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Does Britain Have the World’s Best Health System? Only If You Ignore Outcomes

7 hours 45 min ago
By: George Pickering
nhs2.PNG

“The National Health Service is the closest thing the English have to a religion,” Margaret Thatcher’s Chancellor Nigel Lawson famously once observed. However, given the swivel-eyed fanaticism with which its supporters will defend it, even from the overwhelming evidence of its shortcomings, at this point it might be more accurate to describe the NHS as Britain’s national cult.

The utterly unparalleled degree of moral outrage which greets any criticism of the NHS bespeaks the decades of propaganda — in the state’s schools, from the state’s politicians, and on the state’s news and media outlets — which have taught the British people to believe that the only alternative to a state-controlled healthcare monopoly is for the poor to die in the streets. So pervasive has this myth become that the Labour party has been able to base its entire electoral strategy, for decades, on painting themselves as the only party that truly cares about ‘our NHS’, and a recent survey found that, when asked ‘What makes you proud to be British’, the NHS was the nation’s most common answer by a considerable margin. All this has led to a situation wherein the desperately needed reforms to Britain’s healthcare system cannot even be discussed, due to the irrational overflowing of blind rage and uncomprehending contempt that greets any criticism of Britain’s ultimate sacred cow.

This baseless self-satisfaction and refusal to consider change is in no way helped by studies such as one which has recently made headlines across the British press, which placed the NHS as “the number one health system”. The study in question ranked the healthcare systems of 11 countries, and found that Britain’s NHS fulfilled the study’s criteria of success most adequately, followed by Australia and the Netherlands, with Canada, France, and the United States languishing at the bottom of its rankings. This positive result might come as a surprise even to those who usually accept the mainstream narrative surrounding the NHS. Indeed, even at the bottom of the BBC’s own triumphalist article on the study in question, they link to related stories with headlines such as “NHS rationing leaves patients in pain”, and “Long waits for surgery have tripled in four years”!

These two headlines hint at the perennial problem of shortages due to price controls which must inevitably exist in a system such as the NHS. For as long as the price of healthcare services is held artificially low (or free) by state intervention, individual consumers will no longer have an incentive to economise and question whether they really need a given service, or whether those scarce resources should go to others in more desperate need. This inevitably leads to a greater number of people clamouring to extract services than the supply can handle, leading to the shortages, long waiting times, and rationing which have characterised the piteous state of NHS services throughout its history. So immutable is the economic law that price controls lead to shortages that, in the words of Ludwig von Mises, “even capital punishment could not make price control work, in the days of Emperor Diocletian and the French Revolution.” The fact that public support for the NHS remains so high, despite these major problems inherent in the nature of the system itself, provides a stark real-life example of the dangers of choosing to ignore the insights of economics.

Unfortunately however, price controls and shortages are far from the only problems which stem from Britain’s state monopoly of healthcare. As Kristian Niemietz of the Institute of Economic Affairs highlighted in an excellent recent article, the characteristics of the NHS which Britons mistakenly believe to be a unique source of pride, are actually present in almost every other healthcare system in the developed world; yet these other systems lack the NHS’s hostility to innovation in medicines and practices. Furthermore, the high number of avoidable infant deaths in some of its trusts led to the NHS being brought under government investigation in April for standards of maternal care which regulators described as “truly shocking”. I eagerly await the fundamental reforms that will surely result from the state regulators’ suggestion of a state investigation into the wrongdoings of the state’s own healthcare system.

How is it possible, then, that the NHS should have ranked so highly in this recent study by the influential Commonwealth Fund health think tank, despite all these major problems? The answer is in the study’s careful selection of the criteria used as metrics of success, in order to give the most weight to the few areas in which the NHS actually does succeed. Indeed, the study stands out considerably from all other healthcare system comparisons by the great weight it places on procedure and general system characteristics, with relatively little weight given to the actual outcomes. One might think that the NHS’s place in the bottom 20% for both cancer survival rates and medically avoidable death rates would be seen as a statistic too important to be swept under the rug by the technicalities of this study’s method. The Commonwealth Fund also gives surprisingly little weight to the NHS’s dismally low efficiency in terms of healthcare bang per buck, a fact which undermines those who claim that simply throwing more taxpayers’ money at the system would solve its problems.

In terms of its health outcomes across most common ailments, Britain’s NHS ranks closer to former communist bloc countries like Slovenia than to its Western European neighbours. Even a country like Spain, whose GDP per capita is fully 25% lower than Britain’s, has healthcare outcomes so much higher than those of the NHS that, if the British system were able to improve even to the point that it was merely equal with Spain, 10,000 fewer Britons would die of medically preventable causes every single year. Even the Commonwealth Fund study in question concedes that, while they ranked the NHS as the number one health system overall, its competence in the small matter of actually keeping its patients alive was the second-worst of any country under consideration.

The boundaries of socially acceptable debate still have a considerable distance to shift in Britain before the desperate need for fundamental NHS reform can be calmly acknowledged and reasonably discussed. Until such time, no amount of minor tweaking or extra funding will be able to address the rot at the heart of the system, from which so many of its avoidable failures stem: namely its status as a taxpayer-funded state monopoly. Until this fundamental aspect of British healthcare can be criticised without incurring excommunication from public life, the NHS will continue to fail the British people, just as Britain’s state monopolies in coal, shipbuilding, automobiles, and other industries failed in the 1970s.

In the words of the great Chicago economist Thomas Sowell, “You will never understand bureaucracies until you understand that, for bureaucrats, procedure is everything and outcomes are nothing.” Indeed, you can never understand the NHS until you understand that, for as long as British healthcare continues to be run as a government bureaucracy rather than a consumer-facing business, the very lives of British people will continue to be just another ‘outcome’ for the state to ignore.



Categories: Current Affairs

The Many Failures of Britain's National Health Service

7 hours 45 min ago
By: George Pickering
nhs2.PNG

“The National Health Service is the closest thing the English have to a religion,” Margaret Thatcher’s Chancellor Nigel Lawson famously once observed. However, given the swivel-eyed fanaticism with which its supporters will defend it, even from the overwhelming evidence of its shortcomings, at this point it might be more accurate to describe the NHS as Britain’s national cult.

The utterly unparalleled degree of moral outrage which greets any criticism of the NHS bespeaks the decades of propaganda — in the state’s schools, from the state’s politicians, and on the state’s news and media outlets — which have taught the British people to believe that the only alternative to a state-controlled healthcare monopoly is for the poor to die in the streets. So pervasive has this myth become that the Labour party has been able to base its entire electoral strategy, for decades, on painting themselves as the only party that truly cares about ‘our NHS’, and a recent survey found that, when asked ‘What makes you proud to be British’, the NHS was the nation’s most common answer by a considerable margin. All this has led to a situation wherein the desperately needed reforms to Britain’s healthcare system cannot even be discussed, due to the irrational overflowing of blind rage and uncomprehending contempt that greets any criticism of Britain’s ultimate sacred cow.

This baseless self-satisfaction and refusal to consider change is in no way helped by studies such as one which has recently made headlines across the British press, which placed the NHS as “the number one health system”. The study in question ranked the healthcare systems of 11 countries, and found that Britain’s NHS fulfilled the study’s criteria of success most adequately, followed by Australia and the Netherlands, with Canada, France, and the United States languishing at the bottom of its rankings. This positive result might come as a surprise even to those who usually accept the mainstream narrative surrounding the NHS. Indeed, even at the bottom of the BBC’s own triumphalist article on the study in question, they link to related stories with headlines such as “NHS rationing leaves patients in pain”, and “Long waits for surgery have tripled in four years”!

These two headlines hint at the perennial problem of shortages due to price controls which must inevitably exist in a system such as the NHS. For as long as the price of healthcare services is held artificially low (or free) by state intervention, individual consumers will no longer have an incentive to economise and question whether they really need a given service, or whether those scarce resources should go to others in more desperate need. This inevitably leads to a greater number of people clamouring to extract services than the supply can handle, leading to the shortages, long waiting times, and rationing which have characterised the piteous state of NHS services throughout its history. So immutable is the economic law that price controls lead to shortages that, in the words of Ludwig von Mises, “even capital punishment could not make price control work, in the days of Emperor Diocletian and the French Revolution.” The fact that public support for the NHS remains so high, despite these major problems inherent in the nature of the system itself, provides a stark real-life example of the dangers of choosing to ignore the insights of economics.

Unfortunately however, price controls and shortages are far from the only problems which stem from Britain’s state monopoly of healthcare. As Kristian Niemietz of the Institute of Economic Affairs highlighted in an excellent recent article, the characteristics of the NHS which Britons mistakenly believe to be a unique source of pride, are actually present in almost every other healthcare system in the developed world; yet these other systems lack the NHS’s hostility to innovation in medicines and practices. Furthermore, the high number of avoidable infant deaths in some of its trusts led to the NHS being brought under government investigation in April for standards of maternal care which regulators described as “truly shocking”. I eagerly await the fundamental reforms that will surely result from the state regulators’ suggestion of a state investigation into the wrongdoings of the state’s own healthcare system.

How is it possible, then, that the NHS should have ranked so highly in this recent study by the influential Commonwealth Fund health think tank, despite all these major problems? The answer is in the study’s careful selection of the criteria used as metrics of success, in order to give the most weight to the few areas in which the NHS actually does succeed. Indeed, the study stands out considerably from all other healthcare system comparisons by the great weight it places on procedure and general system characteristics, with relatively little weight given to the actual outcomes. One might think that the NHS’s place in the bottom 20% for both cancer survival rates and medically avoidable death rates would be seen as a statistic too important to be swept under the rug by the technicalities of this study’s method. The Commonwealth Fund also gives surprisingly little weight to the NHS’s dismally low efficiency in terms of healthcare bang per buck, a fact which undermines those who claim that simply throwing more taxpayers’ money at the system would solve its problems.

In terms of its health outcomes across most common ailments, Britain’s NHS ranks closer to former communist bloc countries like Slovenia than to its Western European neighbours. Even a country like Spain, whose GDP per capita is fully 25% lower than Britain’s, has healthcare outcomes so much higher than those of the NHS that, if the British system were able to improve even to the point that it was merely equal with Spain, 10,000 fewer Britons would die of medically preventable causes every single year. Even the Commonwealth Fund study in question concedes that, while they ranked the NHS as the number one health system overall, its competence in the small matter of actually keeping its patients alive was the second-worst of any country under consideration.

The boundaries of socially acceptable debate still have a considerable distance to shift in Britain before the desperate need for fundamental NHS reform can be calmly acknowledged and reasonably discussed. Until such time, no amount of minor tweaking or extra funding will be able to address the rot at the heart of the system, from which so many of its avoidable failures stem: namely its status as a taxpayer-funded state monopoly. Until this fundamental aspect of British healthcare can be criticised without incurring excommunication from public life, the NHS will continue to fail the British people, just as Britain’s state monopolies in coal, shipbuilding, automobiles, and other industries failed in the 1970s.

In the words of the great Chicago economist Thomas Sowell, “You will never understand bureaucracies until you understand that, for bureaucrats, procedure is everything and outcomes are nothing.” Indeed, you can never understand the NHS until you understand that, for as long as British healthcare continues to be run as a government bureaucracy rather than a consumer-facing business, the very lives of British people will continue to be just another ‘outcome’ for the state to ignore.



