Blogroll: Mises Institute

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Controlling Missouri, Part 2: This Means War

Wed, 15/08/2018 - 15:55

After the “Walnut Street Massacre” in St. Louis, more people shift their support to the Confederacy. In response, Nathaniel Lyon declares war on the state of Missouri, and wages the first small, but significant, battle of the state in Booneville.

Categories: Current Affairs

Why Scandinavia Isn't Exceptional

Wed, 15/08/2018 - 12:45

[From the Quarterly Journal of Austrian Economics.]

The Scandinavian countries, and primary among them Sweden, are commonly referred to as anomalies or inspirations, depending on one’s political point of view. The reason is that the countries do not appear to fit the general pattern: they are enormously successful whereas they “shouldn’t” be. Indeed, Scandinavians enjoy very high living standards despite having very large, progressive welfare states for which they pay the world’s highest taxes.

As a result, a large and growing literature, both propagandist and scholarly, has emerged that tries to identify the reasons for this Scandinavian exceptionalism—especially as pertains to their welfare states. I have myself contributed to this literature1 and have previously reviewed others’ contributions to it in this journal.2 But what has been missing is a summary analysis that is accessible to non-scholars. It was therefore a delight to read Nima Sanandaji’s Scandinavian Unexceptionalism: Culture, Markets, and the Failure of Third-Way Socialism, published by British Institute for Economic Affairs.

Dr. Sanandaji is a political-economy analyst and writer, well known in both Sweden and Europe, and as expected does an excellent job summarizing the state of scholarship. He also uses examples and quotes from articles published in Scandinavian news media to illustrate the narrative. The result is a short and informative but easy to read answer to both how and why the Scandinavian welfare states seem to work so well.

The short book provides the reader with insight into Scandinavian culture, an explanation of the causes of the nations’ exceptional rise from poverty, an overview of their recent political-economic history, the distinct structure and evolution of the Scandinavian welfare state, the origins of their egalitarianism and gender equality, and the effect of immigration. I will briefly touch on three of these areas.

First, Sanandaji makes clear that the rosy story of the Scandinavian welfare state, as it is usually told, is at best incomplete. The Scandinavian countries were among the European continent’s poorest by the end of the 19th century and were largely unaffected by the industrialization that had started centuries earlier in the United Kingdom. A combination of classical liberal reform and the adoption of industrialized production created a century-long “golden age,” as Bergh (2014) denotes the period approximately 1870–1970 in Sweden, of economic growth and rapidly rising standards of living.

This growth was partly also made possible by a distinct Scandinavian culture, which is characterized by the “[h]igh levels of trust, a strong work ethic and social cohesion [that] are the perfect starting point for successful economies” (p. 7). As Sanandaji points out, the market-aligned virtues of Scandinavian culture also explain the limited impact of the welfare state as it was erected and ballooned in the 1930s and beyond. Cultural change takes time, and thus old values lag in the face of political change. So it took time for the Scandinavian virtues to give way to the destructive incentives of the welfare state.

It should also be noted, though Sanandaji fails to make this point clearly, that after the welfare state was established, and during its several decades of expansion, it’s growth rate tended to be lower than that of the overall economy. The increasing burden was therefore, in relative terms, marginal. That is, until the radical 1960s and 1970s when Scandinavian governments, and the Swedish government in particular, adopted very expansionist welfare policies. (This political shift is analyzed in detail in, e.g., Bergh.)3

Sanandaji also presents interesting data with respect to Scandinavian gender equality. His discussion begins with the internationally enviable women’s labor market participation rate in Scandinavian countries, and especially Sweden. The background, however, is that Sweden’s government had adopted a radical agenda for population control formulated by Gunnar and Alva Myrdal (yes, the same Gunnar Myrdal who shared the 1974 economics prize with Hayek). The gist of this reform was to enforce a shared responsibility between parents and “the community” for children’s upbringing. By raising taxes on income while offering government-run daycare services, families were incentivized (if not “forced,” economically speaking) to secure two full-time incomes.

Interestingly, while this indeed rapidly increased women’s participation in the labor market, Sanandaji notes that “few women in the Nordic nations reach the position of business leaders, and even fewer manage to climb to the very top positions of directors and chief executives” (p. 102). Part of the reason is that jobs that women typically choose, including education and healthcare, are monopolized in the vast public sectors. As a result, women at trapped in careers where employers do not compete for their competence and many leadership positions are political.

This development is indirectly illustrated in a terrifying statistic from Sweden’s labor market: “Between 1950 and 2000, the Swedish population grew from seven to almost nine million. But astonishingly the net job creation in the private sector was close to zero” (p. 33).

Finally, Sanandaji addresses the issue of immigration and shows that the Scandinavian nations were exceptionally good at integration, with greater labor participation for immigrants than other Western nations, prior to the radicalization of the welfare state. Thereafter, due to rigid labor regulations and vast welfare benefits, immigrants were more or less kept out of Scandinavian job markets.

The literature identifies two potential explanations. First, the anti-business and job-protection policies practically exclude anyone with a lack of work experience, highly sought-after skills, or those with lacking proficiency in the language or limited network. This keeps immigrants as well as young people unemployed (the very high youth unemployment rates in Scandinavia illustrate this problem). Second, the promises of the universal welfare state tend to attract people who are less interested in working their way to the top and thus have a lacking work ethic.

This explains the recent problems in Scandinavia with respect to immigration, which is essentially an integration and policy problem — not a foreign-people problem.

Overall, Sanandaji’s book provides plenty of insights and a coherent explanation for the rise of the Scandinavian nations and their welfare states. Their impressive standard of living is a free-market story, which is rooted in an economically sound culture. This culture also supported the welfare state, until decades of destructive incentives eroded the nations’ sound values. The welfare state, after its radicalization, was soon crushed under its own weight, and Scandinavia has since undergone vast free-market reforms that again have contributed to economic growth and prosperity.

Considering the full story, Sanandaji summarizes the example of the Northern European welfare states simply and bluntly: “Scandinavia is entirely unexceptional.”

  • 1. Bylund, Per L. 2010. “The Modern Welfare State: Leading the Way on the Road to Serfdom.” In Thomas E. Woods, ed., Back on the Road to Serfdom: The Resurgence of Statism. Wilmington, Del.: ISI Books.
  • 2. 2015. “Book Review: Sweden and the Revival of the Capitalist Welfare State by Andreas Bergh,” Quarterly Journal of Austrian Economics 18, no. 1: 75–81.
  • 3. Bergh, Andreas. 2014. Sweden and the Revival of the Capitalist Welfare State. Cheltenham, U.K.: Edward Elgar.
Categories: Current Affairs

British Manufacturing Slumps as Bank of England Raises Interest Rates

Wed, 15/08/2018 - 00:15

"Higher order" industries like manufacturing and mining are particularly sensitive to changes in interest rates. And it doesn't look like anything's different this time around.

Original article: British Manufacturing Slumps as Bank of England Raises Interest Rates

Categories: Current Affairs

Interview with Murray Rothbard on Man, Economy, and State, Mises, and the Future of the Austrian School

Wed, 15/08/2018 - 00:15
The following is an interview conducted in the Summer of 1990 with Murray Rothbard for the Austrian Economics Newsletter. 

AEN: Any recent thoughts on hermeneutics?

MNR: That’s a history-of-thought question, since hermeneutics has been crushed by Hans-Hermann Hoppe and David Gordon. Part of their critique is that the hermeneuticists were unable to demonstrate in concrete terms how this new “turn” would improve our understanding of economics. But if they hadn’t been challenged, they could have carried on for years.

AEN: The initial attraction to hermeneutics was Mises’s link with certain rationalist phenomenologists. What parts of this link do you like and dislike?

MNR: The link was Alfred Schütz. He was a free-market phenomenologist and an anti-positivist. He did excellent work attacking the positivists for dismissing minds in favor of experiments. He would then point out that you need minds to conduct and verify the experiments. Before this, Brentano was pretty close to Menger and the Austrians. The Brentanoites taught logic, reason, the science of human action, affirmed that values exist, and pursued an objective analysis of subjectivity. The thoughts of Dilthey, Windelbrand, Ricket, and Weber are useful for historical analysis, but not economic theory – Verstehen not Begreifen. In the pursuit of subjectivism, you cannot throw out science and reason. As phenomenology developed, with few exceptions, it became irrationalist and collectivist. Mises was always clear: its proponents don’t understand economics.

The good parts of phenomenology are already a part of the Austrian tradition, as I pointed out in my article on praxeology for the Natanson volumes, Phenomenology and the Social Sciences. The other economist, John O’Neill, who wrote for the volume produced pure irrationalist gabble. And there was little else useful in those two volumes. Kirzner was also asked to contribute to this volume, but he turned it down, opining that Misesians should have nothing to do with phenomenology. I guess I was trying to be outreachy.

AEN: What is your view of Hayek’s statement that all progress in economics has been in the direction of subjectivism?

MNR: It’s true, but it hasn’t been an upward climb. Early economic theory was rooted in the Italian, French, and Spanish traditions, which were subjectivist oriented. Then it shifted onto the terrible path by Smith and Ricardo and the British classical tradition, which is “objectivist” – values are inherent in production. There was a partial shift back to subjectivism, but it was blocked by Marshall. Mises brought back the subjective-value tradition, with time-preference, ordinal marginal utility, and all the rest. That’s fine, but don’t wipe out objective analysis. There is still a real world out there, with laws of cause and effect, and physical products being evaluated by people. Through all this, we’ve discovered that being anti-positivist is not enough. Subjectivism is not an absolute principle; it is a necessary but not sufficient condition for sound methodology.

AEN: Positivism was linked to socialism and interventionism. Do you now predict its decline?

MNR: It is difficult to say. It was central to socialism and planning in the same way praxeology is central to the free market. Positivism eliminates any kind of natural law principle – for example, that there are economic laws which can be transgressed only at your peril. With positivism, there is a tendency to leap into ad hoc economic theory.

By the time Friedman had written his famous article defending positivism, this view had already been rejected in philosophy. But it fastened on economics with an iron grip for about twenty years. This is fairly typical. By the time methods are transferred from one discipline to another, they have often been rejected by the original discipline. It is time for economics to throw out all analogies to the physical sciences.

AEN: How did Man, Economy, and State come to be?

MNR: It ended up totally different from the way it started. After Mises had written Human Action, the Volker Fund – which promoted classical liberal and libertarian scholarship – was looking for a college textbook that would boil it down and spell it out. Mises hardly knew me at the time, since I had just started attending his seminar. I wrote a sample chapter, “Money: Free and Unfree.” They showed it to Mises and he gave his endorsement. I then received a many-year grant to work on it. I thought it was going to be a textbook. But it grew and grew. New material kept coming in. As I kept going, I found ideas Mises had left out, or steps that were implicit in Mises that needed to be spelled out.

I gave periodic reports to the Volker Fund. Finally they asked me: “Look, is this going to be a textbook or a treatise?” When I delivered a 1,900-page manuscript, they knew the answer. Power and Market was the final chapter called “The Economics of Violent Intervention.” They asked me to cut it out because it was too radical. It was published separately years later by the Institute for Humane Studies.

