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Yes, Paul Krugman, Booms Are Unsustainable

Sat, 15/05/2021 - 20:00

That Austrians and Keynesians do not share many views on economics (or probably anything else) is obvious, so a difference of opinion between the two hardly should surprise anyone. However, it still is important to point out the differences between the two camps, especially at the current time when Keynesians are all the rage in Washington (When did they ever leave?) and especially in the Joe Biden administration and, of course, the editorial pages of the New York Times.

Perhaps there is no greater difference between Keynesians and Austrians than their beliefs on economic booms. In short, Keynesians believe that all policies should promote the booms and even when they crash, that government should employ all means to continue the boom. Austrians, on the other hand, see booms as times when massive malinvestments pile up until the whole unwieldy system no longer can stand, leading to the inevitable crashes. In short, Keynesians claim that booms should be the goal of economic policymakers while Austrians see them as wasteful, dangerous, and ultimately destructive.

As noted before, Keynesians definitely hold the official reins of governmental power and also are the darlings of the mainstream media. Janet Yellen, US secretary of the Treasury, is a Keynesian. Chairman of the Federal Reserve System, Jerome Powell, is not a Keynesian by formal academic training but certainly has operated his office in the spirit of Keynes. And the loudest Keynesian shill, Paul Krugman, wields much influence from his perch at the NYT. Austrians, on the other hand, are nowhere to be found in the reaches of government nor in the influential corporate office and certainly not on Wall Street.

If political and academic dominance were the arbiter of truth, then Keynesians are right, and Austrians are dangerously deluded. Keynesians have the raw numbers and the loudest and most powerful institutional voices. Austrians enjoy none of those perks.

A thousand Keynesians speaking with one voice, however, still are wrong about economic booms, and none is more mistaken than Krugman. In a recent column, “Who’s afraid of the big, bad boom,” Krugman presents the Keynesian view of economic booms and concludes that the end of all economic policies should be the initiation and sustaining of the boom. He writes:

There definitely is a boom underway, even if a vast majority of Republicans claim to believe that the economy is getting worse. All indications are that we’re headed for the fastest year of growth since the “Morning in America” boom of 1983–84. What’s not to like?

Krugman goes on to write that booms are not perfect and sometimes can lead to economic “bottlenecks” (such as the current spike in lumber prices), but such things are little more than temporary glitches to the happy world of prosperity for all, made possible by permanent spending sprees:

But do such bottlenecks pose a risk to overall recovery? Do they mean that policymakers need to pull back? No. The overwhelming lesson of the past 15 years or so is that short-term fluctuations in raw material prices tell you nothing about future inflation, and that policymakers that overreact to these fluctuations—like the European Central Bank, which raised interest rates in the midst of a debt crisis because it was spooked by commodity prices—are always sorry in retrospect.

So, pay no attention to the man behind the curtain. Commodity prices always fluctuate, boom or no boom, so if lumber prices go up and housing markets start to resemble to real estate bubble of the mid-2000s, that is the natural consequences of prosperity brought to you by loose monetary policies and increased government spending.

But what happens if the housing markets—and the stock markets—crash as they did in 2007 and 2008? In 2008, Krugman squarely laid the problem upon inadequate financial and economic regulation and claimed Ronald Reagan was responsible for the deregulation that created the mess. (Not surprisingly, Krugman also got it wrong on the history of deregulation, but like Bluto Blutarsky, who wrongly claimed that “the Germans bombed Pearl Harbor,” we can’t interrupt someone when he is on a roll.)

Since 2008 and the presidency of Barack Obama, things have changed drastically. This time there are no subprime mortgage securities cooked up by Wall Street geniuses and the federal government essentially nationalized the mortgage industry as a response to the meltdown, something that met Krugman’s approval. Furthermore, the government’s monetary policies of suppressing interest rates (ostensibly to fuel that Keynesian polestar, aggregate demand) have created the stock market bubble—that is the only thing we can call it—which has accelerated that “wealth gap” that Krugman claims is perhaps THE major economic problem this country faces.

(Krugman believes that we can both create stock bubbles and then alleviate the results through massive wealth and progressive income taxes, as both are forms of economic stimulation that encourage spending and discourage alleged “hoarding” by the rich. That is something for a future commentary.)

When this current boom crashes (as inevitably it will), one suspects that Krugman first will blame free market capitalism and claim that part of the problem is a lack of regulation, since everyone knows that since the advent of the Ronald Reagan presidency, there has been no government regulation of any markets. To Krugman and the Keynesians, it will be proof that markets cannot be trusted and further proof that market prices are little more than a right-wing plot by the intellectual descendants of Milton Friedman.

Once the blame game starts, then Krugman and other Keynesians will demand that government engage in various policies—and especially borrowing and spending—to bring back those lofty levels of so-called aggregate demand and the high prices that accompany such demand. This hardly is a new strategy. The original New Deal policies from Franklin D. Roosevelt (as opposed to the nearly identical New Deal policies from Herbert Hoover) were based upon the belief that falling prices were the main cause of the depression and that government needed to force up agricultural, commodity, and labor prices in order to right the economic ship. Thus, the government tried to cartelize the entire nonfarm economy through the National Industrial Recovery Act and prop up farm prices through the Agricultural Adjustment Act, both of 1933. In 2008, Martin Feldstein, President Reagan’s chief economic adviser, sounded the same horn on housing, declaring in The Wall Street Journal that the chief culprit of the 2008 meltdown was falling prices in housing:

A successful plan to stabilize the U.S. economy and prevent a deep global recession must do more than buy back impaired debt from financial institutions. It must address the fundamental cause of the crisis: the downward spiral of house prices that devastates household wealth and destroys the capital of financial institutions that hold mortgages and mortgage-backed securities.

One could write volumes about the economic fallacies contained in that paragraph, but readers get the point. In Keynesian land, there are no economic fundamentals, no relationships between factors of production, just spending. Spend enough money and policymakers can keep factors of production employed indefinitely; when the inevitable dislocations appear, paper them over with even more spending and let the good times roll and roll and roll.

Austrians, according to Krugman, are the authors of a very bad morality play when it comes to diagnosing and analyzing booms and busts:

The hangover theory (what Krugman calls the Austrian Business Cycle Theory) is perversely seductive—not because it offers an easy way out, but because it doesn’t. It turns the wiggles on our charts into a morality play, a tale of hubris and downfall. And it offers adherents the special pleasure of dispensing painful advice with a clear conscience, secure in the belief that they are not heartless but merely practicing tough love. Powerful as these seductions may be, they must be resisted—for the hangover theory is disastrously wrongheaded. Recessions are not necessary consequences of booms. They can and should be fought, not with austerity but with liberality—with policies that encourage people to spend more, not less.

Krugman wrote this more than twenty years ago but has not changed his views since then. Not surprisingly, he reduces accounts of malinvestment—in fact, he doesn’t even use that term, wrongly calling it “overinvestment” instead—to mere moral tut-tuts which actually are dangerous because Austrians, in Krugman’s view, malevolently urge people to stop spending at a time when increased spending is needed most. In short, booms are good, always good. Booms bring prosperity, and anything that discourages prosperity is bad, end of argument.

This analysis misjudges both booms and busts, which the current political and academic climate tends to reward rather than punish. (Robert Murphy goes into detail about Krugman’s errors in this article, one well worth reading.) If Krugman believes booms are good and should be maintained perpetually, then it is reasonable to believe that anything less that outright condemnation of a bust borders on being immoral. When that viewpoint is combined with Krugman’s increasing left-wing radicalism, it is not hard to understand his unrelenting hostility to Austrians and their viewpoints. When he first criticized the Austrian business cycle theory in 1998, his take was that Austrians were wrong, dismissively so, but he stopped there. Today, he wants readers to believe that Austrians are Evil People who want others to live in poverty and starve to death. We no longer are dealing with intellectual disagreements but rather a titanic battle between the Forces of Good and Evil and Krugman is on the side of Good. One cannot argue with anyone defending free markets and market prices because, in his words, “the mendacity is the message.”

Krugman’s radicalism notwithstanding, we still must deal with his argument that economic booms not only are desirable but that they can be sustained indefinitely with no resulting damage to the economy. This is not to say that a sustained boom contains no fluctuations; even Krugman admits that, but he also believes that government simply can make adjustments on the fly to even the rough places, something that requires the election of like-minded progressives that believe government can work near economic miracles.

Why, then, do Austrians hold that booms cannot be sustained? First, and most important, Austrians point out that the conditions that create the boom are not benign. Booms occur when monetary authorities (i.e., Federal Reserve System or some other national central bank) hold interest rates below market levels by expanding the supply of money for the purpose of expanding borrowing for business expansion. This increases the demand for capital goods (and factors of production associated with their creation) and puts new money into the hands of employees in those associated industries. The employees spend the money on consumer goods, creating new demand for those products.

(The best account of the Austrian theory is found in Murray N. Rothbard’s America’s Great Depression, whose first half Rothbard dedicates both to explaining the business cycle theory and also answering the Keynesian critics of the theory. One only wishes that Rothbard had lived long enough to respond to Krugman’s missives.)

With Keynesians such as Krugman, this process can go on indefinitely. True, some of the capital investments might not be sustainable, but that can be explained by the fact that there always are business fluctuations in the course of the economy. He writes:

But let’s ask a seemingly silly question: Why should the ups and downs of investment demand lead to ups and downs in the economy as a whole? Don’t say that it’s obvious—although investment cycles clearly are associated with economywide recessions and recoveries in practice, a theory is supposed to explain observed correlations, not just assume them. And in fact the key to the Keynesian revolution in economic thought—a revolution that made hangover theory in general and Austrian theory in particular as obsolete as epicycles—was John Maynard Keynes’ realization that the crucial question was not why investment demand sometimes declines, but why such declines cause the whole economy to slump.

Here’s the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn’t that mean that they must be deciding to spend more on consumption goods—implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?

In other words, even if some capital investments go south, there is no reason for the economy to decline. After all, money has not disappeared, so if spending is halted on some unsuccessful capital investments, then consumers can just spend more money elsewhere. The Keynesian Cross “proves” that aggregate expenditures and GDP are identities, so it really doesn’t matter if money is spent on capital goods or consumer goods since the results are the same.

Then what causes the economic downturn? Krugman has an easy answer:

A recession happens when, for whatever reason, a large part of the private sector tries to increase its cash reserves at the same time.

In other words, large-scale malinvestments really don’t matter; instead, it is the panicked consumer that decides in the face of economic uncertainty that saving money might be a good thing. Indeed, as Robert Murphy notes, US savings rates quadrupled from late 2007 to mid-2009 (from about 2 percent to 8 percent) so that would seem to verify Krugman’s causality. But it doesn’t.

To counter Krugman’s thesis, I go back to the Austrians but not Rothbard. Instead, I turn to Carl Menger, the “founder” of the Austrian school who begins the opening chapter in his groundbreaking Principles of Economics with:

All things are subject to the law of cause and effect. This great principle knows no exception, and we would search in vain in the realm of experience for an example to the contrary.

While these words hardly seem to refute anything, let alone Krugman’s stated cause of economic downturns, look again. Austrian analysis is monocausal, that is, there is a cause and an effect. Krugman’s theory (I assume he believes his theory is “settled science”) brings up an interesting question: Why do consumers suddenly cut back on their spending begin saving? Krugman never says.

It seems that one obvious reason is that consumers are unnerved about the economic downturn, but if Krugman’s statements about the breakdown of the boom are correct, then consumers would have no logical reason to be nervous. Perhaps Krugman might claim that those dastardly Austrians have fooled everyone into thinking that credit-fueled booms are unsustainable, so when someone goes out of business or some other economic indicator points downward, people panic and the Austrians then goad them into saving more money.

