Austrian Economics – DAVID MEYER

In late 2003, the American poker industry exploded. New players flooded the game. Tournaments flourished. Poker games became a fixture on television. By 2008, the bubble had burst. People left the game in droves. Tournaments got smaller. Television programs ended up on the chopping block. So, why did this happen? What caused the poker industry to boom and bust? Curiously enough, the answer lies in money, or at least the Federal Reserve’s control over it. Here’s more from Peter C. Earle at the Ludwig von Mises Institute:

Nearly a decade ago, poker exploded in popularity. Between television programming, media coverage, and pop culture references to it—in particular, the Texas Hold ‘Em variant—the game became virtually unavoidable. The American Gaming Association estimates that nearly 1 in 5 Americans played poker in 2004, up 50 percent from 2003; also, that nearly 20 percent of those new players had begun to play within the previous two years.

The creation myth associated with the poker boom credits the improbable victory of a prophetically-named Tennessee accountant, Chris Moneymaker, in the 2003 World Series of Poker (WSOP). Other accounts source James McManus’s 2003 book Positively Fifth Street and the 1998 poker film Rounders. Still other, more mystical explanations refer to the game’s sudden “cultural resonance.”

But fads and surges of popularity come and go; these explanations hardly account for why, in a short amount of time, tens of millions of people suddenly flooded into a familiar—indeed, 150 year old—American card game, frenetically expending tens of billions of dollars on it. Nor do they explain why between 2007 and 2008 poker television programs were suddenly cancelled, tournaments saw a drop in participation, and many poker-related businesses scaled back or failed.

Austrian business cycle theory (ABCT) can, however, explain the origins and outcome of the poker bubble as well as its simultaneity with the housing boom, which, as will be demonstrated, are by no means coincidental…

(Read the rest at the Ludwig von Mises Institute)

Amity Shlaes is out with her latest book, Coolidge, a new take on the controversial presidency of Calvin Coolidge. Conservatives love Silent Cal, giving him full credit for the Roaring Twenties. Liberals hate him, believing his free market policies caused the Great Depression. Shlaes falls firmly in the former camp. Personally, I think he’s partly responsible for both. That’s because the Roaring Twenties and the Great Depression were caused by the same thing…rapid expansion of the money supply.

From mid-1921 to mid-1929, the money supply grew 61.8%, with much of that coming during Coolidge’s terms in office. All that money fueled a boom as businesses raced to invest it (aka the Roaring 20s). Eventually, too much money chased too few worthy investments. Poor businesses failed. The economy crashed and the money supply contracted. The Federal Reserve, just like today, mistakenly tried to reinflate the bubble in 1932 only to find itself unable to do so.

Still, Coolidge wasn’t a bad president. He cut the national debt and reduced tax rates. He avoided wars in Latin America. For more on Calvin Coolidge, see this interview with Amity Shlaes conducted by Ed Driscoll at PJ Media:

MR. DRISCOLL: The Forgotten Man helped to place FDR into context by focusing on many personal histories of the 1930s, beyond the palace intrigue of Capitol Hill. These days, whatever collective history we have of the 1920s seems to come from The Great Gatsby, The Untouchables,and TV shows like HBO’s Boardwalk Empire. How badly do people today misremember the decade of the 1920s ?

MS. SHLAES: We really misremember it and then you want to ask why. So Forgotten Man was about the misremembering of the 1930s. Coolidge is about the misremembering of the 1920s.

So the cliches you describe, and they’re fun and amusing, are that it was all a lie or about guns and alcohol, something illegal and contraband, corruption resulting from prohibition. Or it was all a lie; Gatsby wasn’t real wealth. He was an illusion. He was a shimmer in a champagne glass. Right?

So when you go back and look at the ’20s — this is the era of Coolidge, you see a lot of real growth. Things we would envy, we wish we could have, such as employment was often below five percent. When you wanted a job you got one. Wages rose in real terms. Not a lot but consistently. You can go back and look at that, even for unskilled workers. Well, what else — interest rates were pretty low. The budget was in surplus. We didn’t have a deficit. The federal debt was huge from World War I. We were bringing it down reliably…

(See the rest at PJ Media)

Tag Archives: Austrian Economics

Why did the Poker Bubble Burst?

Calvin Coolidge: Did he save the U.S. Economy?