AEN: Did you write the book in sequence?

MNR: Yes. I started with page one with methodology and it wrote itself.

AEN: Did anything get left out of the final book?

MNR: I took Chapter 5 out of Man, Economy, and State, which included the usual cost-curve analysis. I wrote the whole chapter before I realized that the approach I was taking was nonsense. So I started over.

AEN: Is there any doubt that Mises was your primary influence?

MNR: I didn’t think so, but Joseph Salerno once gave a talk in which he said Man, Economy, and State is more Boehm-Bawerk-oriented than Mises’s Human Action. I never thought of it that way, but it may be true. When I was spelling out capital theory, I used Boehm-Bawerk primarily. I didn’t think about it since I thought Mises was a Boehm-Bawerkian and didn’t see any contradiction. I would like to see Professor Salerno explore this. It’s an example of the way a historian of economic thought can show something about a person’s work that he himself didn’t realize.

AEN: How many years were involved from the time you started working on Man, Economy, and State to the time it was published?

MNR: This is complicated. I received the grant in 1952, but shortly afterwards I had to finish my doctoral thesis under Arthur Burns. From 1953 to 1956 I was working partly on both. I finally finished Man, Economy, and State in 1960 and it was published in 1962.

AEN: How was your dissertation, The Panic of 1819, received?

MNR: Very well. In fact, much better than any other of my books. Maybe that’s because I didn’t analyze the causes. I only wrote about how people wanted to cure it. I could have done much more work on it, and there is still more to say, but I am still pleased with it, Plus, it is still the only book on the subject.

AEN: Were scholars anticipating the publication of MES?

MNR: Not really. Very few were even interested, except the Mises-seminar people and FEE-people like Larry Fertig and Henry Hazlitt. Most were non-economists or friends and admirers of Mises. They were caterers, lawyers, clothing manufacturers. Other than Kirzner, Spadaro, Sennholz, Raico, Reisman, and the Greaves, there was no Austrian movement to speak of.

AEN: Did you ever get discouraged and say, “Why am I doing this?"

MNR: No. Any chance to write a book or meet new people was terrific, but I was lonely. Mises was in his sixties, Hayek and Machlup were in their fifties, and I was in my twenties. There was nobody in between. With the possible exception of Baldy Harper, who was a libertarian, but whose Austrian knowledge was limited, there was a missing generation. It had been wiped out by the New Deal.

AEN: If we do an “It’s a Wonderful Life” experiment – the state of Austrian economics without Man, Economy, and State – it looks pretty grim.

MNR: That’s an interesting point. Of the economists, Sennholz became a real-estate speculator, Spadaro didn’t write much, Reisman became a Ricardian, and Hayek had drifted into murky philosophy and teaching social thought. Kirzner was doing good work on entrepreneurship, but nobody was doing methodology, monetary theory, capital theory, or much else.

AEN: What were your thoughts on Mises’s review of MES when it appeared in the New Individualist Review?

MNR: I liked it, but he didn’t say much about the book. I would have preferred him to go into more depth.

AEN: Was he bothered by some of your corrections of his theories?

MNR: I don’t know because he never said. Mises and I had only two friendly arguments. One was on monopoly theory where he wound up calling me a Schmollerite. Although nobody else in the seminar realized it, that was the ultimate insult for an Austrian. The other argument was on his utilitarian refutation of government intervention. I argued that government officials can maximize their own well-being through economic interventionism, if not that of the public. He in turn argued that those kind of politicians wouldn’t survive a popular vote, thus changing the terms of the debate.

AEN: Mrs. Mises seems to think you had foreign policy differences with Mises.

MNR: In all the years I attended his seminar and was with him, he never talked about foreign policy. If he was an interventionist on foreign affairs, I never knew it. This is a violation of Rothbard’s law, which is that people tend to specialize in what they are worst at. Henry George, for example, is great on everything but land, so therefore he writes about land 90% of the time. Friedman is great except on money, so he concentrates on money. Mises, however, and Kirzner too, always did what they were best at.

AEN: Did Hayek ever attend Mises’s seminar in the United States?

MNR: No. They had a very strange relationship. Hayek began making very arcane anti-Misesian comments in his books, but nobody knew it, not even Mises. For example, it turns out that the anti-Walras footnote in Individualism and Economic Order was really an anti-Mises footnote, as Hayek admitted a few years later. When Mises read the article, he called Hayek up and said he liked it as an attack on formalism and equilibrium. He hadn’t realized that some of it was directed against him. Gradually, Hayek became more and more anti-Misesian without actually refuting what he had to say. Yet Mises and Hayek are still linked in academic minds.

AEN: What happened in the twelve years between MES and the Hayek Noble Prize?

MNR: Very little. There were various informal meetings, with Walter Block, and R.J, Smith, who went through a period of leftism, but is doing good work again. During the fifties, we had a whole group in New York, but it disbanded when Hamowy, Raico, and Liggio went to graduate school.

There was another group coming up in the sixties, students of Robert LeFevre’s Freedom School and later Rampart College. At one meeting, Friedman and Tullock were brought in for a week, I had planned to have them lecture on occupational licensing and on ocean privatization, respectively. Unfortunately, they spoke on these subjects for 30 minutes and then rode their hobby horses, monetary theory and public choice, the rest of the time. I immediately clashed with Friedman. He had read my America’s Great Depression and was furious that he was suddenly meeting all these Rothbardians. He didn’t know such things existed.

AEN: What happened to the Volker Fund?

MNR: The Volker Fund collapsed in 1972 and destroyed the whole basis of libertarian scholarship. The president was a follower of R.J. Rushdoony, who at the time was a pre-milleniallist Calvinist, later converting to postmillenialism. He had sent me a Rushdoony book, which I blasted. Combined with other reviews, he became convinced that he was surrounded by an atheist, anarchist, pacifist conspiracy to destroy Christianity, so he closed down the Volker Fund in early 1962. It was a great tragedy. IHS was supposed to be established with the $17 million from the Volker Fund to be an endowed think-tank, publishing books, sponsoring students, funding research, and holding conferences. Instead, Baldy had to start it from the bottom.

AEN: How did Ethics of Liberty come about?

MNR: I received a Volker Fund grant to write it. It was supposed to be a reconciliation of libertarianism with conservative culture and personal ethics, what is called paleolibertarianism today. But as I worked on it, it turned into an anarcho-libertarian treatise. By the early sixties, conservatives had become pro-war and the whole idea of reconciling us with them had lost its attraction for me.

AEN: What about Conceived in Liberty?

MNR: After the Volker Fund collapsed, I got another grant from the Lilly Endowment to do a history of the U.S., which I worked on from 1962-66. The original idea was to take the regular facts and put a libertarian assessment on everything. But once I started to work on it, I found many facts had been left out, like tax rebellions. So it got longer and longer. It turned into the five volume Conceived in Liberty, covering the Colonial period to the Constitution. I don’t chart this stuff in advance. I don’t like to work that way. I go step by step and it keeps getting longer. After Arlington House published volume four, they went out of business. Volume five, on the Constitution, was written in longhand and no one can read my handwriting.

AEN: What about conferences during the early seventies?

MNR: The first was conducted at Cornell, the summer of 1973. Forrest McDonald and myself were giving papers. At the 1974 conference, we added Garrison, Rizzo, O’Driscoll, Salerno, Ebeling, Hutt, Grinder, and others. It was held in a tiny town in Vermont, which we called a Walrasian-General-Equilibrium town because there was no action, no competition, no interest rates. In 1976, we had a wonderful conference at Windsor Castle, but after that there was nothing.

AEN: Just so that we’re clear, between the 1940s and the early 1970s, you were the only one that did serious scholarly work in Austrian economics?

MNR: Well, Henry Hazlitt did some excellent work. But then he was uncredentialed. Hutt did some, but it wasn’t really Austrian. Kirzner had written some serious articles. But basically the tradition had stagnated. By the late seventies, Austrian economics was considered Hayekian, not Misesian. Without the founding of the Mises Institute, I am convinced the whole Misesian program would have collapsed.

AEN: How is your history-of-thought book coming?

MNR: Fine. The first thinker I deal with is Aristotle, but I don’t spend much time on the Greeks. I leap to the early Christians. Economic theory became pretty advanced in the Middle Ages and only started falling apart later. Most history of thought assumes linear growth. But I am trying to show that there is slippage.

Unfortunately, there is a hole in my book. I got to the English mercantilists and Francis Bacon, which took me to 1620, but then bogged down and leaped ahead. This summer I am going to repair the hole. Aside from the hole, I have just finished the laissez-faire French school. The next step is cover the pre-Austrians of the mid-19th century.

AEN: There seems to be this lengthening pattern in your projects.

MNR: Maybe so. What is happening to my history of thought is the same thing that happened to Man, Economy, and State and Conceived in Liberty. It was originally going to be a short book on the history of thought, taking the same people the orthodox people do, reversing the judgment, and giving the Austrian view. Unfortunately I couldn't do that since Smith was not the beginning of economics. I had to start with Aristotle and the Scholastics and work up. I found more and more people that couldn’t be left out.

AEN: How many volumes have been done so far?

MNR: I can never estimate things like this, but probably two or more. And I keep underestimating how much work I have to do. I thought I could finish off Marx in one chapter, but it took five. So I cannot give a projected date for finishing.

AEN: You have apparently taken an interest in religion as it affects the history of thought.

MNR: Religion was dominant in the history of thought at least through Marshall. The Scholastics emerged out of Catholic doctrine. And John Locke was a Protestant Scholastic. I am convinced that Smith, who came from a Calvinist tradition, skewed the whole theory of value by emphasizing labor pain, typical of a Puritan. The whole objective cost tradition grew out of that.

AEN: Why has all this been overlooked?

MNR: Because the 20th century is the century of atheistic, secularist intellectuals. When I was growing up, anyone who was religious was considered slightly wacky or even unintelligent. That was the basic attitude of all intellectuals. This is the opposite of earlier centuries’ attitudes when everyone was religious.

The anti-religious bias even shows up in the interpretations of the history of art, for example, in the secularist and positivist interpretation of Renaissance painting. When Jesus is painted as a real person, they assume that means it is a secular work, whereas the real point of the Renaissance was to emphasize the Incarnation, when God became flesh. Even if art historians aren’t interested in theology, they should realize that the people they study were. The same is true for economics. In doing history, you cannot read your own values into the past.

AEN: The anti-socialist revolution seems to be the fulfillment of everything Austrians have worked for.

MNR: That’s right. We are living through revolutionary times. It’s like living through the French or American revolution and being able to watch it on television every night. Now the difference between the United States and the Eastern Bloc is that the United States still has a communist party.

AEN: It also seems to be a vindication for your article, “Left, Right, and the Prospects for Liberty.”

MNR: Damn right. Western conservatives cannot take credit for this. They had always argued that socialist totalitarianism could not reform from within. Only the libertarians considered and gloried in the possibility.

AEN: Did you see the seeds of anti-socialist revolt when you visited Poland several years ago?