Categories: Current Affairs

Money Supply Growth Falls Again, Dropping to 105-Month Low

11 hours 45 min ago
By: Ryan McMaken
moneysupply.PNG

Growth in the supply of US dollars fell again in May, this time to a 105-month low of 5.4 percent. The last time the money supply grew at a smaller rate was during September 2008 — at a rate of 5.2 percent. 

The money-supply metric used here — an "Austrian money supply" measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.

The "Austrian" measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler's checks, and retail money funds). 

M2 growth also slowed in May, falling to 5.6 percent, a 20-month low. 

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of falling money-supply growth. 

Thanks to the intervention of central banks, of course, money supply growth in recent decades has never gone into negative territory. 

Nevertheless, as we can see in the graph, significant dips in growth rates show up in years prior to a economic bust or financial crisis. 

For insights into what's affecting money supply growth, we can look at loan activity, such as the Federal Reserve's measure of industrial and commercial loans. 

In this case, we find that the growth rate in loans has fallen to a 74-month low, dropping to 1.9 percent. Loan growth has not been this weak since April of 2011, in the wake of the last financial crisis. 

We find similar trends in real estate loans and in consumer loans, although not to the same extent. 

The current subdued rates of growth in the money supply suggests an economy in which lenders are holding back somewhat on making new loans, which itself suggests a lack of reliable borrowers due to a lackluster overall economy.  This assessment, of course, is reinforced by the Federal Reserve's clear reluctance to wind down it's huge portfolio, and to end its ongoing policy of low-interest rates — concerned that any additional tightening might lead to a recession. 



Categories: Current Affairs

Jeff Sessions's Pot War Is Up in Smoke in Nevada

Thu, 20/07/2017 - 04:00
By: Doug French
nevadasign.PNG

Thousands lined up to purchase recreational marijuana legally at 12:01 a.m. on July 1. At Euphoria Wellness, with a location in southwest Las Vegas, a crowd of 400 to 500 people were lined up at midnight. Other locations had just as many.

Among the first to purchase was state senator Tick Segerblom, who has a strain of weed named after him: “Segerblom Haze.” The senator tweeted that he believed the state would rake in a million dollars in tax money this first weekend. Judging from the lines out the doors at dispensaries in just my neighborhood, I don’t doubt his projection.

Even with it being a scorching 107 degrees this afternoon, Las Vegans were waiting patiently in the sun to go up in smoke.

The Las Vegas Sun reports, “Destiny Diaz stood in line for nearly three hours at the Jardin Premium Cannabis dispensary in central Las Vegas to celebrate what some were calling the end of marijuana prohibition in Nevada.” 

“A local resident for 35 years, [Steve] Evans, 54, said he arrived just before 7:30 p.m. and that the nearly five-hour wait Friday night was the longest he had been away from his home in over eight years.

“‘I want an ounce of Gorilla Glue 4, and then I’m going home to sink into the sofa and be with my wife,’ Evans said, referring to one of the dispensary’s best-selling marijuana flower strains. ‘Pretty simple.’”

It turns out the reality of supply, demand and the tax man bites for medical users. “Paul Pastwa, a medical marijuana cardholder who said he shops at Jardin twice a week, complained that a half-ounce of marijuana flower climbed from $60 to over $100 for medical buyers since he last shopped at the dispensary,” writes Chris Kudailis. “We understood that recreational buyers would have to pay more, but not medical,” Pastwa said. “My price has doubled overnight.” 

Adam Denmark Cohen, Jardin's owner, “said he was forced to raise prices because of a state-mandated increase in marijuana wholesale distribution taxes for shipment of items from cultivation and production facilities to dispensaries.”

The Sun reports that Essence Cannabis Dispensary saw 1,200 customers at its two locations early this morning. Local laws allowed dispensaries to be open from midnight to 3 a.m., but then had to close until 6 a.m. As an aside, Sun newspaper CEO Brian Greenspan owns a portion of Essence. Marijuana licenses went to the politically connected, not necessarily to those with expertise in the business.

All this reefer madness is happening after Attorney General Jeff Sessions sent a letter to Mitch McConnell, Paul Ryan, Nancy Pelosi, and Chuck Schumer voicing the Department of Justice’s opposition to anything that would “inhibit the DOJ’s authority to enforce the Controlled Substances Act (CSA).”

 

The attorney general claims marijuana use has “significant negative health effects,” including the loss of IQ points, which is funny coming from a guy, who claims “marijuana has a high potential for abuse [and] no currently accepted medical treatment in use in the United States.” He evidently hasn’t read this article from the Business Insider listing 23 health benefits of marijuana.

But, Sessions contends, “Good people don’t smoke marijuana.”

As Mark Thornton wrote for mises.org, “Attorney General Sessions’s argument really does not make any sense. Legalized marijuana greatly reduces the size of the illegal drug market and the violence it causes, both by eliminating the illegal marijuana market and by encouraging producers and consumers to switch from hard drugs such as heroin, cocaine, and crystal meth to marijuana/cannabis which is non-addictive and non-lethal.”

The out of touch Sessions told a crowd in Arizona, “When they nominated me for attorney general, you would have thought the biggest issue in America was when I said, ‘I don’t think America’s going to be a better place if they sell marijuana at every corner grocery store.’ ” 

“[People] didn’t like that; I’m surprised they didn’t like that,” he added.

When in 1986 the Senate Judiciary Committee rejected the nomination of Sessions to be a Federal district judge in Alabama, Mr. Sessions apologized for once saying he had thought members of the Klu Klux Klan “were O.K. until I found out they smoked pot.”

AG Sessions, the war is over. The government lost, and has decided to take the money. 



Categories: Current Affairs

Here's the True Definition of a Recession — It's Not About GDP

Thu, 20/07/2017 - 03:00
By: Frank Shostak
recession_0.PNG

According to the National Bureau of Economic Research (NBER), the institution that dates the peaks and troughs of the business cycles,

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.1

In the view of the NBER dating committee, because a recession influences the economy broadly and is not confined to one sector, it makes sense to pay attention to a single best measure of aggregate economic activity, which is real GDP. The NBER dating committee views real GDP as the single best measure of aggregate economic activity.

We suspect that on the back of the NBER's much more general definition, the financial press as a shortcut introduced the popular definition of a recession as two consecutive quarters of a decline in real GDP. Also, by following the two-quarters-decline-in-real-GDP rule, economists don't need to wait for the final verdict of the NBER, which often can take many months after the recession has occurred.

Regardless of whether one adopts the broader definition of the NBER or the abbreviated version, these definitions are actually failing to do the job.

After all, the purpose of a definition is to establish the essence of the object of the investigation. Both the NBER and the popular definition do not provide an explanation of what a recession is all about. Instead they describe the various manifestations of a recession.

The Problem with Measuring GDP

Another grave problem with both the abbreviated and the NBER definitions is that recession is defined in terms of real gross domestic product (GDP), which supposedly mirrors the total of final real goods and services produced.

To calculate a total, several things must be added together. To add things together, they must have some unit in common. However, it is not possible to add refrigerators to cars and shirts to obtain the total of final goods. Since total real output cannot be defined in a meaningful way, obviously it cannot be quantified. To overcome this problem economists employ total monetary expenditure on goods, which they divide by an average price of those goods. But is the calculation of an average price possible?

Suppose two transactions are conducted. In the first transaction, one TV set is exchanged for $1,000. In the second transaction, one shirt is exchanged for $40. The price or the rate of exchange in the first transaction is $1000/1TV set. The price in the second transaction is $40/1shirt. In order to calculate the average price, we must add these two ratios and divide them by 2. However, $1000/1TV set cannot be added to $40/1shirt, implying that it is not possible to establish an average price.

On this Rothbard wrote,

Thus, any concept of average price level involves adding or multiplying quantities of completely different units of goods, such as butter, hats, sugar, etc., and is therefore meaningless and illegitimate.2

Since GDP is expressed in dollar terms, which are deflated by a dubious price deflator, it is obvious that its fluctuations will be driven by the fluctuations in the amount of dollars pumped into the economy. Hence various statements by government statisticians regarding the rate of growth of the real economy are nothing more than a reflection of the fluctuations in the rate of growth of the money supply.

Now, once a recession is assessed in terms of real GDP it is not surprising that the central bank appears to be able to counter the recessionary effects that emerge. For instance, by pushing more money into the economy the central bank's actions would appear to be effective since real GDP will show a positive response to this pumping after a short time lag. (Remember that changes in real GDP reflect changes in money supply). Observe that once the economy is expressed through GDP the central bank would appear to be able to navigate the economy (i.e., GDP) by means of a suitable policy mix.

Even if one were to accept that real GDP is not a fiction and depicts the so-called real economy there is still a problem as to why recessions are of a recurrent nature. Is it possible that various shocks cause this repetitive occurrence of recessions? Surely there must be a mechanism here that gives rise to this repetitive occurrence?

The Cause of Boom-Bust Cycles

In a free, unhampered market, we could envisage that the economy would be subject to various shocks but it is difficult to envisage a phenomenon of recurrent boom-bust cycles.

According to Rothbard,

Before the Industrial Revolution in approximately the late 18th century, there were no regularly recurring booms and depressions. There would be a sudden economic crisis whenever some king made war or confiscated the property of his subjects; but there was no sign of the peculiarly modern phenomena of general and fairly regular swings in business fortunes, of expansions and contractions.3

In short, the boom-bust cycle phenomenon is somehow linked to the modern world. But what is the link? Careful examination would reveal that the link is in fact the modern banking system, which is coordinated by the central bank.

The source of recessions turns out to be the alleged "protector" of the economy — the central bank itself.

Further investigation would show that the phenomenon of recessions is not about the weakness of the economy as such, but about the liquidation of various activities that sprang up on the back of the loose monetary policies of the central bank. Here is why.

A loose central bank monetary policy sets in motion an exchange of nothing for something, which amounts to a diversion of real wealth from wealth-generating activities to non-wealth-generating activities. In the process, this diversion weakens wealth generators, and this in turn weakens their ability to grow the overall pool of real wealth.

The expansion in the activities that came about based on loose monetary policy is what an economic "boom" (or false economic prosperity) is all about. Note that once the central bank's pace of monetary expansion has strengthened, irrespective of how strong and big a particular economy is, the pace of the diversion of real wealth is going to strengthen.

However, once the central bank tightens its monetary stance, this slows down the diversion of real wealth from wealth producers to non-wealth producers. Activities that sprang up on the back of the previous loose monetary policy are now getting less support from the money supply; they fall into trouble — an economic bust, or recession emerges.

Irrespective of how big and strong an economy is, a tighter monetary stance is going to undermine various uneconomic activities that sprang up on the back of the previous loose monetary policy. This means that recessions or economic busts have nothing to do with the so-called strength of an economy, improved productivity, or better inventory management by companies.

For instance, as a result of a loose monetary stance on the part of the Fed various activities emerge to accommodate the demand for goods and services of the first receivers of newly injected money. Now, even if these activities are well managed and maintain very efficient inventory control, this fact cannot be of much help once the central bank reverses its loose monetary stance. Again, these activities are the product of the loose monetary stance of the central bank. Once the stance is reversed, regardless of efficient inventory management, these activities will come under pressure and run the risk of being liquidated.

