Blogroll Category: Current Affairs

I read blogs, as well as write one. The 'blogroll' on this site reproduces some posts from some of the people I enjoy reading. There are currently 435 posts from the category 'Current Affairs.'

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Do Public Unions Make Police More Dangerous?

Mises Institute - 2 hours 26 min ago
By: Tate Fegley

Of all the factors that contribute to police brutality and misconduct, one that has been relatively neglected but has received a growing amount of attention is police unions. Their influence became harder to ignore after all of the anecdotes of police unions making it more difficult to investigate and discipline misconduct.

Notable examples include Pittsburgh officer Paul Abel, who, after being sucker-punched through his car window while driving under the influence, took off in pursuit of whom he thought had punched him, pistol-whipped him and accidentally shot him in the hand while doing so. He was fired but later reinstated through arbitration as allowed by his union contract. Oakland officer Hector Jimenez shot and killed two unarmed men on separate occasions, one of them in the back. Even though Oakland paid a $650,000 settlement and Jimenez was fired, he was reinstated by an arbitrator, who also decided he should be given back pay. The Baltimore officers involved in the killing of Freddie Gray, according to Maryland’s Law Enforcement Officer Bill of Rights which unions successfully lobbied for, could not be interrogated in the five business days after the death occurred. Obviously, this is very different from how any non-police officer is treated in the course of a homicide investigation.

While these stories may be anecdotal, more systematic research is supporting the idea that police unions contribute to greater amounts of officer misconduct. Earlier this month, Dhammika Dharmapala, Richard McAdams, and John Rappaport of the University of Chicago Law School provided an early draft of their research suggesting that collective bargaining among police agencies is associated with increases in the number of citizen complaints.

They exploited a legal change in Florida that provided a natural quasi-experiment to measure the effect that allowing collective bargaining among policing agencies has on complaints against the police, among other things. Prior to 2003, sheriff’s deputies (but not municipal police officers) in Florida were prohibited from engaging in collective bargaining, as they were considered appointees rather than employees. This changed with Coastal Florida Police Benevolent Association v. Williams, where the court decided that sheriff’s deputies do have the right to engage in collective bargaining, any prior statute or legal decision notwithstanding. Thus, Dharmapala et al. had a treatment group (sheriff’s offices) that was affected by this legal change to compare with a control group (police departments) that was not affected.

The Williams decision led to substantial unionization among sheriff’s offices within three years, after which it stabilized. Using a difference-in-difference estimation lagged for three years and controlling for agency and year fixed effects, as well as an extensive set of other controls, Dharmapala et al. found that collective bargaining rights led the typical sheriff’s office to have a 27% increase in the number of complaints received.

The magnitude of this result is notable, given that Florida has a Law Enforcement Officer’s Bill of Rights (LEOBOR), which already provided substantial protections to sheriff’s deputies, and Florida is a right-to-work state, thus requiring unions to rely on voluntary dues from members. Florida’s LEOBOR provides officers and sheriff’s deputies a number of protections, including a 180-day statute of limitations on internal affairs investigations, a requirement that officers be provided all of the evidence against them prior to an interrogation, delays such interrogations until all other witnesses have been interviewed, limits the number of interrogators to one, prohibits that interrogator from using “offensive language” or threats of discipline or promise of reward, and prohibits civilian participation on complaint review boards. With such privileges, how can collective bargaining have such a large effect on misconduct?

Dharmapala et al. suggest that a possible causal mechanism is that some of Florida’s sheriff’s offices’ collective bargaining agreements go beyond Florida’s LEOBOR by providing sheriff’s deputies the ability to appeal disciplinary action to an arbitrator, thus decreasing management’s ability to discipline officers. As well, some collective bargaining agreements require that disciplinary records be expunged after a certain amount of time. This can be crucial, as arbitrators consider an officer’s work history when making their decisions on whether to uphold or overturn disciplinary actions.

Given the anecdotal evidence we have seen regarding the ability of arbitrators to allow police officers with demonstrably questionable decision-making ability to keep their jobs, perhaps it should not be surprising that they found collective bargaining agreements to have such a large effect. Those hoping to reform policing ought to keep this in mind. 

Categories: Current Affairs

IVF is the final frontier of capitalism?

Adam Smith Institute - 7 hours 25 min ago

It is possible, we suppose - if you squint very hard and define yourself carefully - to insist that in-vitro fertilisation is indeed that final stage of capitalism. That's not the way we think this is being said:

Kennedy recalled going in for treatment in a state of “blind panic and emotional chaos”, which she said was common for most people.

“It is a very charged time and I came out of the experience feeling brutalised. It was nothing physical, it was the attitude of the private sector … It felt like it was all about money,” she said. “It is the privatisation of reproduction, the final frontier of capitalism.”

We're really pretty certain that reproduction has been, over time, something of a private matter. In fact, the only time it has really been a public matter - in the sense of state governance of it, not social approval of different methods - has been when the eugenecists started to prevent the poor, feeble minded and generally, by their lights, undesirables from reproducing. Other than that we've all rather let people who wish to make the two backed beast get on with it, haven't we? Including the insistence that it is a private decision to bring any result to term or not.

We'd also, just because we enjoy being snide, note that the Medical Research Council refused to fund that research into IVF itself.

Reproduction as a private sector activity does seem to us to be fairly well established as the norm in human society.

But then we squint a bit and define ourselves carefully. Before 1978 those infertile - in some manners at least - had no chance of having children. Some parts of their current ability to do so have been, we'll agree, state funded and or provided. But it is only this roughly capitalist, roughly market based, socio-economic system which has led to a level of technology which provides that new found ability for them to be fecund. So if you want to call this, that the childless can become with child, a final frontier of capitalism we'll accept that. As long as you're using the same definitions we are.

What bliss it is in this dawn to be alive, eh? As some 5 million people born using the treatment are able to say.

Categories: Current Affairs

Guns and Schools: Can the Market do Better?

Mises Institute - Wed, 21/02/2018 - 20:15
By: Jeff Deist

There is no epidemic of gun violence in America; quite the opposite in fact. But last week’s shooting at a high school in Florida was a grim and jarring reminder of deep cultural problems lurking just beneath the veneer of our materially comfortable society. Those problems are beyond the scope of libertarianism per se, but again we see that greater liberty will require a renaissance in civil society: nihilism and hopelessness among any segment of the population is far more dangerous than “assault rifles.” The less we are governed internally, the more we invite external governance from the state.1

Millions of guns already exist everywhere in American households, so enacting laws “like Europe” won’t work. Voluntary turnovers of guns to police won’t even scratch the surface, much less entice criminals. Involuntary confiscation is both a political and practical nonstarter.  

There are no top-down political solutions available from Washington. Gun control doesn't actually prevent crime, but it does provide the political class and media with another diversionary bitter cultural debate. Americans are deeply divided on guns, just as they are deeply divided on abortion and climate change and scores of other issues. And why should we expect otherwise, in a far-flung country of 320 million people with wildly diverse geographies, economies, and cultures?

Real federalism, long abandoned by progressives and conservatives alike, is one approach with the potential to reduce political conflicts over guns. Manhattan and Montana might have different perspectives here, and both can manage things without Congress. Contrary to popular belief, the Second Amendment neither “federalized” gun laws nor created a right to private ownership of firearms. It simply enshrined the notion that “the people” need to be armed to defend themselves potentially against the state itself.

We don’t need a constitution to recognize all humans have an innate and pre-existing right to self-defense. To make that right effective (especially for weaker members of society) tools must be employed. Guns are simply those tools, inanimate objects that cannot be imbued with innate qualities of good or evil. The right to own guns flows naturally from self-ownership of our bodies.

The libertarian response to mass shootings, in particular school shootings, is to allow teachers and other personnel to carry weapons on campus. In fact, the broader libertarian program is to have most people armed, or at least potentially armed, to create a safer (not to mention more polite) society. If we cannot snap our fingers and produce crime-free cities and neighborhoods where nobody needs to carry a gun, then at least we allow everyone the ability to dissuade or defend against criminal shooters.