But why don’t consumers start spending again as soon as someone in Washington gives the equivalent of the “all clear” signal? After all, the Keynesian paradigm dominates in politics, the media, and in higher education. The notion of Austrians playing the role of Emmanuel Goldstein is a bit far-fetched, given the Austrians don’t have much of a media or political platform. How Austrians can scare an entire population into sabotaging the economy by increasing their savings lacks the authenticity of Mengerian causality.

When they look at the increase in savings, Austrians ask the following: Why the sudden increase in savings? In fact, if we look at US personal savings rates for the past sixty years, we see that savings rates do increase at some point in most recessions, but they increase during the recoveries, too, so there is no way one can draw a clear causal inference that moves from the growth in personal savings to a recession.


The monocausal view would lead us elsewhere. In Krugman’s world, people irrationally start saving, send the economy spiraling downward, and then it takes government—led by brilliant technocrats like Krugman—to spend and inflate the economy back into prosperity. To the Austrians, the notion of people suddenly stampeding to save their money for no visible reason in nonsensical. Furthermore, contra Krugman, saving money is not an irrational response to a perceived change in the economy. People don’t save in a vacuum; they save in order to be able to spend in the future, either for a major purchase or for times when their incomes are less than they are at present. In short, the evidence shows that people quickly change their saving habits in response to a crisis, as opposed to an increase in savings creating the crisis.

Krugman claims that even large-scale malinvestments really should have no overall effect, writing:

For if the problem is that collectively people want to hold more money than there is in circulation, why not simply increase the supply of money? You may tell me that it’s not that simple, that during the previous boom businessmen made bad investments and banks made bad loans. Well, fine. Junk the bad investments and write off the bad loans. Why should this require that perfectly good productive capacity be left idle?

The hangover theory, then, turns out to be intellectually incoherent; nobody has managed to explain why bad investments in the past require the unemployment of good workers in the present. Yet the theory has powerful emotional appeal. Usually that appeal is strongest for conservatives, who can’t stand the thought that positive action by governments (let alone—horrors!—printing money) can ever be a good idea.

Elsewhere, he states of the Austrian theory:

[T]his story bears little resemblance to what actually happens in a recession, when every industry—not just the investment sector—normally contracts.

His statements show ignorance in two areas: capital theory and the actual events of the business cycle. Rothbard corrects Krugman’s errors, first by pointing out that the crisis is characterized by what Rothbard calls a “cluster of (entrepreneurial) errors,” and then by noting that the downturns do not hit all sectors equally:

It is the well-known fact that capital-goods industries fluctuate more widely than do the consumer-goods industries. The capital-goods industries—especially the industries supplying raw materials, construction, and equipment to other industries—expand much further in the boom, and are hit far more severely in the depression.

This is important, as the crisis does not occur because people stop spending and then all business sectors shrink accordingly. The capital goods and related industries are likely to have the greatest number of malinvestments, so it stands to reason that they would be hit hardest in the crisis.

Krugman does make an interesting point: If the problem is just malinvested capital, why can’t workers make the quick transition back to employment in sectors not hit as hard? In fact, that often was what happened in previous business cycles. Thomas Woods writes of the 1920–21 recession that it was severe—and short. Writes Woods:

The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover—falsely characterized as a supporter of laissez-faire economics—urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.

Instead of "fiscal stimulus," Harding cut the government's budget nearly in half between 1920 and 1922. The rest of Harding's approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third.

The Federal Reserve's activity, moreover, was hardly noticeable. As one economic historian puts it, "Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction."2 By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.

In other words—contra Krugman—there was no intervention, no money printing, no jobs programs, nothing that Krugman claims are vital to bring economic recovery. If one realizes that this downturn came in the aftermath of World War I when the war-spending boom quickly contracted and accompanying the return of millions of soldiers was the Spanish Flu pandemic which killed 500,000 Americans (when the US population was 104 million, less than a third of the population today). Yet, the economy quickly recovered when the economy moved out of inflation-driven war goods production back into production commensurate with postwar needs.

Austrians do not question booms because they don’t like prosperity or because they have character defects. Rather, Austrians understand that booms involve lines of investment into areas of production that cannot be sustained, even when government throws even more money at them. What Krugman calls “perfectly good productive capacity” actually is malinvested capital that is idle for a reason.

Categories: Current Affairs

"Infrastructure" Is Now Anything the Government Wants To Do

Sat, 15/05/2021 - 17:00

A common rhetorical tactic is to change the definition of a key word in a debate to fit a preferred conclusion. This tactic is now being used by President Biden and other lawmakers in support of an anticipated $2 trillion infrastructure bill they are expected to propose by arguing that the definition of “infrastructure” should be expanded to include anything remotely connected to the economy.

The forthcoming bill is expected to propose approximately $400 billion for childcare and other care programs under the heading of “infrastructure,” the argument being that spending taxpayer money on these programs would free up more mothers and others who currently devote their time to providing care to take jobs outside the home. Because it would enable more mothers to work outside the home, the argument goes, “infrastructure” should include childcare.

There is, of course, nothing new about lawmakers seeking to implement new programs at taxpayers’ expense. What is new is how open supporters of this effort have been about the fact that they are attempting to do this by changing the definition of a word, the New York Times opining with approval that Biden’s plan “is a radical reimagining of what infrastructure means.”

The Fallacy of Four Terms

Supporters of the anticipated bill wish to reach the conclusion that the United States should enact progressive social programs and, to reach that conclusion, they are attempting to change the definition of “infrastructure” in this context from “the system of public works of a country, state, or region” to anything that makes it easier for an individual to get to her job. The New York Times opinion piece noted above frames it thusly:

“Functioning and affordable care is a public good: It is the foundation for Americans to provide for their families, tend to their loved ones and perform their jobs.”

This type of argumentation tactic relies on the so-called fallacy of four terms. Typically, a basic logical argument is said to consist of three terms, for example, all A are B, and all B are C, therefore all A are C. This logically valid argument contains three terms, A, B, and C.

However, if each time we mentioned B, we really meant two different things, then this argument would really be, all A are B1, and all B2 are C, therefore all A are C. This argument actually has four terms and is logically invalid because the equivalency between A and C depended on B being the same thing both times it was mentioned.

One way the middle “B” term gets distorted like this is when the meaning of a word used for that term is ambiguous. An argument makes this error if it says, for example: all boys swing bats, all bats are nocturnal flying mammals, therefore all boys swing nocturnal flying mammals. The single word “bat” in this example actually must count as two terms because we have used it with two different meanings.

It is not necessarily false to say childcare is in some sense a kind of infrastructure if it allows more mothers to take on jobs outside the home, (although it does beg the question why mothers should be deemed more productive when working outside the home than when working in it). Because childcare can plausibly be called a kind of infrastructure, it can pseudo-logically be grafted onto existing beliefs among most Americans about the propriety of government spending on traditional infrastructure, even though the ideas are materially different.

Why This Rhetoric Matters

None of this is intended to mean that governments should involve themselves in the provision of traditional infrastructure in the first place. However, as Murray Rothbard pointed out in his work Man, Economy, and State, it is nonetheless a common modern belief that such spending is appropriate, or even necessary:

“[E]very single service generally assumed to be suppliable by government alone has been historically supplied by private enterprise. This includes such services as education, road building and maintenance, coinage, postal delivery, fire protection, police protection, judicial decisions, and military defense—all of which are often held to be self-evidently and necessarily within the exclusive province of government.”

This existing acceptance most people seem to have of government spending on traditional infrastructure, misguided as it may be, is now being used to expand their ideas about what is acceptable government expenditure to include publicly funded childcare programs.

In a practical sense, new government programs like these will undoubtedly involve not only higher taxes, but also more regulatory control over things that ought to remain within the capable discretion of private individuals and families. New regulations on how many children a childcare provider can enroll at a time and whether providers will be required to have a college degree and a state-issued license are likely to follow, placing needless new burdens on existing childcare providers. (Any doubt about this can be dispelled by reviewing some of the recommendations already published by the U.S. Department of Health & Human Services Office of Child Care here.) If our experience with government intervention in healthcare is predictive, the cost of childcare will only increase and its provision will become more impersonal and less responsive to the particular needs of individual families.

But this use of deceptive rhetoric raises even more fundamental concerns. There is nothing new about lawmakers using false or nonexistent logic to support their proposals, but there is something novel to the boldness with which even established mainline party politicians—including influential senators like Elizabeth Warren and Kirsten Gillibrand—are now so openly embracing this rhetorical tactic despite its reliance on a “radical reimagining” of the meaning of an existing word. The issue it raises is this: Do we really believe that these experienced politicians actually think voters are so dimwitted they cannot grasp the relevant difference between bridges and childcare? As Professor David Gordon recently pointed out, “unless there is very strong evidence, we should avoid attributing to someone an error it would be hard to overlook.”

It therefore seems unlikely they really expect these arguments to cause a significant number of the public to undergo a personal revelatory enlightenment and suddenly realize they have supported government provided childcare all along. It seems more likely they are instead dictating to the rest of us what the new meaning of infrastructure shall be in order to make enactment of their desired social programs possible.

Finally, this seems to represent an importation of the kind of Orwellian newspeak rhetorical methods we are used to hearing from more openly socialist voices in society. We have long heard, for example, about the “exploitation” of labor. While it may be true that an entrepreneur “exploits” the use of labor in the same mundane sense that a carpenter “exploits” the force multiplying effect of a lever to pry nails out of a piece of wood, advocates of the Marxian concept of exploitation rely on the deep negative connotations of the word to justify condemning owners of capital who earn a profit by hiring workers. The current calls for “social justice” are similar. Advocates of collectivist redistribution schemes describe their socialist goals as a certain kind of justice. Changing the definition of justice to “social justice” shifts the focus of the debate about what is just from people receiving what they deserve to people receiving the same thing regardless of what they deserve.

If this new argument about infrastructure arises from the same mindset as social justice ideology, as I argue, we should heed Professor Michael Rectenwald’s warning about social justice that the:

“claims of social justice ideologues amount to a form of philosophical and social idealism that is enforced with a moral absolutism. Once beliefs are unconstrained by the object world and people can believe anything they like with impunity, the possibility for assuming a pretense of infallibility becomes almost irresistible, especially when the requisite power is available to support such a pretense. […] Because it usually contains so much nonsense, the social and philosophical idealism of the social justice creed must be established by force, or the threat of force.”


The attempt to characterize childcare and similar government programs as infrastructure cannot be understood as an honest attempt to convince average Americans to support a policy through rational argumentation. It should instead be understood as powerful lawmakers openly adopting a rhetorical tactic common to social justice ideologues to dictate to the masses what they should believe about the expanded role the state should play in everyone else’s lives.

Categories: Current Affairs

Social Media's Algorithms Aren't Really Controlling You

Sat, 15/05/2021 - 16:00

Senator Hawley wants government regulation of social media, and he insists that social media companies are somehow controlling and manipulating people. But Hawley is mistaken. You have free will even when using Facebook.

Original Article: "Social Media's Algorithms Aren't Really Controlling You​"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.