MNR: Yes. In the first year I attended, several dissident Marxists were there. But the next year, the organizers said they didn’t need them. We went expecting dissident socialists and we found followers of Hayek, Friedman, Mises, and Rothbard. The economists and journalists that I met with had read many of my books and were publishing underground books on free markets.

AEN: Now that Marxism is dead where it has been tried, is there anything that is useful and important that should be remembered or kept?

MNR: There is one good thing about Marx: he was not a Keynesian. I recently asked Yuri Maltsev, former Soviet economist, why is it that things seem to have fallen apart so rapidly in the Soviet Union in the last twenty years. He said in the last twenty years, the leaders of the Soviet Union have relaxed the money supply and have used inflation to solve short-term problems. That spelled doom for the system.

AEN: What about the prospects for liberty and a freer economy in this country?

MNR: Everything is getting worse, and very rapidly. Few favor central planning, but the battleground has shifted to interventionism. There are three areas of interventionism which are the big issues, now and in the future. First, prohibitionism and the attempt to eliminate all risk. If, for example, automobiles cause accidents, they should be eliminated. Second, egalitarianism and the idea that victim groups should get special treatment for the next 2,000 years for previous oppression. Third, environmentalism or antihumanism. The implicit idea is that man is the lowest creature and every creature or inanimate thing has rights.

AEN: How are things in Vegas?

MNR: Great. Every semester we get more students, and the Austrians are at the top of their classes. We have a Human Action study group. I’m teaching a graduate seminar in Austrian economics this term and Hoppe will be teaching a seminar in the spring.

AEN: What area of Austrian economics is most and least advanced?

MNR: Methodologically, we are pretty advanced, thanks to the work of Hoppe. But we can always use more since that is what sets us apart from the rest of the profession. And Salerno is doing great work on calculation.

Banking theory, however, has taken a very bad turn with free banking. We have to show that this is the Currency and Banking school argument rehashed. They have adopted the Banking school doctrine, that the needs of business require an expansion of the money supply and credit. Moreover, the free banking people violate the basic Ricardian doctrine that every supply of money is optimal. Once a market in a money is established, there is no longer a need for more money. That is really the key point.

AEN: What about the argument that 100% reserves requires government intervention?

MNR: I regard fractional-reserve banking as an intervention in the free market, just as any crime against person and property is intervention. In the case of banking, the government is allowing the crime to be committed.

But how do we address the needs of trade argument, those who say that business has a demand for credit? Well, there are many things demanded on the market that are also crimes. There may be a demand for killing redheads. And there is certainly a demand for government loot. What’s so great about market demand? If it is not within a framework of nonaggression, there will always be a demand for fraud and theft.

The free bankers accept a kind of David Friedmanite anarchism, where there is no law, only people engaging in exchange and buying people out. If you have a group that wants to kill redheads, the redheads will have to buy them off if they value their hair. I think this is monstrous; that kind of anarchism would indeed be chaos. Just because there is a demand for something doesn’t mean it should be fulfilled.

AEN: One of the criticisms of this position is that it is normative and not economic.

MNR: Yes, but the response to 100% reserves is that bank entrepreneurs have the right to offer whatever fraction of deposits they want, which is also a normative position. Any discussion of policy is inherently normative. You can’t have free markets unless you have property rights.

AEN: Why isn’t private deposit insurance viable?

MNR: The same reason insuring any bankrupt industry isn’t viable. You cannot insure entrepreneurs because they engage in uninsurable risk. You can reasonably predict how many fires there will be in New York; the unlucky few who get burned can dip into the pool of resources. But entrepreneurship is heterogeneous; it is completely unpredictable, and each attempt is nonrandom. The entrepreneurs assume the risk. If an insurance company insures it, it becomes the entrepreneur. Who then insures the insurer? In the case of banks, either they don’t need insurance, since they are 100% covered, or they are uninsurable because they are taking entrepreneurial risk.

AEN: You have been critical of White’s book on free banking.

MNR: The White book says the Scottish banking system was more successful than the English system. But he doesn’t say one word about prices, inflation, or business cycles. His only statistic is that there were fewer bank failures in Scotland than Britain. But what’s so great about not having failures? An industry that doesn’t have failures might be doing poorly. What if we applied this test to the Soviet Union, where no industries fail?

When you say one banking system is more successful than another, it seems the test should be less inflation and fewer business cycles. Yet this is never mentioned.

AEN: What role do you think RAE is playing?

MNR: It is finding and gathering Austrian economists, getting them to write, and developing economic doctrine. Kluwer Academic Publishers is very excited about it. They wanted to bring the journal out three times a year. Now that we are coming out twice a year, many more people are interested. It is already the only Austrian academic journal in the history of thought and it has become the most important publishing medium. Kluwer is also publishing a series of books in Austrian economics, for which we are the general editors.

AEN: What should young Austrians be concentrating on?

MNR: Adding to the theoretical edifice. Rent theory is underdeveloped. And the theory of the transition from socialism to capitalism is crying out for more work. Most importantly, we should never stop refuting mainstream economics.

Categories: Current Affairs

British Manufacturing Slumps as Bank of England Raises Interest Rates

Tue, 14/08/2018 - 17:55

On August 2nd, the Bank of England announced that its Monetary Policy Committee had unanimously voted to raise interest rates. This recent decision by Britain’s central bank saw its key ‘base rate’ of interest rise for only the second time since the 2007/8 crash. The 25 basis point hike brought the base rate up to 0.75%, its highest level since March 2009.

This is likely a reflection of the Bank of England’s growing confidence in the strength of Britain’s economy. Despite relatively slow GDP growth, Britain’s present record highs of employment had led to concerns that failure to tighten monetary policy would lead to “domestically generated inflation” through “excess demand”. Simply put, this refers to the widespread concern amongst mainstream analysts that maintaining low interest rates in a full-employment environment would induce employers to raise wages in order to attract scarce labour, which would in turn lead to price inflation when those workers start spending those extra wages. The Bank’s new rate hike is likely also intended to slow the pace of CPI inflation in the British economy, which has been consistently above the Bank’s 2% inflation target since the beginning of 2017.

The key place of interest rates in the framework of the Austrian business cycle theory lends a special significance to events such as this. This theory, developed by both Ludwig von Mises and F.A. Hayek, highlights the ability of central banks to stimulate unsustainable economic ‘booms’ by pushing down interest rates to artificially low levels. Although Austrians often focus on how low interest rates fuel the boom, the role of interest rate rises in triggering the ‘bust’ is equally important.

After a period of artificially low interest rates — such as the one the world economy has been experiencing for nearly the past decade — central banks will eventually have to slow down the printing press and raise rates again, to avoid plunging their currencies into severe inflation. When interest rates rise again, the marginal business ventures which had only appeared profitable at the previous, temporarily lowered interest rate, will now no longer find themselves able to remain in business at the new, higher cost of borrowing. While this effect does not always cause an immediate crash, the added strain of newly-raised interest rates will eventually necessitate a painful and widespread reallocation of resources away from the projects which had only been able to survive thanks to the previous period of temporarily low interest rates.

One of the most illuminating (and most often overlooked) insights of the Austrian business cycle theory is its recognition of the fact that producers’ goods industries — mining, manufacturing, metal refining, and other producers of capital goods — are hit particularly hard by this process. Due to their great temporal distance in the structure of production from the finished consumer goods market, these ‘higher order’ industries are particularly sensitive to changes in interest rates, causing them to swing upward most strongly in the boom, and crash hardest when rising interest rates bring about the eventual bust. If we are indeed coming to the end of the kind of boom described by the Austrian business cycle theory, we should be on the lookout for signs of the stress which this recent rate hike by the Bank of England will inflict on Britain’s higher order industries.

As it happens, this worrying process has already begun. On Wednesday 1st August, just one day before the Bank of England officially announced that it was raising interest rates, new data emerged which suggested that the British manufacturing sector had experienced a significant slump in July. This new data from the IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) — regarded as amongst the most reliable indicators of business optimism — projects a decidedly downcast outlook for the manufacturing sector, which accounts for around 10% of Britain’s economy. The official PMI figures indicated that manufacturer confidence had sunk to its lowest level in 21 months, while the production of ‘intermediate goods’ used in the production of other goods also fell for the first time in two years. In addition to this, production growth fell to its lowest level in 16 months, and IHS Markit director Rob Dobson remarked that manufacturing had scarcely made any significant contribution to overall British GDP growth so far this year.

It is strictly speaking true that this July data represents the state of British manufacturing before the Bank of England raised interest rates on 2nd August, which has misled many analysts into pinning the blame on Brexit, Trump’s trade war, and other such contingent factors. However, it has for months been regarded as a near certainty that interest rates would rise in 2018, and financial markets in July were predicting a 90% chance that the Bank would raise rates on 2nd August, reasserting the likelihood that this was primarily a reaction to the imminent rise of interest rates.

Does all of this mean that the next great economic crash will be upon us tomorrow, next week, or even next month? Not necessarily. But it is a warning sign that a decade of near-zero interest rates and monetary expansion will not be without consequence. As central banks around the world continue to slowly raise interest rates, Austrians should pay close attention to the health of the world’s higher-order industries; they may well act as the canary in the coal mine, falling increasingly silent as the current boom draws to a close.

Categories: Current Affairs

Does a Fall in Unemployment Lead to Stronger Economic Growth?

Mon, 13/08/2018 - 23:05

In July, the US unemployment rate fell 0.1% from the month before to 3.9%. The number of unemployed individuals fell by 284,000 to 6.280 million. Many commentators have expressed satisfaction with the decline in the unemployment rate. For them this implies a strong economy.

For most economists the key to economic growth is a strengthening in the labor market. The strength of the labor market is the key behind the strength of the economy – so it is held.

If this is the case then it is valid to conclude that changes in unemployment are an important causative factor of real economic growth.

This way of thinking is based on the view that a reduction in the number of unemployed means that more people can now afford to boost their expenditure. As a result, economic growth follows suit, it is held.

The expanding pool of real wealth not unemployment the key for economic growth

We suggest that the main driver of economic growth is an expanding pool of real wealth. Fixing unemployment without addressing the issue of wealth is not going to lift economic growth as such.

It is the pool of real wealth that funds the enhancement and the expansion of the infrastructure. An enhanced and expanded infrastructure permits an expansion in the production of the final goods and services required to maintain and promote individuals’ lives and wellbeing.

If unemployment were the key driving force of economic growth then it would have made a lot of sense to eradicate unemployment as soon as possible by generating all sorts of employment.

For instance, policy makers could have followed the advice of Keynes and his followers such as Paul Krugman and employ people in digging ditches, or various other government-sponsored activities. Note that the aim here is just to employ as many people as possible.

A simple commonsense analysis however quickly establishes that such a policy would amount to depletion in the pool of real wealth. Remember that every activity whether productive or non-productive must be funded.

Hence, employing individuals in various useless non-wealth generating activities simply leads to a transfer of real wealth from wealth generating activities and this undermines the real wealth generating process.

Unhampered labor market and unemployment

Unemployment as such can be relatively easily fixed if the labor market were to be free of tampering by the government.

In an unhampered labor market, any individual that wants to work will be able to find a job at a going wage for his particular skills.