This is all well and good, but ignores the market impulse to outsource services to specialists. This is why neighborhoods hire private security patrols, and why celebrities hire professional bodyguards. Not everyone wants to carry a gun or train themselves in gun proficiency. And there is the issue of scale, where individuals might find themselves arrayed against organized criminal gangs.     

Rather than endlessly debate the fraught political process of crafting illiberal gun control laws, we ought to think about private-market solutions that focus on controlling crime. We should think in terms of market economics, where private property and correct incentives give us what government and laws cannot: a mechanism to determine possible harms and the cost of protecting against or preventing those harms. People want safe neighborhoods and schools, which is just another way to say there is a market for them.

Generally speaking, the US legal system imposes premises liability on property owners whose negligence (or willful conduct) results in someone getting injured on that property. This arose conceptually through common law courts and juries applying general negligence concepts,

We accord different degrees of legal responsibility (“duty”) to landowners based on the identity of the injured party: a trespasser, for example, has less recourse to sue for injury than a business invitee (i.e., a customer). The law considers whether the injured party had a legitimate purpose being there, and in some cases whether they contributed to their injury through their own negligence.

Generally speaking, the duty to make one’s property safe from a particular harm relates to the foreseeability of that harm. Leaving spilled milk in a grocery aisle too long could well subject the owner to paying damages for a shopper who suffers a fall — a fall that was quite predictable and clearly caused by the wet floor. But intentional criminal acts by a third party, much like acts of God, generally absolve the property owner of liability. After all, no shooter ever entered the grocery before, so why must the owner guard against this most unlikely event?

But should a public school district have a higher duty to keep students safe than the grocer for shoppers? Arguably yes, in that society values children’s lives, well-being, and innocence perhaps more than adults. And we force children into school attendance via truancy laws and meddling protective services agencies.

Furthermore, are school shootings now foreseeable even though they remain exceedingly rare? Does the media attention and notoriety given to such shootings change the calculus? At some point, perhaps today, school shootings could become foreseeable in the eyes of a jury.

We can’t necessarily draw conclusions here, but the question is whether the owners of public schools — generally municipal or county school districts — should be immune from lawsuits for school shootings simply because they are political subdivisions of states? Should sovereign immunity apply to them, or should they be forced to consider security measures just as private owners must? After all, it seems clear that a mass shooting at a prestigious private school would result in litigation.

It seems clear that imposing tort liability on school owners and operators, even government owners, would both improve security and provide a ready source of compensation for the families of victims. Private security agencies, which have a market reputation to develop or protect, almost certainly would provide more efficient service than government police — for the simple reason that more crime punishes their bottom line, while it often creates calls for increased police budgets. And private security models like Disneyland benefit from wanting to create a peaceful and happy environment, where security forces have every incentive not to escalate situations or incur liability.

Furthermore, private insurance models could help schools rationally allocate funds relative to the risks involved. Since school shootings are rare, premiums to cover such an event should be constrained. But other lesser types of crime in schools could be insured against as well, helping administrators better understand what they’re up against. And insurance companies would bend over backward to offer advice on avoiding shootings, since they would bear the cost of liability payments.

Admittedly, public schools using taxpayer funds to hire private security and pay insurance premiums muddies the waters. But at least it moves all of the parties involved — school districts, administrators, teachers, security providers, and parents — toward a market-based approach to safer schools. Tort liability, however imperfectly administered by government courts, offers one way to align the interests of parents and school owners in preventing further horrific events.

A rational system of private security and criminal control would focus on market solutions that actually reduce crime generally and provide meaningful compensation to victims. In other words, it would focus prevention and restitution. The marketplace can provide both far better than the state, with its amorphous and broken system of criminal justice and mass incarceration — paid for by the taxpayers it claims to represent as “the people” in criminal cases. 

  • 1. Surprisingly, the late Murray Rothbard did not write as copiously on guns or gun culture as he did on many subjects. In For a New Liberty he attacks gun control both conceptually and empirically, characterizing it as a snobbish impulse for those fortunate enough to live in safe areas and wealthy enough not to worry much about the loss of property (such as losing their wallet in a mugging or having their car stolen). And in Making Economic Sense he decries a Clinton-era proposal to radically increase federal permit fees for gun dealers.

Categories: Current Affairs

Central Bank Musical Chairs

Mises Institute - Wed, 21/02/2018 - 20:00
By: Doug French

If recent stock market volatility is interrupting your sleep, Jim Bianco and CNBC’s Rick Santelli are saying, get used to it.  The total assets of all central banks hit $16.4 trillion plus (an all-time high) and these banks now, collectively, own 33 percent of all the world’s sovereign bonds (someone/something had to buy ‘em).

Santelli’s question to Bianco was, if the aggregate size of the world’s central banks is at an all-time high, and these bank’s have purchased a third of all government paper, will these banks be able to “normalize in size” (shrink) without “going through a lot more stock market anguish?” Bianco’s response was a flat, “no.”  

Reversing trillions of dollars worth of securities purchases will create market turmoil.  And now that price inflation has entered the equation, the ride is bound to be bumpy. So, who should 401k investors be worried about and keeping an eye on? Bianco and Santelli agree, that person is ECB head man Mario Draghi. Santelli believes Draghi may be caught without a chair in this game of monetary musical chairs. By the way, it’s not all about the Fed any more. “All central bank stimulus is fungible,” says Bianco, “it doesn’t matter who does it.”  

The patron saint of central bankers, John Maynard Keynes, wrote in The General Theory,

“For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a  pastime in which he is victor who says Snap neither too soon nor too late, who passed the  Old Maid to his neighbour before the game is over, who secures a chair for himself when  the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops  some of the players will find themselves unseated.”

Surely central bankers aren’t just speculating with funds created from nowhere? However, the once “lenders of last resort” are now engaging in social policies, boosting the collective wealth effect, while keeping the under-capitalized, over-leveraged, and less than competent operators in business.

While the Fed is loaded with Treasuries and Mortgage-Backs, the Swiss National Bank is “in a very risky position. Some 94 percent of its balance sheet assets lie outside the country. According to SNB data, about 20 percent is invested globally in equities, including $88 billion in U.S. stocks,” wrote Mark Grant for Bloomberg last last year.  

Draghi’s ECB has a taste for even gamier paper. “According to UBS, the ECB holds 26 bonds rated below investment grade, or “junk,” amounting to $21.2 billion in notional debt,” Grant wrote.

Writing in early December, Mr. Grant, a managing director and chief global strategist at the investment bank B. Riley FBR Inc., concluded, “Regardless of the protestations made by the Fed, and the other central banks, the flow of ‘pixie-dust money’ has not relented. I remind you of the Wall Street adage: ‘Act on what they do and not on what they say.’”

The latest volatility reflects the worry that inflation make cause Draghi to stop the presses (not just talk about it), creating a market event.   

Lord Keynes continued in Chapter 12 of General Theory,

“Thus the professional investor is forced to concern himself with the anticipation of  impending changes, in the news or in the atmosphere, of the kind by which experience  shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called ‘liquidity’. Of the maxims  of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the  doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of ‘liquid’ securities. It forgets that there is no such thing  as liquidity of investment for the community as a whole.”

On the issue of liquidity Evariste Lefeuvre, Chief Economist for Natixis North America and Global Head of Cross Asset Research Expertise in international management, wrote an illuminating piece for Seeking Alpha in 2015. Stepping beyond Murray Rothbard’s “Mystery of Banking” Lefeuvre wrote,

traditional banks engage in credit intermediation between ultimate savers and borrowers. Modern banks engage, as dealer banks, in collateral intermediation: financing bond portfolios with insured money markets instruments. The list of actors involved is quite long: investment banks, brokerage houses, MMMFs, asset back conduits, SIV, hedge funds…

He (again, writing in 2015) concluded,

The longer sovereign yields remain low and the longer the scarcity of safe assets (something very likely given that there is no sign of reduction of the size of the balance sheets of many central banks and, meanwhile, fiscal imbalances are being corrected - see chart below), the most likely is a rise in the percentage of illiquid assets in the portfolios of many investors. Given that the collateral absorption of dealer is dwindling and that repo and MMMFs remain quasi-money claims, the divergence between investors' needs (yield pickup), central bank policy targets (safe asset negative yields) and regulation outcome (asset light and lower security inventories), the next crisis might not be driven by credit and funding scarcity but rather by illiquid assets and collateral freeze.