From what was said we can conclude that recessions are the liquidation of economic activities that came into being solely because of the loose monetary policy of the central bank. This whole recessionary process is set in motion when the central banks reverses its earlier loose stance.

We have established that recessions are about the liquidations of unproductive activities, but why they are recurrent? The reason for this is the central bank's ongoing policies that are aimed at fixing the unintended consequences that arise from its earlier attempts at stabilizing the so-called economy, i.e., real GDP.

On account of the time lags from changes in money to changes in prices and changes in real GDP, the central bank is forced to respond to the effects of its own previous monetary policies. These responses to the effects of past policies give rise to the fluctuations in the rate of growth of the money supply and in turn to recurrent boom-bust cycles.

Conclusions

Contrary to the accepted way of thinking, recessions — properly understood — are not negative growth in GDP for at least two consecutive quarters.

Recessions, which are set in motion by a tight monetary stance of the central bank, are about the liquidations of activities that sprang up on the back of the previous loose monetary policies. Rather than paying attention to the so-called strength of real GDP to ascertain where the economy is heading, it will be more helpful to pay attention to the rate of growth of the money supply.

By following the rate of growth of the money supply, one can ascertain the pace of damage to the real economy that central bank policies inflict. Thus the increase in the growth momentum of money should mean that the pace of wealth destruction is intensifying. Conversely, a fall in the growth momentum of money should mean that the pace of wealth destruction is weakening.

Additionally, once it is realized that so-called real economic growth, as depicted by real GDP, mirrors fluctuations in the money supply rate of growth, it becomes clear that an economic boom has nothing to do with real and sustainable economic expansion. On the contrary such a boom is about real economic destruction, since it undermines the pool of real wealth — the heart of real economic growth.

Hence despite "good GDP" data, many more individuals may find it much harder to make ends meet.



  • 1. The NBER’s Business-Cycle Dating Procedure (NBER, October 21,2003).

  • 2. Murray N.Rothbard, Man Economy and State, Nash Publishing p 734.

  • 3. Rothbard The Austrian Theory of the Trade Cycle and other essays, The Mises Institute,1983.


Categories: Current Affairs

Immunity for Prosecutors Encourages Fraud

Wed, 19/07/2017 - 04:00
By: William L. Anderson
liar.PNG
Absolute Immunity for Prosecutors Creates the Classic “Lemons Problem”

Public officials argue that to be able to carry out their duties, laws must protect them from lawsuits by disgruntled individuals or those harmed by wrongful actions of government agents. The U.S. Supreme Court especially has protected prosecutors, granting them absolute immunity as long as they committed wrongful acts within the scope of their legal duties.

Advocates argue that unless prosecutors receive such drastic protection, those charged and sometimes convicted – guilty or not – will bury prosecutors under a blizzard of lawsuits for misconduct. Yet, as we see with the infamous Pottawattamie County vs. McGhee, one also can argue that prosecutorial immunity also create conditions for a legal version of a “Lemons Problem,” in which prosecutors are encouraged to present false information as being true and jurors and the public can be fooled.

In 1977, police and prosecutors in Council Bluffs, Iowa, desperately wanted to solve the murder of a former police officer there. The district attorney, David Richter, faced an election the next year, and he wanted to keep his job.

Despite having good evidence that led to the trail of the potential killer, Richter and police charged two black teenagers, Terry Harrington and Curtis McGhee, who lived in neighboring Nebraska, and tried them for murder. What followed was a nightmare for the two young men, one of whom was the captain of his high school football team. Richter, his assistant, Joseph Hrvol, and the police zeroed in on the two young men, even to the point of ignoring evidence that would have taken them elsewhere.

What followed was a frame-up, and the state convinced an all-white jury in 1978 that Harrington and McGhee were guilty. The star witness for the state was a 16-year-old boy who, to be charitable, was quite unreliable:

Harrington (after being convicted and given a life sentence in prison) struck up a friendship with the prison barber, who petitioned for the police records in his case. According to defense lawyers, those records not only disclosed how police and prosecutors had coached Hughes until his story matched the facts, and how other witnesses were coerced into lying, but that the records also showed that police and prosecutors had withheld evidence that pointed to another suspect.

They had identified a white man named Charles Gates, who had been seen with a shotgun near the scene of the crime. Gates, the brother-in-law of a Council Bluffs Fire Department captain, was interviewed and failed a polygraph. But prosecutors and police abandoned their interest in him in favor of Harrington, who was not even offered a polygraph.

Harrington appealed his conviction and, after serving 25 years, finally had his case heard before the Iowa Supreme Court, which overturned the verdict, the court declaring that the state’s main witness was a “liar and perjurer.” Harrington and McGhee sued the prosecutors and won at the district and appellate levels in part because Richter and Hrvol had taken an active role in the actual investigation, working alongside the Council Bluffs police.

Not surprisingly, even though the state admitted it had used perjured testimony and police and prosecutors had manufactured evidence, the prosecutors through their attorneys argued that they could not be sued for misconduct because the U.S. Supreme Court in its 1976 Imbler vs. Pachtman decision ruled that prosecutors acting within the scope of their duties enjoy absolute immunity from civil lawsuits. Attorneys for Richter and Hrvol argued to the U.S. Supreme Court in 2009 that prosecutors were protected even if they broke the law and purposely pursued false charges:

The prosecutors counter that there is "no freestanding constitutional right not to be framed." Stephen Sanders, the lawyer for the prosecutors, will tell the Supreme Court on Wednesday that there is no way to separate evidence gathered before trial from the trial itself. Even if a prosecutor files charges against a person knowing that there is no evidence of his guilt, says Sanders, "that's an absolutely immunized activity." (Emphasis mine)

Iowa authorities settled with Harrington and McGhee for large sums of money before SCOTUS could make a decision, however, leaving it to a future court to revisit prosecutorial immunity.

Moving beyond the obviously outrageous defense of immunity – the claim that people have no right not to be framed by authorities – let us look at the incentive structures that prosecutors face. In a recent Mises article, Chris Calton argues that the current justice system creates a “commons” in which the benefits of a conviction flow to individual players in the system – judges, prosecutors, and police – but the costs of incarceration are borne by the taxpayers. While one can argue that “society” gains some immeasurable benefits from conviction of violent and dangerous criminals, the real beneficiaries are officials who make a living in that system.

The Lemons Problem

In his famous “Lemons” paper in 1970, George Akerlof wrote that markets might break down if parties involved in market transactions faced information asymmetries. He used the example of used cars, noting that buyers often cannot tell the difference between a “good” used car and one that is a “lemon” and has a high likelihood of breaking down soon after the purchase.

Despite Akerlof’s claim that information asymmetries constitute a “market failure” that should be rectified by government intervention, we have seen (especially with development of the Internet) market players create a number of information mechanisms that enable buyers and sellers to make informed decisions.

Criminal trials are not market-based events, but, nonetheless, guilt and innocence depend upon all of the participants – and especially jurors – having correct information presented to them within the rules of due process. People rightfully are disturbed by wrongful convictions.

Prosecutors have huge incentives to convict, and benefits of winning convictions are likely to outweigh any potential costs. More convictions mean electoral victories (many members of Congress are former prosecutors), raises for staff attorneys, and prestige.

The main cost is the levying of legal sanctions for misconduct. However, unlike most professionals that have to weigh the potential costs of lawsuits should they fail to satisfy a customer or client, prosecutors don’t have to worry about lawsuits, and it is extremely rare for prosecutors ever to face any legal sanctions even for the most egregious of behavior.

It isn’t just Pottawattamie. The list is endless. From the infamous Duke Lacrosse Case in which prosecutor Michael Nifong broke state and federal criminal laws but only lost his law license, to the “expert witness” scandals in Mississippi in which Dr. Steven Hayne gave testimony (for the prosecution) in hundreds of criminal cases that many prosecutors knew was false, to the prosecutorial scandals in Orange County, California, we see a reoccurring pattern: prosecutors suborn perjury, lie to judges and jurors, and fabricate evidence favorable to their cases, with the very rare prosecutor ever punished for dishonest conduct.

With the odds ever in their favor, unscrupulous prosecutors are rewarded for lying and presenting false information. Like the stereotypical used car salesman that foists lemons onto hapless customers, the law incentivizes prosecutors to win at all costs, and they do so with frightening regularity.



Categories: Current Affairs

Big Military Spending Boost Threatens Our Economy and Security

Wed, 19/07/2017 - 03:30
By: Ron Paul
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On Friday the House overwhelmingly approved a massive increase in military spending, passing a $696 billion National Defense Authorization bill for 2018. President Trump’s request already included a huge fifty or so billion dollar spending increase, but the Republican-led House found even that to be far too small. They added another $30 billion to the bill for good measure. Even President Trump, in his official statement, expressed some concern over spending in the House-passed bill.

According to the already weak limitations on military spending increases in the 2011 “sequestration” law, the base military budget for 2018 would be $72 billion more than allowed.

Don’t worry, they’ll find a way to get around that!

The big explosion in military spending comes as the US is planning to dramatically increase its military actions overseas. The president is expected to send thousands more troops back to Afghanistan, the longest war in US history. After nearly 16 years, the Taliban controls more territory than at anytime since the initial US invasion and ISIS is seeping into the cracks created by constant US military action in the country.

The Pentagon and Defense Secretary James Mattis are already telling us that even when ISIS is finally defeated in Iraq, the US military doesn’t dare end its occupation of the country again. Look for a very expensive array of permanent US military bases throughout the country. So much for our 2003 invasion creating a stable democracy, as the neocons promised.

In Syria, the United States has currently established at least eight military bases even though it has no permission to do so from the Syrian government nor does it have a UN resolution authorizing the US military presence there. Pentagon officials have made it clear they will continue to occupy Syrian territory even after ISIS is defeated, to “stabilize” the region.

And let’s not forget that Washington is planning to send the US military back to Libya, another US intervention we were promised would be stabilizing but that turned out to be a disaster.

Also, the drone wars continue in Somalia and elsewhere, as does the US participation in Saudi Arabia’s horrific two year war on impoverished Yemen.

President Trump often makes encouraging statements suggesting that he shares some of our non-interventionist views. For example while Congress was shoveling billions into an already bloated military budget last week, President Trump said that he did not want to spent trillions more dollars in the Middle East where we get “nothing” for our efforts. He’d rather fix roads here in the US, he said. The only reason we are there, he said, was to “get rid of terrorists,” after which we can focus on our problems at home.

Unfortunately President Trump seems to be incapable of understanding that it is US intervention and occupation of foreign countries that creates instability and feeds terrorism. Continuing to do the same thing for more than 17 years – more US bombs to “stabilize” the Middle East – and expecting different results is hardly a sensible foreign policy. It is insanity. Until he realizes that our military empire is the source of rather than the solution to our problems, we will continue to wildly spend on our military empire until the dollar collapses and we are brought to our knees. Then what?

Reprinted from the Ron Paul Institute for Peace and Prosperity. 