Categories: Current Affairs

Biden Wants a Global Minimum Tax to Offset His Proposed Huge Corporate Tax Increase

Sat, 15/05/2021 - 12:00

In the classic 1939 film, The Roaring Twenties, a desperate James Cagney tells Priscilla Lane, “You want the Brooklyn Bridge, all you gotta do is ask for it. If I can’t buy it, I’ll steal it.” Like a desperate lovesick puppy trying to force the object of his affection to fall in love with him, President Joe Biden has promised the American people the Brooklyn Bridge, relying on an elixir of higher taxes to carry out his plans. But suppose he fails to satisfy the two-thirds of Americans who endorse his spending plans. In that case, these folks might fall in love with the potential 2024 Republican presidential candidate who can deliver the goods of prosperity and growth. Biden might try everything under the sun to woo his crush and make sure he showers the love of his life with diamonds and pearls, even if it means appealing to the worst instincts of the globalists: confiscation.

4D Chess: Global Minimum Tax

Recently, Treasury Secretary Janet Yellen unveiled a new proposal to implement a global minimum tax on corporations to prevent these vast businesses from shopping around for the lowest rate. This would be in addition to raising the corporate tax rate to 28%. Because much of Biden’s spending plans depend on fleecing more from the private sector, corporations fleeing the United States for greener pastures would forge a significant gap in his big-government scheme. But a key White House economic adviser thinks a compromise would be sufficient enough to generate enough revenues.

Speaking in an interview with Fox News Sunday, Council of Economic Advisers Chair Cecilia Rouse advanced a global minimum tax to counteract the proposed hike. She contended that the concept is to make certain America’s biggest companies are paying their fair sure and to sew up some of the loopholes to prevent greater financial offshore allocation. Ultimately, according to Rouse, it is about ending the race to the bottom on corporate taxes, a public policy embraced by the likes of Ireland and Luxembourg.

She told the network:

“President Biden is really saying, ‘Look, everybody should pay their fair share.’ Yes, internationally we don’t want to be disadvantaged, so he’s also working with other countries so that we have a minimum tax internationally so there’s not a race to the bottom.

“What we’ve seen over the past several decades is that the wealthiest Americans, the big corporations are getting wealthier, and they’re contributing less in terms of federal revenue.”

Corporations have warned that reversing former President Donald Trump’s measure would hurt America’s competitiveness and slow wage growth. But would these multinational juggernauts be content with a compromise of suspending a tax increase in exchange for a global minimum rate?

A Case of Murder—or Suicide?

Politicians regurgitate the concept that corporations and the wealthiest of Americans need to start paying their fair share. Corporations and affluent households get away with a lower tax bill because they exploit the innumerable loopholes in the federal code, something that legendary economist Ludwig von Mises was clear about: “Capitalism breathes through loopholes.”

That said, whether it is Big Business or private individuals, the top 10% already cover about two-thirds of the nation’s tab, and the top 1% pays about 40% of taxes.

But whatever the dollars and cents are, it is clear that raising corporate penalties makes investment more expensive. When this happens, it stifles a plethora of opportunities, such as investing in new business equipment or growing wages, which are tied together. Mises wrote in The Anti-Capitalistic Mentality:

“As the employer consequently will be in a position to obtain from the consumers more for what the employee has produced in one hour of work, he is able—and, by the competition of other employers, forced—to pay a higher price for the man’s work.”

Tax the rich may be great bumper-sticker economics, but this progressive nostrum is devoid of reality.

Uncle Sam Is Loaded

The U.S. government does not suffer from a revenue problem. Washington collects approximately $4.5 trillion in income and payroll taxes per year. Even during the coronavirus pandemic, the nation’s capital confiscated about $3.5 trillion from the American people. Suffice it to say, Uncle Sam is loaded. The real issue in the United States is that the government suffers from a pathological spending addiction. Politicians and bureaucrats will rarely concede this fact since it would make their positions unjustifiable. Biden argues that not adding trillions to the already bloated multi-trillion-dollar budget will hurt the nation’s finances—if that makes any sense. If this is public policymaking labeled as visionary and brilliant, the country is doomed. What more could fiscal conservatives expect when the president reversed $26 billion in spending cuts out of fear this would hurt the nation?

America’s hard left turn in 2020 may end up diving off the fiscal cliff. How appropriate for a president straight out of Looney Tunes.

Originally published at Liberty Nation. 

Categories: Current Affairs

Vaccine Passports and Medical Paternalism

Fri, 14/05/2021 - 20:00

Vaccine passports have been implemented, or are being developed, in a number of countries around the world. In February 2021, Israel introduced its "Green Pass," which becomes "effective the week after receiving the second dose" of the vaccine and expires after six months. It was followed by China, which launched its digital "International Travel Health Certificate" in March. Subsequently, in April, Denmark implemented its "Coronapas" and Estonia introduced its "VaccineGuard." Although the United States government recently dismissed the idea of a national vaccine passport, the state of New York has already launched its own "Excelsior Pass," and several other states are developing similar programs, whereas South Dakota, Montana, Idaho, Utah, Florida, Texas and Arizona have banned the use of COVID-19 immunity passports within their borders. Other countries have also announced their intentions to launch vaccine passports in the near future, including: the United Kingdom, which will be using an NHS (National Health Service) phone app as its COVID-19 vaccine passport starting on May 17th; and, the European Union, which is planning to "facilitate free movement inside the EU" with its "Digital Green Certificate" as of June.

In addition to prohibiting unvaccinated people from travelling (e.g., boarding airplanes, staying at hotels, etc.), these electronic documents are already being used to prevent them from attending social and cultural events at stadiums, theaters, and museums. Unvaccinated citizens are also not being permitted to enter a variety of other venues and businesses like gyms, dance clubs and studios, swimming pools, hair salons, wedding halls, tattoo parlours, restaurants, and coffee shops, among others. Essentially, the implementation of vaccine passports has led to a situation where governments protect the rights and freedoms of vaccinated citizens, while infringing upon those of their unvaccinated counterparts.

The ultimate goal of vaccine passports, which are based on the notion of "health paternalism," is to coerce people into accepting injections of the experimental vaccines that have been incessantly promoted by politicians, mainstream news, and unelected medical experts for many months. However, those individuals that are not persuaded to submit themselves to unwanted medical procedures by sophisticated propaganda techniques will be forced to live a "life worse than death" through the suspension of their freedom, as well as the reasonable enjoyment of their lives within their private spheres. James M. Buchanan warned about coercive government measures that abolished liberty, as he argued that state regulations designed to protect individuals based on "scientific grounds" were "highly deceiving," because the state is essentially using scientific authority to impose a single moral value on society.1 Similarly, Robert D. Tollison and Richard E. Wagner argued that allowing the state to impose regulations on the premise of protecting the health of its citizens presented "an open invitation to tomorrow’s arguments about the social cost of sugar, sunbathing, saturated fat, recreational injuries, obesity, and on and on. Down this road lies not a free society but a totally regulated society with only one acceptable lifestyle as prescribed by the health paternalists."2 Milton Friedman was also opposed to "the health paternalists," as he argued that if the government was given the responsibility to protect our health, "the logic surely calls" for protecting "us from using dangerous bicycles and cap guns, the logic calls for prohibiting still more dangerous activities such as hang-gliding, motorcycling, and skiing."3 In his own opposition to "health paternalism," Mises asked:

why limit the government’s benevolent providence to the protection of the individual’s body only? Is not the harm a man can inflict on his mind and soul even more disastrous than any bodily evils? Why not prevent him from reading bad books and seeing bad plays, from looking at bad paintings and statues and from hearing bad music?4

Vaccination passports support the idea that people can and should be coerced into making healthy choices, which would be condemned as "a form of health fascism" by Hayek, Buchanan, Friedman, Mises, and many other contributors to liberal theory across history. In fact, they would likely argue that vaccine passports eliminate freedom, because they allow an external authority to deliberately interfere in the lives of unvaccinated people in ways that prevent them from attaining their goals, and pursuing their personal interests. For instance, Hayek, Buchanan, Friedman, and Mises defined freedom as "the absence of coercion of a man by his fellow men." With that in mind, they warned that the primary danger to freedom was any form of strong central power that intervenes in the private spheres of individuals and implements policies aimed at achieving a predetermined end based on expert scientific opinion. 

Freedom from coercion, known as the negative concept of freedom ("freedom from"), was highly valued by Locke, Constant, Tocqueville, Hobbes, Bentham, Hayek, Mises, Friedman, and Buchanan, in addition to many other liberals. All of these prominent thinkers were preoccupied with answering one question: "How much am I to be governed?"5 In doing so, they were largely reacting against despotic and tyrannical rulers and governments. Proponents of the concept of negative freedom believed that ‘there should be always a frontier between public and private spheres, and that individuals should always be free to do as they please and live as they like when they are in their private spheres,’ where no one would be permitted to intervene.6 However, the implementation of vaccine passports would essentially mean that protected individual private spheres do not exist for governments and their so-called health experts. This is something that Hayek warned about when he argued that coercion would "be much more common" if there were no protected private spheres.7

Based on the concept of freedom advocated by Hayek, Buchanan, Friedman, and Mises, vaccine passports also violate economic freedom, which basically refers to the freedom to consume, produce, exchange, and cooperate spontaneously and voluntarily. They believed that "if one abolishes man’s freedom to determine his own consumption, one takes all freedoms away."8 In other words, if coercive state actions violated or abolished economic freedom, then general freedom would essentially be taken away from individuals, including freedom of speech, freedom of expression, freedom of religion, freedom of assembly, freedom of the press, and intellectual freedom.

The concept of freedom defended by Hayek, Buchanan, Mises, and Friedman aimed to safeguard "the maximum degree of freedom for each individual separately that is compatible with one man’s freedom not interfering with other men’s freedom."9 For them, a wider the area of non-interference and a broader the range of choices available to individuals corresponded to a greater degree of freedom. On countless occasions, these prominent liberals warned that in order to have freedom, the coercive power of any entity had to be limited, especially that of the government. They had faith that the legal system would be enough to avoid heading down "the road to serfdom" (road to unfreedom) by preventing state authorities from possessing unlimited powers that they could use to coerce as they please. However, since the onset of the pandemic, legal systems in country after country have failed to safeguard the private spheres of individuals from interference or coercion on the part of the state.

