The Unbroken-Leg Fallacy

Submitted by Robert Higgs via The Mises Economic blog,

In recent years, many people, at least in certain circles, have become familiar with Bastiat’s broken-window fallacy and have come to recognize that Keynesian macroeconomic policy amounts to little more than this fallacy writ large.

Perhaps even more important is what we might call the unbroken-leg fallacy. This is the presumption, which underlies all sorts of state intervention, both macroeconomic and microeconomic, in the market system, that the participants in markets are perfectly capable of acting more productively but, owing to various “market failures,” are not doing so on their own and require state action to repair the situation. The fallacy is that this reasoning completely ignores the countless ways in which the state’s own intrusions and engagements in the economic system in effect “break the legs” of private-sector actors by distorting prices (including interest rates), penalizing productive actions, and subsidizing destructive actions. Having invaded the economic order like the proverbial bull in a China shop, the state’s kingpins, functionaries, and intellectual bootlickers then have the chutzpah to blame “market failures” for the wreckage they themselves have created — an ever-changing hodgepodge of bad incentives, misdirected state efforts, and ominous fears about further unsettling state actions to come.

Owing to the built-in feedback that occurs in a genuinely free, profit-and-loss-based market system, people do not systematically err and fail in their multifaceted efforts to coordinate their own economic activities — unless, that is, the state runs amok, breaking their legs willy-nilly and crippling the operation of the price system. Economic analysis and policy-making that disregard this reality rest on a fallacious foundation.




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Legendary Punk Producer Steve Albini Says the Internet Solved the Problem With Music

Those of
you old enough to remember when the word “grunge” described both a
genre of music and an “alternative” lifestyle choice may remember
an influential Baffler essay by rock producer Steve
Albini, “The Problem With Music.” You can read the whole thing
online
here
, but the gist was a sort of punk-radical, anti-corporate
argument that the entire music industry was set up to benefit
everyone—the studios and the scouts, the image consultants and
video makers, the lawyers and managers—except the fans and the
musicians. Thanks to the complex structure of recording contracts,
bands with huge deals could come out of the process making
essentially nothing, or in some cases technically in debt.

This was an essay that people interested in the alternative
music scene talked about for years afterwards—it was published in
1994, but I don’t think I heard about it until the late
1990s—because it seemed to capture and diagram the slimy, stupid
awfulness of the generic, corporate-captured music that dominated
the era. Not only that, it came at an unusual time for the
punk/alternative community. The big labels appeared to be handing
out zillion-dollar record contracts to punk and indie-rock bands
with roughly the same sort of attitude that one throws parade candy
into a crowd. Garage bands with six songs and three shows under
their belt were being shown big dollar signs, snapped up, and
pushed through the corporate-music grinder, or at least that’s what
it felt like. There was a big debate within the scene about what
constituted selling out, and whether it was a good thing or a bad
thing. This was all informed by punk’s longstanding suspicion of
commercially successful art and corporate culture. It was a scene
where the most common stage move for a frontman was to turn his
back on the audience and look at this shoes. It was all very angsty
and introspective. People wore a lot of flannel. 

Albini’s essay made such a big impact in part because was
arguing that you could sell out—and still manage to not get
paid
. Which was about as strong an argument against selling
out and going mainstream as one could imagine. And, of course,
Albini’s credibility on the subject was more or less unimpeachable,
because, as we used to say, he’d been there and done that. Albini
was Kurt Cobain’s choice to produce Nirvana’s final studio album,
In Utero, which was made to sound dirtier, noisier, and,
well, grungier than the slick rock sound Butch Vig had given the
band’s breakout record, Nevermind

I note all this because Albini recently returned to the ideas of
his famous essay in a brief interview with the online magazine
Quartz. Somewhat surprisingly, Albini, who
was typically pretty consistent for his music-business pessimism,
is now rather upbeat, even as many in the music industry have
become increasingly pessimistic.