Categories: Current Affairs

Don't MacLean on Me

Wed, 19/07/2017 - 03:30
By: David Gordon
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As I mentioned in an earlier article, Nancy MacLean’s Democracy in Chains has aroused controversy, in large part owing to her many inaccuracies and misleading remarks.  I’d like in this note to call attention to a few more of these.

She begins the book’s Prologue with a summary of an article by Alexander Tabarrok and Tyler Cowen, “The Public Choice Theory of John C. Calhoun.” These authors, colleagues of Buchanan at George Mason University, “have called the antebellum South Carolina senator ‘a precursor of modern public choice theory,’ another name for the stream of thought pioneered by Buchanan.” (p.1) So far, so good; but she goes on to say: “Both thinkers sought ways to restrict what voters could achieve together in a democracy to what the wealthiest among them would agree to.” (p.2) ) In fact, Tabarrok and Cowen  discuss Calhoun’s doctrine of the “concurrent majority” under which all the major interests in society have to approve legislation; but they do not say that Calhoun took the wealthiest to be among these interest groups. They further point out that Calhoun did not intend his unanimity criterion to apply literally to “every member of society.” She does have a footnote to her statement; and, since the paragraph consists of her summary of Tabarrok and Cowen’s article, one would anticipate a citation to this article. But the reference is to another article by Cowen, one that does not discuss Calhoun at all, and mentions Buchanan only in a footnote.  (p.245, note 4)

MacLean’s summary of the article also omits Tabarrok and Cowen’s conclusion that “Unlike Buchanan, Calhoun does not subscribe to normative individualism and contractarianism.” In their view, Calhoun’s “lack of ethical foundations shows up in his defense of slavery.” By omitting the authors’ conclusion, MacLean makes it appear that they agree with her that both Calhoun and Buchanan aimed to thwart the interests of the people in favor of a narrow elite of the wealthiest.

One twentieth-century economist who certainly qualifies as an elitist was John Maynard Keynes; but not in MacLean’s telling. According to her, Keynes ‘believed that for a modern capitalist democracy to flourish, all must have a share in the economy’s benefits and governance.”(p.xxix) Where does Keynes say that everyone must have a share in the economy’s governance? She offers no support for her surprising claim.

She says that Herbert Spencer was one of  “bitter establishment opponents of Populism” (p.118), but where does Spencer discuss the Populist movement? She does not tell us. Spencer, she also says, was among those who “pretended’’ that social power does not shape markets; but once more she offers no evidence. It seems unlikely that Spencer held the view she attributes to him. He was, after all, one of the founders of sociology.



Categories: Current Affairs

To Fix Healthcare, We Need to Repeal a Lot More than Obamacare

Tue, 18/07/2017 - 23:30
By: Ryan McMaken
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I've always been willing to accept a repeal of Obamacare that was less than perfect, and I've never subscribed to the idea that only a total and complete repeal of Obamacare should warrant my support. 

Even a small tax cut is better than no tax cut, and even a partial repeal of Obamacare is better than no repeal. 

But, there's been little reason to celebrate the GOP's effort at an Obamacare repeal. And now that the effort appears doomed, there seems to be little reason for prolonged lamentation. 

Indeed, right up until the apparent failure of the repeal effort this week. the whole affair has been marked by confusion, muddled messaging, and a clear lack of any direction beyond scoring some political points against the supporters of Barack Obama. 

The Senate version, for example, only partially repealed the Obamacare tax while leaving much of the rest of the law untouched. Worse yet, the Senate version added bailout provisions for insurance companies. 

Looking Beyond Obamacare 

If actually improving the lives of taxpayers and constituents were the goal, the GOP could have focused less on specifically repudiating the Obama agenda, and instead looking for ways to undo decades of government meddling in healthcare — which has produced the expensive, inflexible, and monopolistic healthcare system we have today. 

Instead, the focus has been only on Obamacare itself — the repeal of which would only return us to the bad old days of 2013 when the healthcare sector was already long over-regulated, distorted, subsidized, and made far more expensive than would be the case in a functioning marketplace. 

Even worse, the rhetoric surrounding the Obamacare-repeal effort has tended to send the message that things were more or less fine before Obamacare was passed, and this once it was repealed, things would improve. In truth, healthcare was already headed toward disastrous price increases and problems of falling quality even before Obomacare was passed. Given how government has come to dominate the industry, this should surprise no one. 

Decades of Government Control and Subsidy

The pre-Obamacare world was one in which the United States spent more government money on healthcare than almost any other nation. That's government spending, not total spending overall. 

This data is from the world Health Organizations 2014 report on healthcare spending. The data pre-dates the implementation of Obamacare. Specifically, per capita government spending in the US comes in at $4,047 behind Norway ($5,198), Luxembourg (5,061), and the Netherlands ($4,070), and is also quite comparable to Denmark ($3,801). 

Indeed, by the time Obamacare was passed, the US had already been piling on regulations and subsidies in the healthcare sector for more than 70 years. 

However, it wasn't until the 1960s that a real crisis began to appear on the horizon. As noted in Mike Holly's article "How Government Regulations Made Healthcare So Expensive":

The U.S. “health care cost crisis” didn’t start until 1965. The government increased demand with the passage of Medicare and Medicaid while restricting the supply of doctors and hospitals. Health care prices responded at twice the rate of inflation. Now, the U.S. is repeating the same mistakes with the unveiling of Obamacare (a.k.a. “Medicare and Medicaid for the middle class”).

This artificially inflated demand was then heaped on top of efforts that were already in place to restrict supply. Holly continues: 

Since the early 1900s, medical special interests have been lobbying politicians to reduce competition. By the 1980s, the U.S. was restricting the supply of physicians, hospitals, insurance and pharmaceuticals, while subsidizing demand. Since then, the U.S. has been trying to control high costs by moving toward something perhaps best described by the House Budget Committee: “In too many areas of the economy — especially energy, housing, finance, and health care — free enterprise has given way to government control in “partnership” with a few large or politically well-connected companies”

So, we have for many years faced a situation in which the government works to subsidize healthcare — thus increasing demand — while simultaneously reducing supply. And yet, these efforts at regulating the industry, picking winners and losers, and enhancing monopoly powers have become to entrenched in the industry, we don't even notice them anymore. They now seem natural. Some might even conclude they're the result of natural market behavior. 

The Overuse of Health Insurance

One of the most important aspects of the healthcare industry — something most now wrongly assume is a product of unhampered market forces — has been the use of health insurance as the mainstay in allocating healthcare resources. This over-reliance on insurance has produced  not a few unfortunate side effects. For example, the use of insurance to pay for common procedures has created moral hazard and thus over-utilization of healthcare services. Moreover, by inserting a third party between the consumer and the healthcare providers — a third party that obscures prices from the end user — consumers cannot make informed choices on the true costs of services and which are most prudent to use. This in turn drives up prices for all users, including cash-only customers and anyone who doesn't fit into the inflexible and government-created employer-based insurance system. 

Dr. Michel Accad discusses the origins of the health insurance system that got us where we are today:

[During the 1930s and 40s the] main boost to the health insurance industry ... came from new legislation and administrative rulings.

State-level legislations were passed to allow pre-payment plans, such as Blue Cross and Blue Shield programs, to obtain non-profit, tax-exempt status and to offer insurance coverage without the reserve requirements imposed on commercial insurance companies...

More importantly, insurance programs benefited greatly from the federal Stabilization Act of 1942 which allowed companies facing scarce labor (during a time of price and wage control) to compete for this labor by offering health insurance benefits and by making those benefits exempt from payroll taxes.

There were also rulings preventing employers from canceling or modifying group insurance during the contract period, and rulings that established health benefits as wages, allowing labor unions to negotiate for the provision of health insurance on behalf of employees.

With successive legislation and rulings, commercial insurance entered the health care market more willingly and employers began to offer health insurance to employees on a very large scale. Between 1940 and 1950, the number of people with health insurance grew from less than 10 million to over 80 million Americans.

Holly notes some other developments as well:

  • In 1945, buyer monopolization begun after the McCarran-Ferguson Act led by the Roosevelt Administration exempted the business of medical insurance from most federal regulation, including antitrust laws. (States have also more recently contributed to the monopolization by requiring health care plans to meet standards for coverage.)
  • In 1946, institutional provider monopolization begun after favored hospitals received federal subsidies (matching grants and loans) provided under the Hospital Survey and Construction Act passed during the Truman Administration. (States have also been exempting non-profit hospitals from antitrust laws.)
  • In 1951, employers started to become the dominant third-party insurance buyer during the Truman Administration after the Internal Revenue Service declared group premiums tax-deductible.

This isn't to say that reductions in taxes or regulations are a bad things in themselves. The problem lies not in that the insurance industry benefited from tax reductions and lowered regulatory barriers. The problem lies in the fact that other healthcare arrangements — industries and options that competed with the insurance model — were still subject to the usual taxes and regulations. Thus, the insurance industry enjoyed a relative advantage over the competition. This caused immense amounts of wealth to flow into the insurance industry — and this has burdened us with the insurance-centric system we have today. 

RELATED: "Why Health Care Costs Exploded After World War II" by Michel Accad. 

In a less interventionist economy, market factors and competition had worked to restrain the use of health insurance. However, as new legislation worked to give insurance an advantage over cash-for-service healthcare, large insurance agencies came to dominate the industry. Over time, large providers like BlueCross/BlueShield would major major interest groups that worked to that insurance would assume a larger and larger role in the provision of healthcare. 

Supply Is Restricted

Thus it is no accident that today's tax law provides incentives to have health insurance while doing far less to incentivize health savings accounts and the purchase of healthcare services outside the insurance system. Cash-only and membership-based medical services function at a competitive disadvantage because governments have picked who the winners and losers should be. And insurance companies have already been declared the winners. 

Meanwhile, a variety of government and quasi-government licensing laws and regulations restrict the production of healthcare services. Kel Kelly noted just how restrictive these regulations can be:

[Since the American Medical Association began restricting medical education], the US population has increased by 284 percent, while the number of medical schools has declined by 26 percent to 123. In 1996, the peak year for applications, only 16,500 candidates were accepted out of 47,000. While high rejection rates can be common in many schools, applicants to medical schools are usually among the brightest and highest-quality students and have put themselves through a very costly admissions process.... The medical monopoly also marginalizes or outlaws alternative or slightly alternative (i.e., competing) medical practices, along with nurses and midwives, who could perform many of the tasks doctors do today.

Fewer training facilities for medical personnel means higher tuition, fewer spots for students, fewer doctors, and higher prices for consumers. 

Meanwhile, in many jurisdictions, new hospitals cannot be built without permission of governments through a "certificate of need" process. 

Obamacare Was Just More of the Same 

The result of all this, of course, has been more expensive healthcare that is less competitive, less accessible, more restricted, and more geared toward the benefit of a few large special interests. 

None of this is new to the world of Obamacare, and little of the problem will be undone by repealing Obamacare. In fact, Obamacare was really just a doubling down on a broken healthcare system that had been created decades earlier. Obamacare represents more of same, not a break from an imagined "free-market" past. 

If repealing Obamacare is really the goal, the GOP should instead focus on repealing and undermining the edifice on which Obamacare was built: the highly regulated, subsidized, and manipulated healthcare markets that dominate today. 