If you’re tossing and turning; you should be.   

Categories: Current Affairs

The State's Odd Definition of "Consent"

Mises Institute - Wed, 21/02/2018 - 17:15
By: Thomas Eckert

Most people consider consent to be a straightforward concept. Parties voluntarily agreeing beforehand to the actions taking place between them sounds simple enough, right? Unfortunately, life — and more specifically, the state — has a way of overcomplicating situations. For example, last year a woman claimed she was raped by two NYPD detectives after being pulled over and detained while with her friends. Now, given the detectives’ DNA were both identified through a rape kit, the implications seem pretty obvious; except that in court they’re attempting to claim that she consented. Which ultimately leads us to this question: can someone consent in a forced scenario?

Let’s set aside the arbitrary notion that in certain states it’s “legal” for police officers to partake in sexual acts with people in their custody, and break down what we mean by “forced scenario.” No matter their feelings toward the police, most people avoid contact with them in their day-to-day lives. If we do happen to encounter them, it’s usually due to our plans being involuntarily altered — either being involved as the accused or as the victim of a situation that didn’t go as planned. With other scenarios we may not enjoy (a bad date for example), we can simply withdraw our consent and remove ourselves from undesired situations. But with the state’s monopoly on violence, this introduces a problem. How does consent function here?

It’s important to remember that consent is only made valuable through the capacity to withdraw it completely, and only from that recognition are we led to the proper conclusion. For instance, in the earlier example, upon realizing the woman was placed in that situation involuntarily and could not withdraw consent, the answer is obvious that the officers’ claim of consent is nonsensical. When examining it further, we can see that what’s ultimately being deliberated is the overall subjectivity of value.

That’s because all that can be deduced from the encounter is that police had sex with a woman who was not free to leave. The accused claim the encounter was consensual because they offered to let the woman go if she would have sex with them. This is no different, however, than a person being held against his will by an armed criminal in an alley. In such a situation, if I surrender my wallet at knife point, it would be absurd to claim I consented to giving my wallet to the assailant. It is only true if I valued not being stabbed more than I valued the contents of my wallet. And this premise holds true whether the aggressor explicitly tells me he wants the wallet, or implicitly, by accepting it as an alternative form of coercion after I offer it.

Depending on your audience, there is a glaring criticism that will arise at this point. In the example of the woman being held by the police, as opposed to the attacker in an alley, some argue that the woman put herself in this situation by doing something illegal (speeding, trespassing, etc.), and therefore consented to the situation. This criticism is fallacious, however, as it relies on the arbitrary notion of legality vs illegality to enforce an objective principle. What is legal in one place may not be legal elsewhere. Likewise, what is speeding on one road may not be speeding on another. Because we are dealing with public (unowned) property by the state, issues come into play that otherwise wouldn’t in the case of private property.

Today, there are an innumerable amount of laws on the books, many of which are completely nonsensical and carrying no basis other than arbitrary notions of being “bad.” The problem thus arises that claiming an arbitrary act — such as going 35 mph — as legal while saying another is illegal — going 36 mph — on an unowned piece of property, cannot be logically equated to a person consenting to the resulting choice between different means of coercion. Put another way, the claim of waiving one’s self-ownership (consent) due to “deserving” a punishment over arbitrary rules is no more valid than a bum claiming you consented to a choice between surrendering your wallet or being stabbed simply because you trespassed through an alleyway he doesn’t own.

This is because issues regarding violations of rules governing private property can be related a priori to self-ownership, whereas public property cannot. If I own property (a road, house, etc.), and I voluntarily agree with someone to give them access under certain conditions, breaking those rules is a violation of my rights. And, as I’ve laid out previously, this is not the case with public property.

So as we see, the state has a way of muddying the waters on what is otherwise cut and dry issues in an attempt to establish its own legitimacy. Property violations become complicated when “public” property is involved, and consequently consent leads to a grey area when the state’s monopoly on force comes into play. If we hope to remedy these needlessly overcomplicated situations and thereby stop creating victims where none otherwise would exist, we must remove the exceptions given to government regarding rights and authority, and emphasize an objective take on morality and private property.

Categories: Current Affairs

Billy Graham, Evangelist to the world, dead at 99

Anglican Ink - Wed, 21/02/2018 - 16:52

Statement from the Billy Graham Evangelistic Association

Filibuster in Nicaragua, Part 4: War in Nicaragua

Mises Institute - Wed, 21/02/2018 - 15:30
By: Chris Calton
 Season 2

William Walker and his American filibusters find themselves in the middle of an even greater conflict in Latin America as the countries of Costa Rica, Honduras, El Salvador, and Guatemala form an alliance with Walker’s opposition in Nicaragua to defeat him. This episode is Part 4 of 6 in the story of William Walker’s attempt at establishing his own Republic of Nicaragua.

Categories: Current Affairs

Corbyn's thinly veiled threat to the press should worry us all

Adam Smith Institute - Wed, 21/02/2018 - 12:43

Yesterday the Labour leader posted a video to his social media accounts. Dogged for days by accusations he was complicit in passing information in multiple meetings to the Cold War Czechoslovak agent Jan Sarkocy, and having dodged questions on the topic by the press, Corbyn (or Agent Cob as the Statni Bezoecnost called him) decided he would not answer the questions but attack the press that were asking them.  

It makes for a chilling watch. Singling out The Sun, The Mail, The Telegraph, and The Express, the Labour leader accused them of having gone ‘a bit James Bond’ over the issue. Let’s leave aside the fact that James Bond was the good guy (it was the Reds that were the enemy Jeremy), the video was full of inconsistencies. 

As Daniel Finkelstein said in his excellent piece this morning on Corbyn’s on-the-record about the Cold War and the West, either the accurate reporting of Corbyn’s positions are fine or they are smears. If they are smears then why does he hold these views? 

Corbyn’s claim that “a free press is essential for democracy” was accompanied by a thinly veiled threat to the owners of Britain’s media companies: “we’ve got news for them – change is coming”. This attack is one that deserves careful examination. He doesn’t just mean that social media is on the rise, but that he wants to change the balance between political actors and the press as it is. 

His accusation that our press at present isn’t “very free at all” because organisations are owned by private individuals is concerning. There is little to no barrier to entry for a media organisation in this country. Ask any freelancer and they’ll tell you that the saturated market, disruptive new technologies and the vocation of the job is what keeps wages low and the market tight. But new media organisations come into being all the time and they live and die by their profitability. The Spectator, Economist and Private Eye all saw increases in their print runs and profits up with a mix of old and new media (as well as varied editorial positions), while in 2017 Buzzfeed made a £3.4m loss and the Guardian lost £44.7m

The Labour leader is right that disruption is changing the media industry, but this isn’t really new. The printing press challenged the power of the Church, newspapers took on vested interests in politics and business, radio brought voices directly into homes and TV brought live images. Now we live with social media that demands quick responses as well as democratised questioning and accountability. But to pretend the old media doesn’t exist or have a role—to avoid the professional questioning because it makes you uncomfortable—is to act as though you’re untouchable. That route is well-trodden and it never ends well. 