During this pandemic, much of the world has been subjected to the sudden and rapid implementation of poorly thought-out rules and policies, based on the incompetent and inexperienced central planning and design of the state. These decisions were often made by consulting only a handful of medical advisors who are not trained in areas like political science, economics, sociology, finance, history, demographics, psychology, philosophy, ethics, anthropology, and law, all of which offer important considerations for decisions that affect the whole society and the common good. In essence, politicians, in cooperation with their unelected health advisors, have managed to gain control over entire societies and reshape them in a failed effort to achieve the common good, while disregarding centuries of progress made by prominent liberal thinkers when it comes to protecting the rights and freedoms of individuals. Now, these same politicians are determined to impose vaccine passports, which will vastly expand oppressive state powers, while marginalizing unvaccinated people by suppressing their rights and freedoms, and robbing them of their ability to achieve happiness and self-development. Moreover, these oppressive governments and leaders that are pushing for vaccine passports will not forewarn those people who do not want to be injected with experimental substances about what awaits them:

You will think like me or die; he says: You are free not to think as I do; your life, your goods, everything remains with you; but from this day on you are a stranger among us. You will keep your privileges as a citizen, but they will become useless to you. If you aspire to be the choice of your fellow citizens, they will not choose you, and if you ask only for their esteem, they will still pretend to refuse it to you. You will remain among men, but you will lose your rights to humanity. When you approach your fellows, they will flee from you like an impure being. And those who believe in your innocence, even they will abandon you, for people would flee from them in turn. Go in peace; I spare your life, but I leave you a life worse than death.10

  • 1. Buchanan, James M. 1986. ‘Politics and Meddlesome Preferences.’ In Smoking and Society, ed. Robert D. Tollison, 335–342. Toronto: Lexington Books, pp. 341.
  • 2. Tollison, Robert D., and Richard E. Wagner. 1992. The Economics of Smoking. London: Kluwer Academic Publishers, pp. X.
  • 3. Friedman, Milton, and Friedman, R.D. 1990 [1980]. Free to Choose: A Personal Statement. New York: Harcourt Brace Jovanovich, pp. 227.
  • 4. Mises, Ludwig von. 1998 [1949]. Human Action: A Treatise on Economics. Auburn: The Ludwig von Mises Institute, pp.729.
  • 5. Berlin, Isaiah. 2002 [1969]. Incorporating Four Essays on Liberty. Edited by H. Hardy. Oxford: Oxford University Press, pp.39.
  • 6. Filip, Birsen. 2020. The Rise of Neo-liberalism and the Decline of Freedom. (Part of the Palgrave Insights into Apocalypse Economics book series). Cham: Palgrave Macmillan, pp.40.
  • 7. Hayek, F. A. 2011 [1960]. The Constitution of Liberty: The Definitive Edition. Ed. Ronald Hamowy. Chicago: The University of Chicago Press, pp.206.
  • 8. Mises, Ludwig von. 1998 [1949]. Human Action: A Treatise on Economics. Auburn: The Ludwig von Mises Institute, pp. 729.
  • 9. Filip, Birsen. 2020. The Rise of Neo-liberalism and the Decline of Freedom. (Part of the Palgrave Insights into Apocalypse Economics book series). Cham: Palgrave Macmillan, pp.43.
  • 10. Tocqueville, Alexis de. 2010 [1835]. Democracy in America: Historical-Critical Edition of De la démocratie en Amérique, vol. 2. Ed. Eduardo Nolla, translated from the French by James T. Schleifer. A Bilingual French-English editions. Indianapolis: Liberty Fund, pp.97.
Categories: Current Affairs

Vaccine Passports Are Just a Way for the Regime to Expand Its Power

Fri, 14/05/2021 - 20:00

Advocates for vaccine passports are a bit like abusive husbands. They say they want to be nice to you. But you keep screwing up and refusing to take your vaccines. So now you're forcing them to keep you locked down forever. 

Original Article: "Vaccine Passports Are Just a Way for the Regime to Expand Its Power"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.


Categories: Current Affairs

America's Corporate Thought Police

Fri, 14/05/2021 - 17:00

In my column last week, I said that Senator Josh Hawley’s book The Tyranny of Big Tech raises important issues, and I’d like this week to go into one of these. He notes that Facebook, Amazon, Twitter, YouTube, and Google Search have immense influence on the news and political opinions people see.

As he points out, the

tech platforms are destroying Americans’ control over their lives … by manipulating what news Americans can see and influencing the political decisions they make. By 2019, Facebook was boasting it could change election outcomes…. In the days leading up to the 2020 presidential vote, Facebook and Twitter seemed determined to try. Both platforms censored the distribution of a New York Post report detailing illicit foreign profits by Joe Biden’s son, Hunter, and alleging Joe Biden’s potential involvement. The platforms suppressed the story until after the election was over. (p. 7)

Here is an example of censorship I experienced myself. Sometime ago, I tried to send a link using Facebook to an article by Gordon Tullock, “Hobson’s Imperialism” (Modern Age, 1963). Although I tried to send the link in a private message, the message did not go through. The problem was that my link was to an index run by Ron Unz, who holds controversial views that make him a “nonperson” to Facebook. His index is just that, an index, and doesn’t contain political views. But the very mention of his name in a link is sufficient to block a message.

The media giants operate on a premise that, if true, would make their acts of suppression reasonable. The premise is that certain opinions, if widely held, can cause great damage and that people cannot be trusted to judge these opinions for themselves. A wise elite must protect us from these opinions.

To return to an example mentioned last week, suppose that you would like to study whether wearing masks helps prevent the spread of covid-19. Tom Woods had an excellent YouTube video arguing that it doesn’t. YouTube took it down, and now people are now longer able to listen to his case and make up their own minds about it.

The censors reason in this way. If people see the video, they may be convinced by it and, as a result, stop wearing masks. But Woods, they think, is wrong: wearing masks is beneficial. His talk may thus have bad consequences and should be suppressed.

What is wrong with this reasoning? Obviously, if Woods is right, then if people listen to him, this will have good consequences. People will be reluctant to wear masks and this will help free us from a petty tyranny that blights our lives. But suppose, contrary to fact, that Woods were wrong. That is, suppose that wearing masks did help save lives. Then wouldn’t YouTube have done the right thing in taking down his video?

I do not think so. Shouldn’t people be free to evaluate for themselves conflicting opinions on controversial issues? That, at any rate, is the assumption on which a free society is based. In response, it might be urged that people lack the ability to do so, either because they are stupid or because they do not have the expert knowledge needed to make accurate judgments. The implicit premise of the censors is that because ordinary people do not have the ability to evaluate arguments for themselves, they must be guided by their betters to do so.

On what basis do the censors claim that ordinary people are too stupid to be able to see their way through controversial issues without expert guidance? Often, the support for the premise is that people by themselves arrive at conclusions the experts think are wrong. People who saw the video might because of their stupidity throw their masks away. And what shows they are stupid? The very fact that they find convincing the arguments against masks. This blatantly begs the question.

But aren’t the censors right that some issues cannot be judged properly without expert knowledge? That is true, but this just pushes matters back one step. Why can’t people be trusted to figure out for themselves who count as real experts? Further, it is vitally important to bear in mind that the judgments of the alleged experts on political issues to whom the media giants appeal at least in part reflect their own values, which often differ greatly from those of the public. Most people, it is safe to think, wish to retain their liberty and resent intrusions on it. Those who wore masks did so because they thought this a regrettable necessity. Dr. Anthony Fauci appears to think freedom of little value, though he does not himself observe the restrictions he endeavors to foist on others.

Unfortunately, wearing masks is but one of many instances of suppression by the media giants. If you attempt to post on Facebook videos critical of the view that “climate change” requires drastic action to deindustrialize the American economy, you will not be permitted to do so. If you search for “climate change,” you will be directed to the “Climate Science Information Center.” Here you will learn, among other things, that “the cause of climate change is widely agreed upon in the scientific community.” You will not be surprised to learn that global warming is “human-caused.” Disagreement among qualified scientists about this alleged fact is a myth. One might view this assertion with more confidence were it not the case that those experts who do dissent are censored and attacked. First you suppress the experts who reject your views; next you support your views by pointing out that those whom you haven’t suppressed agree with you. This is not altogether convincing.

The critics of the advertising algorithms whom I talked about in my article last week usually have very different political views from the supporters of masks and “climate change” activism mentioned in the present article. But both groups fall into a common pattern: they assume that people cannot judge for themselves. Thus, from one side, the purveyors of the algorithms must be stopped; from the other, people must not be exposed to the “wrong” opinions.

Though it is a digression, I’ll mention one topic that came up in the comments on my article of last week. Some people adduced as a point in support of their critical view of the algorithms that if you spend a great deal of time on Facebook or on your phone, changes in your brain will result. The insinuation was that if this is so, you are being manipulated and that such attacks on your brain need to be curtailed. Though the matter merits much more discussion than I’m giving it here, the point about brain changes is trivial and doesn’t lend support to demands for suppression. Whenever you think or feel, something is changing in your brain. To call attention to this is insufficient to show that something sinister is going on.

To return to our main topic. We ought to reject the claim that ordinary people need to be protected in forming their opinions, from whatever source this claim comes.

Categories: Current Affairs

Three Reasons Why the Biden Tax Increase Makes No Sense

Fri, 14/05/2021 - 16:00

Biden’s tax increase plan does not make sense from a growth, revenue, or deficit perspective, and it does virtually nothing to address the real problem: ballooning spending on programs like Social Security.

Original Article: "Three Reasons Why the Biden Tax Increase Makes No Sense"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.


Categories: Current Affairs

What Happened When These "Neoliberal" European Countries Tried Low Taxes and Low Regulation

Fri, 14/05/2021 - 12:00

Democratic socialists frequently laud the Nordic countries as examples of the success of progressive taxation, generous welfare states, and powerful labor unions. Free marketers have responded by pointing out that not only did these countries get rich long before these policies were implemented, but they also have as much regulatory flexibility as the United States, according to World Bank data. However, we should also point to countries that embraced so-called neoliberalism as a means to getting richer and reducing poverty. It turns out that this strategy has been proven to work and these areas of Europe have living standards that are just as high, if not higher, than that of the Nordics. Here, we’ll look at three examples.


The World Economic Forum is famous for its belief in “resetting“ capitalism to accomplish the aim of ”[s]teering the market towards fairer outcomes, bearing in mind environmental and social risks and opportunities and not just focusing on short term financial profits.” However, annually, they present the Global Competitiveness Index. It aims to discover the most economically developed and productive countries on Earth, in terms of infrastructure, education, and public health. This composite index has twelve main pillars: the two most relevant ones for our purposes are the first and seventh pillars, “institutions” and “labor market efficiency.” Within each pillar, there are smaller subcomponents. Under institutions, are included factors such as “property rights,” “burden of government regulation,” and “wastefulness of government spending,” while labor market efficiency includes ”effect of taxation on incentives to work.”

One can easily use the WEF’s data to demonstrate that the world’s most prosperous countries are market oriented and proenterprise. Here, our example is Luxembourg. According to the Pew Research Center, somebody on a low income in Luxembourg is richer than a lower-income person in any other Western country (the Nordics included), and moreover, the country can boast about having the second-strongest middle class in the world and the highest median household income in the world. Unfortunately, Pew Research Center does not define the income percentile boundaries of each category. However, for more perspective, information from Eurostat shows that as of 2019 the bottom 10 percent in Luxembourg is the fourth-richest in Europe.

What explains this? Does the Luxembourgish government spend vast amounts on welfare? While social spending is slightly above the Organisation for Economoic Co-operation and Development average at 21.6 percent of GDP, Luxembourg remains below many of its neighbors. In fact, tax take is 33.8 percent of the Luxembourgish economy, much below the average—many even consider Luxembourg to be a tax haven. Due to favorable property, corporate, and capital tax rates, they rank fifth on the Tax Competitiveness Index.

Here’s where the WEF’s data become relevant. Admittedly, Luxembourg ranks low in terms of the ease of starting up a business; however, in the burden of government regulation on business (referring to how free an enterprise is from red tape), they rank ninth; on property rights, they rank fifth; on “intellectual property protection,” they rank third; on “effects of taxation on incentives to work,” they rank tenth; on “effects of taxation on incentives to invest,” they rank eighth; and on “total taxes as percentage of profits,” they rank twelfth. By these metrics, Luxembourg is a definite free market economy. Luxembourg has a long history of embracing economic freedom. Between 1970 and 2001, they consistently occupied the top ten places on the Fraser Institute’s Index of Economic Freedom.

Ludwig von Mises taught us that marginal labor productivity, and hence wages, are determined by the ease with which businesses can invest in and accumulate capital—free of red tape, taxation, bureaucracy, government debt, and inflation. Luxembourg’s business-friendly environment explains why it has the most productive workers in the world. Hence, the poor in Luxembourg have, by international standards, a very high standard of living.


Switzerland sits with Luxembourg at the top of the WEF’s market-oriented categories. On property rights, they rank third, twelfth on the burden of government regulation on businesses, and tenth on the effects of taxation on work incentives (they rank highly on the rest of the metrics I’ve used. I’m not cherry-picking data). They sit just in front of Luxembourg on the Tax Competitiveness Index, at fourth place.

