MSE 299: Class Audio

Please note that the first part of the class was a presentation by Somik B. Due to a technical difficulty we dont have that presentation recorded nor the last part of the lecture. We only have around 20 minutes recorded.

Week 5, Class 10, Date 02/05/09 Part 2

2009-02-07T14:38:00.000-08:00

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Week 5, Class 10, Date 02/05/09 Part 1

2009-02-07T14:34:00.000-08:00

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Discussion Sections

2009-02-04T10:11:00.000-08:00

For the general public who are not attending the class in person, we hold discussion sections every Tuesday, and you can follow along by watching the films we screen in these sections online.

Public Utilities (Sanitation) - 01/27

Scavenging Freedom on Blip TV, the story of Sulabh International Social Service Organization

Caring for the Unfortunate - 02/03

Infinite Vision on Google Video, the story of Aravind Eye Hospitals (film website, Harvard Business School Case Study, film available in Green library)

Reproductive Freedom - 02/10

Next Tuesday (2/10), we will screen Frozen Angels, followed by a discussion on Reproductive Rights. This session will be a little longer - 5:15-7:00 PM as the running time is a little longer. This film has generally been considered "shocking" by students in previous years (and by a worldwide audience) and we think it will give you a lot of food for thought.

Week 5, Class 9, Date 02/03/09

2009-02-03T20:40:00.000-08:00

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Week 4, Class 8, Date 01/29/09

2009-01-29T20:18:00.000-08:00

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Week 4, Class 7, Date 01/27/09

2009-01-28T10:49:00.000-08:00

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Week 3, Class 6, Date 01/22/09

2009-01-22T16:56:00.000-08:00

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Week 3, Class 5, Date 01/20/09

2009-01-20T18:41:00.000-08:00

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Week 2, Class 4, Date 01/15/09

2009-01-15T20:15:00.000-08:00

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Week 2, Class 3, Date 1/13/09

2009-01-15T07:10:00.000-08:00

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Week1, Class 2, 01/08/2009

2009-01-08T17:36:00.000-08:00

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Week1, Class 1, 01/06/2009

2008-01-09T17:55:00.000-08:00

Audio (MP3)

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Reading: There's no Pain-Free Cure for Recession (Wall Street Journal, Dec 27, 2008)

Scott Olmsted's email (read this before reading the article above):

Friends,

I have been asked by several of you what this "Austrian economics" thing is. While this article is

not an explanation of the Austrian school of economics (Austria being where the ideas

originated), it contains one idea that is central to the Austrian school: there is no logical

distinction between "microeconomics" (the actions of individuals and firms) and

"macroeconomics" (the entire economy).

All other schools of economics bring in new, simplified concepts and tools to analyze

macroeconomics, where the Austrian school does not. The macro-economy IS the aggregate of

the micro-economies of its actors, and the Austrian school is the only school of economics that

acknowledges this. All others resort to simplified and mechanical models of flows of money and

this lead to bad policy recommendations.

In particular, the Keynesian school of economics regards consumption as the "engine" that pulls

the rest of the economy. While there is a germ of truth here, many other important economic

concepts, such as an understanding of savings, capital, and investment, are just thrown out the

window. But this school of economics has been so influential, virtually everything you hear in

the media reflects it.

Based on this fallacious and illogical (but popular!) theory, the Keynesians want to spend us into

prosperity again. For example, Alice Rivlin, the old Keynsian former director of the

Congressional Budget-Busting Office, was recently on the PBS "Newshour" during a panel

discussion on the economy. Her advice for ending the depression: Spend every cent of your

money on . . . whatever. "It doesn't matter what you spend it on," she said.

This is the point of Peter Schiff's article below. It won't work. It will just make the country

poorer, especially when inflation kicks in and prices skyrocket. Alice Rivlin has it backward:

instead of all us imitating the government spending money it doesn't have, it should imitate us

and tighten its belt too.

To be more specific, every dollar of government spending or "bailout" is a dollar taken from

something else or created from thin air. It is worse than government doing nothing because it

postpones the day of reckoning for unsustainable economic activities, both by firms and by

individuals. It draws resources, both labor and capital, into uneconomic activities, activities that

would not be chosen by firms and individuals if they had a choice.

The long-run effect of such spending will be as it has been twice before: a drastic lengthening of

the recovery process. Compare the U.S. depression of 1921 with the Great Depression and the

experience of Japan. What, you never heard of the depression of 1921? Based on unemployment

and other figures, it was as bad or worse than the Great Depression. But the government kept its

hands off and the order created by the market restored balance in a year or so (they were over so fast, these things used to be called "panics", for example, the Panic of 1907, "depression" was

considered gentler. Then that word was dropped for "recession").

But the U.S. government's interventions starting with Hoover and then FDR prolonged the Great Depression until 1946. Similarly, when Japan's real estate and stock bubble burst in 1989, the Japanese pursued a course not unlike what Obama promises: large deficits, huge government works, and propping up of bankrupt and insolvent firms. The result has been a malaise lasting almost two decades, with virtually no recovery of their stock market in that time. That may not sound so bad right now, but Japan started that period in a much stronger position than the U.S. is now, with surpluses on their balance sheet, rather than huge deficits. It will be much worse here.

I'm sorry to be Mr. Doom and Gloom, but that what it looks like from my point of view. I was

introduced to Austrian Economics thirty years ago and have seen it rise in popularity

tremendously, but it is still very much the underdog. That's too bad. Maybe as the disaster

unfolds, the grip of the Keynesians will loosen and people will look for a theory that makes

sense. Maybe they will take heed of the fact that Peter Schiff started predicting two years ago the crash we've experienced (see http://www.youtube.com/watch?v=B8r-nDBx5Jg or go to

YouTube.com and search for 'Peter Schiff was right' to see other economists ridicule his

predictions). He was not the only one, other Austrian economists did the same. But as of yet, no

one is listening.

--Scott