Categories: Current Affairs

Private Property and Higher Ed

Tue, 18/07/2017 - 04:45
By: Peter G. Klein
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The US higher-education world has been rocked the last two years by student protests, "free-speech" controversies, and allegations of faculty misconduct at schools as diverse as Missouri, Yale, Middlebury, Berkeley, and Evergreen State College. You've all heard about safe spaces, microaggressions, intersectionality, snowflakes, claims that certain forms of speech constitute violence, and so on. Professors have been assaulted by protesters and even fired or pressured to quit for expressing politically controversial ideas (though some are protected). Certain private groups have been banned, even from meeting off campus. Students, faculty, and staff are subjected to endless hours of sensitivity training, despite evidence that such programs increase, rather than alleviate, tensions among groups. Some schools are already experiencing blowback, while others are taking advantage of these controversies to differentiate themselves from rivals. Pundits are predicting campus craziness as the next hot-button issue in US presidential politics. What is to be done?

While I greatly admire the efforts of groups like FIRE to protect the rights of faculty and students accused of politically incorrect speech or action, I disagree with them on one fundamental point. The First Amendment protects freedom of expression for students and professors at state-owned and publicly funded colleges and universities, and it's perfectly appropriate for the courts or regulatory agencies to discipline schools that punish speech. 

At private schools, however, it's a different story. Restrictions on the speech or behavior of students or faculty may violate a contract -- for instance, a university that states a public commitment to free speech, then disciplines a student for saying or doing something politically incorrect, may have breached its contract with the student and could be liable for damages. A college that includes protections for academic freedom in its agreement with faculty, then fires a professor for something he said in the classroom (or tweeted or wrote in an op-ed or shouted at a rally) may be guilty of breach of contract. Of course, the school could argue that the student violated the code of conduct or the professor is guilty of moral turpitude -- the boundaries of which would also be specified by contract. The point is that these are not "free-speech" issues or political issues at all, but private, contractual disagreements, which should be resolved by arbitration or by the courts. The First Amendment has no bearing on these situations.

As Murray Rothbard argued in Ethics of Liberty, in a free society there are no free-speech rights, only property rights. Property owners may encourage or restrict speech or other forms of behavior (though they may be liable for damages if such restrictions violate some prior contractual agreement). More generally, as Rothbard put it, "not only are there no human rights which are not also property rights, but the former rights lose their absoluteness and clarity and become fuzzy and vulnerable when property rights are not used as the standard."

For this reason, the libertarian position on recent campus controversies is to fight not for free speech, but for property rights. Higher education should be privatized, taking these issues out of the political sphere. Should Charles Murray or Ann Coulter be invited to lecture? Should students be disciplined for boycotting classes? Should a professor be fired for saying the wrong thing? It's up to the owners to decide. Students can choose to attend or not, faculty can seek employment or quit, financial supporters can donate or withhold funds, all based on their free and voluntary decisions to associate with one school or another. I've written before in defense of diversity in higher education -- not just the viewpoint diversity championed by groups like Heterodox Academy, but also diversity of strategies and structures. Let colleges and universities be large or small, diversified or specialized, highbrow or lowbrow, hippie or conservative, secular or religious, tolerant or intolerant -- who are outsiders to judge? A thousand flowers blooming and all that. 

 

 



Categories: Current Affairs

How OPEC Became Irrelevant

Tue, 18/07/2017 - 04:00
By: Olav Dirkmaat
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The large traditional oil-producing countries — both OPEC and non-OPEC — are still catching up with the new reality. After deciding to extend the production cuts — agreed upon half a year ago — for another nine months, oil prices plunged below $50/barrel. Not quite the effect these oil giants were hoping for, but nothing out of the ordinary. After all, the fact is that supply and demand dynamics in the oil market have changed for good, something you can read in more detail in UFM Market Trends’ latest report on crude oil.

What happened after the first production cut that began in January this year?

The OPEC countries — and a few non-OPEC countries such as Russia — agreed late November 2016 to lower oil output by 1.3 million barrels a day (b/d), from 33.8 million b/d to 32.5 million b/d. Oil prices went from approximately $45/barrel to over $50/barrel. Suddenly, marginal US shale oil became profitable to extract. This is how US shale producers reacted to the OPEC supply cut:

Source: U.S. Energy Information Administration (EIA); Drilling Productivity Report

Instead of limiting total oil supply, small US shale oil producers stepped in and made up for the supply cuts. As future crude oil prices began moving upward directly after OPEC announced the agreement, US shale producers locked in higher prices in the futures market and began producing.

Markets noticed that OPEC supply cuts — despite high compliance — only incentivized US shale production. Oil prices declined again, back below $50/barrel in March 2017, only to recover in April on renewed speculation on further (deeper) OPEC supply cuts.

It took a bold statement by Khalid Al-Falih, Saudi Arabia’s energy minister, that they would “do what it takes” to push oil prices back up above $50/barrel, reminiscent to Mario Draghi’s “whatever it takes” to prop up European sovereign bonds in mid-2012.

Yet, today, Khalid Al-Falih´s statement lacks credibility. In the past, OPEC supply cuts appear to have some impact on oil prices (some impact, as one of our analysts, Edgar Ortiz, showed that OPEC as a cartel is inherently instable due to an incentive problem):

Source: St Louis Fed

In the above chart, we can observe what happened with crude oil prices after production cuts in 1998, 2001 and 2008. Oil prices rallied, especially a year after the day of announcement. This could be explained by the fact that supply cuts are generally agreed upon on a certain date, but only gradually implemented. As markets tend to be skeptical about full compliance by all OPEC members, the gradually implemented cuts are also gradually priced in. Note that the above historical supply cuts match more or less the 2017 supply cuts when it comes to size: in 2001, for example, OPEC agreed to cut supply by 1 million barrels a day. In short, above data can be said to back the conclusion that OPEC supply cut announcements were, to a certain degree, able to push up oil prices in the past.

Yet things have changed. The idea that, this time around, OPEC supply cuts will have any long-term impact on oil prices is plain wrong (unless Saudi-Arabia completely halts production, which is unlikely given the dependence of the country’s public finances on oil revenues): shale oil has revolutionized the oil industry and traditional producers, including OPEC countries, must face the new reality.

Not only traditional oil producing countries should face the new reality, traditional oil market analysts should wake up to the new reality as well. 

Source: Investing.com

Oil analysts at major banks still predict oil prices to end the year at $55/barrel or even at $70/barrel. Moreover, they expect absolutely no future downside to oil prices. However, the odds that oil prices will end the year above $50/barrel are slim. And increasing US shale production is, besides an economic slump in China and the US, the main culprit. Some analysts are already catching up to the new reality and are slashing their oil price forecasts.

The only – temporal – thing that could rescue the oil giants is a severe tightening in financial conditions in the US. As US shale producers are highly dependent on leverage, largely provided by the corporate bond market or banks, a rise in borrowing costs affects the break-even cost of a barrel of non-conventional shale oil much more than a barrel of conventional oil. As you can read in our latest report on crude oil, debt servicing payments of US energy companies already topped 70% of operating cash flows at the end of 2016. With a further tightening in financial conditions, OPEC oil supply cuts might actually have an impact and the price of oil would, all other things equal, move substantially higher.

Yet that would only serve to delay the pain. In the end, shale oil production is radically changing the oil industry. Curiously, in ten years from now, it will be both the US and Russia that will be the major shale oil producing countries. We can only guess how that will play out in the (geo)political arena.

Reprinted from Market Trends at Universidad Francisco Marroquin. 



Categories: Current Affairs

Even Partial Drug Legalization Goes a Long Way in Protecting Property Rights

Tue, 18/07/2017 - 03:00
By: Ryan McMaken
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Why Even Partial Legalization of Drugs Is a Good Thing 

The partial legalization of marijuana has not been quite ideal. Thanks to high regulatory burdens on the marijuana-production industry, limitations on production volume, and high taxes, black markets have persisted within those states that have adopted a variety of legalization measures. 

Perhaps most burdensome has been ongoing federal banking regulations that essentially prohibit marijuana producers from using commercial banking services. The resulting reliance on physical cash has led in many cases to more robbery and inefficiencies within the cannabis industry. 

Nevertheless, even partial legalization has brought at least some of the benefits that one would expect. Cannabis products are now subject to commercial quality control. That is, a customer who walks into a dispensary now has a much better idea of what he's buying. When cannabis sales took place only in the black market, one could only guess as the provenance of the product, and customers had no legal recourse in cases of fraud. 

One of the greatest benefits, from a laissez-faire perspective, has been the fact that legalization of marijuana has in many ways tied the hands of law enforcement.  

Once upon a time, all that was necessary to justify a police search of a home or car was just a tiny amount of marijuana. Since marijuana was legalized in Colorado in 2012, police departments are finding it harder to justify many of their searches and seizures that were once routine.  

Now, in a new decision announced last week, the Colorado Court of Appeals ruled that police cannot use the presence of some marijuana as probable cause for a search of a resident's vehicle. 

In other words, a law enforcement officer cannot simply assume that just because a suspect may possess some marijuana, then he or she must be in possession of illegal substances, or engaged in some illegal activity. 

In other words, thanks to Amendment 64, any Colorado resident using marijuana has "a legitimate expectation of privacy" even if in possession of marijuana. 

In the case Colorado vs. McKnight, the ruling hinged largely on the use of drug-sniffing dogs. If a dog "alerts" to the smell of marijuana, does this provide probable cause for a more thorough search? 

The court ruled no. Moreover, the court's ruling may even greatly restrict the use of police dogs in general since the dogs are trained to indicate the presence of what is now a legal substance. 

The court concluded

Because Amendment 64 legalized possession for personal use of one ounce or less of marijuana by persons twentyone years of age or older in Colorado, it is no longer accurate to say, at least as a matter of state law, that an alert by a dog which can detect marijuana (but not specific amounts) can reveal only the presence of “contraband.” A dog sniff could result in an alert with respect to something for which, under Colorado law, a person has a legitimate expectation of privacy, i.e., the possession of one ounce or less of marijuana for personal use. 

Thanks to the partial legalization of marijuana, a dog's alert to marijuana in Colorado might as well be an alert to a can of spray paint, or a pack of cigarettes, or to any other substance that is totally legal for adult use in the state. 

Thus, so long as a dog is trained to alert to marijuana, the dog's alert cannot provide cause for suspecting a Colorado resident is involved in illegal activity. 

This is all for the best, of course, since drug-sniffing dogs are notoriously unreliable

In U.S. v. Bentley, we see just how damaging the Harris decision really was. Lex, the drug dog that searched Bentley’s car, had a 93 percent alert rate. That is, when Lex was called to search a car, he alerted 93 percent of the time. He was basically a probable cause generator. His success rate was much lower, at 59 percent. That is, the police actually found drugs just six of the 10 times Lex told them they would. That means that four of every 10 people Lex alerted to were subjected to a thorough roadside search that produced nothing illegal.

Anything that limits the use of drug-sniffing dogs essentially limits the use of dogs to produce "probable cause" as law enforcement officers see fit. 

None of this prevents the police from switching to dogs trained to not alert to marijuana, of course. In that case, police could then use dogs to create probable cause for meth, or cocaine, or any number of other substances. 