“The single best thing that has happened in my lifetime in
music, after punk rock, is being able to share music, globally for
free,” he
told Quartz
. Here’s a bit from the piece:

“Record labels, which used to have complete control, are
essentially irrelevant ,” he says. “The process of a band
exposing itself to the world is extremely democratic and there are
no barriers. Music is no longer a commodity, it’s an
environment, or atmospheric element. Consumers have much more
choice and you see people indulging in the specificity of their
tastes dramatically more. They only bother with music they
like.”

In the physical music era, company executives and the music
press were the arbiters of taste—a band needed to convince a label
to sign it, fund it, and often get critics to like it, to have a
realistic shot at success. These days, it’s a much more
meritocratic process: people can make music in their garage
and reach their audiences through YouTube, BandCamp and any number
of internet avenues. “You can literally have a worldwide
audience for your music….with no corporate participation, which is
tremendous,” Albini says.

I think Albini’s right that the Internet has positively changed
music culture, and allowed for strange niches to develop and
individuals to explore and connect with what they like. I used to
spend weeks or months hunting down certain albums, hoping for a
chance to hear some obscure band from across the country that I’d
heard about at a show. Touring bands would travel with bins full of
tapes, and eventually blank CDs, copying and trading interesting
new music from local artists at every tour stop. When a new band
would come into town, suddenly you’d find new music being passed
around. But the process of diffusion was pretty slow. It could be
weeks before anything new or interesting popped up again. 

That doesn’t really happen anymore, because everyone has heard
everything already. Practically anything anyone wants to hear is
already there, on the Internet. The concept of “alternative” music
basically doesn’t exist anymore. There’s just the music that people
like.

The downside, if there is one, is that the old revenue models
are gone too.

It’s hard
for even fairly successful artists
to support themselves on
this model. At best, selling music ends up being a loss leader for
live shows and other revenue streams. But that only works in a
limited number of cases. Concert tickets
don’t make up nearly as much revenue
as the industry has
lost. 

What keeps me hopeful, though, is that there’s still a lot of
great new music being made. And it’s easier for fans to access, and
artists to break out, than ever. Nor is it if it were ever easy to
make it playing rock-n-roll. As Albini’s original essay made clear,
it’s always been hard for artists. It still is. But the Internet
(and cheap, high-quality home recording technology) has changed the
focus of the industry from discovery and distribution to the music
itself. Overall, that’s a good thing. 

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Brian Doherty on Rand Paul and Campaign Bucks

Sen. Rand Paul (R-Ky.) is likely to run for president. That’s
not exactly news, but the libertarian-leaning senator got some
major earned media out of that fact last week, a front page
story in The New York
Times
. It treated him seriously enough as a
potential candidate to zoom in on the vital question of money: can
this on-the-rise outsider with some heterodox opinions raise enough
to win a presidential race?

The story introduces you to a handful of big, big money
potential donors—none of whom are yet on the record as saying
they’ll bring out that big, big money via SuperPACs or other
uncoordinated spending to help Paul.

Reason Senior Editor Brian Doherty explores the world
of Paul campaign money, both Ron and Rand, and concludes that even
if GOP establishment big money is scared to death of Rand Paul,
it’s wrong to count him out.

View this article.

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Minimum Wage Hike Blocked, 30-Day Rape Sentence Overturned, White House Criticizes Botched Execution: P.M. Links

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Ukraine: Situation Against Militants Is ‘Helpless,’ Says President

Today, Ukraine is in turmoil.
Interim President Oleksandr Turchynov announced that the nation’s
law enforcement are “helpless” against pro-Russian militants who
are ratcheting up their activity in the eastern regions of Donetsk
and Luhansk.

The state of affairs was discussed at a meeting with regional
governors,
according
to the Associated Press, during which Turchynov
offered advice on how to “prevent the threat in the east from
overtaking central and southern regions.” He told the
governors:

I will be frank. Today, security forces are unable to quickly
take the situation in the Donetsk and Luhansk regions under
control…. The security bodies… are unable to carry out their
duties of protecting citizens. They are helpless in those matters.
Moreover, some of those units are either helping or cooperating
with terrorist organizations.