Corbyn’s position is also worryingly ignorant of the freedoms that all Britons have when it comes to dealing with accusations in press that you find to be libellous or defamatory. Both are criminal if the broadcast or printed words are found false. Our separate judiciary allows private citizens to sue and force them to prove their allegations, or to claim damages if they can’t. In many ways our libel laws are already overly burdensome. As my colleague Sam Dumitriu argued, investigative journalism is restricted by the high costs of lawsuits that mean settling is cheaper than fighting for truth. Not only is the actual cost a deterrent but potential cost means a more wary attitude of reporting. Along with super-injunctions, these laws are used by the rich and the powerful to mask activities they don’t want the public to know about. Corbyn’s response smacks of this, rather than the good work of the Index on Censorship that suggested reforms of a cap on damages that would still see the ordinary public protected against libellous of defamatory stories. 

It should worry us all that Labour’s leadership is so emotionally triggered as to publicly attack the newspapers we read, the media organisations we watch, when they confront them with allegations Corbyn dislikes. We should heavily scrutinise the suggestions they put forward in the coming days as they back up the claim that ‘change is coming’. 

The first of these has already appeared and it’s pretty bad news. Andrew Gwynne told the Daily Politics today that Labour were thinking of implementing a ban on foreign ownership of the press if they got to power. Labour need to decide their thinking on migration and economic nationalism. Is it just the press they don’t trust foreigners with? Is it just the rich ones they don’t like? 

It’s going to be even more important that the press stands up for itself and that we continue to defend its scrutinising role after the Lords voted to press the government to set up Leveson 2 (the further public inquiry into the press that I’ve argued against before as uncompetitive and vindictive). 

The press should stick to their watchword when dealing with these moves to restrict their freedom: print with neither fear nor favour.  

Categories: Current Affairs

Collective agreements see the rot setting into Denmark's dentists

Adam Smith Institute - Wed, 21/02/2018 - 12:10

Dentist care is one of the few things Danes actually have to pay for (or adults have to at least). This might puzzle you, after all Denmark is well known around the world for its free healthcare. In fact, it puzzles many Danes as well. However, the fact that Danes have to pay for it isn’t really the core of the problem - the concern is that it’s so gosh darn expensive.

Take my mother for instance. She is due to have two crowns inserted. If she is to have it done in Denmark the price would add up to £1400. Luckily, my parents live near the Danish/German Border, so she’ll be able to have it done in Germany for just the half of the price - and she is not the only one who does this. Many other Danes does this too - even if they have to drive for 3 hours. But the fact of the matter is that it doesn’t have to be like this.

Children's dental care is paid by the state, but once you reach the age of majority you have to pay for yourself (although approximately 20% of your trip to the dentist is subsidised by the region). While prices to a large extent are decided by free market forces in the rest of the Nordic countries, prices in Denmark are set by collective agreement between dentists and regional politicians with several downsides to it.

The fact that a wide range of services are set by collective agreements means that dentists can’t compete on prices and provide discounts in order to attract more patients. However, it is stated specifically in the collective agreement that this only applies when dentists accept the subsidy. Surely if they don’t accept the subsidy, clinics are allowed to determine the price themselves, right?

That’s not the case, unfortunately. Landssamarbejdsudvalget (try saying that three times after a couple of shots of Aquavit),a complaint board with the competence of interpreting the collective agreement for dental care, have over several rounds uttered that dentists can’t provide discounts. This is even if they abstain from accepting the subsidy from the region.

Different dentist chains have still tried to, however. In one instance the dentist chain Godt Smil offered free check-ups for patients who hadn’t been to the dentist. A clinic, PLUS1, gave discounts on different services whose prices were determined by the collective agreement. However, in return they abstained from the subsidy which in theory would have been in compliance with the agreement. Overall, they managed to cut the price on one of their package deals by 82%. Keep in mind some of that saving is the public subsidy. Nevertheless, Landssamarbejdsudvalget still deemed it in contravention of the agreement. In taking on the Landssamarbejdsudvalget the dentist chains had bitten off more than they could chew.

The collective agreement also stipulates certain restrictions on ownership of dental clinics. These include owning more than two clinics and people who aren’t licensed dentists having a  majority stake in a chain. A dentist has to seek permission from the regional complaint board to open more than two clinics. Conflict of interest may also arise because of the structure of the complaint board. The board consists of 3 dentists and 3 representatives from the region. Half of the members of the board can therefore potentially be competitors to the dentist seeking permission. Because the board have to decide unanimously, competitors can veto the decision.

A similar situation was seen in North Dakota, USA where the Dental Board, mainly elected by dentists themselves, regulates the profession. In 2006 the board tried to stop beauticians and hygienists from whitening customers teeth because they thought they were undercutting dentists in price. Luckily, the Federal Trade Committee objected and in 2015 the Supreme Court put an end to the anti-competitive moves.  

People understandably call for government to step in because they are under the impression that markets can’t live up to the expectations they have for important parts of the health sectors such as dental care. Little do they know, the root of the problem lies with government regulation, not the market.

In fact, the Competition and Consumer Autority have said that parts of the collective agreement are ‘straight up illegal’. Unfortunately, the Competition and Consumer Authorities can’t process some of the anti-competitive elements in the agreement because the Ministry for Health has assessed that price and ownership relationships are a necessary consequence of regulations on the health area.

If anything is to be done to secure suitable prices while maintaining quality in dental care in Denmark, it will have to take on the collective bargaining review that begins this year. The Ministry first of all ought to differentiate the agreement from law. This would leave it up to the parties taking part in the bargaining to give clinics the opportunity to compete on prices as well as opening up the market to new foreign competitors.

Secondly, successful dentists who want to expand their business should be able to do so. This would enable them to take advantage of economies of scale. In addition, the restriction of ownership - i.e. a majority of a dental company has to be owned by dentists - hinder the possibility of professionalising the dental industry and learning from best practices elsewhere. Opening up to equity funds and private investors would allow those who already have a general experience with business operations to develop an efficient business with chances of enhanced productivity.

Allowing the market to flourish would provide the consumer with cheaper dental care of higher quality and save the regions pointless expenses.

Categories: Current Affairs

Is Money Creation Fueling the Stock Market Surge?

Mises Institute - Wed, 21/02/2018 - 12:00
By: Frank Shostak

Is it true that changes in money supply are an important driving force behind changes in the stock price indexes?

Intuitively it makes sense to argue that an increase in the growth rate of money supply should strengthen the growth rate in stock prices.

Conversely, a fall in the growth rate of money supply should slow down the growth momentum of stock prices. 

Some economists who follow the footsteps of the post-Keynesian (PK) school of economics have questioned the importance of money in driving stock prices.1 It is held that rises in stock prices provide an incentive to liquidate long-term saving deposits, thereby boosting the money supply.

The received money then employed in buying stocks and other financial assets. According to the PK the trend is reversed when stock prices are falling. Hence, changes in stock prices cause changes in money supply and not the other way around.

The Definition of Money Supply

In today’s monetary system, coins and notes constitute the standard money, known as cash. At any point in time part of the stock of cash is stored, that is, deposited in banks. Once an individual places his money in a bank’s warehouse he is in fact engaging in a claim transaction. In depositing his money, he never relinquishes money with a bank, he continues to have an unlimited claim against it and is entitled to take charge of it at any time. These deposits, labelled demand deposits, are part of money. Thus, if in an economy people hold $10,000 in cash, we would say that the money supply of this economy is $10,000. But, if some individuals have stored $2,000 in demand deposits, the total money supply will remain $10,000: $8,000 cash and $2,000 in demand deposits—that is, $2,000 cash is stored in bank warehouses. Finally, if individuals deposit their entire stock of cash, the total money supply will remain $10,000, all of it in demand deposits.

This must be contrasted with a credit transaction, in which the lender of money relinquishes his claim over the money for the duration of the loan. Credit always involves a creditor’s purchase of a future good in exchange for a present good. As a result, in a credit transaction, money is transferred from a lender to a borrower.

The distinction between a credit and a claim transaction serves as an important means of identifying the amount of money in an economy. Following this approach, one could easily note that, notwithstanding popular practice, money invested with money market mutual funds (MMMF) must be excluded from the money supply definition.