Obviously if an individual demands a non-market related salary and is not prepared to move to other locations there is no guarantee that he will find a job.

For instance, if a market wage for John the baker is $80,000 per year yet he insists on a salary of $ 500,000, obviously he is likely to be unemployed.

Over time, a free labor market makes sure that every individual earns in accordance to his contribution to the so-called overall “real pie”.

Any deviation from the value of his true contribution sets in motion corrective competitive forces.

What matters is not employment as such but people’s real earnings

Ultimately, what matters for the well-being of individuals is not that they are employed as such, but their purchasing power in terms of the goods and services that they earn.

It is not going to be of much help to individuals if what they are earning will not allow them to support their life and wellbeing.

Individuals’ purchasing power is conditioned upon the infrastructure that they operate. The better the infrastructure the more output an individual can generate.

A higher output means that a worker can now command higher wages in terms of purchasing power.

Categories: Current Affairs

Turkey Could Create A Larger Crisis Than Greece

Mon, 13/08/2018 - 19:55

The Turkish Lira collapse should have surprised no one. Yet, in this bubble-justifying market, it did.

First and foremost, the lira decline has been ongoing for some time, and has nothing to do with the strength of the US dollar in 2018. The collapse of Turkey was an accident waiting to happen and is fully self-inflicted.

It is yet another evidence of the trainwreck that monetarists cause in economies. Those that say that “a country with monetary sovereignty can issue all the currency it wants without risk of default ” are wrong yet again. Like in Argentina, Brazil, Iran, Venezuela, monetary sovereignty means nothing without strong fundamentals to back the currency.

Turkey took all the actions that MMT lovers applaud. The Erdogan government seized control of the central bank, and decided to print and keep extremely low rates to “boost the economy” without any measure or control.

Turkey-Money-supply-currency-600x408.jpg

Turkey’s Money Supply tripled in seven years, and rates were brought down massively to 4.5%.

However, the lira depreciation was something that was not just accepted by the government but encouraged.  Handouts in fresh-printed liras were given to pensioners in order to increase votes for the current government, subsidies in rapidly devaluing lira soared by more than 20% (agriculture, fuel, tourism industry) as the government tried to compensate the loss of tourism revenues due to security concerns with subsidies and grants.

Loss of foreign currency reserves ensued, but the government soldiered on promoting excessive debt and borrowing. Fiscal deficits soared, and the rapidly devaluing lira led to a rising amount of loans in US dollars.

This is the typical flaw of monetarists, they believe monetary sovereignty shields the country from external shocks and loans in foreign currencies soar because no one wants to lend in a constantly-debased currency at affordable rates. Then the central bank raises rates but the monetary hole keeps rising as the money supply continues to grow to pay for handouts in local currency.

Now the Risk Is Rising for the Rest of Europe

On one hand, the exposure of eurozone banks like BBVA, BNP, Unicredit to Turkey is very relevant.  Between 15% and 20% of all assets.

On the other hand, the rise in non-performing loans is evident.  Turkey’s loans in US dollars account for around 30% of GDP according to the Washington Post, but loans in euro could be as much as another 20%. Turkey’s lenders and governments made the same incorrect bet that Argentina or Brazil made. Betting on a constantly weakening US dollar and that the Federal Reserve would not raise rates as announced. They were obviously wrong. But that erroneous bet only adds to the already existing monetary and fiscal imbalances.

Money supply continues to grow at almost double-digit rates, the government’s outlays exceed the diminishing reserves and capital flight starts to be evident as savers and investors fear that the Erdogan government prefers to take the option of capital controls in order to seize complete power than to restore economic credibility with sound money policies.

Like Argentina before, raising rates too late does not calm the market when the risk is capital controls and a bank run. Raising rates to 18% does not encourage anyone in Turkey to keep money in the bank when the risk is to lose all the money. Rates went from 8 to 17.5% and the crisis worsened. It will not stop because of slightly higher rates.

Because the problem of Turkey is monetary and fiscal. Turkey will need a massive adjustment program and a credible opening of its institutions and markets to attract capital and restore growth. Unfortunately, the route seems to be more government control of institutions, less investment security, and deepening the crisis blaming the inexistent external enemy.

Erdogan is fighting against a very dangerous economic foe: himself.

For Europe, this is a devil’s alternative. Bailing out Turkey will give further control to Erdogan and increase the imbalances of the economy while imposing higher restrictions to freedom.

Not bailing out Turkey, on the other hand, would cause a  much larger crisis than Greece was. Because too many eurozone funds and bank investments have been directed towards Turkey as a way to get access to some growth and inflation. What they got was a risk of capital controls and currency debasement.

The biggest risk for Europe will be to try to cover this mess with some aid in exchange for refugee and border support. Because what is already a relevant risk, but contained, will likely balloon to unmanageable proportions.

Categories: Current Affairs

Who Is Eugen von Böhm-Bawerk?

Mon, 13/08/2018 - 19:55

A strong member of the “second generation of the Austrian school of economics,” Eugen von Böhm-Bawerk (1851–1914) and his works are discussed by Peter Klein. Böhm Bawerk did much to extend and further develop Menger’s theories of value, price, capital, and production. Included in his work of the two volume Capital and Interest is a devastating critique of Marx’s exploitation theory. Böhm Bawerk explained that far from being exploited, the workers are actually accommodated, being paid in advance of the produced goods being sold.

In the second volume of Capital and Interest, Böhm Bawerk explained the time consuming nature of production and how it relates to interest. Round-about production methods are more productive but come at a cost of forgoing current consumption during the process of accumulating the capital. This became the basis for his time preference theory of interest as well as the foundations for the Austrian theory of the business cycle. Böhm Bawerk also presented a clear example diminishing marginal utility and explained how real prices, as opposed to hypothetical equilibrium prices, are determined.

The Who Is? podcast is available on iTunesGoogle PlayStitcherSoundcloud, and via RSS.

Categories: Current Affairs

IMF Produces Another Bogus Venezuela Inflation Forecast

Mon, 13/08/2018 - 13:45

The International Monetary Fund (IMF) has done it again. In an attempt to garner some press, the head of the IMF’s Western Hemisphere Department Alejandro Werner forecasted that Venezuela’s annual inflation rate will reach 1,000,000% by year’s end. By my calculations, this inflation forecast implies that the exchange rate will reach 923 million VEF/USD by December 2018. To put this into context, the exchange rate at the end of July was 3.3 million VEF/USD, and at the end of June it was 3.1 million VEF/USD.

The IMF’s most recent inflation forecast is, to put it mildly, stunning. It is also bogus. No one can forecast the course or duration of a hyperinflation with any degree of accuracy. Never mind. The IMF just keeps on making forecasts of Venezuela’s inflation. And the press keeps on uncritically reporting the IMF’s bogus numbers as if they were credible. The IMF and the press are clearly unaware of the fact that hyperinflation can be measured, and measured very accurately, but it cannot be forecasted.

To get a handle on the IMF’s production of bogus forecasts for Venezuela’s inflation, consider that, during the past year and a half, the IMF has reported a variety of numbers for the annual inflation rate in Venezuela. None of the IMF’s numbers can be replicated. This is a problem -- one that renders all of the IMF’s inflation numbers unusable because, among other things, they fail to pass the scientific smell test. The following is a catalogue of the IMF’s inflation numbers for Venezuela that have been reported since September 2016.

IMF World Economic Outlook, October 2016

  • End of 2015 annual inflation rate (Data Source - BCV): 180.9%
  • End of 2016 annual inflation rate projection: 720.0%
  • End of 2017 annual inflation rate projection: 2,200.0%

IMF World Economic Outlook, April 2017

  • End of 2016 annual inflation rate (Data Source - BCV): 274.4%
  • End of 2017 annual inflation rate projection: 1,133.8%
  • End of 2018 annual inflation rate projection: 2,529.6%

IMF World Economic Outlook, October 2017

  • End of 2016 annual inflation rate (Data Source - BCV): 302.6%
  • End of 2017 annual inflation rate IMF projection: 1,133.0%
  • End of 2018 annual inflation rate IMF projection: 2529.6%

IMF World Economic Outlook, April 2018

  • End of 2017 annual inflation rate: 2,818.4%
  • End of 2018 annual inflation rate IMF projection: 12,874.6%
  • End of 2019 annual inflation rate IMF projection: 12,874.6%

Until the April 2018 World Economic Outlook (WEO), the IMF wrote the same general disclaimer about its Venezuelan numbers in each issue of its report:

Projecting the economic outlook in Venezuela, including assessing past and current economic developments as the basis for the projections, is complicated by the lack of discussions with the authorities (the last Article IV consultation took place in 2004), long intervals in receiving data with information gaps, incomplete provision of information, and difficulties in interpreting certain reported economic indicators in line with economic developments.”

In the April 2018 WEO, the disclaimer was altered. It now includes:

The effects of hyperinflation and the noted data gaps mean that IMF staff’s projected macroeconomic indicators need to be interpreted with caution.”

These disclaimers are laughable. No one has ever been able to accurately forecast the course or the duration of an episode of hyperinflation. But, that hasn’t stopped the IMF from offering up inflation forecasts for Venezuela that have proven to be wildly inaccurate. And, for an example of the absurdity of the IMF’s projections, just consider its WEO year-end forecasts for 2018 and 2019. The values for both years are exactly the same: 12,824.6%. These forecasts are blatantly absurd. After all, the current measured annual inflation rate is already by my calculations 33,151%. And the same forecasts for both 2018 and 2019 contain a touch of spurious accuracy to boot: note the decimal point. And now we have a new forecast for 2018, a whopping 1,000,000%.

So, forget the IMF’s forecasts of Venezuela’s hyperinflation. They are a prime example of junk science. Even though accurate forecasts of hyperinflation are not possible, very accurate measurements of hyperinflation can be made. Just how is this done?

The most important price in an economy is the exchange rate between the local currency – in this case, the bolivar – and the world’s reserve currency, the U.S. dollar. As long as there is an active black market (read: free market) for currency and the data are available, changes in the black market exchange rate can be reliably transformed into accurate measurements of countrywide inflation rates. The economic principle of purchasing power parity (PPP) allows for this transformation. And the application of PPP to measure elevated inflation rates is rather simple.

During periods of elevated inflation, PPP is the proper theory to use for measurement. Indeed, PPP holds during episodes of hyperinflation, and it holds very tightly. Beyond the theory of PPP, the intuition of why PPP represents the ‘gold standard’ for measuring inflation during hyperinflation episodes is clear. All items in an economy that is hyperinflating are either priced in a stable foreign currency (the U.S. dollar) or a local currency (the bolivar). If they are bolivar prices, they are determined by referring to the dollar prices of goods, and then converting them to local bolivar prices after checking with the spot black-market exchange rate. Indeed, when the price level is increasing rapidly and erratically on a day-by-day, hour-by-hour, or even minute-by-minute basis, exchange rate quotations are the only source of information on how fast inflation is actually proceeding. That is why PPP holds and why I and my Johns Hopkins-Cato Institute Troubled Currencies Project team can use high-frequency (daily) data to calculate Venezuela’s annual inflation rate.