The country is also known for its fiscal discipline; in 2001, 85 percent of Swiss voters voted for a “debt brake,” which essentially requires the government to spend money in concordance with revenue growth. Since the law went into effect in 2003, debt as a percentage of the Swiss economy has declined from 60 percent to 41 percent today.

Switzerland’s emphasis on direct democracy means that government money must be spent efficiently and prudently. One study found that direct democratization in the Swiss cantons (the equivalent of states or congressional districts) lowered welfare spending by 19 percent on average. Swiss voters clearly have a level of rationality which most politicians elsewhere would be terrified of. For instance, in a 2012 referendum, two-thirds of voters rejected a proposal to extend the country’s mandated annual leave, which “could have added 6 billion Swiss francs (5 billion euros, $6.52 billion) to employers’ labor costs, according to the Swiss Union of Arts and Crafts (SGV), which represents around 300,000 businesses.”

Switzerland’s overall tax take (28.5 percent of GDP) is one of the lowest in the OECD, and its social expenditure is 16.7 percent, far below its partners.

Yet, far from what the socialist economic model would predict, the poorest 10 percent in Switzerland are the third-richest in Europe.

Similarly to Luxembourg, Swiss labor productivity is incredibly high; the third-highest in the world. Taxes and red tape are low and, being the most globalized country on earth, foreign capital, technology, and investment have easy access to Swiss markets. That being said, the Swiss economy has been stagnating in recent years. In 2020, unemployment reached an all-time high—an unbearable 4.85 percent. Clearly, this suggests that low taxes and flexible labor market regulation can mitigate the impact of recession/economic stagnation.


Ireland was not always an eager free market economy. In 1970, ridden by deep political and religious conflict, Ireland had a rating of 6.55 on the Fraser Institute’s Index of Economic Freedom, at an unimpressive nineteenth place. Thus, in 1980 Ireland’s per capita income was lower than that of every nameable Western European countryits unemployment rate was above 12 percent; inflation roared away at 20 percent.

However, the government began to make reforms: taxes and spending were cut, and since 1980, Ireland’s economic freedom rating has risen by 22 percent. Today, Ireland is famous for its 12.5 percent corporate tax rate and its attractiveness to businessesTax take is only 22.7 percent of the Irish economy, and social expenditure is a miniscule 13.4 percent. While below the two other countries we have examined, Ireland still ranks highly in terms of protections of property rights, regulatory flexibility, and tax rates on profits.

Many argue that Ireland’s prosperity arose only due to vast welfare transfers from the European Union. However, one study indicates that this position is flawed. Firstly, it points out, these transfers subsidized farming businesses. While they raised the incomes of rural communities, they discouraged migration to urban areas, where such people would inevitably have been more productive. Hence, the transfers were an impediment, not a boon, to economic growth. Secondly, the study points out, while growth rates in Ireland have increased, EU subsidies have actually diminished:

Ireland began receiving subsidies after joining the European community in 1973. Net receipts from the EU averaged 3 percent of GDP during the period of rapid growth (1995–2000), but during the low growth period (1973–1986) they averaged 4 percent of GDP. In absolute terms, net receipts were at about the same level in 2001 as they were in 1985. Throughout the 1990s Ireland’s payments to the EU budget steadily increased from 359 million Euro in 1990, to 1,527 million Euro in 2000. Yet, in 2000, the receipts in from the EU were 2,488 million Euro, less than the 1991 level of 2,798 million Euro.

Thirdly, the study indicates, if subsidies could explain Ireland’s growth spurt since the 1990s, we’d expect other countries which also receive significant EU payments to exhibit similar levels of prosperity. This, however, is simply not the case: “EU Structural and Cohesion Funds represented 4 percent of Greek, 2.3 percent of Spanish, and 3.8 percent of Portuguese GDP. None of these countries achieved anywhere near the rate of growth the Irish economy experienced. Spain averaged 2.5 percent GDP growth, while Portugal averaged 2.6 and Greece averaged only 2.2 percent growth from 1990–2000.” Thus, free markets, not EU investment, spurred Ireland’s prosperity.

By American standards, Ireland is still a relatively poor country. However, since economic liberalization, Ireland has made tremendous progress in reducing poverty and raising incomes through economic growth. For example, one study (p. 34) found that absolute poverty declined from 50 percent in 1993 to 20 percent in 2000 (a reduction more substantial than in every Nordic country). To reduce the poverty rate by 60 percent in seven short years is truly impressive. According to the Pew Research Center, between 1990 and 2010, the incomes of the low-income category rose by 73 percent (overall, median income has grown by 70 percent). This is further corroborated by Eurostat data, for since 2011 alone, the incomes of the poorest 10 percent of Irelanders have risen by a third.


Progressives use the Nordic countries as examples of successful socialist systems. While this simply isn’t the case, free marketers ought to use these three countries—Luxembourg, Switzerland, and Ireland—to show that it is not necessarily welfare spending and redistribution which raise the standing of the poorest. Rather, it is economic growth, productivity gains, entrepreneurship, and property rights which enrich the poorest among us.

Categories: Current Affairs

The US Government Is On Track to Top Last Year's Record-Breaking Deficits

Fri, 14/05/2021 - 00:30

The Treasury department has issued its spending and revenue report for April 2021, and it’s clear the US government is headed toward another record-breaking year for deficits.

According to the report, the US federal government collected $439.2 billion in revenue during April 2021, which was a sizable improvement over April 2020 and over March 2021. Indeed, April 2021’s revenue total was the largest since July of last year when the federal government collected 563.5 billion following several months of delays on tax filing deadlines beyond the usual April 15 deadline. (Not surprisingly, in most years, April tends to be the federal government’s biggest month for tax collections.)

In spite of April’s haul, however, the federal government managed to spend much more than that, with spending topping $664 billion during April. This means the federal government ran a sizable deficit in April of 225.6 billion. This was a middling sum compared to other monthly deficits this fiscal year (which began on October 1), but deficits are adding up fast.

For the first seven months of this fiscal year combined, the US government collected $2.1 trillion in revenue, yet it spend nearly twice as much: $4.1 trillion, or 90 percent more than it collected.

Put another way: for the first seven months of this fiscal year (2021), the total deficit already totals $1.9 trillion. During the same period of last year, this total was $1.5 trillion. 

For the first seven months of each year going back to 2000, even if adjusted for inflation, we see that 2020 and 2021 ran much larger deficits even than was the case during the Bush-Obama spending spree kicked off in late 2008 and peaking in 2011.


With five months left to go in the fiscal year, and with the deficit already approaching 2 trillion, it won’t take more than Biden’s $2 trillion infrastructure bill to ensure that 2021’s deficit soars to new record-breaking levels. That is, the US on course to beat last year’s full-year deficit by the time this fiscal year comes to an end.

In the second graph, we see that the full-year deficit for the 2020 fiscal year was a record-breaking 3.1 trillion. This was far in excess of any previous year, even adjusted for inflation. During 2009, for example, the deficit reached “only” $1.4 trillion.


The total national debt is now approaching $30 trillion, and was $27.7 trillion at the end of the fourth quarter of 2020. Taken as a percentage of GDP, the debt is now exceeding even the extraordinary levels reached during the Second World War, making the current fiscal crisis the largest one, proportionally, to have ever occurred during peace time. In terms of annual deficits, only three years in American history exceeded 2020’s deficit as a percentage of GDP: 1943, 1944, and 1945.

The administration has yet to even begin talking about scaling back these astronomical spending levels. This is partly due to the fact that April’s jobs report was such a disappointment. In spite of predictions of over a million new jobs, the actual estimate came in around 266,000. As I noted in an article last week, a lack of new hires is due partly to the fact that more than nine million American workers are collecting some form of unemployment insurance payment. But that’s not all. Over the past year, 4 million workers have left the labor force altogether for a variety of reasons, and they’re not actively looking for work.

To some this might suggest it is time to scale back unemployment payments, but the Biden administration used the job figures to justify additional spending, claiming “we’ve got work to do.”  What he means is: “we need to spend more money.”

These record-breaking deficits are also likely to mean more monetization of debt. Last March, after several months of some small declines in the size of its portfolio, the Fed again began buying up Treasuries and other assets to inject liquidity into the financial sector yet again. The Fed was already sitting on $4 trillion in assets in early 2020, but by June, total assets had skyrocketed to $7 trillion. Much of this was Treasuries, since as Bloomberg reports: 

When the Fed began buying Treasuries in March 2020 to calm the market during the pandemic panic, it targeted the sectors that were under the most stress, in quantities as large as $75 billion a day. By June, the program stabilized at $80 billion a month...

In other words, the debt is being converted to cash. Needless to say, these purchases are badly needed not just to "calm the market" and keep hedge funds and bankers liquid. The purchases are part of an essential game to augment demand for Treasuries, and thus keep interest rates low so the US government doesn't face an explosion of its total costs for debt service.  In 2020, the US spent approximately $350 billion on interest payments. (For context, the budget for all veterans' benefits is about $250 billion.) This number is only going to go up and consume more and more of the federal budget. Moreover, if interest rates go up, interest payments will increase even faster than the total debt. 

Since January, the yield on the 10year Treasury has increased 50 percent from approximately 1 percent to 1.5 percent.  If this trend continues, the US taxpayer will be on the hook for big increases in interest payments which will have to come out of other areas of the budget, or by printing more money which will only further devalue the dollar. 

There's no easy solution, and this is why those old-fashioned, fuddy-duddy economists have been warning against runaway spending for years. Eventually the taxpayers have to pay for it, either through a ruined currency, or by slashing government spending in other areas. Or through tax increases. But for now, politicians will keep kicking that can down the road, and hope they can blame someone else when the reality becomes undeniable. 

Categories: Current Affairs

The Fed Embraces Its Inner Zimbabwean

Thu, 13/05/2021 - 20:00

With Jerome Powell and Janet Yellen focusing on using monetary policy to manage climate change, the M1 money supply has gone parabolic, from just over $4 trillion in February to $18.6 trillion in March. This is right out of Zimbabwe's playbook.

Original Article: "The Fed Embraces Its Inner Zimbabwean"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.


Categories: Current Affairs

There's No Reprieve in Sight from the "Monetary Repression Tax"

Thu, 13/05/2021 - 17:00

Who has heard of the monetary repression tax (MRT)? 

Very few, it seems, judging by the lack of popular anger. Yet revenues from this tax have swollen under the 2 percent inflation standard. They are now set to reach a new record level as the pandemic recedes, with guesstimates for the US alone this year around $600 billion.

There is nothing new in a fiat money central bank imposing an effective tax on the public’s holdings of government bonds and bills (including those in the banking system) by manipulating interest rates to artificially low levels, especially in real terms. Until the twenty-first century, however, no one thought this could continue for long without triggering some combination of accelerating consumer price inflation and a nonsustainable, highly speculative economic boom.

We have learnt in the long cyclical expansion which started in 2009 (later in Europe), interrupted recently by a pandemic spasm, that virulent monetary inflation (of which a key driver is interest rate manipulation) can coexist with “lowflation,” a persistent absence of economic boom and a continuous powerful asset inflation. Indeed, the high speculative temperatures in asset markets, far from triggering any monetary response, facilitate the vast collection of MRT. Many individuals are convinced that they can avoid MRT by using their skills to make persistent capital gains across a wide range of assets.

Toward understanding MRT, let’s take a step back to, first, some definitions and, second, a setting of historical context.