However, this could be addressed by further partial legalization. The partial legalization of cocaine — say for people over 21, and in small amounts — would throw up additional barriers to police-dog tactics by rendering dog alerts to cocaine as useless for police purposes in these situations, as well. 

The ruling in Colorado v. McKnight is just the latest good news that has resulted from the partial legalization of cannabis in Colorado. 

Partial legalization has made it more difficult for police to justify searches of cars and homes in general. In jurisdictions where prohibition remains — see the mises.org study on Johnson County, Kansas, for example — police can declare "victory" even if a half-ounce of marijuana — or even just drug paraphernalia — is found in the wake of an expensive and dangerous raid on a home. 

In a home full of multiple adults in Colorado, however, police would have to hope their raid leads to discovery of multiple full ounces of marijuana, and possibly a sizable grow room, too. No longer is it sufficient for a disgruntled resident to claim he saw the neighbor smoking a joint in his back yard. A raid on the home of a casual joint-smoker may be just as likely to net an expensive lawsuit as it is to produce a cache of illegal drugs. 

By making some marijuana legal, the job of law enforcement agencies become more difficult because now they must distinguish illegal possession and sale from legal possession and sale. In effect, this neutralizes the ability of police to easily claim that any amount of drugs is justification for vehicle and home searches. While this may mean many residents are still caught up in the web of the drug war, it's nevertheless a much smaller number than was the case under total prohibition. 



Categories: Current Affairs

Space Cadets and Sex Changes: Our "Defense" Budget Is a Bad Joke

Tue, 18/07/2017 - 03:00
By: Justin Raimondo
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The United States spends more on the military than the top eight countries combined – but that’s still not enough for our military-industrial-congressional complex. They want yet more tax dollars shoveled into that bottomless maw, and it looks like they’re going to get it.

The House of Representatives just passed the National Defense Authorization Act (NDAA) for 2018, authorizing an all-time high of $696.5 billion. This is $72 billion over the budget cap required by sequestration legislation, and has to be reconciled with the $700 billion bill coming out of the Senate Armed Services Committee. Both bills spend more on the military than even the Trump administration – which pledged a massive military build up during the campaign – and the Pentagon proposed. The bill passed with bipartisan support: only 71 Democrats and 8 Republicans voted against it.

The sole objection the Democrats had to this budget-busting bill was that military spending did not achieve “parity” with domestic spending: with 60 votes required in the Senate to abrogate sequestration caps, the Democrats are using their leverage not to reduce military spending, but to increase domestic spending. As Rep. Adam Smith, the ranking Democrat on the House Armed Services Committee, put it:

[T]o simply gut the nondefense discretionary budget, to plus-up defense does not make this country safer. I care enough about national security that I would raise taxes to pay for it.

Of course he would. That’s because the two parties have a symbiotic relationship when it comes to military spending: the Democrats go along with budget-busting “defense” bills as long as Republicans makes concessions insofar as domestic spending is concerned – and everyone gets to keep (and increase) their favorite boondoggles.

Speaking of which, an amendment offered by Rep. Tom McClintock (R-CA), that would have lifted a ban on another round of base realignment and closure measures, was defeated. While this is outrageous, it’s hardly surprising: obsolete bases on American soil that serve no military purpose do indeed serve a political purpose – keeping federal dollars flowing to those congressional districts. This outcome dramatizes the entire budget process, especially when it comes to the military: it has little to do with actually defending the country, and everything to do with defending the political interests of members of Congress.

Of course, the McClintock amendment got almost no publicity, while the Hartzler amendment – which would have defunded sex change operations for military personnel – hogged the spotlight. This amendment failed, with 24 House Republicans – including “libertarian” Justin Amash – voting to kill it. Rumor has it that Defense Secretary James Mattis called Rep. Vicky Hartzler and asked her to withdraw it. The Hartzler measure was characterized as the “anti-trans amendment,” but in reality it was nothing of the kind. Transgender women and men are permitted to serve in the military, and nothing in the amendment would’ve changed that: if passed, it would have simply required transgender military personnel to pay for their own surgery.

Another amendment that got some visibility was one that would have stripped the proposal to create a “Space Corps’ from the NDAA. The Trump administration, the Pentagon, and Mattis all oppose the Space Corps idea, but the House never got to a vote: instead, the amendment was tossed out by the Rules Committee. No doubt about it, there are some powerful interests at play here, all of which are major contributors to Rep. Mike Rogers’ campaign chest: GenCorp, Lockheed, General Atomics, General Dynamics, Northrup Gumman, Honeywell International, etc. etc. Rogers, an Alabama Republican and chairman of the House Armed Services Committee, is one of the chief Space Corps proponents.

The military-industrial-congressional complex would naturally welcome the addition of yet another bureaucratic structure designed to suck up tax dollars and expand the military contractor gravy train; and the nascent “space industry” is no doubt eager to open up new frontiers of political influence in order to subsidize their efforts – in the name of “national security,” of course. The Air Force, for its part, fears the addition of yet another rival for funding, one that could be expected to take a big chunk out of their own budget.

One ray of light in an otherwise dark procedure was the victory of two amendments that would prohibit any US involvement in the Saudi war on Yemen. It was a voice vote so we don’t know who voted how. I would expect that this will be stripped out of the reconciled version, but, hey, we celebrate such small victories in lieu of anything better to crow about.

The Trump administration asked for $603 billion in military spending: Congress upped the ante by $37 billion. The Senate version would up it by $40 billion. To update Everett Dirkson, and adjust for inflation: $40 billion here, forty billion there, and pretty soon you’re talking about some real money.

I seem to remember then joint chiefs chairman Admiral Mike Mullen telling us that the national debt is the single biggest threat to the security of the United States. Then Secretary of Defense Leon Panetta said the same thing. General Mattis agrees. It would be a typically American form of irony if our bloated-beyond-all-reason “defense” budget turned out to be a major factor in our ultimate undoing.

Around $75 billion is devoted to an “overseas contingency” reserve, i.e. the cost of possible new wars. To say nothing of the costs baked into the “official” budget emanating from our myriad of overseas commitments, from maintaining our far-flung empire of bases to subsidizing our shiftless NATO “allies.”

The burden of empire weighs heavily on our shoulders, and frustration with this state of affairs was expressed by none other than President Donald Trump recently, when he said:

We have to rebuild our country. Our roads, our bridges, our tunnels, our schools. We will have in another few months, have spent $7 trillion in the Middle East. Seven Trillion. And then if you want to spend two dollars on building a school in Iowa, or in Pennsylvania, or in Florida, they don’t want to give you the money. How ridiculous is this?

It’s pretty damn ridiculous, but then again it’s no less ridiculous than bombing Syria, threatening Iran, and sending more troops to Afghanistan – all of which have happened since the Trump administration took office. Is Trump campaigning against himself?

We are living under a President who proclaims “America First,” and yet we have a “defense” budget that does everything but defend this country’s borders from attack: our shipping is still as vulnerable as ever, and our borders aren’t any less porous than they were when Trump came to office. Oh, but don’t worry: our service members can change genders at will, and our Space Cadets will soon be bringing democracy to the red plains of Mars.

Republished from Antiwar.com.



Categories: Current Affairs

Net Neutrality Strengthens Monopolies, Invites Corruption

Mon, 17/07/2017 - 18:30
By: Ryan McMaken
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When it imposed its net neutrality rules on the telecom industry, the FCC was fixing a problem that didn't exist. 

While proponents of Net Neutrality have long claimed that the regulations are necessary to impose fairness for internet usage, access to the internet has only become more widespread and service today is far faster for users — including “ordinary” people — than it was twenty years ago. 

Nevertheless, when the FCC in recent months — now under pressure from the Trump Administration — announced that it may step back from net neutrality, supporters immediately began claiming that net neutrality was necessary to keep internet access affordable and "fair." 

In truth, net neutrality has never fostered fairness or better access for consumers, and has instead created conditions that will encourage less competition and more monopolistic power for large firms within the industry. 

Instead of relying on the market place to allocate goods, net neutrality ensures that politics will determine who gets what, instead. This is hardly a recipe for fairness or neutrality.

In the marketplace, goods and services tend to be allocated according to those who demand the goods the most. Where demand is highest, prices are highest.

In some cases, this will mean that some customers will be able to pay for faster internet service than others. 

But, the existence of some "luxury" types of internet service do not interfere with the existence of lower-priced services, just as the existence of luxury cars do not prevent the manufacture of economy cars. 

It is this market mechanism that drives the marketplaces for food, clothing, and a host of other products. Consequently, both food and clothing have become so plentiful that obesity is a major health problem and people often throw out barely-worn clothing. Similarly, cell phones have only become more affordable and more widespread in recent decades, and have freed us from the telephone monopolies of old. 

This is all the natural outcome of market competition. In industries where new firms may freely enter, and customers are not compelled to buy, companies or individuals that wish to make money must use their resources in ways that are freely demanded by others. Unless they have been granted monopoly power by government, no firm can simply ignore its customers. If they do, competing firms will enter the marketplace with other goods and services.

But, goods and services need not be allocated by markets. Goods and services can be allocated by political means, instead. That is, governments employing coercive means can seize goods and services and allocate them according to certain political goals and the goals of people in positions of political power. 

Supporters of net neutrality, however, are claiming that the FCC will somehow necessarily work in the “public” interest and against the special interests who — experience tells us — tend to hold the most influence with regulatory agencies. .

In practice, the natural outcome of regulatory schemes like net neutrality is “regulatory capture,” in which the institutions with the most at stake in a regulatory agency’s decisions end up controlling the agencies themselves. We see this all the time in the revolving door between legislators, regulators, and lobbyists. And you can also be sure that once this happens, the industry will close itself off to new innovative firms seeking to enter the marketplace. The regulatory agencies will ensure the health of the status quo providers at the cost of new entrepreneurs and new competitors.

Moreover, as Nobel-prize-winning economist Douglass North noted, regulatory regimes do not improve efficiency, but serve the interests of those with political power: "Institutions are not necessarily or even usually created to be socially efficient; rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to create new rules."

Not surprisingly, small, less-powerful internet providers are the most at-risk under net neutrality, with nearly two dozen of them recently asking FCC chairman Ajit Pai to reconsider net neutrality rules that are especially burdensome on small providers. 

Smaller companies claim that the regulations have caused them to pull back from expansion plans, and also impact their ability to obtain financing. 

While larger carriers have their own objections, of course — and will surely send in an army of lobbyists and attorneys to ensure rules and legislation are to their liking — small businesses are more at the mercy of regulatory schemes.

Unlike the few huge firms that dominate the industry, smaller firms can't afford the long legal battles that come with new regulations, and they must compete more heavily for financing. 

The end result will be fewer small firms entering the marketplace, and thus less competition. This in turn will lead to higher prices and fewer choices for customers. 

Government regulation has long been an easy way for large firms to drive the smaller competition out of business. Net neutrality is no different. 



Categories: Current Affairs

Why Wage Growth Is So Weak

Mon, 17/07/2017 - 18:00
By: Frank Shostak
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The yearly growth rate of average hourly earnings in production and non-supervisory employment in the private sector eased to 2.3% in June from 2.4% in May.