The Ukrainian government maintains that separatists are led by
“mercenaries and special units” from Russia.

That some people are switching sides is no surprise, given their
circumstances. Reuters
writes
that this morning “the police of Luhansk had already
stacked sandbags to the ceiling of their HQ in anticipation of
trouble” following an “assault they faced on Tuesday night by
gunmen armed with automatic rifles, petrol bombs and stun grenades”
during which they received no aid from the government.

Pro-Russian separatists staged a predawn break-in of a city
council building in Luhansk and waited with AK-47s ready for
workers to arrive,
reports
the Kyiv Post. Later, insurgents
seized a tax service and customs office. Radio Free Europe writes
that the recent escalation in violence is “unprecedented” and that
pro-Russian demonstrators “brutally
beat
” pro-Ukrainian counterparts at a rally on
Monday. Earlier this week, a mayor was shot in the back by an
unidentified attacker.

A
poll
released today shows little confidence in the interim
government. Sixty-four percent of respondents from the unstable
eastern regions believe the leaders in Kiev don’t represent them.
However, the poll also showed that “concern about suppression of
the Russian language, one of the issues frequently raised by Moscow
and cited by pro-Russia separatists” is not widely held by the
predominantly Russian-speaking citizens in these regions. And,
despite separatist agitation, 74 percent of respondents said they
think Ukraine’s division can be repaired. 

Read more Reason coverage of Ukraine here.

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No Bubble At All: IPO For Company That “Doesn’t Have Current Operations” 36 Times Oversubscribed

Over 300 years ago, the South Sea company was created (and successfully IPO’d) “for the purpose of rivaling the East India Company.” It had no actual operations as of yet but the buying panic for shares was driven by greedy investors seeing the government’s elite doing so well and wanting a part of the prospects of a company with no operations becoming a world leader (or just finding a greater fool). Today, the first IPO of shares on Dubai’s main stock market for 5 years was 36 times over-subscribed for a company called Marka (which is a “cash shell” which does not have any current operations). Nope, no bubble here.

 

As Arabian Business reports,

The first initial public offer of shares on Dubai’s main stock market for five years was 36 times over-subscribed, a sign of massive interest in equities among retail investors as the emirate’s economy booms.

 

Investors subscribed AED10bn ($2.7bn) to the fixed offer of 275m shares in Marka, which were priced at AED1 each, Jamal Al Hai, chairman of the company’s founders committee, said in a statement on Friday. The excess money will be returned to investors.

 

IPOs dried up in Dubai when its financial crisis erupted five years ago, and since then restrictive listing requirements have encouraged several United Arab Emirates companies to list in London rather than at home.

 

But the Dubai economy is now healthy again, and the Dubai Financial Market’s (DFM) main index is up 51 percent year-to-date, making it the world’s strongest major market.

 

Marka’s IPO may pave the way for more IPOs in coming months.

 

Marka is a “cash shell” which does not have any current operations; it says it will spend proceeds of the IPO on opening over 100 fashion retail outlets, restaurants and cafes in the UAE and across the Gulf Arab region in the next five years.

 

The IPO raised 55 percent of the company’s capital and the rest was contributed by 151 founders, including some of the UAE’s most prominent businessmen. Bankers have said Marka aims to list its shares on the DFM around the first week of June.

So – investors threw record amounts of cash at a get-rich-quick scheme with no actual operations to start a business in a sector that is about as competitie as it gets and entirely saturated anyway… will we never learn?




via Zero Hedge http://ift.tt/1hTJqMd Tyler Durden

The Apple Brand

I want to make a quick comment about the Apple brand. Apple’s research and development expense was up 27% last quarter. Annualized, it is running at $5.7 billion. Let me put that in the right context. In 2007, when Apple came out with its first iPhone, the company’s R&D expense was at $782 million. Other than PCs, most of the R&D for which is outsourced to component providers (Intel, Western Digital, Micron etc.), Apple makes only one product, iPhones of different sizes. Increasing iPhone size from 4 inches to 4.7 inches should not consume billions of dollars in R&D, even for perfectionists like Apple. Thus the probability that Apple will introduce a brand new product category in the near future is incredibly high.