Investment in a money market mutual fund is in fact an investment in various money-market instruments. The quantity of money is not altered as a result of this investment; only the ownership of money has temporarily changed. Including investment in MMMFs in the money definition will only lead to a double-counting thereof.

If Joe invests $1,000 with an MMMF, the overall amount of money in the economy will not change as a result of this transaction. To incorporate the $1,000 invested with the MMMF into the definition of money would therefore amount to double-counting.

The crux in identifying what must be included in the money supply definition is to adhere to the distinction between a claim transaction and a credit transaction. Following this principle, it is questionable whether savings deposits should be part of the money supply.

According to popular thinking, the inclusion of savings deposits into the money supply definition is justified on the grounds that money deposited in saving accounts can always be withdrawn on demand. But the same logic should also be applied to money placed with an MMMF. The nub, however, is that savings deposits do not confer an unlimited claim. The bank could always insist on a waiting period of thirty days during which the deposited money could not be withdrawn.

Savings deposits should therefore be considered credit transactions with depositors relinquishing ownership for at least thirty days. This fact is not altered just because the depositor could withdraw his money on demand. When the bank accommodates this demand, it sells other assets for cash. Buyers of assets part with their cash, which in turn is transferred to the holder of the savings deposit. The same logic is applicable to fixed-term deposits like CDs, which are credit transactions.

Mainstream thinking currently excludes from the money supply government deposits held in banks and the central bank . Consequently, if the government taxes people by one billion dollars, money is transferred from their deposits to the government’s deposit. This is viewed just as if the money supply fell by one billion dollars. In reality, however, the money is now available for government expenditure, meaning that money held in government deposits should be part of the definition of money. Incorporating all the above arguments, the money supply is defined as follows:

Cash+demand deposits with commercial banks and thrift institutions+government deposits with banks and the central bank.

If changes in savings deposits does not alter money supply obviously, changes in various savings deposits i.e. including long term have nothing to do with changes in the stock of money as suggested by the PK. 

Furthermore, contrary to the PK, is it possible that prices of assets in general will increase without a preceding increase in money supply? After all a price of a good is the amount of money per unit of the good. In order then to have a general increase in prices, all other things being equal, there must be an increase first in the money supply.

Given, that the key source of monetary expansion is the central bank monetary policies and the fractional reserve banking we can conclude that it is these that drive the stock prices.

  • 1. See the exposition of post Keynesian thinking by L.Randall Wray Modern Money, Working Paper No.252 September 1998, The Jerome Levy Economics Institute.

Categories: Current Affairs

The basic problem with foreign aid

Adam Smith Institute - Wed, 21/02/2018 - 07:01

One of the slightly odd things about the modern world is that we've all become rather better at emergency aid and rather worse at development aid.

Emergency aid now tends to work with the grain of the economy. For example, in times of famine send in money - then let the market, incentivised by the cash, deliver the food. Instead of the ridiculous idea of loading ships with food which takes 8 months and more to arrive, neatly not feeding the starving but still destroying the market for the next crop. 

Development aid is more often than not the application of those policies which we've rejected at home. Planned economies, for all the nonsense spouted by the likes of Momentum, are rather out of fashion in the rich countries. So all those who would play with the lives of others by telling them what to do are off in the aid agencies.

Yes, certainly, we exaggerate, but not by all that much. Oxfam these days insists upon peasant farming as the long term solution for Africa's ailments, just as one example. Fortunately, officialdom is realising this error:

Foreign aid risks making Third World countries dependent on handouts by prioritising “short-term and immediate results” instead of “lasting change”, an official review warns.

The Independent Commission for Aid Impact warns: “The Department for International Development’s results system is not currently oriented towards measuring or reporting on long-term transformative change – that is, the contribution of UK aid to catalysing wider development processes, such as enhancing the ability of its partner countries to finance and lead their own development.

One way of putting this is that we should be aiding them to do things themselves, not doing things for them. Instructing, say, on institutions - the tolerable rule of law, reasonable taxes - and even paying for such if necessary. Rather than telling them where to put the steel plant they don't need nor want.

At which point a modest proposal. The official development aid budget is some £11 billion a year we believe. Almost all of what is spent upon development, rather than emergencies, being wasted (Ethiopia's Spice Girls comes to mind). So, why don't we not waste it?

We know very well what has caused the largest reduction in absolute poverty in the history of our species, this neoliberal globalisation of the past 40 years. Trade, not aid, that is. So, let us trade more.

We declare unilateral free trade to the world. This benefits us in aggregate, benefits the poor out there individually and in aggregate. But there are those here at home who would lose from it. Those currently protected by our own import barriers to such trade. It's also a standard part of economic thought that when an overall increase in wealth is possible, as free trade would bring, it is possible for those who gain to compensate those who lose leaving all truly better off.

Excellent. We use that currently wasted foreign development budget to compensate (through retraining perhaps, that sort of thing) those at home who would lose. We combine the most effective poverty reduction program known, that neoliberal free trade thing, with not wasting the development budget and compensating those few who would lose from this most efficient of all possible plans.

The only problem is that it seems to be politically impossible. But then that's not stopped us in the past if we're honest about it. 

Categories: Current Affairs

Meditation for week 2 of Lent by Peter Jensen

Anglican Ink - Wed, 21/02/2018 - 02:50

The Deceitful Heart

Mises and His Methods

Mises Institute - Tue, 20/02/2018 - 20:00
By: Roger W. Garrison
Mises Statue.jpg

Over the past several years, I have participated in a number of short courses on Austrian economics, and for some I was involved in the planning stages. The one aspect of such planning that stands out in my memory has to do with the issue of methodology.

How should we present the methodological precepts that underlie Austrian theory? There seemed to be three possibilities: We could deal head-on with the methodological issues in the first lecture, in which case we would spend the remainder of the course trying to put methodology behind us in order to deal with the substantive issues; we could postpone discussion of methodology to the very end, in which case we would spend most of the course anticipating the arguments to be presented in that last lecture; or we could simply exclude methodology from our schedule of lectures, in which case every lecture that we did schedule would quickly transform itself into a discussion of the methodological underpinnings. 

I have some concern that my present discussion of Mises and his methods may propel me into the "black hole of methodology." Economists who allow themselves to become totally immersed in methodological issues rarely escape to do substantive work. In an attempt to keep one foot outside of the black hole, I propose to steer clear of the loftier issues of metaphysics, epistemology, and philosophy of science. I will deal instead with the workaday methods used by Mises and by those who have followed his lead. How did Mises go about doing economics? How do his methods compare with those of the modern mainstream? 

The issues have become standard: the appropriateness of mathematical formulations, the relationship between theory and statistical data, and the role of assumptions in economic theorizing. Recent developments in econometric methods and in mathematical modeling techniques allow the contrast between Mises and the more modern practitioners to be sharpened. 

I. Mathematical Economics and the Eclipse of Causality 

Appearing two years before the initial publication of Mises's Human Action (1949) was Paul Samuelson's Foundations of Economic Analysis (1947), the title page adorned with a pronouncement by J. Willard Gibbs: "Mathematics is a Language." Samuelson mastered that language in the course of his training at the University of Chicago and then at Harvard. According to Fischer [1987, p. 234], "Samuelson more than anyone else brought economics from its pre-1930s verbal and diagrammatic mode of analysis to the quantitative mathematical style and methods of reasoning that have dominated for the last three decades." The techniques of the physical sciences are so dominant today that an economist who prefers not to use mathematics in his economic theorizing is held in the same regard as a sculptor who prefers not to use a chisel or a welder who prefers not to use a torch. 

Economists who choose to work within the tradition begun by Menger and firmly established by Mises may be tempted to take issue directly with Willard Gibbs. But there is no justification for insisting upon a narrow conception of language. Mathematics is a language. We can respond to Samuelson in a more telling way with the claim that so too is music. There is no reason for economists to observe a categorical prohibition against either mathematical formulation or musical expression. The relevant question is: What sort of language— music, mathematics, or, say, English — allows economists best to communicate their ideas? Which language serves the economist without imposing constraints of its own upon his subject matter? 