Many experts are puzzled by the subdued increase in workers earnings. After all, it is held the US economy has been in an expansionary phase for quite some time now.

Softer real output growth important reason why hourly earnings remain under pressure

According to the US Government’s own data, since 2000, in terms of industrial production, the US economy has entered a subdued growth phase. (Note that between 1945 to early 2000 the industrial production index had been following a visible uptrend). Therefore, it seems the underlying ability of the economy to grow has been visibly undermined. So from this perspective the slow growth rate in output could be an important reason behind the softer wages growth rate.

Some commentators such as the vice chairman of the US Federal Reserve Stanley Fischer has suggested that slowing productivity could be an important factor behind all this.

That a fall in the productivity of workers could be an important factor is a good beginning in trying to establish what is really happening. It is however, just the identification of a symptom — it is not the cause of the problem.

Now, higher wages are possible if workers’ contribution to the generation of real wealth is expanding. The more a particular worker generates as far as real wealth is concerned the more he/she can demand in terms of wages.

An important factor that permits a worker to lift productivity is the size and the quality of the infrastructure that is available to him. With better tools and machinery, more output per hour can be generated and hence higher wages can be paid.

It is by allocating a larger slice out of a given pool of real wealth towards the build-up and enhancement of the infrastructure, that more capital goods per worker emerges (more tools and machinery per worker). This sets the platform for higher worker productivity and hence to an expansion in real wealth and thus lifts prospects for higher wages. (With better infrastructure workers can now produce more goods and services).

Capital goods formation and monetary pumping

The key factors that undermine the expansion in the capital goods per worker is an ever expanding government and loose monetary policies of the central bank. Yet many believe that both these institutions play a pivotal role in supporting the economy. According to the popular view, what drives the economy is the demand for goods and services. If, for whatever reasons, insufficient demand emerges, then it is the role of the government and the central bank to strengthen the demand to keep the economy going. Or so it is held.

There is, however, no independent category such as demand that drives an economy. Every demand must be funded by a previous production of wealth. By producing something useful to other individuals an individual can exercise a demand for other useful goods.

Any policy, which artificially boosts demand, leads to consumption that is not backed up by the previous production of wealth. For instance, monetary pumping that is supposedly aimed at lifting the economy in fact generates activities that cannot support themselves. This means that their existence is only possible by diverting real wealth from wealth generators. This in turn weakens wealth generation ability to produce wealth.

Note that monetary pumping sets a platform for various non-productive or bubble activities — instead of wealth being used to fund the expansion of a wealth generating infrastructure, the monetary pumping channels wealth towards wealth squandering activities. This means that monetary pumping leads to the squandering of real wealth. Similarly, a policy of artificially lowering interest rates in order to boost demand in fact provides support for various non-productive activities that in a free market environment would not emerge.

The origin of wealth erosion — financial deregulation

The introduction of deregulation of financial markets since early 1980’s has set the platform for massive monetary explosion out of “thin air”. The proponents for less control in financial markets hold that fewer restrictions imply a better use of scarce resources, which leads to the generation of more real wealth.

It is true that a free financial environment is an agent of wealth promotion through the efficient use of scarce real resources, whilst a controlled financial sector stifles the process of real wealth formation. However, it is overlooked by the proponents of the deregulated financial markets that the present financial system has nothing to do with a free market.

What we have at present is a financial system within the framework of the central bank, which promotes monetary inflation and the destruction of the process of real wealth generation through fractional reserve banking.

In the present system the more unrestricted the banks are the more money out of “thin air” can be generated and hence greater damage is inflicted upon the wealth generation process. This must be contrasted with genuine free banking i.e. the absence of the central bank, where the potential for the creation of money out of “thin air” is minimal.

Prior to the 1980’s financial de-regulation we had controlled banking. Banks’ conduct was guided by the central bank. Within this type of environment bank’s profit margins were nearly predetermined (the Fed imposed interest rate ceilings and controlled short term interest rates) hence the “life” of the banks was quite easy, although boring.

The introduction of financial de-regulations and the dismantling of the Glass – Steagall Act changed all that. The de-regulated environment resulted in fierce competition between banks.

The previously fixed margins were severely curtailed. This in turn called for an increase in volumes of lending in order to maintain the level of profits. In the present central banking framework this increase culminated in an explosion in the credit out of “thin air” — a massive explosion in the money supply. (In the deregulated environment, banks’ ability to amplify Fed’s pumping has enormously increased).

Note that the AMS (a measure of money supply growth) to its trend ratio (the trend was calculated from January 1959 to December 1979) hovered very closely at around 1.0 during 1959 to early 1980’s. Since early 1980’s this ratio has been rising visibly, climbing to 2.2 by October 2016 before closing at 2.1 in June 2017.

This massive explosion of money out of “thin air” has severely damaged the pool of real savings. Rather than promoting an efficient allocation of real savings, the current so-called de-regulated monetary system has been promoting the banks’ ability to channel vast amounts of money out of “thin air” across the economy.

From this, it follows that in the present banking system what is required to reduce a further weakening of the real wealth generation process and thus the erosion of workers earnings is to introduce tighter controls on banks. 

According to Murray Rothbard in Making Economic Sense,

Many free – market advocates wonder: why is it that I am champion of free markets, privatization, and deregulation everywhere else, but not in the banking system? The answer should now be clear: Banking is not a legitimate industry, providing legitimate service, so long as it continues to be a system of fractional-reserve banking: that is, the fraudulent making of contracts that it is impossible to honor.

Note that I'm not advocating here for suppressing the free market, but suppressing banks’ ability to generate credit out of “thin air.” This is only an issue because the present banking system has nothing to do with a market-based banking system.



Categories: Current Affairs

How to Look at Tariffs

Mon, 17/07/2017 - 15:30
By: Murray N. Rothbard
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The best way to look at tariffs or import quotas or other protectionist restraints is to forget about political boundaries.

Political boundaries of nations may be important for other reasons, but they have no economic meaning whatever. Suppose, for example, that each state of the United States were a separate nation. Then we would hear a lot of protectionist bellyaching that we are now fortunately spared. Think of the howls by inefficient, high,priced New York or Rhode Island textile manufacturers who would then be complaining about the "unfair," "cheap labor" competition from various low,type "foreigners" from Tennessee or North Carolina, or vice versa. Fortunately, the absurdity of worrying about the balance of payments is made evident by focusing on interstate trade. For nobody worries about the balance of payments between New York and New Jersey, or, for that matter, between Manhattan and Brooklyn, because there are no customs officials recording such trade and such balances.

If we think about it, it is clear that a call by New York firms for a tariff against North Carolina is a pure ripoff of New York (as well as North Carolina) consumers, a naked grab for coerced special privilege by inefficient business firms. If the 50 states were separate nations, the protectionists would then be able to use the trappings of patriotism, and distrust of foreigners, to camouflage and get away with their looting the consumers of their own region.

Fortunately, interstate tariffs are unconstitutional. But even with this clear barrier, and even without being able to wrap themselves in the cloak of nationalism, protectionists have been able to impose interstate tariffs in another guise. Part of the drive for continuing increases in the federal minimum wage law is to impose a protectionist device against lower,wage, lower-labor-cost competition from North Carolina and other southern states against their New England and New York competitors.

During the 1966 Congressional battle over a higher federal minimum wage, for example, the late Senator Jacob Javits (R,NY) freely admitted that one of his main reasons for supporting the bill was to cripple the southern competitors of New York textile firms. Since southern wages are generally lower than in the north, the business firms (and the workers struck by unemployment) hardest hit by an increased minimum wage will be located in the south.

Another way in which interstate trade restrictions have been imposed has been in the fashionable name of "safety." Government,organized state milk cartels in New York, for example, have prevented importation of milk from nearby New Jersey under the patently spurious grounds that the trip across the Hudson would render New Jersey milk "unsafe." If tariffs and restraints on trade are good for a country, then why not indeed for a state or region? The principle is precisely the same. In America's first great depression, the Panic of 1819, Detroit was a tiny frontier town of only a few hundred people. Yet protectionist cries arose-fortunately not fulfilled-to prohibit all "imports" from outside of Detroit, and citizens were exhorted to "buy only Detroit." If this nonsense had been put into effect, general starvation and death would have ended all other economic problems for Detroiters.

So why not restrict and even prohibit trade, Le. "imports," into a city, or a neighborhood, or even on a block, or, to boil it down to its logical conclusion, to one family? Why shouldn't the Jones family issue a decree that from now on, no member of the family can buy any goods or services produced outside the family house? Starvation would quickly wipe out this ludicrous drive for self-sufficiency.

And yet we must realize that this absurdity is inherent in the logic of protectionism. Standard protectionism is just as preposterous, but the rhetoric of nationalism and national boundaries has been able to obscure this vital fact.

The upshot is that protectionism is not only nonsense, but dangerous nonsense, destructive of all economic prosperity. We are not, if we were ever, a world ofself,sufficient farmers. The market economy is one vast latticework throughout the world, in which each individual, each region, each country, produces what he or it is best at, most relatively efficient in, and exchanges that product for the goods and services of others. Without the division of labor and the trade based upon that division, the entire world would starve. Coerced restraints on trade-such as protectionism-cripple, hobble, and destroy trade, the source of life and prosperity. Protectionism is simply a plea that consumers, as well as general prosperity, be hurt so as to confer permanent special privilege upon groups of inefficient producers, at the expense of competent firms and of consumers. But it is a peculiarly destructive kind of bailout, because it permanently shackles trade under the cloak of patriotism.

Excerpted from Protectionism and the Destruction of Prosperity, Published in The Free Market Reader

Categories: Current Affairs

Can Japan End its Easy-Money Addiction?

Mon, 17/07/2017 - 04:00
By: Brendan Brown
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The shock landslide defeat of PM Shinzo Abe’s Liberal Democratic Party (LDP) in the recent Tokyo metropolitan elections — and the triumph there of Tokyo Governor Koike’s new party (Tomin First) — has lit a faint hope that the radical Japanese monetary expansion policy could be on its way out. The flickering light though is not strong enough to soothe the mania in Japan’s carry trades and so the yen continued to slide in the aftermath of the elections. Between mid-June and early July the Japanese currency depreciated by some 5% against the US dollar and 10% against the euro. 

The perception in currency markets is that Japan will not be embarking on monetary normalization this year or next, in contrast to Europe where ECB Chief Draghi has hinted that the train (to monetary normalization) will start next year, even though the journey promises to be very slow. The US train to normalization continues at a glacially slow pace including some periods of reverse movement. Moreover the monetary climate prior to the journey commencing is even more extreme in the case of Japan than in Europe or the US.

It was possible to imagine that the shock election setback for the LDP could have caused Shinzo Abe to withdraw support from his money-printer in chief, Bank of Japan governor Haruhiko Kuroda (whose term ends in April 2008), thereby signaling an early end to negative interest rates and quantitative easing. But markets in their wisdom have concluded this is not to be. Many elderly Japanese are pleased with their stock market and real estate gains even though they complain about negative interest rates and the threat of inflation. In any case it was young voters, responding to the stink of alleged corruption scandals, who turned out en masse for Governor Koike’s new party.