Venezuela’s hyperinflation, which has been roaring away since November 2016, is depicted in the chart below. As of July 31st, the annual inflation rate for Venezuela sat at 33,151%. This accurate MEASUREMENT means that Venezuela is now experiencing the 23rd most severe episode of hyperinflation in history.

https_%2F%2Fblogs-images.forbes.com%2Fstevehanke%2Ffiles%2F2018%2F07%2FAnnual-07.31.18-1200x768.jpg Article originally published at Forbes.
Categories: Current Affairs

Nonsense on Deflation

Sat, 11/08/2018 - 20:55
The Free Market 26, no. 11 (December 2008)

We are now hearing ominous warnings about imminent deflation. Checking the welcome page at AOL this morning, I see that the lead item in the financial news section heralds “The Looming Threat of Deflation.” This headline encapsulates two highly problematic ideas. The first is that deflation would necessarily be a bad thing. The second is that deflation is likely to occur in the near term.

That deflation is always and everywhere a bad thing—not simply a bearer of bad news but bad news in itself—is now an almost universal article of faith among mainstream economists and financial commentators. Clicking on the scary headline, I opened an article by Ted Allrich, who is described as “the founder of The Online Investor and author of the book Comfort Zone Investing: Build Wealth and Sleep Well at Night.”

Allrich’s article, which does nothing to alter my belief that most investment “experts” are simply charlatans, encapsulates virtually every untutored and fallacious idea you’ve ever encountered in regard to deflation.

As he tells the story, deflation brings on all the horrors in the catalog of economic devastation.

As prices decline, businesses sell less, then go out of business. Fewer goods and services are offered. Less doesn’t become more. It becomes less.

As businesses fold, capital dries up because investors don’t believe any business will make it, no matter what the product or service. Investors hang on to their cash. Hoarding becomes synonymous with survival. Wall Street (what’s left of it) can’t find capital for new companies to grow. Investors won’t invest.…

So with deflation, there is less of everything. Businesses don’t grow. Jobs are fewer. Capital is not available. Everything comes to a slow and grinding halt.

Allrich concludes his litany of deflation horrors, naturally, by singing the praises of inflation: “Regular inflation, in fact, can be a good thing since it suggests an ever growing economy where jobs are plentiful and goods and services abound." 

Well, all right, we can’t expect Allrich to have read George Selgin’s splendid little book Less Than Zero: The Case for a Falling Price Level in a Growing Economy (London: Institute of Economic Affairs, 1997), or Guido Hülsmann's Deflation and Liberty (Mises Institute, 2008). After all, investment experts are busy people.

But why, one wonders, has he not taken to heart what I wrote thirty-seven years ago in my first book, The Transformation of the American Economy, 1865–1914 (New York: Wiley, 1971), on p. 21: “Notably, rapid economic growth occurred both before and after 1897; neither a falling nor a rising general price level was uniquely associated with economic growth.”

To elaborate just a bit, the rate of economic growth from 1866 to 1897, a period of secular deflation, was perhaps the greatest ever experienced by the US economy during a period of comparable length. Real GDP grew by more than 4 percent per year, on average, notwithstanding the persistent deflation.

So, even if you’ve not mastered the works of Ludwig von Mises and Murray Rothbard, even if you are a confirmed positivist in your methodological bent (as I was in 1971), you can see clearly that the rate of economic growth and the rate of price-level change have been independent, at least within the ranges of these variables in US economic history.

(Hyperinflation or hyperdeflation would be another matter: either would be devastating by making economic calculation and long-term contracting virtually impossible.)

Any decent economics teacher makes sure that before the students have gone more than a week or two, they have mastered the difference between absolute (nominal) and relative (real) prices. All of economic analysis hinges on this understanding. Yet practicing politicians, investment gurus, news media hyperventilators, and others who play important roles in influencing public opinion are completely lacking in this basic understanding. The upshot is a destructive bias in favor of secular inflation, with the risk of periodic bouts of rapid inflation.

Which brings us to the second question: for better or worse, does deflation actually loom at present? If it does, its occurrence will surprise me greatly, because the Fed has been creating base money as if there were no tomorrow, and if the bailouts continue, as seems likely, more of the same is virtually certain.

So far, the huge spurt in base money has simply been absorbed and held by the banks in the form of (legally) excess reserves, but the likelihood that the banks will sit on $268 billion of excess reserves forever is nil. Once they feel more secure, their loans and investments will go forth in search of a higher yield than the Fed pays them (since a recent change in policy) on their reserves, and at that point the banking system’s money multiplier will kick in with terrific force.

In short, given the monetary conditions now prevailing, the greater threat by far is inflation, not deflation. And contrary to what the investment “experts,” the politicians, and the mainstream economists believe, inflation is not a benign element in the economy’s operation. It is, as it has always been, the most dangerous and destructive form of taxation.

Categories: Current Affairs

The Deep State's Long Enmity Toward Iranians

Sat, 11/08/2018 - 20:55

The U.S. deep state’s hatred of the Iranian people goes back a long way, at least as far back as 1953. That was the year that the CIA, which was called into existence in 1947 when the U.S. government was being converted to a national-security state, targeted Iran with its first regime-change operation. And guess who paid the price for that operation. Yes, the people of Iran.

The Iranian Parliament had elected a man named Mohammad Mossadegh to be their prime minister. Mosaddegh would later be named Time magazine’s “Man of the Year.” As many government officials around the world have done, Mosaddegh nationalized the country’s oil industry, arguing that natural resources belonged to the nation.

The oil companies that bore the brunt of the nationalization were British-owned. Not surprisingly, they, along with British public officials, were livid over having the oil wells nationalized. British officials turned to the CIA for help.

The CIA asked President Truman for permission to initiate a coup to help the British oil companies, which the CIA knew would destroy the Iranian people’s experiment with democracy. To his everlasting credit, Truman said no. That didn’t stop the CIA however. As soon as President Eisenhower became president in 1952, the CIA renewed its request for a coup, arguing that Mossadegh was a “communist.”

Why did that make a difference? Because by this time, the U.S. deep state had launched its Cold War against America’s World War II partner and ally, the Soviet Union, which was run by a communist regime. Americans were inculcated with the fear that the communists were coming to get us, take over the federal government, and turn America Red. Thus, anyone labeled a “communist” automatically became a threat to U.S. “national security.”

Ike gave the go-ahead to the Iranian coup. In a brilliantly cunning plan, the CIA successfully toppled Mosaddegh but, surprisingly, left him alive. The CIA then vested the unelected Shah of Iran with total dictatorial power over the Iranian people. The Shah restored oil rights to the British petroleum countries.

The Shah’s regime was brutally oppressive, enforced by a national police-military-intelligence force called the SAVAK that was a combination of the Pentagon, CIA, NSA, and FBI. Trained and supported by the CIA, the SAVAK proceeded to subject the Iranian people to one of the most brutal and oppressive totalitarian regimes in the world. The U.S. government reinforced the oppression with money, armaments, and training.

For 25 years, the Iranian people suffered under the brutal dictatorship of the U.S.-installed and U.S.-supported Shah. That came to a screeching halt in 1979, when the Iranian people finally had had enough and decided to violently revolt against their U.S.-installed dictator.

While the Iranian people succeeded in their revolution, the problem is that they were unable to restore the democratic system that the CIA destroyed 25 years before. They ended up with another brutal dictatorial regime, this time a theocratic one.

The U.S. deep state has never forgiven the Iranian people for ousting its dictator, the Shah. As far as the deep staters are concerned, no one has the right to oust a U.S.-installed and U.S.-supported dictator from power, no matter how oppressive his tyranny is.

That’s what motivated U.S. officials to partner with Saddam Hussein — yes, that Saddam — the Iraqi dictator who they would later turned on and called the “new Hitler.” But this was back in the 1980s, when they were partnering with the “new Hitler” in his war against Iran. Still angry over what the Iranian people had done in 1979, all that U.S. officials wanted was for Saddam to kill as many Iranians as he could and, in the process, even defeat Iran and install another pro-U.S. dictator to run the Iranian government.

I sometimes wonder how many Americans realize that that’s when the United States furnished Saddam with those infamous weapons of mass destruction — the ones that would later be used as an excuse for turning on Iraq and launching a U.S. regime-change operation there. Back then, U.S. officials hoped that Saddam would use those WMDs to kill Iranians. (See “Where Did Iraq Get Its Weapons of Mass Destruction?” by Jacob G. Hornberger: Part 1 and Part 2.)

That’s what the economic sanctions on Iran are all about. For years, U.S. officials have targeted the Iranian people by using sanctions to inflict massive economic harm, even death, on them. The aim has been and is: Oust your dictatorship in another revolution and restore a pro-U.S. dictatorship in its stead or we will continue to squeeze the economic lifeblood out of you until you die.

That’s also why U.S. officials are now beating the war drums against Iran — to get the same type of regime change they got in Iran in 1953 and in Iraq in 2003. They know that there is no way that the Iranian regime could stand up to the U.S. Air Force in a war. The entire country would be bombed, just as Iraq was. They would be killing not only Iranians who serve their government as soldiers but also wedding parties and other “collateral damage.” Killing tens of thousands of Iranians in the process of destroying their country would be considered no bigger deal than killing Iraqis and destroying their country.

Here is the thing that everyone should keep in mind: Neither Iran nor Iraq has ever attacked the United States. Iran is not over here. It is the U.S. deep state that is over there. The decades-long U.S. war against the Iranian people is just another reflection of what the conversion of the U.S. government to a national-security state has done to the morals and values of the American people.

This article was originally published at The Future of Freedom Foundation.
Categories: Current Affairs

When Mainstream Economics Was Wrong, Mark Thornton Was Right

Sat, 11/08/2018 - 14:35

[Foreword to Mark Thornton's new book The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century (Auburn, AL: Mises Institute, 2018).]

In the wake of the financial crisis of 2008, the economics profession suffered a blow to what reputation it had. But unlike most of his colleagues, Mark Thornton was vindicated by 2008. Mark has been a voice of sanity at times when the wild interventions of the Federal Reserve have caused otherwise sensible people to lose their minds.

One rule of thumb I’ve adopted is: whenever the idea that the business cycle may have been tamed forever starts to become mainstream, the bust is around the corner.

After reading this book, you’ll see why. Mark discusses the very different records of Irving Fisher and Ludwig von Mises in the 1920s, with the former saying (in late 1929!) that stock prices had reached a “permanently high plateau” and Mises warning that all the artificial credit creation of the world’s central banks meant a reckoning was coming.

At the end of the 1960s, presidential economic adviser Arthur Okun announced that wise fiscal and monetary policy was making boom and bust a thing of the past. One month after his book on the subject was released, the United States was officially in recession.

The dot-com bubble of the 1990s continued the pattern. Federal Reserve chairman Alan Greenspan even speculated that we had entered an age in which booms no longer necessarily had to be followed by busts.

I trust you know what happened next.

The most recent financial crisis, which was connected to an especially destructive housing bubble, yielded the same kind of crazy commentary: why, real estate prices never fall!

I trust you know what happened next.