Cumulative collections of monetary repression tax correspond to the amount by which interest income in real terms from safe assets (in nominal terms) like government paper is below what it would be under a sound money regime. 

We should distinguish MRT from the better-known inflation tax. MRT includes first the windfall loss in real terms which holders of government bonds suffer from an unexpected surge in consumer price inflation and, second, the erosion in real value of non-interest-bearing high-powered money (today mainly banknotes) as caused by continuous inflation.

As far back as the Roaring Twenties we can identify an embryo of the potential for the levying of MRT. The presence of powerful nonmonetary forces of disinflation—rapid productivity growth stemming from the Second Industrial Revolution plus commodity glut—meant that the Fed could manipulate rates downward in pursuance of stable prices (as against an episode of falling prices, which would have occurred under a sound money regime). But emergence of a colossal speculative economic boom in the US and, most of all, the Weimar Republic (essentially part of the dollar zone from 1924) meant there could be no steady state of asset inflation and stable consumer prices. In any case, with federal government debt then below 30 percent of GDP, the US government had no interest in collecting MRT. Herbert Hoover (elected president in November 1928) was a vocal critic of speculative frenzy on Wall Street and of how the Federal Reserve under Benjamin Strong had stimulated this.

Fast-forward to the early 2000s. Already from 1997 onward, the Fed had started the process of joining the 2 percent inflation standard, at a time of rapid productivity growth related to the IT revolution that fueled asset inflation. Amid the contemporary federal government budget surpluses, there was no thought of monetary taxation. Briefly in 2000, the Fed ceased its rate manipulations in response to a small late spurt of consumer prices above target.

Then, in the aftermath of a very mild recession (since revised away by the statisticians), the Bush administration pressed ahead with huge unfunded tax cuts. The Fed, with its newly appointed star from Princeton as governor and its chair seeking a new term extension, obliged by manipulating rates downward. MRT was born in 2002–04 amid powerful asset inflation. Even despite powerful nonmonetary forces of disinflation including globalization and digitalization, consumer price inflation rose above target in 2005–06 against the background of a growingly speculative global economic boom, triggering a sharp tightening of monetary policy. Accordingly, MRT collection was aborted in the run-up to the crash and Great Recession.

It has been quite different in the long economic expansion since 2010. Massive fiscal deficits in the US, Europe, and Japan have had a counterpart in the levying of a giant monetary repression tax. Goods and services inflation did not gallop ahead again. No heady economic boom developed. Asset inflation became virulent. US president Donald Trump and Japan prime minister Shinzo Abe followed a political strategy of seeking to camouflage massive collections of MRT (especially in the US, following the big business tax cuts) by exciting popular excitement about gains in the stock market, for which they claimed credit.

The failure of consumer price inflation to accelerate despite the waning of productivity growth since the late 1990s and early 2000s—hardly surprising among growing malinvestment—is remarkable. Explanations for this failure—in fact closely related to the nonarrival of tremendous economic boom despite the manipulated interest rates—include, prominently, sclerosis of the economic system deriving from the monetary inflation.

Some households clobbered by high MRT and not under the spell of asset market gains forever boosted their savings for retirement. Investors in equities did not in general reward business for making long-gestation investments given presentiments about an eventual day of reckoning but instead chased momentum and especially the wonders of financial engineering. This meant that official and market perceptions of the so-called neutral rate of interest fell far below where they would have been under sound money.

A further factor operates in the same direction of sclerosis—the growth of monopoly power itself fueled by the asset inflation. The speculative story about a company gaining present or future monopoly power has proved to be a winner (in terms of sending particular equity values to the sky) for investors starved of interest income. The monopoly story has been a key component of the market craze about digitalization, whose features of winner take all and network effects have had great speculative appeal. The would-be monopolist gaining from an especially low cost of equity capital can eradicate competitive threats from new entrants by some combination of price cutting and preemptive takeover. The resulting loss of economic dynamism shows up in a fall of the apparent neutral interest rate.

Hence low or negative rates have not fed higher consumer price inflation and meanwhile asset inflation shows no endogenous tendency to go into reverse as might happen through falling profits rates or growing credit defaults and encounters no political resistance. In fact, we have been in a situation now for many years where high monetary repression tax co-exists with stable low consumer price inflation and persistent asset inflation. (The measure here for asset inflation is the overall degree to which price signals in capital markets are corrupted by monetary inflation).

It is plausible that the pandemic has extended the life of this stationary state for consumer price inflation and asset inflation. Whatever the buzz in the financial media, the pandemic has subtracted from economic prosperity. Absent the optical illusion of fantastic quarterly growth rates, even where an economy (such as the US) is now back to the same GDP level as on the eve of the pandemic, there has been a big loss of cumulative income along the way. Moreover, GDP during the pandemic and even now includes much expenditure related to the war against covid—not normally regarded as a component of prosperity. 

Stepped-up monetary inflation and vast issuance of government debt to finance relief payments plus other transfers could mean that individuals in aggregate across the advanced economies feel better off. If so, that is a delusion founded on disregard of the vast MRT now being paid and of other tax burdens which will surely become heavier.

These fundamentals are a headwind for private spending. We should add the potential decline ahead of business investment in the pandemic boom (or bubble?) sectors. Hence, the level of interest rates seemingly consistent with economic balance as the pandemic recedes could be lower than prepandemic. Governments and their central banks would have new scope to manipulate down rates without provoking an acceleration of consumer price inflation, collecting vast amounts of MRT under the cover of still popular asset inflation.

There are alternative scenarios, though, where the collection of MRT wanes and instead governments turn to the inflation tax. For example, suppose a further Fed “stimulus” in winter 2021/2022, implemented as a growth cycle downturn or worse emerged, failed to arrest the journey of asset inflation into asset market crash and recession. As the huge malinvestment of the past decade including the pandemic shows up as capital stock obsolescence, as government expenditure ratchets higher, and the Fed radicalizes further its conduct of monetary policy, the criers of wolf on high consumer price inflation could well prove correct.

Categories: Current Affairs

Local Nullification: A Way to Fight Both State and Federal Despots

Thu, 13/05/2021 - 16:00

Local nullification offers a practical guide to resisting tyranny in a way that reflects the real wishes of local community members against the ivory-tower mentality of their government “representatives.”

Original Article: "Local Nullification: A Way to Fight Both State and Federal Despots"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.


Categories: Current Affairs

The Dystopian Future in Which Almost No One Owns a Car

Thu, 13/05/2021 - 12:00

By this point readers are more than familiar with the previously unthinkable infringements on our traditional rights and liberties due to “health and safety” lockdowns that the state has inflicted upon us over the last year. While thankfully more and more restrictions are being lifted, it is important not to forget the period of veritable universal house arrest that was enacted in many states, in which even the freedom to go for a drive was denied to us. It unfortunately seems inevitable that we will face such scenarios again when a convenient excuse comes along, though I fear that the next time will be even worse thanks to the advent of self-driving cars.

Self-driving cars seem like a truly amazing advancement in human technology. As someone who is not particularly fond of driving, I once followed their development with great interest and hopeful anticipation. However, the advent of lockdowns as an acceptable government policy has shown just a taste of the kind of dangers that would come with their widespread adoption. While they would liberate us from many of the dangers of the road and free up time in which to work or enjoy ourselves on a ride, the price of this liberation is actually an unprecedented level of government control.

Some advocates of self-driving cars argue that their adoption would mean that very few people would actually own a vehicle anymore, and that instead everyone would basically Uber everywhere. Oftentimes such predictions are espoused by people who lament how evil American prosperity is and cringe at the thought of our car culture’s carbon footprint.

It is not difficult to see how this could go very wrong. Can you imagine how much worse government lockdowns would have been at their height last year if the state merely needed to apply pressure to Uber-like ride services to cease general operation to stop people from moving? Ride services would almost certainly be forced to require government-issued documents in order to book a ride in such a scenario, leaving the vast majority of the population completely stranded and unable to go anywhere.

Fortunately, there are many reasons to believe that without massive government intervention America is not likely to willingly let go of its deeply ingrained car culture in favor of ubiquitous Ubering.

However, even if people do own their self-driving cars, the danger remains.

Tesla is a case in point. Unlike a “traditional” car that drives off the lot and disappears into the traffic, Tesla cars are perpetually connected to the internet and Tesla itself. As the pioneer in self-driving cars, it seems likely that other manufacturers will also build around Tesla’s concept, which is itself similar to numerous other “smart appliance” trends in everything from house lighting to fridges, ovens, and washing machines. While this connectivity has great uses, such as allowing repairs to be completed remotely, the danger is obvious.

Customers have complained about having features of their Tesla being removed without their notice or authorization, prompting one reporter to remark that “if someone buys a used car with cruise control, there isn't an expectation that the manufacturer will then arrive and ask to remove it,” yet something similar has already happened. Similarly, Tesla collects vast amounts of data from its cars, which is no doubt useful and needed for continuing to improve the system and work out kinks, but it is dangerously naïve to believe that such data would remain outside the reach of the government if it wanted it.

Finally, the same danger with universal Ubering still remains. Tesla or any self-driving car that would naturally require some level of internet connection can be remotely shut down. As cool as Tesla may seem, the odds are very slim that it would defy a state order to render its fleet inoperable in the name of “public safety” or any other excuse the government may come up with.

Think back to the hysteria of last spring. You are kidding yourself if you believe that people like Governor Whitmer of Michigan wouldn’t have ordered all cars rendered inoperable until “essential workers” were granted permission to drive if such a thing had been within her power.

The picture becomes even more bleak if one thinks of the nefarious uses such control could be used for beyond “public health” lockdowns. What if our current cancel culture craziness were to continue into a death spiral that resulted in something akin to the Chinese social credit system? Such a thing seems unthinkable—“this is America,” after all. But if in 2019 we had been visited by a time traveler who told us that in a year Americans would be forbidden from leaving their homes or going to church and that businesses would be forced to close en masse, we likely would have thought such a person was crazy. Yet here we are.

It is easy to see all the benefits that would come with self-driving cars, but at the end of the day the potential for dramatically increased government control and abuse is horrifying to contemplate.

Categories: Current Affairs

Excess Mortality in The US Has Plummeted to Pre-Covid Levels

Wed, 12/05/2021 - 22:45

In any given year during the past decade in the United States, more than 2.5 million Americans have died—from all causes. The number has grown in recent years, climbing from 2.59 million in 2013 to 2.85 million in 2019. This has been due partially to the US’s aging population, and also due to rising obesity levels and drug overdoses. In fact, since 2010, growth rates in total deaths has exceeded population growth in every year.

In 2020, preliminary numbers suggest a jump of more than 17 percent in all-cause total deaths, rising from 2.85 million in 2019 to 3.35 million in 2020.

The increase was not all due to covid. At least one-quarter to one-third appear to be from other causes. In some cases, more than half of “excess deaths” were attributed to “underlying causes” other than covid. But whether due to untreated medical conditions (thanks to covid lockdowns), or drug overdoses, or homicides, total death increased in 2020. In other words, total excess mortality is a partial proxy for covid deaths. Whatever proportion of total deaths covid cases may comprise, it stands to reason that if total deaths decline, then covid deaths are declining also. Moreover, looking at total deaths helps cut through any controversies over whether or not deaths are properly attributed to covid. 

What has been the trend with these “excess deaths” in recent months?