In fact, the widespread prediction is that PM Abe will nominate an even more radical monetary experimenter to the head of the Bank of Japan along with two deputy governors of similar persuasion. Some political pundits in Tokyo suggest that Shinzo Abe could yet face a challenge in an LDP leadership election in September 2018 and that ex-Defence Minister Shigeru Ishiba (also on the nationalist right of the party) could prevail. Ishiba-san would favor, some speculate, a return to monetary orthodoxy. But in market terms this is a long time ahead and much further monetary damage will have been done first.

Three Risks to the Current Easy-Money Orthodoxy

Currency markets are not a one-way bet and there are three main risks confronting speculators on further yen depreciation.

First, Washington could yet get its trade and currency acts together (President Trump’s nominee for the role of Treasury Under-Secretary responsible for international affairs, David Malpass, has not yet been approved by Congress). The US would take aim at currency manipulation by Europe and Japan, now occurring under the camouflage of the global 2% inflation standard and deployment of non-conventional monetary policy tools. In particular the Bank of Japan’s policy of pegging long-term interest rates at barely zero is surely a means of keeping the yen cheap. 

Second, the US economy could enter a growth cycle slowdown and even recession which in turn would narrow the yield gaps which draw capital out of Japan.

Third, the giant carry trades could suddenly go into reverse as global asset price inflation progresses toward its final deadly phase.

Booming carry trades are indeed a top symptom of asset price inflation. As income famine investors hunt for yield, or investors impressed by a series of capital gains become irrationally exuberant, they are unusually susceptible to speculative narratives, discarding normal healthy cynicism. These narratives justify risk-arbitrage positions implicit in all the various forms of carry trade (whether in search of premiums for exchange risk, or term risk, or credit risk, or illiquidity, or equity risk). Japan, due to the extent of monetary distortion there, has become the land of frenzied carry trading.

The Japanese War Against Deflation 

The natural rhythm of prices has been unusually strong in a downward direction in Japan, meaning that the central bank’s targeting of positive inflation creates powerful monetary disequilibrium. The entry of China into the global economy in the case of Japan has meant an integration process which brings persistent strong downward pressure on prices (and on wages via offshoring). Adding to this pressure has been the growth of the “irregular” labor market (temporary contracts as against lifetime employment). And if we consider the core zone of the Japanese economy around Tokyo, productivity growth and technological change have been bearing down on prices (these trends are not apparent in the national data due to the falling behind of regions distant from the capital).

In the age of Abenomics (starting in 2013) the Bank of Japan ramped up the inflation target to the global 2% level. Accordingly, the carry trades in their various forms have boomed. The speculative hypotheses to justify these have waxed and waned through time. Some market critics think the latest to be waning is the FANMGs (equities in Facebook, Apple, Netflix, Microsoft, and Google) into which Japanese investors have poured funds in many cases via so-called structured products (notes which are a hybrid between fixed-interest paper and a kicker in the form of pay-outs related to the performance of a given index or stock price, in effect an option-type product).

The popularity of certain investment tools adds to the momentum of carry trades in Japan. Market practitioners (including hosts of retail investors) study charts and the trend lines there; the trend is the friend, make no mistake, until the trend brakes. Under monetary stability the flaws of such tools would most likely remain contained. But in the vast domestic and global monetary disorder such as now exists and which fans irrationality Japanese carry-trades become even more prominent.

Shinzo Abe if he thinks about this, and he has praised repeatedly the booming Tokyo stock market, must doubtless hope that global asset price inflation including its Japanese component will remain in its present sweet phase through the elections next year, first for LDp President and then for the Lower House of the Diet (December).



Categories: Current Affairs

Week in Review: July 15, 2017

Sat, 15/07/2017 - 04:00
By: Mises Institute
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Janet Yellen didn't make much news this week when she testified before the House and Senate banking committees. She continued to defend the Fed's low interest rate policy, painted a very optimistic picture of the American economy, and struggled to defend her opposition to Audit the Fed. Unfortunately for Yellen, while she can duck and dodge the questioning of the occasionally hostile legislator, she can't avoid the consequences of the policies of herself and her predecessor. 

The Bernanke-Yellen bubble will lead to the Bernanke-Yellen depression.

On Mises Weekends, Dr. Mark Thornton joins Jeff to explain the "business cycle" for what it really is: a series of booms (credit expansion) and busts (debt deleveraging) engineered by central banks. Mark explains why there's nothing natural, real, or sustainable about the current Yellen boom.

And in case you missed them, here are this weeks Mises Wire articles, covering a wide array of topics including: Yellen's continued denial that anything is wrong, "free" education, Nancy MacLeans distorted view of America, and do we really need the ATF?

 



Categories: Current Affairs

Europe's Unsustainable Welfare State

Sat, 15/07/2017 - 04:00
By: Daniel Lacalle
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Angela Merkel used to say that “the European Union is about 5% of the world’s population, about 25% of its GDP, and about 50% of global welfare spending”:

The real data is more concerning.

The European Union is:

7.2% of the World Population.
23.8% of the World’s GDP.
58% of the World’s Welfare Spending.

Something has to give.

The EU average tax burden on workers is 44.9%. The average worker in the EU spends half a year working for the tax man.

Taxation accounts for 41% of the euro area GDP.

Ease of doing business remains below the leading economies of the world.

Bureaucracy is asphyxiating. The EU approves on average 80 directives, 1,200 regulations and 700 decisions per year.

The main EU economies remain significantly below the leaders in economic freedom.

At the same time, despite massive tax burden and constant confiscation of wealth, the EU’s average debt to GDP is 90%. Continuously making science fiction estimates of tax evasion and calling to tax the rich as a mirage, has led to unsustainable levels of government burden on the real economy and hinders investment and capital investment as policies are increasingly aimed at taxing the productive to subsidize the unproductive.

Using unrealistic estimates of tax revenues made by politicians — that are always missed — for very real expenditures — which are consistently above budget — has made the EU miss its debt reduction expectations.

The cost of hyper-regulation and excessive taxes to job creation, investment, and innovation are evident. The EU has an unemployment rate that almost doubles the leading economic peers, and taxation hinders the growth of SMEs (small and medium enterprises), which shows a ratio of development to large companies that is half the same ratio in the US.

The EU has many positive things, as I explained here. But we cannot let bureaucracy and confiscatory taxation take over a worthy project. Because ignoring those risks, we would make the EU implode.

Unless the EU politicians change their mindset of a model built on massive taxation and bureaucracy and start putting at the forefront of policy cutting taxes, slashing red tape, more open business, more economic freedom, focusing on job creation and attraction of capital, the welfare state will implode.

The EU’s welfare state can only be protected defending growth, investment, and job creation. However, it will likely be destroyed by the same ones that say they defend “the public sector.” By making it unsustainable.

Reprinted with permission of the author. Daniel Lacalle has a PhD in Economics and is author of Escape from the Central Bank TrapLife In The Financial Markets, and The Energy World Is Flat (Wiley).



Categories: Current Affairs

The Conquest of the United States by Cuba

Sat, 15/07/2017 - 04:00
By: Jacob G. Hornberger
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One of the ironies of the U.S. national-security state’s never-ending efforts to effect regime change in Cuba is that the United States ended up adopting and embracing many of the dark-side policies and practices of what one might expect a communist regime to engage in. After the conversion of the U.S. government to a national-security state after World War II, the notion was that in order to defeat the Reds during the Cold War, America needed to become like them.

That’s how the United States ended up being a nation based on such dark-side activities as torture, assassination, secret surveillance, and indefinite detention. In fact, it was appropriate that the Pentagon and the CIA established their premier torture and indefinite detention center at Guantanamo Bay, Cuba, given that torture, military tribunals, and indefinite detention without trial would fit perfectly in most communist regimes.

RELATED: "The Conquest of the US by Spain" by Ralph Raico

One of the most hilarious ways in which the United States became like the communists to defeat the communists involves a radio station named Radio Marti.

Haven’t heard of it? Maybe the reason is that it is not allowed to broadcast to the American people even though it is based in Miami.

Why not?

Because that would be feeding propaganda to the America people!

You see, Radio Marti is owned and funded by the U.S. government. Its sole mission is to broadcast pro-U.S. propaganda into Cuba, with the aim of fomenting dissent there as part of the U.S. government’s never-ending aim of achieving regime change in Cuba.

It’s important to point out something important here: Radio Marti is a government-owned radio station Why is that important? Because that makes this station a socialist enterprise!

Look at the irony: To fight socialism, the United States adopts socialism! Is that hilarious or what?

The annual budget of Radio Marti and its sister station TV Marti is $27 million. Okay, not a large amount of money in the large scheme of things, but it’s the principle of the thing. This socialist enterprise is being funded the same way that socialist enterprises are funded in Cuba — through coercion. Both the U.S. government and the Cuban government take money from the populace to fund socialist enterprises. Think about that the next time you’re filling out your income-tax return and wondering why the IRS is taking so much of your income from you.

How large is the listening audience for Radio Marti. It’s impossible to say given that there are no ratings services in Cuba. But once Radio Marti began broadcasting in 1985, the Cuban regime responded by jamming its signals. This had a boomerang effect because many privately owned American radio stations, whose signal was not previously being blocked, discovered that the Cuban jamming of Radio Marti’s signal also jammed their signals as well. In any event, according to Wikipedia, less than 2 percent of Cubans listen to the propaganda issued by Radio Marti.

What message does Radio Marti send into Cuba? I haven’t researched the matter, but maybe it’s something like this: “Don’t you wish that you lived in a free country like the United States, where our government engages in assassination, torture, indefinite detention, secret surveillance, income taxation, military tribunals, Social Security, Medicare, Medicaid, public schooling, income taxation, paper money, central bank, travel controls, trade restrictions, foreign interventionism, and gun control?”

Of course, the average Cuban could be forgiven for thinking to himself after hearing that message: “Big deal. Those are all core programs in our country as well.”

Another dark irony in all this is the name that U.S. officials chose for their socialist radio station — Marti. Jose Marti is one of the most revered figures in Cuba. He was a leader in Cuba’s fight for independence from Spain and was killed in battle in 1895.

Marti opposed any outside interference in Cuba. Yet, interfere is what the U.S. government has being doing in Cuba ever since it helped to defeat Spain in the Spanish American War in 1898. Such interference has come, of course, not just with the U.S. government’s socialist radio station perversely named after Marti, but also with such dark-side activity as sabotage, terrorism, assassination, invasion, and a brutal economic embargo designed to bring maximum suffering to the Cuban populace in the hopes that they will oust the communist regime and install another pro-U.S. dictatorship in its stead. All this against a country that has never attacked the United States or even threatened to do so.

In 1899, William Graham Sumner penned an essay entitled “The Conquest of the United States by Spain,” in which he pointed out that while the United States had defeated Spain on the battlefield, it was Spain that had ultimately conquered the United States. How? Because the United States ended up embracing the imperialist and interventionist mindset of the nation it just defeated in war.

The same point, of course, can be made about Cuba, only it’s worse. While the United States ended up adopting many of the core features of Cuba’s communist and socialist system, the communist regime in Cuba remains standing. I wonder if America’s socialist radio station, Radio Marti, broadcasts that message into Cuba.

Reprinted with permission of the author. Jacob G. Hornberger is founder and president of The Future of Freedom Foundation.



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