In fact, Mark Thornton was one of a handful of economists to warn — as early as 2004 — of a housing bubble and its inevitable consequence. That was a lonely position to adopt in those days. Nobody wanted to hear the words “unsustainable” or “bubble” when buying multiple properties and sitting on them seemed to be a path to certain riches. Of course, Mark was the voice that would have done them the most good had they bothered to listen, because they might thereby have limited their exposure to the bust that was surely coming.

But when all so-called respectable voices are assuring everyone that all is well, it is the wise man who appears to be the crank.

Now had Mark been known for nothing more than being a conscientious historian of these earlier business cycles and an accurate prognosticator of the housing bust and financial crisis, that would be ample reason to respect him as a scholar worthy of our attention and respect.

But of course Mark has done much more than this. In this book, for instance, you will encounter Mark’s work on the so-called “skyscraper curse.” I shall not here disclose Mark’s thesis on the matter; the author of a foreword ought to know his place, and stealing the author’s thunder is rather unbecoming.

For now, I can say this: although a correlation between the setting of new skyscraper records on the one hand and plunges into recession on the other had been noted by certain writers, the connection had been generally dismissed as little more than a curious coincidence. Mark, on the other hand, has shown how the two phenomena are connected — not that tall skyscrapers cause the business cycle, of course, but rather that they embody numerous features of the boom period described by Austrian business cycle theory.

Austrian business cycle theory, in turn, is probably the most important piece of economic information and understanding for Americans and indeed the world to understand right now. Again I shall leave the full exposition to Mark. For now, what matters is that according to economists of the Austrian school, the familiar pattern of economic boom and bust is not an inherent feature of the market economy, but instead the product of intervention into the economy by the monetary authority. When the central bank lowers interest rates below what they would have reached on the market, it sets in motion a series of responses by investors and consumers that will prove to be incompatible. The result is the recession, which is the economy’s return to health: the economy’s unsustainable configuration is unwound, and resources (including labor) are reallocated to lines of production that make sense in terms of resource availability and consumer preferences.

In the pages that follow, Mark explains the theory, applies it to various historical (and present) cases, and rebuts the most common objections.

In short, this collection serves the valuable purpose of defending the market economy against the conventional view that freedom has failed us and we need still more controls. We had plenty of rules and bureaucrats on the eve of the financial crisis. A lot of good that did us. Pretty much none of them saw any problems on the horizon, and the sheafs of rules and regulations were aimed in the wrong direction: while the private sector operated in the equivalent of a Kafka novel, the Federal Reserve was able to carry out its mischief unimpeded.

Here’s a crazy thought: maybe this time we might consider a real free market, with sound money and market interest rates, and abolish the giant bubble machine once and for all. Read Mark Thornton and you’ll entertain this and other forbidden thoughts.

Categories: Current Affairs

Mr Trump, Tear Down These Trade Barriers

Sat, 11/08/2018 - 14:35

The Trump administration’s latest attempts to continue this trade war with China have now reached a level beyond comprehension and will only hurt American and Chinese consumers in the process. The consequences might be much more disastrous for America if China dumps their U.S. Treasuries, causing a devaluation in the U.S. dollar, subsequently forcing the Federal Reserve to raise interest rates to crippling levels.

During an interview in July with Dr. Murray Sabrin, Professor of Finance at Ramapo College in New Jersey, he states, “Trade is the lifeblood of civilization. Barriers to trade reduce living standards and create international tensions and have led to major conflicts throughout history. Tearing down trade barriers therefore would allow the global economy to flourish and ease tensions around the world.”

“Mr Trump, tear down these trade barriers,” says Dr. Sabrin who was recently endorsed in July by former congressman and three-time presidential candidate—one of the most respected libertarians—Dr. Ron Paul. Dr. Paul also shares Dr. Sabrin’s sentiments about the damaging effects of Trump’s tariffs and sent a letter to the president in March asking him to withdraw his proposed tariffs.

It wasn’t enough with Trump’s initial tariffs on Chinese manufactured goods and the retaliatory tariffs imposed by China in return, now the president wants to threaten tariffs on all $500 billion of Chinese imports.

As reported by Reason in June 2018, this all began during the hype of Trump’s presidential campaign when his constant rhetoric bashing America’s bad trade deals prompted top Republicans such as Marco Rubio and Ted Cruz to place the national dialogue on “fair” trade instead of “free” trade.

Trump now feels obligated to follow through with his political rhetoric and implement his trade war, while Congress stands down and does nothing, despite the evidence that demonstrates poor economic outcomes through the tariff practices Trump is engaging in.

Some would hope that Trump’s tariffs talk is nothing more than just a negotiating tactic but a trade war has most certainly begun and the only ones that will be hurt in the end are American and Chinese consumers. Protectionism only begets more protectionism, leading to a race to the bottom, harming only businesses and consumers.

The Trump administration has thus far imposed $34 billon in tariffs on China, along with tariffs on steel and aluminum imports from the EU, Canada, and Mexico. Trump could fulfill his $500 billion tariff threat and the American citizens that are not necessarily supporting the tariffs, but blindly supporting the president, will have a rude awakening once the reality manifests in the long term for the economy.

The tariffs presumably would help certain industries like steel but the products that are manufactured using steel would be more expensive so American consumers would turn to foreign imports for cheaper alternatives, which will only hurt our economy.

China has imposed tariffs mainly on America’s agricultural products such as orange juice, soybeans, fish, pork, dairy, cotton, beef, produce, sorghum, nuts, and rice. However, the goods made in China that Trump wants to impose tariffs are on are everything from industrialized machinery for paper, meats, and glass products to bulldozers to boat motors to helicopters. It’s clear which country has superior manufacturing capabilities.

“This only demonstrates America is low on the manufacturing totem pole,” says Dr. Sabrin and “what we export to China is much less valuable than what China exports to us because the U.S. has ceased to be a major manufacturing economy.”

We can’t get cheap manufactured goods anywhere else like we do from China, but China can get agricultural products from anywhere they want from farmers in foreign markets.

These agricultural tariffs will be less competitive in the Chinese markets as opposed to other global competitors so China will buy fewer agriculture products from the U.S., which will have a negative impact on American farmers and businesses that rely on those farmers’ products.

U.S. farmers are doubly impacted by these tariffs not only when they take a hit with Chinese tariffs on their agricultural products, but also when their Chinese imported farm equipment comes attached with Trump’s tariffs, which raise additional costs for them to do business.

The other point of weakness for the US lies in the US’s immense foreign-held debt.

Currently, the national debt is $21 trillion dollars, of which foreign partners hold $6.2 trillion, and of that $1.18 trillion is held by China alone.

Dr. Sabrin warns, “This U.S. debt to China could be used in a trade war against the Trump administration.” If so, the Chinese could decide to sell off their Treasury holdings and watch the dollar tank, while other countries could follow along. If this happens, the Federal Reserve would be compelled to raise interest rates, escalating a decline in the American economy. The smart move by the Trump administration and Congress would be to reduce trade barriers immediately and withdraw these detrimental tariffs.

Categories: Current Affairs

Redeeming the Industrial Revolution

Fri, 10/08/2018 - 23:15

A destructive myth has wrapped itself around laissez-faire capitalism. It is the erroneous notion that the free market harms the "vulnerable" within society; specifically, it is said to harm women and children by cruelly exploiting their labor. The opposite is true. Laissez-faire capitalism offers the one element that the vulnerable need most to survive and to advance: choice. The most liberating choice individuals can have is the ability to support themselves and not be dependent upon anyone else for the food going into their mouths.

Using this myth as an entering assumption, historians have been extremely harsh in analyzing one of the most liberating phenomena in Western history: the Industrial Revolution. From the 18th through the 19th century, the world surged forward in technology, industry, transportation, trade, and life-changing innovations like cheap cotton clothing. Within two centuries, the worldwide per capita income is estimated to have increased tenfold and the population sixfold. The Nobel Prize–winning economist Robert Emerson Lucas Jr. stated, "For the first time in history, the living standards of the masses of ordinary people have begun to undergo sustained growth…. Nothing remotely like this economic behavior has happened before." The dramatic advance in prosperity and knowledge was achieved without social engineering or centralized control. It came from allowing human creativity and self-interest to run free at a glorious gallop.

Abuses certainly occurred. Some can be laid at the door of governmental attempts to harness the energy and profits of the period. Other abuses occurred simply because every society includes inhumane or amoral people who act badly, especially for profit; this is not a criticism of the Industrial Revolution but of human nature. Moreover, economic advances far outstripped changes in culturally Victorian attitudes; in the 18th century, women and children were viewed as second-class citizens and, sometimes, as chattel. It was the engine of economic revolution that dragged the culture and law into similarly dramatic changes. When women left the countryside to seek employment and education, they became a social force that could not be denied. Thus, women's rights advanced remarkably during the late 19th century and could not have done so without the Industrial Revolution.

Unfortunately, the salutary connection between laissez-faire capitalism and women's rights has been lost. During the latter part of the 20th century, mainstream feminists crusaded to reverse the engine that contributed so heavily to women's equal status; instead of championing freedom in the market place, they embedded privilege for women into the law in the name of equality. The free market and laissez-faire were demonized as tools of oppression that required remedy through affirmative action, sexual-harassment laws, antidiscrimination lawsuits, quota systems, and a myriad of other workplace regulations.

During that process, the Industrial Revolution has been portrayed as the Great Satan in regard to the welfare of women and children. The portrayal relies upon the misrepresentation of fact and upon ideology.

Misreprenting Facts Regarding Children

Hideous images immediately come to mind when children and the Industrial Revolution are mentioned in the same sentence: a five-year-old being lowered by a rope into a coal mine, skeletal children working at unsafe textile mills, Dickens's Oliver proffering a wooden bowl as he asks for another scoop of gruel. These images are used to condemn the free market and the Industrial Revolution; sometimes they are used to praise the humanitarian politicians who passed child-labor laws to curb the cruelty. This analysis draws powerfully upon the understandable horror that decent people feel at the exploitation of any children. But it is seriously flawed.

One of its flaws: it misses a key distinction. Early-19th-century Britain had two forms of child labor: free children; and, parish or "pauper" children, who came under government auspices. Historians J.L. and Barbara Hammond, whose work on the British Industrial Revolution and child labor is considered definitive, recognized this distinction. The free-market economist Lawrence W. Reed, in his essay "Child Labor and the British Industrial Revolution," went one step further in stressing the importance of the distinction. He wrote, "Free-labor children lived with their parents or guardians and worked during the day at wages agreeable to those adults. But parents often refused to send their children into unusually harsh or dangerous work situations." Reed notes, "Private factory owners could not forcibly subjugate 'free labour' children; they could not compel them to work in conditions their parents found unacceptable."

By contrast, parish children were under the direct authority of government officials. Parish workhouses had existed for centuries, but sympathy for the downtrodden was also lessened by the fact that taxes for poor relief in 1832 were over five times higher than they had been in 1760. (Gertrude Himmelfarb's book The Idea of Poverty chronicles this shift in attitude toward the poor from compassion to condemnation.) In 1832, partly at the behest of labor-hungry manufacturers, the Royal Poor Law Commission began an inquiry into the "the practical operation of the laws for the relief of the poor." Its report divided the poor into two basic categories: lazy paupers who received governmental aid; and the industrious working poor who were self-supporting. The result was the Poor Law of 1834, which statesman Benjamin Disraeli called an announcement that "poverty is a crime."