Well, according to data through mid-March reported by Our World in Data and by the Human Mortality Database, excess mortality began to plummet in early January and is now back to levels below the 2015-2019 average:


Excess mortality peaked the week of January 3 and then it began to collapse, dropping back to summer 2020 levels by mid February. By March 14, excess mortality was at 1 percent above the 2015-2019 average. All this occurred even as very few Americans were vaccinated. When excess deaths began to drop, less than one percent of Americans had been fully vaccinated. At the end of January, less than two percent of Americans had been fully vaccinated. By the end of March, when excess mortality returned to 2019 levels, 15 percent of the population had been fully vaccinated. 

As of May 11, only one-third of Americans had been fully vaccinated, although "experts" insist 60 to 70 percent of the population must be vaccinated before we can expect to see a drop-off in deaths like that which occurred earlier this year.

Yet, as of the week of March 22—excess mortality was below both the 2015-2019 average and below the total for the last year before the official beginning of the covid pandemic (2019).


It's likely these facts won’t stop “public health” bureaucrats from continuing to insist that another “wave” of covid deaths and cases is right around the corner. These activists have many strategies for pushing vaccine passports, mask mandates, and even continual precautionary business closures. They’ll tell us that new covid variants are sweeping the globe. This is what they were saying in January, for instance, when Vox was telling us it was too dangerous to even visit the grocery store. At least one expert in late January warned us that the coming weeks would be “the darkest weeks of the pandemic.”

It’s now clear such predictions were spectacularly wrong. By late January, totals deaths were already in precipitous decline. 

But what about the lag in data? We're only looking at data up to mid-March because it tends to take several weeks for estimates of total deaths to become reasonably reliable. Yes, that data shows a big drop off. But what about the numbers for April and May? Should we expect those death totals to surge again with a promised “fourth wave” of new covid death?

If we consider the more recent case and death totals attributed to covid, we see few signs of a new surge.

Although Anthony Fauci and other government employed technocrats have been unable to provide any explanation at all for it, the fact remains that months after Texas and Florida and Georgia have either abolished or greatly scaled back all social-distancing and mask mandates, cases and deaths are generally declining, and total deaths per million (attributed to covid) remain below what we've seen in states with severe lockdowns. 


The trend in the United States overall is similar.  Indeed, it appears that nearly all states have seen sizable drops in both cases and deaths, regardless of the mask or social-distancing policies in place. 

Notably, it’s only in recent weeks that “CDC guidelines” are beginning to admit the reality. It wasn’t until April 26 that the CDC declared that fully vaccinated Americans are allowed to venture outside without masks on. The CDC states these “recommendations” unironically as if it weren’t the case that most Americans—outside of true-believer hotspots like San Francisco and Chicago—stopped wearing masks outside a long time ago. The hermetically sealed world of government employees and corporate journalists appears unaware that at least half the country pretty much went back to normal last fall. 

So now what?

The technocrats know that they need to keep pressing hard for more de facto vaccine mandates—pushed mostly by corporate America for low-risk younger populations.  Most Americans can already see that covid numbers are already in decline in spite of months of Americans flouting mask mandates and social distancing guidelines. People can see that children—an increasing number of whom are returning to schools—aren't a significant factor in the spread of disease. So it will be important for the regime to push vaccines for children more aggressively before people stop listening to the "experts" completely. 

Don't expect the regime to admit it has been wrong about anything. If anything, it will double down on the usual narrative. It's worked pretty well so far. 

Categories: Current Affairs

No, Conservatives Should Not Embrace MMT

Wed, 12/05/2021 - 20:00

Instead of trying to spin conservative justifications for disastrous monetary policy, conservatives should join libertarians and classical liberals in working to limit government power while restoring sound money and greater market freedom.

Original Article: "No, Conservatives Should Not Embrace MMT"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.


Categories: Current Affairs

Why Fungibility Is Important in Understanding Money and Crypto

Wed, 12/05/2021 - 20:00

As the decentralized revolution gains momentum and cryptocurrency adoption reaches new heights, concerns pertaining to the quality of money are too often ignored. According to a report, the number of bitcoin owners surpassed 71 million in January 2021, but how many of them are aware that bitcoin is not anonymous but rather pseudonymous, or recognize the pitfalls of embracing a currency lacking fungibility? While bitcoin’s provable scarcity signifies a return to the tenets of sound money, its creator's peer-to-peer vision ultimately falls short without fungibility, because counterparty risk is created. Bitcoin's fungibility issues come from the history that is attached to the coins. The insertion of trust into transactions by scrutinizing coin history has the potential to splinter the bitcoin network, in the process increasing fees as a result of regulatory compliance costs. More alarmingly, a transparent blockchain inevitably transforms into a surveillance chain on which reputation travels. In order to prevent censorship and protect our natural rights to privacy, a fungible currency is not a luxury, but a requirement.

Money facilitates business on the market by serving as a medium of exchange, store of value, and a unit of account. The Federal Reserve Bank of St. Louis lists six characteristics of money: durability, portability, divisibility, limited supply, uniformity, and acceptability. The latter two of these attributes are directly impacted by a currency’s fungibility.

Fungible assets at their core are interchangeable. On the nonfungible end of the spectrum are fundamentally unique assets such as real estate and artwork. Conversely, precious metals represent physical fungible assets. Gold, for example, can be melted down and swapped without complication. As noted by Menger (1892), the adoption of gold and silver as forms of money throughout history can be partially attributed to the homogeneity of these materials. In order to satisfy Berg’s (2020) fungibility criteria, “each unit of a currency, or any commodity used in a money function, should be indistinguishable from others of the same denomination,” and “an individual unit of said currency should not be reidentifiable through time and change.”

The most widely adopted digital decentralized assets designed to serve as money are bitcoin (BTC), litecoin (LTC), and bitcoin cash (BCH). All of these cryptocurrencies, however, are nonfungible in nature. Each satoshi, the smallest BTC unit, possesses an accessible history on the network’s transparent ledger. Consequently, 1 BTC ≠ 1 BTC.

Imagine selling an automobile you posted on Craigslist to a stranger who, unbeknownst to you, earned their fortune peddling contraband on the dark web. Subsequently, you attempt to deposit the proceeds of the sale, but to your surprise, your financial institution has flagged the transaction and will not accept your “tainted” bitcoin.

According to Mises (1953), “the subjective use-value of money, which coincides with its subjective exchange value, is nothing but the anticipated use-value of the things that are to be bought with it.” Economic calculations become increasingly difficult when ambiguity pervades the medium of exchange. Fungible monies maintain their purchasing power regardless of past use, thus eliminating uncertainty associated with future use. A transacting party’s faith that their money will be accepted by future counterparties ultimately is shaken without fungibility. If we go back to our Craigslist example, the automobile owner would be wise to either require additional information from the buyer or to increase the sale price to offset the risk of not being able to satisfy anticipated value propositions.

The long-term implication of this problem for bitcoin is a fracturing of the network on the basis of anti–money laundering (AML) laws. Regulations of this sort are not only designed to hinder criminal behavior and prevent terrorist financing, but have been implemented by governments to maintain tax revenue. A network split may occur strictly along a clean-dirty dichotomy or, in all likelihood, through the categorization of white, gray, and black coins. Based on the latter hypothesized taxonomy, white, or clean, coins, would be those held in custodial accounts (e.g., Coinbase, Gemini, or Binance). These exchanges employ stringent know-your-customer (KYC) requirements for their users. Gray, or questionable, coins, would be identified as cryptoassets held in noncustodial wallets, where the owner has possession of their private keys. While these privately owned addresses don’t have any direct link to illegal activities, anyone who wanted to move their gray coins onto an exchange would likely be forced to answer invasive questions about their identity and the source of funds. Lastly, any coins used on the dark web or for purchases labeled nefarious would be branded black, or dirty, coins. Coins of this sort would be immediately frozen if deposited into a regulated exchange.

Signs of a splintered bitcoin network can be seen across the globe. In overadherence to Dutch legal requirements, crypto exchange Bitstamp now requires users to provide information on their net worth, nationality, proof of residence, and source of funds prior to withdrawing. Proposed guidelines issued by the Financial Action Task Force (FATF), an influential intergovernmental body, have labeled peer-to-peer transactions between unhosted wallets higher risk. FAFT goes on to recommend enhanced recordkeeping by virtual asset service providers (VASPs) to mitigate risks when interacting with unhosted wallets. On Reddit and Twitter, there are numerous firsthand accounts of exchange bans for using mixers, which are tools designed to preserve privacy. As evidenced by these examples, gray coins are already viewed suspiciously. On the pristine end of the taxonomy, industry executives have claimed that virgin bitcoins, those freshly mined, with no transaction history, sell at a 10 to 20 percent premium. As a whole, it’s clear that cryptoassets of the same denomination are treated differently and that a hierarchy of value has emerged based on a coin’s history.

Regulatory obligations have made the identity of the medium of exchange increasingly salient. An emphasis on coin history has naturally incentivized the formation of companies capable of identifying risks (e.g., Chainalysis or CipherTrace). In many cases, though, users are branded guilty by association, as these companies apply imperfect information in constructing risk profiles for privately owned crypto addresses. If this trend continues, the salability of nonfungible currencies will suffer. In tracing the origins of money, Menger (1892) states that the population selects the most marketable good to use as a medium of exchange. This creates a reinforcing cycle that increases the demand for this type of good. Reductions in the salability of bitcoin will ultimately negatively affect its desirability and its real-world uses.

Privacy is an attribute that people tend to disregard until it’s desperately needed. Institutions have thus far clamped down on financial crimes, but the phenomenon of cancel culture and the rabid silencing of dissident voices across social media is a dangerous precedent that sets the stage for the ubiquitous refusal of financial transactions based on political or social beliefs. When currency units contain a history, financial activity can unearth the ideological leanings of its possessor. Communities under totalitarian regimes in particular are at the greatest risk in this regard.

Markets are attempting to address the issue of fungibility, however. For example, cryptocurrencies such as Monero, Zcash, and Dash all claim to provide crypto users with added layers of privacy and fungibility. Crypto users themselves will determine in the long run which currencies—if any—provide a sufficient amount of privacy and fungibility. 


Berg, A. 2020. "The Identity, Fungibility, and Anonymity of Money." Economic Papers 39, no. 2: 104–17.

Menger, Carl. 1892. "On the Origins of Money." Economic Journal 2, no. 6: 239–55.

Mises, Ludwig von. 1953. The Theory of Money and Credit. New Haven, CT: Yale University Press.

Categories: Current Affairs

The Media Wants You to Trust Washington Again Now That Trump Is Gone

Wed, 12/05/2021 - 17:00

Former CNN White House correspondent Michelle Kosinski declared on Twitter last week that American journalists would “never expect … Your own govt to lie to you, repeatedly” and “Your own govt to hide information the public has a right to know.” Kosinski denounced “Trump’s unAmerican regime” and declared, “No one should accept this.” Kosinski’s comments epitomize the “Trump-washing” of American history that explains much of the media’s rage, hypocrisy, and follies in the last five years.

Kosinski’s mindset also helps explain why Americans' trust in the media has collapsed. Kosinski spent years as CNN’s State Department correspondent, but her inside sources apparently never mentioned to her how she was helping them con the world. As history professor Leo Ribuffo observed in 1998, “Presidents have lied so much to us about foreign policy that they’ve established almost a common-law right to do so.” In 1965, Arthur Sylvester, the assistant secretary of defense for public affairs, berated a group of war correspondents in Saigon: “Look, if you think any American official is going to tell you the truth, then you’re stupid. Did you hear that? Stupid.”

