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Frank Shostak

Frank Shostak



Articles by Frank Shostak

Before a Bust, There Is Always a Boom (and Malinvestment)

4 days ago

For most commentators lending is associated with money. However, is this the case? When a saver lends money, what he/she in fact lends to a borrower is final consumer goods that he/she did not consume. Therefore, what a lender lends to a borrower is savings and not money as such.  Take farmer Joe, who produced two kilograms of …

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Can Economic Data Explain the Timing and Causes of Recessions?

7 days ago

Without establishing the underlying causes of boom-bust cycles, employing policies in response to changes in economic indicators to counter economic cycles is likely to destabilize the economy. Original Article: “Can Economic Data Explain the Timing and Causes of Recessions?” This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

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Can Economic Data Explain the Timing and Causes of Recessions?

11 days ago

Most economists are of the view that through the inspection of economic data it is possible to identify early warning signs regarding boom bust cycles. What is the rationale behind this way of thinking? During the 1930s the National Bureau of Economic Research (NBER) introduced the economic indicators approach to ascertain business cycles. A research …

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Macroeconomic Data Is a Tool for Government Intervention

25 days ago

In a free, unhampered market, businesspersons in the pursuance of their goals will not require macroeconomic indicators. Entrepreneurs require an entirely different kind of data than what government data provides. Original Article: “Macroeconomic Data Is a Tool for Government Intervention” This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

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Macroeconomic Data Is a Tool for Government Intervention

August 24, 2021

It is common for commentators and economists to refer to something called the “economy,” which sometimes performs well and at other times poorly. The “economy” is presented as a living entity apart from individuals. For example, various experts report that the “economy” grew by such and such percentage, or that the widening in the trade deficit …

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This Is How Savings and Investment Pave the Way for an Advanced Economy

August 14, 2021

To maintain his life and well-being, an individual must have at his disposal an adequate amount of consumer goods. These goods, however, are not readily available. Without tools at his disposal and by means of his bare hands, the individual can only obtain from nature very few goods for his survival. For instance, take an …

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Savings Are the Foundation of Economic Growth

August 5, 2021

Most commentators’ regard savings as harmful to economic growth on the ground that savings are associated with fewer outlays. These commentators portray economic activity as a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings. If …

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Good Economic Theory Is Always Grounded in the Real World

July 31, 2021

In his “Philosophical Origins of Austrian Economics” (Mises Daily, June 17, 2006), David Gordon writes that Eugen von Böhm-Bawerk  maintained that concepts employed in economics must originate from reality—they need to be traced to their ultimate source in the real world. If one cannot trace it, the concept should be rejected as meaningless. Yet, assumptions employed by economists …

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Why Friedman Was Wrong about Booms and Busts

July 27, 2021

In his attempt at explaining what business cycles are all about, Milton Friedman held that the economy’s output is bumping along the ceiling of maximum feasible output except that every now and then it is plucked down by a cyclical contraction. He attributed this contraction to various shocks. He was of the view that economic …

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Sound Money versus Fiat Money: Effects on the Boom-Bust Cycle

July 13, 2021

An increase in the supply of money does not necessarily cause the boom-bust cycle. It is only when more money is created out of nothing that the cycle begins.  Original Article: “Sound Money versus Fiat Money: Effects on the Boom-Bust Cycle​” This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

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The Phillips Curve Myth

July 8, 2021

According to a popular way of thinking, the central bank can influence the rate of economic expansion by means of monetary policy. It is also held that this influence carries a price, which manifests itself in terms of inflation. For instance, if the goal is to reach faster economic growth and a lower unemployment rate …

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Inflation Is a Form of Embezzlement

July 1, 2021

Monetary inflation is just a type of embezzlement. Historically, inflation originated when a country’s ruler such as king would force his citizens to give him all their gold coins under the pretext that a new gold coin was going to replace the old one. In the process of minting new coins, the king would lower the …

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The Fed’s Power over Inflation and Interest Rates Has Been Greatly Exaggerated

June 30, 2021

It is widely held that the central bank is a key factor in the determination of interest rates. By popular thinking, the Fed influences the short-term interest rates by influencing monetary liquidity in the markets. Through the injection of liquidity, the Fed pushes short-term interest rates lower. Conversely, by withdrawing liquidity, the Fed exerts an …

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Sound Money versus Fiat Money: Effects on the Boom-Bust Cycle

June 23, 2021

According to the Austrian business cycle theory (ABCT), the boom-bust cycle emerges in response to a deviation in the market interest rate from the natural interest rate, or the equilibrium interest rate. It is held that the major cause for this deviation is increases in the money supply. Based on this it would appear that on …

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People Change Their Minds. That Doesn’t Make Them Irrational.