The answer to the question just posed depends, of course, upon what the economist takes his subject matter to be. And in particular the answer turns— both for Mises and for modern mathematical economists on—  whether or not causality in economics is a worthy concern. For Mises causality was the central concern. His methodological individualism has as its goal the establishment of a causal linking of individual actions to observed economic phenomena. The very title of Mises's magnum opus identifies his starting point. Human action is the root cause of all economic phenomena. The task of the economist, in Mises's view, is to draw out the historically relevant implications of the fact that individuals act — that they employ means to achieve ends. Alternatively stated, the economist's task is to devise a logic of action — a praxeology, to use the Misesian term.1

For Mises and the Austrians, cause and effect in economic theory manifest themselves as human action and its consequences. By human action Mises simply meant purposeful behavior; by consequences he included both the intended consequences and the unintended consequences but maintained a sharp distinction between the two categories. Many of his theories, in fact, involved a contrast between the intentions of market participants or policy makers and actual consequences that flow from the market process. 

Systems of equations can be suitably employed to describe the consequences of human action, but such mathematical descriptions are inherently blind to notions of intentionality and causality. In the words of Mises [1966, p. 356], "[The] equations and formulas [of mathematical economics] are limited to the description of states of equilibrium and nonacting." Until recently, mathematical economists saw the eclipse of causality as one of the virtues of the mathematical method. Four decades ago, for instance, George Stigler [1946, p. 181] wrote approvingly that the profession had abandoned the "older concept of cause and effect" in favor of the "concepts of mutual determination" and accused those still concerned with causality with "fail[ing] to understand some of the most essential elements of modern... theory."2

Philosophical insight into the meaning of causality is not at issue here. The point is that some modes of expression make nonsense out of the question of cause and effect. An orange — or other spheroid — placed in a large rounded bowl will come to rest at the very center of the bowl. Gravity, we might be inclined to say, is the "cause" of this result. But suppose that two oranges are placed in the bowl. Which one of the oranges causes the other to be displaced from the center? The question itself is nonsensical. We can describe the loci of possible resting points of the two oranges, however, by manipulating the mathematical expressions representing the sizes and shapes of the oranges and the bowl. The two points of contact, of course, would be mutually determined. 

In economics, it is possible to phrase questions about causality which are equally — but maybe not obviously — nonsensical. Under a variety of circumstances, real wage rates and real interest rates are inversely related to one another. But does a low interest rate cause the wage rate to be high, or does a high wage rate cause the interest rate to be low? The question simply makes no sense; the two rates are analogous to the two resting points of the oranges. 

This particular example of the eclipse of causality is not a frivolous one. The inverse relationship between the wage rate and the interest rate forms the bedrock of Ricardian distribution theory.3 For neo-Ricardians who adopted the mathematical method, the question of which rate was the cause and which the effect gave way to the question of which rate is "exogenous" to the relationship, or predetermined, and which is "endogenous," or determined by the relationship? Those who believed that the interest rate is predetermined (by social convention) became Cambridge capital theorists; those who believed that the wage rate is predetermined (by the requirements for subsistence) became Marxists. Agnosticism about the true locus of exogeneity was also a respectable position — one that provided a half-way house for neo-Ricardians making a conversion in one direction or the other. 

Mathematics can describe the various combinations of wage and interest rates but cannot answer or even make sense of questions about which caused which or about which one is, in reality, determined exogenously. The mathematical economist, however, is content to remain agnostic on the issue of causality; the two rates are mutually determined. The praxeologist, by contrast, seeks to identify the plans and actions of individuals in the marketplace which constitute the ultimate cause of the pattern of wage and interest rates. 

While mathematical economists may not deny that the ultimate cause is to be found in the actions of market participants, they proceed untroubled by the fact that mathematics is inherently silent on the issue of cause and effect. This disadvantage of the mathematical method was Mises's concern [1966, p. 350] when he remarked that "[i]ts syllogisms are not only sterile; they divert the mind from the study of the real problems and distort the relationships between the various phenomena." 

The claim is sometimes made that any relationship, including presumably causal relationships, can be expressed mathematically. John Egger's attempt to give plausibility to this claim by offering a far-fetched example is noteworthy because the particular example he chose provides, if only inadvertently, a sound basis for rejecting the claim. Egger [1978, p. 29] translates the old saw "absence makes the heart grow fonder" into f'(x)>0. (The first derivative of fondness with respect to absence is greater than zero.) Tellingly, the word "makes," which indicates the direction of causality, is unavoidably lost in the translation. The exact same mathematical expression would result from a translation of the converse: "growing fonder makes the heart absent." 

At best, Egger's equation can describe the equilibrium relationship between "absence" and the "growth rate of fondness." More likely, however, such a wanton use of mathematics would invite attempts to quantify inherently unquantifiable concepts. And worse, the very fact that the expression involves a derivative suggests the appropriateness of the calculus operators. Egger could hardly argue against those who might want to integrate the equation in order to determine the absolute level of fondness that corresponds to an absence of a given duration. The real lesson in his curious exercise is not that any idea can be expressed mathematically but rather that mathematical economists have tortured economics in the same way that Egger has tortured a piece of romantic prose.

II. "Causality" in Modern Empirical Economics 

Considerations of technique prevent the modern economist from addressing the full range of economic questions. As mathematician, he can shed no light on issues of causality, but as economist, he is continually confronted with such issues. The melding of classical statistics with formal mathematical modeling, which establishes a link between theoretical abstractions and historical experience, does not close the gap between issues and answers. All respectable texts on statistics and econometrics acknowledge that statistical inference can never identify cause and effect; they warn against interpreting correlation as causation. 

In recent years it has become acceptable within the economics profession to ignore all such acknowledgments and warnings and to make claims about cause and effect on the basis of empirical tests. For a hypothetical example, the claim that a rising interest rate causes the wage rate to fall may be supported by time-series analysis in which an inverse relationship between wage rates and lagged interest rates is demonstrated. The long-respected strictures against reading causality into statistical patterns are flouted. Empirical causality tests are increasingly common in the professional literature. 

Only in the early phase of this empirical innovation was it made clear that such tests are based upon a newly stipulated definition of the word "cause." Stripped of all its subtle and difficult philosophical content and of its etymological link with reason, the word "cause" is used to describe observed temporal patterns in time-series data. In the judgment of Clive Granger and Paul Newbold [1977. p. 225], "A better term might be temporally related, but since cause is such a simple term we shall continue to use it." It is interesting to note that, though this usage is defended on the basis of simplicity of expression, economists who employ empirical techniques developed by Granger use the decidedly unsimple and unaesthetic term "Granger-cause," as in: Falling interest rates Granger-cause wage rates to rise. 

Christopher Sims, most widely known for his development and use of techniques suggested by Granger, is explicit about the nature of his enterprise. "The method of identifying causal direction employed here does rest on a sophisticated version of the post hoc ergo propter hoc principle" [1972, p. 543]. "After this, therefore because of this," of course, is not a principle at all, but a fallacy. And sophistication cannot convert fallacy into principle. 

The linguistic technique introduced by Granger is nothing short of a scandal. (A better term might be career enhancing innovation, but since scandal is such a simple term I shall continue to use it.) Publishers and editors are not likely to be interested in research that yields limp conclusions about the temporal relationships in the movements of economic variables; they are interested in research that demonstrates that one thing causes another. .

Granger-inspired research is often reported guardedly in the section on the testing procedure and then unguardedly in the summary section. Gerald P. Dwyer, Jr. [1982], for instance, conducts Granger-causality tests to determine whether or not federal budget deficits Granger-cause inflation. Failing to find any statistically significant post-hoc relationship, he tentatively reports in his summary that "...there is no reason to predict that a reduction of deficits has a causal role in any policy to reduce inflation." 

