to close, but sometimes it has taken less than a year. 

The key for reading this indicator is whether the short-rates start to rise.  If they do, then that is the clear indicator we are looking for.  However, this might be disguised by the Fed actively manipulating the yield curve.  If it is doing this, then the yield curve is no longer a predictor of the health of the economy.

The Treasury Yields Indicate a Worsening Economy too

I know that looking at short-term movements is an imprudent impulse.  Nevertheless, I have been watching the Treasury Yields and the spread is dropping quickly.  I put the first week of August into my spreadsheet (which is on right hand side of the screen) and the average spread between long- and short-term Treasuries has fallen by more than 56 basis points (more than 0.56%).  Okay I have found an error in one of my numbers.  And as of today (August 8, 2011) the new number is just above 41 basis points (more than 0.41%).

While this may seem trivial in the face of many other economic problems, it is a clear indicator of the direction of the economy.  The current spread is lower than it was before when QE2 began in October 2010.  That's not even a full year ago!  Is this a sign that the economy is trying to reassert itself over the tampering of the government?  I think YES!

As this spread shrinks, we inch closer and closer to the next recession.