June 16, 2021

According to a relatively new field of economics called behavioral economics (BE), emotions play an important role in an individual’s decision-making process. On this the Nobel laureate Vernon Smith writes,  People like to believe that good decision making is a consequence of the use of reason, and that any influence that the emotions might have …

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Why Monetary “Stimulus” Won’t Prevent an Economic Bust

June 9, 2021

The increase in the growth rate of the Consumer Price Index (CPI) has fueled concerns that if the rising trend were to continue the Fed is likely to tighten its interest rate stance. Observe that the yearly growth rate in the CPI climbed to 4.2 percent in April from 2.6 percent in March and 0.3 …

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Entrepreneurs Are Motivated by Profit, Not Risk

June 2, 2021

According to modern portfolio theory (MPT), financial asset prices fully reflect all available and relevant information, and any adjustment to new information is virtually instantaneous. For instance, if the central bank raises interest rates by 0.5 percent, and if market participants anticipated this action, asset prices will reflect this expected increase prior to the central …

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Why Economic Models Can’t Provide a Realistic Picture of Human Behavior

May 30, 2021

Mises: “The experience with which the sciences of human action have to deal is always an experience of complex phenomena. No laboratory experiments can be performed with regard to human action.” Original Article: “Why Economic Models Can’t Provide a Realistic Picture of Human Behavior” This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated …

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Why Economic Models Can’t Provide a Realistic Picture of Human Behavior

May 26, 2021

While in the natural sciences a laboratory experiment can isolate various elements and their movements can be followed through, there is no equivalent in the economic discipline. The introduction of econometrics and model building is an attempt to produce a laboratory where controlled experiments can be conducted. The idea of having such a laboratory is …

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Boom to Bust: How Inflation Turns into Deflation

May 12, 2021

In order to understand the effects of inflation it is helpful to understand that inflation is not a general rise in prices as such, but an increase in the supply of money which then sets in motion a general increase in the prices of goods and services in terms of money. Consider the case of …

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Monetary Pumping and Idle Resources

May 5, 2021

As a result of the recent stimulus policies employed by the US government and the Fed, most commentators are of the view that the risk of a deepening slump in the US economy on account of the covid-19 pandemic has now receded. Some other commentators are not so certain that the risk has declined, arguing that …

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Monetary Savings versus Real Savings

April 28, 2021

According to the National Income and Product Accounts (NIPA) the US personal savings rate stood at 13.6 percent in February 2021 against 8.3 percent in February 2020. Since consumption expenditure is considered as the driving force of the economy, obviously a strengthening in savings, which implies less spending, cannot be good for economic activity, so it is …

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Biden’s Big Spending Plans Will Not Revive the Economy

April 20, 2021

On March 11, 2021, US president Biden introduced his $1.9 trillion covid-19 stimulus plan. The president also announced a plan of more than $2 trillion to rebuild US infrastructure, which includes repairing roads and bridges, as well as expanding access to long-term care services under Medicaid, building schools, and expanding internet access across the US. It is …

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Printing Money Can’t Replace Real Savings

April 13, 2021

Between January 1970 and December 2020 on average changes in money supply preceded changes in real economic activity by fourteen months, as depicted by real gross domestic product (GDP). Based on this it is tempting to suggest that a strengthening in the growth rate of money supply will result in the strengthening of real economic growth. Conversely, …

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Fed Transparency Won’t Get Us out of the Mess the Fed Created

April 6, 2021

In an interview with National Public Radio’s “Morning Edition” program on Thursday, March 25, 2021, Fed chair Jerome Powell said that even with the economy rebounding faster than expected, any change in monetary policy would happen “very, very gradually over time and with great transparency. Rate increases would only be considered when the economy is …

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Real Savings Are at the Heart of Lending

March 30, 2021

After climbing to 12.2 percent in April last year, the yearly growth rate of combined commercial bank real estate and consumer and business loans plunged to –2.6 percent in early March. For most commentators an important factor in setting economic prosperity in motion is bank lending. Hence, this sharp decline in the yearly growth rate in bank loans …

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The Destructive Power of Keynesian Spending Plans

March 17, 2021

According to John Maynard Keynes, The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some …

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