Star Wars Economics

By Tho Bihop – Re-Blogged From http://www.lewrockwell.com

Blowing Up the Death Star Didn’t Destroy Economy, Building It Did

A paper written by Zachary Feinstein discussing the economic consequences of blowing up the Death Star has been making the rounds on social media. While I’m a fan of using Star Wars to teach economics, Feinstein makes a very basic economic mistake in his focus on the Death Star’s destruction.

The paper actually starts out strong. Feinstein notes that, “Economics and finance, much like the Force as explained by Jedi Master Obi-Wan Kenobi, is ‘created by all living things. It surrounds us and penetrates us; it binds the galaxy together.’” Unfortunately, the author shifts from looking at the organic economy towards the dark side of economic models and aggregates – in this case Gross Galactic Product. The paper goes on to outline the quintillions that would be spent in the construction of the Death Star, the estimated size of the galactic banking system and the bailout that would be needed to restore financial confidence after the collapse of the Empire.

While some of the points made are interesting, the paper overlooks that the real economic problem with the Death Star is that a genocidal government built it at all.

I would point both Feinstein (and Emperor Palpatine) to Henry Hazlitt’s Economic in One Lesson. In the words of Hazlitt:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Continue reading

Really Measuring Real GDP

cropped-bob-shapiro.jpg   By Bob Shapiro

Consider two families. Both have a weekly income of $1000, and both spend it all.

Next year, one family gets a $30 raise (3%) and again spends it all ($1030). The second family does not get a raise, but it borrows $30 and spends all $1030.

Question: Are both families doing just as well, or is one doing better than the other?

My guess is that you can see that it is earnings which are important, rather than spending. I expect that you will agree that family one is 3% better off than family two, which borrowed 3% to match the spending of family one.

Continue reading

Fooled by GDP

By Steven Horwitz – Re-Blogged From The Foundation For Economic Education

Economic activity versus economic growth.

Even the smartest of economists can make the simplest of mistakes. Two recent books, Violence and Social Orders by Douglass North, John Wallis, and Barry Weingast and Why Nations Fail by Daron Acemoglu and James Robinson both suffer from misunderstanding the concept of economic growth. Both books speak of the high growth rates in the Soviet economy in the mid-20th century. Even if the authors rightly note that such rates could not be sustained, they are still assuming that the aggregate measures they rely on as evidence of growth, such as GDP, really did reflect improvements in the lives of Soviet citizens. It is not clear that such aggregates are good indicators of genuine economic growth.

These misunderstandings of economic growth take two forms. One form is to assume that the traditional measurements we use to track economic activity also describe economic growth, and the other form is to mistake the production of material things for economic growth.

Continue reading

The Fiscal Grand Canyon

By Jeffrey Lewis – Re-Blogged From http://www.Silver-Phoenix500.com

The cycle of hyperinflation is already upon us. It was set in motion long ago.

We are in the ultimate conundrum. Politically, the US Government, Treasury, and Central Banks must satisfy – pay for – unfunded liabilities and promises. But the “money” is simply a desperate conjuring meant to keep the doors of government open.

The dollar as a concept is temporary and limited. Many outside the mainstream have observed ubiquitous evidence that the end is near. We know it’s limited because history shows this to be true. All fiat currencies, all world reserve currencies eventually died.

Continue reading

Fixing America’s Economy

cropped-bob-shapiro.jpg   By Bob Shapiro

There are numerous Economic truths. One of these is that, in a Free Market, interest rates are set by borrowers and lenders based on each group’s perceptions of the urgency of their need to take action.

A borrower may have a business opportunity which will yield an expected profit. If it is a longer term project, such as building a new factory, the cost of money may need to be in a relatively narrow band to make the plan feasible. A shorter term project horizon, such as a 6 month loan to finish off 20 new homes, which are almost completed, might withstand a much higher interest rate. The “combined” need for money for these projects will constitute the demand for loans.

Continue reading

America’s Standard of Living

cropped-bob-shapiro.jpg   By Bob Shapiro

How does the Standard of Living in an Economy grow?

During the Dark and Middle Ages, there was very little innovation. There was very little effort expended to find new ways of doing things – of finding ways to create more while using the same amount of effort.

Continue reading

Putting Uncle Sam on a Diet

By Bob Shapiro

I have written several times that every Dollar that our government spends must come out of the private, productive sector of the US Economy. I have called for Balancing the Budget, setting a Dollar Limit on federal spending, and other measures to reduce government spending. The Heritage Foundation has put together a detailed plan for shrinking our federal government, outlining 106 specific proposals for cutting spending. Though there are some of their recommendations I do not agree with – they want to increase spending for the Department of Defense even though the US spends more than all other countries combined – there is a wealth of good ideas.

Please set aside some time to look at their proposals. I think you’ll be glad you did.

Continue reading