The economist's audience is interested in the issue of causality; his mathematical and econometric techniques are not up to the task. The result — for those who confine themselves to mathematical and statistical methods — is a scandalous abuse of the English language. For Mises the notion of cause and effect as used by economists is presupposed by the notion of means and ends, where both cause and means are to be understood in terms of the purposes and plans of acting individuals. None of these notions are adequately illuminated by the methods of mathematical economists or econometricians. 

III. Mathematical Economics in Perspective 

To recognize that the notion of causality cannot be expressed mathematically or tested-for empirically is to suggest that, for the economist, the language of mathematics and econometrics is too confining. Systems of equations can be used to describe abstract states of general equilibrium, and econometrics can provide some quantification of actual economic magnitudes. There should be no objection to this.4 In fact, the appropriateness of mathematics for describing an economy in general equilibrium or for describing the evenly rotating economy, to use Mises's own construction, derives precisely from the fact that there is no human action in such states. The Austrian economist, however, is interested primarily in the give and take of market processes. This is where the action is. But his task of making those processes intelligible by identifying the plans and actions that give rise to them is not facilitated by the mathematical method. 

There is no justification for insisting that mathematical formulations be expunged from economics in some wholesale fashion. The appropriate imperative is much milder in both substance and tone: Do not allow the applicability of mathematical and statistical methods to define the scope of economics. Most economists if confronted explicitly with this recommendation would, I suspect, accept it, many believing that it simply goes without saying. Implicitly, however, the recommendation is systematically rejected — as judged by the extent to which the applicability of these methods have in fact been allowed to dictate subject matter. 

It is convenient to describe the current state of economics with the aid of a simple Venn diagram consisting of two overlapping circles (see Figure 1). Let one circle M represent mathematics; let the other E represent economics. The overlap ME represents mathematical economics and includes all those aspects of economics that actually are — even in the Austrian view— susceptible to a mathematical treatment. Descriptions of equilibrium states, for instance, fall in this overlap. Mises's only complaint about such exercises [1966, p. 355] is that they have unduly dominated the attention of economists: "A superficial analogy [i.e. the imaginary construction of the final state of rest translated into algebraic symbols] is spun out too long...." 

Figure 1: Venn Diagram

The very construction of the Venn diagram suggests that economists who use the mathematical method should take precautions of two sorts. First, they should guard against allowing mathematical exercises to take them across the border separating M from ME, where the equations cease to express relationships having any relevance to economics. Second, they should strive continuously to maintain free passage across the other border, which separates ME from E. They should willingly make excursions into any area of economics  — even if they have to abandon the vehicle of mathematics at the border. Anyone familiar with today's economics profession will quickly realize that the border guards are misdeployed. Dissatisfaction with the state of the profession stems largely, I think, from the work of economists who are oblivious to the border that should not be crossed but who instinctively retreat from the border that should be ignored. 

The professional journals are filled with technically sophisticated articles in which mathematical formulations and manipulations have no clear relevance to economic reality. The problem is not abstractness per se. The most fundamental and broadly applicable propositions of economics are inherently abstract. Nor is the realism of assumptions directly at issue here.5 The problem is the failure to maintain a distinction between mathematical economics and mathematical gymnastics. 

Charles L. Schultze [as quoted by Herron, 1987] recognized the problem of the unguarded border in his assessment of modern technical economics. The profession tends to engage itself in what Schultze calls "finger exercises — you can't tell where the mathematics ends and the economics begins." More typically, the crossing of the unguarded border occurs in the opposite direction (i.e., from ME into M) from that suggested by Schultze's lament. Mathematical economists begin by associating their symbols with economic magnitudes: k is capital; l is labor; q is output, etc. They proceed, then, to manipulate mathematical equations without concern about the economic meaningfulness — or the possible meaninglessness — of the resulting relationships. 

One of the clearest examples of this mathematical procedure is the infamous Cambridge Controversy over capital and the production function. Polynomials that purportedly described multiperiod production processes yielded pro forma solutions suggesting the possible existence of multiple pure rates of interest, technique reswitching, and capital reversing. Without question these odd-sounding phrases were descriptive of the mathematical results obtained by Cambridge capital theorists; but they are not meaningful in the context of any known economic process. Demonstrations that the results have economic significance are nonexistent, and even the recognition of this lacking is less than sincere. The final sentence of an article on capital reswitching appearing in the profession's most prestigious journal reads: "What now remains is to establish the economic significance of the constraints imposed to allow us to get these results" [Galloway and Shukla, 1974, p. 358]. But more than a decade later, that task, which should have been preliminary to the publication of the mathematical results, still remains. The results themselves have become and continue to be the subject matter of further study.6

The problem of the unguarded border is compounded by a problem of the opposite sort on the other side of the overlap. It has become standard practice in the profession today to make assumptions — sometimes bizarre assumptions — in order to render an economic issue mathematically tractable, i.e., to avoid crossing from ME into E. An analysis of the give-and-take of the market process is often precluded or trivialized by some assumption that focuses attention on the end result of that process. Examples of assumptions that guard against plunging head-long into non-mathematical economics are easy to find. The Walrasian auctioneer has come to serve as one such border guard. Invoking this piece of fiction allows the mathematical economist to pass over the question of how the economy actually gropes towards an equilibrium and to neglect the consequences of transactions involving disequilibrium prices. A single auctioneer substitutes for competing entrepreneurs, making it unnecessary for market participants to engage in monetary calculation in any nontrivial way or to formulate and implement economic plans. All the issues that captured the attention of Mises and the Austrians are held at bay while the mathematical economists describe the pattern of prices and the allocation of resources associated with a general equilibrium. 

The Friedmanian helicopter does for monetary theory what the Walrasian auctioneer does for value theory. Mathematical tractability is preserved if it can be assumed that monetary injections are accomplished by helicopter drops of newly created money. It is often further assumed in the Monetarist literature that individuals gather up the new money in direct proportion to the amount that they already possess. Propositions about the neutrality of money follow trivially: production functions are homogeneous of degree zero with respect to the medium of exchange. Again, the issues of interest to the Austrians—injection effects, monetary distortions of the production process, monetary calculation during periods of inflation—are all swept aside by assumptions that make the remaining issues mathematically tractable. 

In the writings of the New Classicists, the analytical technique introduced by Walras and extended by Friedman has been pushed to the limits. The goal of a "fully articulated artificial economy" and the insistence on the complete absence of so-called "free parameters" is easily interpreted in terms of our Venn diagram: The border separating mathematically tractable issues from all other economic issues should be sealed once and for all.7

Modeling techniques introduced by Edmund Phelps [1970] and developed by Robert Barro [1981] require that the border guards stand elbow to elbow. The world about which they theorize consists of a number of island economies. No trade occurs between islands. There is only one commodity being supplied and demanded. The commodity is nondurable in the extreme — a service, actually, indistinguishable from the labor that renders it. Demanders possess the same information as suppliers. Technical considerations require that the service is such that one individual must render it to another. (This feature is needed to prevent the model from collapsing into a model of complete autarchy.) The full specification of such models taxes the imagination, but Barro [1981, p. 83] achieves a degree of concreteness by suggesting that we think in terms of "back-scratching" services. 

New-Classical models of this type allow for no substitutability or complementarity among goods or among factors of production; no capital and hence no heterogeneity of capital; no information flows, entrepreneurial activities, production plans, or market processes except in the most trivial senses. Yet the purpose of such models is to facilitate the analysis of monetary shocks or of alternative monetary policy regimes. (The substantive conclusions derive from a stipulated difference in the cost of acquiring global as opposed to local information about price changes.) But what significance could the implications of such models possibly have for real-world economies? 

Thomas Sargent [1987, p. 7] is aware that the techniques of New Classicism have questionable validity: "[I]n order to make general equilibrium models tractable enough for macroeconomic work, their preferences, technology, and endowments have typically been so simplified, and so much has been abstracted, that it is often difficult to take their predictions in some directions seriously." Research efforts within the New Classicist camp, however, are directed toward further extension of this modeling technique. Questions about validity are neither answered nor seriously contemplated. According to Sargent [1987, p. 7], the technique "rests on faith that insights about the laws of motion of economic aggregates can be acquired by building models of economies that are internally consistent. Such faith perseveres despite the fact that internal consistency is always purchased with simplification and abstraction." 