A few weeks before the 9/11 attacks, New York Times columnist Flora Lewis wrote that “there will probably never be a return to the … collusion with which the media used to treat presidents, and it is just as well.” But the toppling of the World Trade Center towers made the media more craven than at any time since Vietnam. The media’s shameless deference was one of the most underreported stories of the Iraq War. Washington Post reporter Karen DeYoung admitted in 2004: "We are inevitably the mouthpiece for whatever administration is in power." PBS’s Bill Moyers noted that “of the 414 Iraq stories broadcast on NBC, ABC and CBS nightly news, from September 2002 until February 2003, almost all the stories could be traced back to sources from the White House, the Pentagon, and the State Department.” Jim Lehrer, the host of government-subsidized PBS’s NewsHour, explained his timidity in 2004: “It would have been difficult to have had debates [about invading Iraq] … you'd have had to have gone against the grain.” Lehrer explained why he and other premier journalists seemed clueless on Iraq: “The word ‘occupation,’ keep in mind, was never mentioned in the run-up to the war. It was ‘liberation’…. So as a consequence, those of us in journalism never even looked at the issue of occupation.” The elite journalists looked only where government told them to look. Former president George W. Bush’s lying America into a ruinous war has not deterred liberal media outlets from rehabilitating him as the “good Republican” in contrast to Trump.

Kowtowing is the high road to media stardom. A leak from the White House, like a touch from a saint, can instantly heal a reporter’s lame career. For many journalists, “access” is more important than truth. In DC, there is more cachet in snaring exclusive interviews with policymakers than in exposing official wrongdoing. Being invited into the inner sanctums is “close enough for government work” to learning what the feds are actually doing. New York Times columnist Paul Krugman observed, “The [George W.] Bush administration has made brilliant use of journalistic careerism. Those who wrote puff pieces about Mr. Bush and those around him have been rewarded with career-boosting access.” Knowing when to be sycophantic is as vital to career advancement as recognizing which fork to use at a Georgetown dinner party.

Is the problem that journalists don’t know history or that journalists don’t know how to read—or both? Kosinski’s assertion that American journalists would “never expect their own govt to hide information the public has a right to know” is astounding on both scores. The federal government is creating trillions of pages of new secrets every year. The more documents bureaucrats classify, the more lies politicians can tell. The Freedom of Information Act (FOIA) has become mostly a mirage. (FOIA is never mentioned in Kosinski’s Twitter feed.) After she was appointed secretary of state, Hillary Clinton effectively exempted herself from FOIA, setting up a private server to handle her official email. The State Department ignored seventeen FOIA requests for her emails prior to 2014. Prior to the 2016 election, the State Department claimed it needed seventy-five years to fully answer a FOIA request on Hillary Clinton’s aides’ emails—thereby protecting Hillary from revelations that could have hurt her with voters.

Perhaps Kosinski is unaware that the Trump-era secrecy she denounced flourished mightily thanks to the beloved Obama administration. In 2011, Obama’s Justice Department formally proposed to permit federal agencies to falsely claim that documents that Americans requested via FOIA did not exist. The Obama White House crippled FOIA responses by adding a new requirement for all federal agencies to permit the White House to review and potentially veto releases of requested FOIA documents that had “White House equities”—i.e., anything that might make the Obama administration look bad. A 2016 congressional report noted that many journalists had abandoned “the FOIA request as a tool because delays and redactions made the request process wholly useless for reporting.” My own experience, stretching back thirty years, is that federal agencies routinely presume that anyone who has publicly criticized their programs forfeits his rights under FOIA.

Kosinski never tweeted about the role of the “state secrets” doctrine in permitting the Justice Department to shroud torture, war crimes, and illegal surveillance. The state secrets doctrine presumes “government knows best, and no one else is entitled to know.” The George W. Bush administration routinely invoked “state secrets” to seek “blanket dismissal of every case challenging the constitutionality of specific, ongoing government programs,” according to a study by the Constitution Project. A federal appeals court slammed the Obama administration’s use of “state secrets” for presuming that “the judiciary should effectively cordon off all secret government actions from judicial scrutiny, immunizing the CIA and its partners from the demands and the limits of the law.” Last month, the Biden administration joined the torture secrecy hall of shame by urging a court to dismiss a lawsuit brought by an American citizen who claimed he had been tortured in Egypt, because the alleged torturer had diplomatic immunity because he works for the International Monetary Fund. (I thought the IMF was only entitled to torture economies.) As the legal fate of Julian Assange, Chelsea Manning, and John Kiriakou illustrates, telling the truth is the only war crime now recognized by the US government.

Kosinski’s assertions exemplify the new media storyline that Americans should respect Washington again now that Biden is president. But Leviathan doesn’t turn over a new leaf merely because a different hand swears an oath of office on the Bible. Lies are political weapons of mass destruction, obliterating all limits on government power. The more powerful government becomes, the more atrocities it commits and the more lies it must tell. But we can’t trust the press corps to expose any abuses that might imperil invitations to fancy receptions.

As I warned in a 2018 op-ed in The Hill, “Perhaps the biggest whopper in Washington nowadays is the assumption that the government and the political class will automatically be trustworthy once the Trump era ends…. There will still be a thousand precedents for federal coverups and duplicity. And neither political party nor the bureaucracy has shown any itch to cease deceiving the American people.” But I doubt that Kosinski read that piece or anything else that some government official didn’t hand her on a silver platter.

Categories: Current Affairs

3 Ways the Tech Oligarchs' New Subsidy Is Ripping You Off

Wed, 12/05/2021 - 16:30

Billionaire plutocrats at Apple, Google, Microsoft, Cisco, and other tech companies don’t spend all their time deciding whether or not to boycott your state or lecture you on the “correct” voting laws.  No, sometimes they have time to plot ways to rip off the taxpayers to the tune of more than 50 billion dollars.

At least, that’s what a new coalition of tech companies wants in a new effort to lobby Congress for subsidies and other “incentives” for the production of semiconductors. According to Fox Business:

The Semiconductor in America Coalition, made up of chip buyers including Amazon Web Services, Apple, Google and Microsoft, and manufacturers like American Micro Devices, Intel, Nvidia and Texas Instruments, has asked Congress to provide funding for the CHIPS for America Act, which authorized domestic chip manufacturing incentives and research initiatives.

These companies want “robust funding”—provided by taxpayers, of course—for the Act’s programs which, the Coalition says, “would help America build … additional capacity” for semiconductor production.

This new demand for cash follows last year’s passage of the CHIPS for America act which included an initial payout of $10 billion for “a new federal grant program” and new tax credits, which, unless accompanied by reductions in spending, only amount to tax increases for everyone who doesn’t receive the credit.1 The coalition also expresses its dismay over the fact that Federal “investment”—i.e., government spending—on semiconductor research has “fallen flat” as a share of GDP.

In other words, America’s tech oligarchs want to buy subsidized semiconductors, and they think regular people should pay for it all while also subsidizing research.

And, of course, no attempt at ripping off the taxpayers would be complete without an appeal to patriotism and economic nationalism.

The coalition was careful to mention that the global share of semiconductors produced in the United States has fallen over the past thirty years. The implication is that sinister foreigners are catching up to the United States in terms of semiconductor production. In other words, the subsidies are “essential for …national security.”

This is just textbook special-interest politics: large, powerful business groups are lobbying the regime to subsidize their products or inputs. This lowers the cost to these businesses while raising the cost to taxpayers and competitors.

But it raises the cost to ordinary Americans in a variety of ways that aren’t just measured in dollars. Here are some of them:

One: Malinvestment

Every time a government extracts resources from private owners via taxation, it is redistributing wealth. But this redistribution doesn’t occur according to the wishes of consumers—i.e., market allocation. Rather, these resources are now doled out according to the wishes of government planners and pressure groups.

This redirection of resources away from market allocation inflates prices in some areas, while depressing prices in others. It creates bubbles in “demand” for certain products and services as generated by the arbitrary purchasing decisions of government bureaucrats.

In the case of the semiconductor subsidy scheme, labor and capital are redistributed by government planners to the semiconductor industry, even if a functioning marketplace would have put those resources elsewhere. The “seen” effect is that more semiconductors are built. The “unseen” is the countless important and in-demand products and services that won’t be provided in the marketplace. 

Two: Reduction in Consumer Choice

Politically, the entire scheme rests on the assumption that the consumers aren’t to be trusted with their own money, and their money must be spent in the “correct” places by government agents. That is, every subsidy, tariff, tax, or money-printing scheme requires that regular people hand over a portion of their own wealth to bureaucrats to put it in the "right" places.

In the case of the semi-conductor subsidy, the tech plutocrats worry that a “shortage” of semiconductors will cause the prices of various tech products and services to increase. As a result, it stands to reason that consumers may spend less money on those products and services. This could impact the tech sector's revenue and profits. 

Consumers ought to be free to change their spending habits, of course, and they ought to be able to re-arrange their spending so as to fit their own personal budgets and desires.

But the oligarchs and bureaucrats don’t like that sort of thing, and they don’t like the consumer having the freedom to simply spend less in the tech sector. They found a way to protect their revenue and profits: simply force consumers to spend in the tech sector whether they want to or not. 

So, the regime forcibly redistributes’ the consumers resources. This represents a loss of consumer “welfare," which we can define as the consumer engaging in voluntary market action to increase his own welfare according to his own individual valuations. The oligarchs want to reduce this welfare in order to increase the oligarchs’ welfare. It’s as simple as that.

Three: Reduced Competitiveness for Other Sectors and Businesses

The situation is more complex than just a transfer of cash from taxpayers to certain subsidized industries.

When the regime subsidizes a particular industry, business, or sector, this results in an increase in prices for competing businesses and industries. For example, if the regime decides to subsidize semiconductor makers, these firms will then have more resources to bid up the wages they pay, and the prices they pay for various resources necessary for production. This means that firms in other sectors now must compete more heavily for labor and raw materials or any other factor that the semiconductor industry is now buying up in larger amounts. 

This is especially repugnant in the case of the semiconductor scheme because most of the large tech firms in question have already been indirectly subsidized for years through the Fed’s financialization efforts, and especially in the form of the Greenspan put. This has served to inflate stock prices in the tech sector and has benefited large publicly-traded firms over smaller firms that have not been able to count on the Fed to have their back.

In other words, the semiconductor subsidy is just the latest part of a scheme to stack the deck against small business owners, employees, and customers. 

We Learn Economics to Learn How They're Ripping Us Off

One can easily guess what the defenders of this latest subsidy will say. They're likely to claim that it just amounts to a small amount per household: "What's 50 billion dollars spread across so many households?" Of course, this is what advocates for tax increases, tariffs, and subsidies always say: "Just give us this one new, teeny-tiny tax/subsidy. It's not a big deal!" But if we add up all the government schemes this claim has been used to justify, we get a pretty "big deal," indeed. Moreover, as we've seen above, the real cost in terms of economic distortions, lost welfare, and harm to competitors, is quite real and beyond the dollar amounts we see in the subsidy itself. 

  • 1. Although tax credits are not "subsidies" per se, they are anti-competitive and amount to the regime picking winners and losers. In an environment of deficit spending and monetization of debt—an environment we now live in—a tax credit for one firm or group of firms amounts to putting a larger tax burden on all other firms as monetary inflation and deficit spending are employed to keep spending high in the face of lost revenue via tax credits. Thus, tax credits for the semiconductor industry are a way to shift the tax burden to competitors. 
Categories: Current Affairs

Tobacco Smokers: America's Most Persecuted Minority

Wed, 12/05/2021 - 16:00

If today they come for the smoker, tomorrow they will come for you. Neo-Prohibitionism has been long on the march.

Original Article: "Tobacco Smokers: America's Most Persecuted Minority​"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.


Categories: Current Affairs


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