Unlike Samsung, which will introduce dozens of products a year and hope that a few of them stick, Apple is far more careful with product releases. Samsung’s strategy is fine – unless you are one of the unlucky people who wasted a few hundred dollars on Samsung’s smart watch, which looked like something out of Seiko’s 1980 catalog. The strength of Apple’s unbelievable brand (about which its customers tend to be fanatical) is driven by the fact that it doesn’t introduce unfinished products.

Samsung just introduced new phone, the S5 – it was the non-event of the year. When Apple introduces a new product, no other news exists that day. The Fed could announce the sudden termination of QE, the European Union could announce it was breaking up, and Russia might invade several more countries – and all those headlines would be less significant and lost in the news vortex on the day when Apple introduced a new… I don’t know, an iPhone in a different color.

That is an incredible brand. Think about how much money Apple saves on marketing. This is why my kids have plastered Apple stickers (the ones that come with iPads) all over my house, including on my front door.

If you believe your friends, enemies, relatives or random strangers accumulated a seven figure portfolio and will benefit from our investment services, call Theresa at (303) 796-8333 and we’ll be happy to mail them a signed copy of The Little Book of Sideways Markets.

 

Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email or read his articles click here.

Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy’s book Active Value Investing (Wiley, 2007).




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Dow Jones Closes At Record High As Economy Grinds To A Halt

The Russell 2000 tumbled to its worst month since May 2012. 30 Year bond yield had the 2nd best month in a year (with the entire bond complex lower and curve flatter for 5th month in a row). Gold rallied for the month as high-yield credit spreads widened for the 2nd month in a row. US economic growth collapsed. But what really matters… what is key for the headline-makers, story-tellers, and asset-gatherers… is that the Dow Jones Industrial touched new record highs. On the day, early equity weakness gave way to exuberant buying as the Fed admitted its forecast for Q1 was shit but everything it says about the future is spot on – stocks urged, the Dow hit new all-time-highs (and green for the year) but once that level was hit, stocks began to fade but were rescued by the always-happy-to-help 330 Ramp which closed us at record highs and green year-to-date. By the close, the day saw Stocks Up, Bonds Up, Gold Unch, USD Down

 

Quite a divergence today…

And on the day, Trannies spiked at the open as everything else dropped… the post Chicago PMI rip stalled as Europe closed, then the Fed provided absolutely fucking nothing to juystify stocks rallying…

 

As VIX was banged lower…

 

But Year-to-Date, Gold remains the winner…

 

Year-to-date, the Dow managed to close green YTD

 

April left the Russell the big loser – worst month since May 2012

 

Here's April for the S&P Sectors…

 

April was a very different month for credit markets with HY notably wider and not at all excitd about the most recent pop in stocks… this is absolutely not sustainable – you can't keep levering firms to do buybacks if the credit market for highly levered firms begins to get saturated and costs of capital surge… where have seen this before?

 

Treasuries were mixed with notable flattening across the complex in April…

 

The Treasury curve flattened for the 5th month in a row

 

Commodities were mixed on the month with gold closing in the green

 

 

Charts: Bloomberg

Bonus Chart: What was the market discounting a year ago?




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With 1 in 3 Homes Unaffordable, Freddie Mac Prepares to Enter the Trailer Home Loan Market

I can’t say this is surprising. After all, with average peasants, I mean citizens, now priced out of the domestic housing market (Zillow recently showed 1 in 3 homes are unaffordable) due to billionaire financiers and foreign oligarchs buying up all real estate in cash purchases, American serfs now will find out where the “elites” think they belong. In trailer homes, naturally.