The Poor Law replaced outdoor relief (subsidies and handouts) with "poor houses" in which pauper children were virtually imprisoned. There, the conditions were made purposely harsh to discourage people from applying. Nearly every parish in Britain had a "stockpile" of abandoned workhouse children who were virtually bought and sold to factories; they experienced the deepest horrors of child labor.

Consider the wretched position of "scavenger" in textile factories. Typically, scavengers were young children — about six years old — who salvaged loose cotton from under the machinery. Because the machinery was running, the job was dangerous and terrible injuries were commonplace. "Fortunately" for businessmen willing to use the state to their advantage, government had no qualms about sending parish children to work under running machines. Most of the parish children had no alternative to such work other than starvation or a life of crime.

It is no coincidence that the first industrial novel published in Britain was Michael Armstrong: Factory Boy by Frances Trollope. Michael was apprenticed to an agency for pauper children. Nor is it coincidence that Oliver Twist was not abused by his parents or a private shopkeeper, but by brutal workhouse officials in comparison to whom Fagin was humanitarian. Remember that, at the age of twelve, with his family in debtor's prison, Dickens himself was a pauper child who slaved at a factory. Reed observes, the "first Act in Britain that applied to factory children was passed to protect these very parish apprentices, not 'free labor' children." The Act was explicit in doing so.

Thus, in advocating the regulation of child labor, social reformers asked government to remedy abuses for which government itself was largely responsible. Once more, government was a disease masquerading as its own cure.

Misleading Ideology Regarding Women

The flawed presentation of facts regarding child labor and the Industrial Revolution is paralleled by the flawed ideology by which the status of women is analyzed. Arguably, women were the primary economic beneficiaries of the Industrial Revolution. This was largely due to their low economic status in pre-Revolutionary times; they simply had more to gain than men.

When women had the opportunity to leave rural life for factory wages and domestic work, they poured into the cities in unprecedented numbers. To modern ears, the working and living conditions were terrible with many women turning to prostitution on the side in order to keep a roof over their heads. As terrible as the conditions might have been, however, a fundamental fact must not be ignored. The women themselves believed that flight into the city was in their self-interest, otherwise they would have never made the journey or they would have returned home to farm life in disillusionment. To say factory work "harmed" 18th- or 19th-century women is to ignore the demonstrated preference that they themselves expressed. It ignores the voice of their choices; clearly, the women believed it was an improvement.

A substantial portion of gender-feminist history is an attempt to ignore voices of the actual women making choices. A common method of doing so is to reinterpret the reality that surrounded the choices and, then, impose that reinterpretation so that the "choices" no longer appear to be free but seem coerced.1

A key work in understanding the historical analysis of the Industrial Revolution rendered by gender feminism is Friedrich Engels's immensely influential The Origin of the Family, Private Property and the State (1884). Engels argued that the oppression of women sprang from the nuclear family but he was contemptuous of the notion that the family per se had subordinated women throughout history. Instead he placed the blame firmly on the shoulders of capitalism, which he believed had destroyed the prestige that women once enjoyed within the family.

Engels wrote,

That woman was the slave of man at the commencement of society is one of the most absurd notions.… Women were not only free, but they held a highly respected position in the early stages of civilization and were the great power among the clans.

Thus, pre-Industrial Revolutionary times were romanticized as a period in which women were empowered. Engels claimed that industrialization caused a separation between home and productive work through which the inequity that was the nuclear family evolved. Thus, women's labor became an important but a subordinate aspect of freeing men's labor to feed the capitalist machine. Presumably, the undeniable advances for women ushered in by the Industrial Revolution — including extended life span and political rights — were purchased at too high a cost.

Engels's analysis presented a problem to gender feminists, however. He assumed that men as a sex had no stake in exerting power over women because he analyzed human beings in terms of class affiliation — that is, their relationship to the means of production. Gender feminists wanted a framework of sex as well as class oppression. To explain why women (as distinct from men) have interests that conflict with capitalism, gender feminists reached beyond Engels in their analysis. They evolved a theory of patriarchy — of male capitalism — in which women were oppressed by male culture through the mechanism of laissez-faire capitalism. This stands in stark contrast to the earlier analysis of free-market opportunities being the social remedy for women who are culturally oppressed by male prejudice or privilege.

In more explicit terms, what does this remedy look like? An employer wants to maximize the profit on every dollar he or she spends. This creates a strong incentive to be blind to everything but the merit of an employee, to be blind to race, sex, religion or other characteristics other than productivity. A skilled woman who works for $1 less than a similarly skilled man will usually get the job. If she doesn't, then the unbiased competitor down the street will hire her and the biased one will lose a competitive edge. When this dynamic occurs on a massive scale, women workers are gradually able to demand increasingly higher wages and whittle down that $1 differential. The "leveling" factor does not happen immediately, it does not happen perfectly. But over time, out of pure self-interest, employers become blind to race and sex because it is in their self-interest. They do so in the name of profit, and everyone benefits.

Feminists who object to this leveling process are not advocating equality per se; they are advocating an equality that exists only for the "right" reasons and only upon the "proper" terms. Their objections to the Industrial Revolution are not empirical but ideological. Just as they do not like the voices of 18th- and 19th-century women who flocked to the factories, so too do they dismiss what the free market is saying about equality.

Conclusion

Whether the "slander" is due to a misrepresentation of fact or the imposition of ideology, the Industrial Revolution should bring a libel suit against history. Or, rather, against the majority of historians. Without dismissing the injustices that inevitably arise during any period, the Industrial Revolution established the freedom to which people have become so accustomed that they can treat freedom with contempt. Perhaps the saving grace of the Industrial Revolution's reputation will be the undeniable prosperity it created. Today, prosperity seems more respected than freedom even though the two are inextricably linked.

[Originally published November 17, 2011.]

  • 1. This differs from claiming that 18th- and 19th-century women had severely limited choices and were merely choosing the best option among a bad lot; the claim is that factory work was a step backward, a coerced choice, a poorer one than rural labor.
Categories: Current Affairs

Housing Is Still Affordable in (Many Areas of) America

Fri, 10/08/2018 - 20:05

From crime rates to life expectancy to income levels, statistics at the national level are next to useless when it comes to measuring the daily lives of ordinary people in the United States. This is because the United States — which is a huge and geographically diverse country — is simply too large to be summed up in a single number. This sort of generalizing is inappropriate for pretty much any place that's larger than a single metro area, but it's especially bad when applied to a place like the United States. Even the larger European countries are much smaller, more compact, and less diverse than than US.

The importance of looking at things on a more local level is perhaps most important when looking at issues of homes and home prices. After all, even people who have never studied housing know that housing tends to be highly dependent on local issues, such as climate, local amenities, and access to employment. Many people already know that a four bedroom house in a nice Cleveland suburb is dirt cheap compared to a house of the same size in, say, San Diego, California.

So, it shouldn't be terribly surprising to find that in many parts of the United States, buying a home continues to be quite affordable by historical standards. This fact has started to attract some attention in recent years. In her column titled "Opting Out of Coastal Madness to Live a Low-Overhead Life," Anne Trubek discusses how its possible to live comfortably on $40,000. But here's the rub. To do this, one has to live in an un-sexy midwestern city — albeit in a neighborhood with tree-lined streets and solid, four-bedroom houses.

Statistical data seems to bear this out as well. In June, the Brookings Institution released a new study showing that housing affordability varies greatly from coastal cities to the American interior. And by coastal, they mean "ocean coast." Living near the coastline of the Great Lakes, apparently brings with it even more affordability:

homeprices.PNG

Source: Brookings

The basic premise of the research is to analyze affordability based on the fact that "U.S. median house prices have been roughly 2.5 to 4 times median income."Comparing current home prices to incomes in each area, the report concludes:

Metropolitan areas with low price-income ratios are located in very different parts of the country from high-priced metropolitan areas (Figure 5). The lowest ratio metros are mostly located in the Midwest, especially clustered around the Great Lakes, and scattered across Texas. The metros with the highest ratios are primarily along the Pacific and Northeast Atlantic coasts. South Florida, Colorado, and several smaller metros along the Southeast coast also rank among the most expensive areas. Across the U.S., most states have more metro areas with price-income ratios in the normal range (2.4-4.3) than metros with outlying values.

Comparing against incomes, of course, is important. It's surely easy to find places where home prices are at rock-bottom levels — in places with depressed economies.

In this case, however, we'll looking at incomes in relation to housing prices, and it not at all a given that places with good job markets must also have unaffordable housing.

Texas, for example, has for years had a substantial amount of employment growth. Yet according to the Brookings report, the state has numerous metro areas with "low" and "very low" price-income ratios on housing.

The focus here is on middle-income families, and on for-purchase housing. Low-income households and renters face a different set of challenges, but even middle-income households may daily be told through the media that housing in the United States is quickly becoming unaffordable. Except those articles and news clips tend to focus on housing in places like Seattle, or along the California coast. And there's no arguing with the assertion that places like that are "unaffordable" for many middle-income people.

And as the Brooking article notes, and as I've noted, the lack of affordability in places like California can often be blamed on state and local government measures designed to limit the construction and diversification of housing. Zoning laws and other regulatory barriers to new housing production have decimated housing affordability of housing in many coastal cities. Cities like San Francisco and Seattle have essentially become playgrounds for the wealthy in which existing homeowners fight tooth and nail any attempt to allow sizable amounts of new housing construction. They do this, they tell us, to preserve "the character of the neighborhood." But what they're really doing is using government regulations to drive up the prices on their own real estate, while driving lower-income people further and further out into the periphery. Oh sure, these Progressive guardians of the local "quality of life" might allow a handful of subsidized housing units to be built. After all, somebody has to make your cappuccino or do your dry cleaning. But the overall effect is to ensure few people can afford to move in.

[RELATED: "How Governments Outlaw Affordable Housing" by Ryan McMaken]

This issue, however, is far less prominent in the un-stylish cities of the interior where city officials still welcome new construction and new housing — and where there's a greater abundance of less-expensive land.

Still Affordable by International Standards

I started out by noting it's a bad idea to ignore the enormous regional differences in the United States when considering aggregate data. And that's true.

It is interesting to note, however, that even when we include the price of California and New England coastal housing in our analysis, housing in the United States is still less expensive than in most other wealthy countries.

According to the OECD, housing expenditure in the United States is 18 percent of gross adjusted disposable income. That's the third-lowest in the OECD. Moreover, housing costs in the US by this metric are only 75 percent the size of what they are in Denmark and the United Kingdom.US costs are 78 percent the size of housing costs in Italy.1

housing2.png

Americans also tend have more living space for what they do pay.