Oh, but the story gets better, a lot better. As is generally the case in the USSA these days, crony capitalist oligarchs have perfectly positioned themselves to benefit financially from the final transition of Americans to neo-feudalism. Recall that in my post from last October titled, Carlyle Group’s Latest Investment…Trailer Parks, it was noted that trailer park owners share the following attractive quality:

Our customers have no alternative shot at homeownership, nor do they [normally] even have the credit scores and quality to seek anything better…They never leave the park they are in, and the revenues are unbelievably stable as a result.

Sure, we know from the Dark Ages that peasants on the land stay put. Same concept here. However, it gets even better than this. America’s number one hypocritical, crony capitalist, Warren Buffett is also positioned to benefit.

From Bloomberg:

Want to buy a trailer park? Freddie Mac wants to give you a loan.

The unit of the government-owned mortgage giant that funds apartment buildings is set to begin financing manufactured-housing communities, the company said in a statement today.

The firm is broadening its reach in the multifamily segment of the housing market as it seeks to fulfill its mandate to provide affordable options for low-income families. The McLean, Virginia-based lender will work with established companies in the industry across the U.S., said David Brickman, the head of multifamily operations at Freddie Mac.

“It’s rounding out our ability to touch the affordable housing space,” Brickman said today in a telephone interview. “Manufactured housing is a big piece of rural affordable housing.”

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., lamented the punitive rates charged to purchase factory-built homes in his 2009 annual letter to shareholders. Berkshire owns Clayton Homes Inc., a builder of manufactured housing.

Screen Shot 2014-04-30 at 2.17.55 PM

Serfs up!

Full article here.

In Liberty,
Michael Krieger

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With 1 in 3 Homes Unaffordable, Freddie Mac Prepares to Enter the Trailer Home Loan Market originally appeared on A Lightning War for Liberty on April 30, 2014.

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D.C. Wants to Lock Up Street Vendors for Code Violations

With the
fourth-highest incarceration rate in the
nation, Washington, D.C., seems like a place that needs more
reasons to lock people up, right? Well, District Council members
here seem to think so, anyway. This morning,
councilmembers proposed criminal penalties
for street
vendors—including food trucks, farmer’s markets, and ticket
resellers—who don’t comply with the city’s labyrinth of licensing
requirements, the R Street Institute reports.

Under the “Vending
Regulations Amendment Act of 2014
,” considered this morning by
the Council’s Business, Consumer and Regulatory Affairs Committee,
penalties for code violations could include fines of up to $300
and up to 90 days jail time
for each violation. The
Metropolitan Police Department would be tasked with enforcing these
charges against those “illegally vending.”

Illegally vending, of course, could simply mean failing to
acquire all of the separate permits and certifications that
different D.C. departments demand, or overlooking any of the
vending code’s
80-plus pages of rules
Washington City Paper

details just a few of the regulations
 that local
farmer’s markets, for instance, face: 

In the past, most market organizers dealt primarily with the
Department of Transportation, which gives out public space permits.
If vendors planned to cook food, the market would also need a
propane permit from the Office of the Fire Marshall. If they were
weighing vegetables on scales, they’d get a visit from DCRA’s
Office of Weights and Measures.

That was before new, stricter code updates were
enacted, mind you. 

Now all farmers’ markets are required to get a new vending
business license from DCRA, which costs $433 every two years. …
The new rules also require every market to have a registered market
manager on site at all times. That person must obtain a vendor
employee badge from DCRA ($55) and a food handler’s license from
DOH.

The food handling license requires about 20 hours of time and an
additional $200. But forego any of these things? Face the cops.

“Without criminal penalties, the District cannot take immediate,
spot-of-the-violation action to remove an individual who is
illegally vending,” D.C. Mayor Vincent Gray wrote in an April
letter
to the chair of the District Council. Gray added that criminalizing
vending code violations would make it easier to penalize
out-of-state vendors, who can’t be deterred with loss of a D.C.
driver’s license or other city services.

Heaven forbid somebody comes selling peppers from Virginia
without the proper Office of Weights and Measures paperwork!

Produce is obviously only safe when you buy it from people who’ve
properly paid off government bureaucrats not to arrest them for
selling it.  

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