[RELATED: "American Houses Keep Getting Bigger — And so Does American Debt" by Ryan McMaken]

For example, the OECD also notes that in the United States, home has 2.4 rooms per person. Only Canadians have more rooms per person. In Switzerland, Spain, Denmark, and Japan, however, there are only 1.9 rooms per person. That's one-fifth less than the average in the US.2

rooms1.png

And the number of rooms aren't the only metric by which US homes are bigger. According to the BBC, floor space in newly built homes in the United Kingdom is less than half of what it is in the United States:

_46216562_houses_466_4_0.gif Federal Policy Favors Those Who can Get Into Expensive Markets

As the Brookings report notes, however, federal policy puts homeowners in more affordable markets at a disadvantage by favoring rapidly appreciating real-estate in pricier markets:

In low-priced areas, even families that have paid down their mortgages find it difficult to build wealth. That makes it harder for them to supplement retirement savings or borrow against home equity for their kids’ education. Federal tax policies that strongly favor owner-occupied homes over other asset types are not well suited to support middle-class wealth building in lower-price locations.

Another new study, recently profiled at Bloomberg, shows how post-2008 banking regulations favor building wealth through high-priced real estate over other options, such as building a family business.

So, for middle income people in a city where home prices are not appreciating very much, owners will be at at a disadvantage — thanks to federal tax and regulatory policies — than someone who sacrifices other important household expenses in order to live in a pricey market.

When it comes to simply putting a roof over one's head, however, there are still many markets in the US where it's possible to buy a house at a price that's manageable for middle-income households. It's true that these places are not the glittering stylish cities often featured in movies and sitcoms.

Those places tend to be controlled by wealthy Progressive elites who don't want anyone new moving in.

  • 1. See: "Better Life Index, Edition 2017" https://stats.oecd.org/Index.aspx?DataSetCode=IDD
  • 2. Rate = number of rooms divided by the number of people living in the dwelling. OECD states: "This indicator refers to the number of rooms (excluding kitchenette, scullery/utility room, bathroom, toilet, garage, consulting rooms, office, shop) in a dwelling divided by the number of persons living in the dwelling."
Categories: Current Affairs

Jeff Deist on PC and the State-Linguistic Complex

Fri, 10/08/2018 - 20:05

As the events of recent weeks demonstrate beyond doubt, political correctness is very real, deeply authoritarian, and wedded at the hip to progressive government. PC is not about respect or inclusivity, but rather a naked attempt to consciously manipulate language in service of progressive ends. Worst of all, PC creates an atmosphere in which we mostly censor ourselves. When libertarians like Daniel McAdams and Scott Horton find themselves de-platformed by twitter, it's time to see the "state-linguistic complex" for what it really is. Jeff Deist addresses the Federalist Society of Montgomery, Alabama, to make sense of it all.

Categories: Current Affairs

Preserve Our Fisheries by Expanding Private Property Rights

Fri, 10/08/2018 - 20:05

In the United States, fisheries are regulated via licenses, regulations, and quotas. The issues with a broad enforcement through regulations and quotas is twofold. They do not prevent overfishing in certain areas and they do not incentivize any actions that might improve conditions in the future. Owning sections of the ocean, however, would create a profit incentive to self-regulate fishing practices to ensure sustainable — or even growing — yields from year to year.

The Maine Lobstermen

The Maine Lobstermen are a great example of what private property could accomplish in the fisheries market. By law, Maine’s fishing grounds are considered a public resource. Despite the state law, an informal set of property rights has been set up by the fishermen or lobstermen themselves. According to a paper by Edella Schlager and Elinor Ostrom "Property-Rights Regimes and Natural Resources," “Prior to 1920, the entire coast was divided into a series of lobster ‘fields’ with the men from each harbor or island fishing only the grounds associated with their own harbors."1 These informal property rights have allowed sailors to efficiently harvest their areas and avoid the tragedy of the commons issue that occurs in most other fishing areas. “The lobstermen in each fishing village determined who could enter their grounds. Further, they decided how these grounds would be used — what production techniques would be allowed, etc."

Unfortunately, because these property rights are not acknowledged officially, occasionally the lobstermen end up resorting to vandalism or violence to protect their fishing areas. While this situation is far from ideal, there is one simple solution that could fix all of these problems: officially recognized property rights. According to Avi Perry in the Ocean and Coastal Law journal, “There has been a call from within the lobstering community for abandonment of the informal territorial system in favor of state enforcement of property rights." If these property rights were acknowledged and supported by government authorities the same way property rights are on land, the lobstermen wouldn’t feel the need to enforce these rights themselves.

Farmers on land own the source of their income and therefore know how to and are invested in caring for and making the most of their resource. The same principle seems to be the answer here. Once again, all of these problems could be avoided if there were clearly defined property rights.

Indigenous Conservation Techniques

One of the main reasons that bottom-up methods for dealing with natural resource issues are so successful is due to the ability to put local knowledge to use. The conventional one-size-fits-all approaches typically used by governments simply do not apply to every situation. While these policies may present marginally acceptable results as a whole, they can be less than ideal or even harmful in specific circumstances.

The Cree Indian fishery located in James Bay, Canada, is a great example of how local knowledge can be very effective at managing resources. The Chisasibi fishermen have developed a very sophisticated knowledge of the best fishing practices for this area. While living amongst this tribe, Fikret Berkes had an opportunity to observe some of these practices. From his book Sacred Ecology, he was awed by the details they were able to discover without the aid of any of our technologies. “The Chisasibi fishers knew, for example, that in spring the best catches of whitefish were obtained following the melting ice edge in bays; fishers knew where the pre-spawning aggregations were in August, and they knew that in September whitefish was best harvested over a sand-graveI bottom at certain depths of water.”2

Their methods of conserving this vital resource were equally impressive.3 Fishermen would use nets with various sized holes to catch adult fish while allowing the adolescent fish to pass through. They would also rotate fishing areas to prevent any one spot from being over fished. In short, the Chisasibi fishermen learned how to fish for each species at each time of the year to ensure they would continue to thrive in future generations.4 It is highly doubtful that a conventional top-down system of enforcement could match the success of this Cree fishery. Instead, governments should shift toward smaller more localized regulation for the best benefits: whether that be regions, communities, or ideally, private entities.

Conclusion

Private property is really about stewardship. When someone is directly responsible for something — and rely on that thing for current and future sustenance — they will manage it better. When property is privately owned, the owner has incentives to conserve resources to ensure sustainable profits or maximum resale in the future. Private property and other bottom-up localized methods for resource management are much easier to implement, can be customized to local environments, are much less costly, allow more personal freedom, and have been successful where conventional top-down practices have failed.

  • 1. Schlager, Edella, and Elinor Ostrom. "Property-Rights Regimes and Natural Resources: A Conceptual Analysis." Land Economics 68, no. 3 (1992): 249.
  • 2. See: Berkes, Fikret. "Cree Fishing Practices as Adaptive Management," Sacred Ecology (New York: Routledge, 2012), p. 111.
  • 3. Davis, Wade, Carr Clifton, Trevor Frost, and Paul Colangelo, The Sacred Headwaters: The Fight to save the Stikine, Skeena, and Nass (Vancouver: Greystone, 2011).
  • 4. Chapin, Iii F. Stuart. "Case Study of Indigenous People Keeping the Land Healthy — Threatened Species and Community-Based Conservation," Principles of Ecosystem Stewardship (Springer, 2014).
Categories: Current Affairs

The Blockchain Is a Tempting Target for Central Banks

Fri, 10/08/2018 - 16:55

The Bank of England apparently wants to incorporate blockchain technology and cryptocurrencies into the central bankers’ tool kit.

Original article: The Blockchain Is a Tempting Target for Central Banks

Categories: Current Affairs

On the Fed, Trump Channels Tricky Dick

Fri, 10/08/2018 - 13:45

“I’m not thrilled,” President Trump told CNBC's Joe Kernen in an interview that aired on Squawk Box last month. “Because we go up and every time you go up they want to raise rates again. I don't really — I am not happy about it. But at the same time I’m letting them do what they feel is best.”

Since becoming POTUS, Trump has changed his tune about rates. When Janet Yellen was running the Fed, Trump said she should be “ashamed” for holding down rates. He endeared himself to libertarians at the time by saying the low rates created a “false stock market.”

Then after his election he mentioned the stock market constantly. "It would be really nice if the Fake News Media would report the virtually unprecedented stock market growth since the election," Trump tweeted in October 2017. A year before Trump had warned America to beware of a "big fat bubble" in stocks.

Today, he tweeted,

The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates — Really?

There’s plenty of blather that Trump is breaking with presidential norms by criticizing Jerome Powell’s rate hikes, but, the Donald is merely channeling Richard Nixon. When Nixon appointed Arthur Burns to be Fed chair in October of 1969, Burns was soaking up the applause during the announcement of his appointment when Nixon broke in, saying, “You see, Dr. Burns, that is a standing vote of appreciation in advance for lower interest rates and more money.” Later, in private, Nixon told his new Fed chair, “You see to it: no recession”

In a chapter for the book The Fed at One Hundred entitled “Arthur Burns: The Ph.D. Standard Begins and the End of Independence” I wrote,

The president didn’t trust the central bank, but with Burns he would have one of his own in charge. At the same time, when Burns took the oath of office in January 1970, Nixon said, “I have some very strong views on some of these economic matters and I can assure you that I will convey them privately and strongly to Dr. Burns. ... I respect his independence. However, I hope that independently he will conclude that my views are the ones that should be followed.”

Trump’s communication style is different in that he hopes Chairman Powell will be reading his tweets and watching CNBC. However, Trump believes himself an imperial leader just as Nixon did.

Burns may have been a friend [of Nixon’s], but “he was still the emperor and I should therefore toe the mark — as should every good citizen, especially those that professed to be his friends.” Burns concluded his diary entry with, “now I knew that I would be accepted in the future only if I suppressed my will and yielded completely — even though it was wrong at law and morally — to his authority.”

Perhaps one day Powell will see Trump as Burns viewed his friend the president — as having

“uncontrolled cruelty,” and that he [Burns] “was seized suddenly with fear for the safety of our country which depended so heavily on this insecure man (the thought flashed through my mind of an earlier conversation, when he asked me to inform him when I thought it would be a good time to bring on an international monetary crisis and added, winking privately as he spoke, ‘I don’t mind crisis’ — the I being heavily underlined).”

Former Fed governor Kevin Warsh, a candidate for the Fed chair appointment, said on a Politico podcast this year that during his interview, Trump made clear his opinions on interest rate policy.

“If you think it was a subject upon which he delicately danced around, then you’d be mistaken. It was certainly top of mind to the president,” Mr. Warsh said. Later, he added: “In some sense the broader notion of an independent agency, that’s probably not an obvious feature to the president.”

As Rob Crilly described the Trump administration in The Telegraph, “Each day brings fresh chaos and an escalating sense of crisis.”

Today, Fed policy is the chaos.

Categories: Current Affairs

Controlling Missouri, Part 1: Nathaniel Lyon in St. Louis

Fri, 10/08/2018 - 01:25

Nathaniel Lyon, a notoriously harsh officer in the US army, is sent to St. Louis to ensure Missouri’s place in the Union. His policies have the effect of alienating much of the population of the city, which is predominantly Unionist, leading to the formation of a secessionist resistance group at Camp Jackson.

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