In the view of Robert Lucas this faith is strong enough to establish a new method of achieving understanding and a new meaning for the word "theory." Writing about economic fluctuations, Lucas [1981, p. 219] asserts that "One exhibits understanding of business cycles by constructing a model in the most literal sense: a fully articulated artificial economy which behaves through time so as to imitate closely the time series behavior of actual economies. The Keynesian macroeconomic models were the first to attain this level of explicitness and empirical accuracy; by doing so they altered the meaning of the term 'theory' to such an extent that the older business cycle theories could not really be viewed as 'theories' at all." 

The spinning continues on the superficial analogy that in Mises's judgment had been spun out too long several decades ago. Economic understanding in Mises's own view in achieved by identifying cause-and-effect relationships between individual actions in the marketplace and the economic phenomena to which they give rise. No amount of faith can transform the articulation of an artificial economy into an understanding of a real one. The mathematical modeling that characterizes New Classicist literature is not a means of achieving economic understanding but is rather a substitute for it. 

IV. Concluding Remarks 

Studies of Mises and his methods and comparisons of his praxeological reasoning with the more modern econometric and mathematical modeling techniques are fruitful pursuits. Such studies, of course, provide no pat formulas for devising economic theories or for establishing their validity and relevance, but they do provide some valuable guidance. 

It has become popular to insist that no methodological taboos be issued...except for the taboo against issuing taboos. I propose as a second exception the taboo issued earlier in this paper: "Do not allow the applicability of mathematical or statistical methods to define the scope of economics." In terms of the Venn diagram depicting the overlap between mathematics and economics, the taboo translates into the imperatives: Redeploy the border guards. Accept responsibility for demonstrating that mathematically derived results have economic relevance; refrain from drawing conclusions about real-world economies that hinge critically on some assumption made for the sake of mathematical tractability. 

In one sense these imperatives are weak ones. Who could explicitly reject them and expect to maintain intellectual respectability? In another sense they are not so weak. Their implicit rejection pervades modern economic literature. The actual observance of these imperatives would require a radical — and salutary — change in the way modern economists go about their business. 

Published in The Meaning of MisesBibliography:

Barro, Robert J., "Rational Expectations and the Role of Monetary Policy," in Barro, Money, Expectations and Business Cycles. New York: Academic Press, 1981, pp. 79-110.

Dwyer, Gerald P., Jr., "Inflation and Government Deficits," Economic Inquiry, vol. 20, no. 3 (July) 1982, pp. 315-29.

Egger, John B., "The Austrian Method," in Louis M Spadaro, ed., New Directions in Austrian Economics. Kansas City: Sheed Andrews and McMeel, Inc., 1978, pp. 19-39.

Galloway, Lowell, and Vishwa Shukla, "The Neoclassical Production Function," American Economic Review, vol. 64, no. 2 (June) 1974, pp.348-58.

Garrison, Roger W., "Waiting in Vienna," in Mario J. Rizzo, Time Uncertainty and Disequilibrium. Lexington, MA: D. C. Heath and Co., 1979, pp. 215-26.

Fischer, Stanley, "Paul Anthony Samuelson," John Eatwell, Murray Milgate and Peter Newman, eds, The New Palgrage: A Dictionary of Economics. London: Macmillan Press, 1987, vol. IV, pp. 234-41.

Granger, C. W. J., and P. Newbold, Forecasting Economic Time Series. New York: Academic Press, 1977.

Hayek, Friedrich A. "The Theory of Complex Phenomena," in Hayek, Studies in Philosophy, Politics and Economics. Chicago: University of Chicago Press, 1967, pp. 22-42.

Herron, Caroline Rand, "Economist to Economist, in English," New York Times, Sunday, September 27, 1987, sec. 3, p. 4.

Klamer, Arjo, Conversations with Economists. Totowa, NJ: Roman and Allanheld, Publishers, 1984.

Lachmann, Ludwig M., Macro-economic Thinking. Studies in Economics No. 6. Menlo Park, CA: Institute for Humane Studies, 1978.

Lucas, Robert E. Jr., Studies in Business Cycle Theory. Cambridge, MA: M.I.T. Press, 1981.

Mises, Ludwig von, Human Action, 3rd rev. ed. Chicago: Henry Regnery Company, 1966. (First edition: 1949)

Musgrave, Alan, "'Unreal Assumptions' in Economic Theory: the F-Twist Revisited," Kyklos, vol. 34, no. 3, 1981, pp. 377-87.

Phelps, Edmund S., "The New Microeconomics in Employment and Inflation Theory," in Phelps et al., Microeconomic Foundations of Employment and Inflation Theory. New York: W. W. Norton and Company, Inc., 1970, pp. 1-23.

Rothbard, Murray N. Man, Economy, and State: A Treatise on Economic Principles. Los Angeles: Nash Publishing Co., 1970.

Samuelson, Paul A., Foundations of Economic Analysis. New York: Atheneum, 1974. (Originally published in 1947)

Sargent, Thomas J., Dynamic Macroeconomic Theory. Cambridge MA: Harvard University Press, 1987.

Sims, Christopher A., "Money, Income, and Causality," American Economic Review, vol. 62, no. 4 (September) 1972, pp. 540-52.

Stigler, George J., Production and Distribution Theories. New York, Macmillan and Co., 1946.

Yeager, Leland B., "Capital Paradoxes and the Concept of Waiting," in Mario J. Rizzo, Time Uncertainty and Disequilibrium. Lexington, MA: D. C. Heath and Co., 1979, pp. 187-214. 

  • 1. Praxeology can be interpreted as "action logic" in which it is recognized that actions (a) transpire through time and (b) are motivated by perceived cause-and-effect relationships. In Mises' own words [1966, p. 99], "What distinguishes epistomologically the praxeological system from the logical system is precisely that it implies the categories of time and causality."

  • 2.  For an illuminating contrast between "cause and effect" and "mutual determination" in the context of production theory, see Rothbard [1970, pp. 277-80].

  • 3. Ludwig Lachmann [1978] provides an insightful critique of this relationship. His own dissatisfaction with the neo-Ricardian theory derives from the absence of an adequate microeconomic foundation. In particular, the neo-Ricardians are in clear violation of Lachmann's second rule: "In discussing a system of action..., we are not entitled to abstract from the springs of human action, the purposes sought by individuals and the plans in which they find their expression by assuming their modus operandi to be known and therefore predictable" [1978, p. 6].

  • 4. The mathematician in his limited role as "pattern maker" and the statistician in his similarly limited role are discussed by Hayek [1967].

  • 5. Assumptions are often made for the sake of conceptual rather than mathematical tractability. Mises, for instance, never hesitated to invoke the ceteris paribus assumption--even when
    it was clearly unrealistic. Debate in recent years about the merits of realism per se has been particularly unproductive. See Musgrave [1981] for a fruitful recasting of this methodological issue.

  • 6.  For a critical exposition of the Cambridge controversy and a methodological treatment of the specific issues, see Lachmann [1978, pp. 15-17], Yeager [1979, pp. 187-93], and Garrison [1979, pp. 221-24].

  • 7. Arjo Klamer's conversations with Lucas, Sargent, and Townsend [Klamer, 1984] lend support to this interpretation.

Categories: Current Affairs

Why do neoliberals support a Negative Income Tax?

Adam Smith Institute - Tue, 20/02/2018 - 17:15

This morning, I spoke at the LSE’s Citizen's Basic Income Day on the neoliberal case for a basic income (or ideally a Negative Income Tax). I’ll be tweaking the presentation for our regular sixth form seminars, but below is an approximation of my remarks (thanks to our former Executive Director Sam Bowman for laying the groundwork):

Neoliberals support an efficient welfare state that guarantees a minimum standard of living for every citizen: ensuring that wealth created by globalisation and automation is spread across society. The design of that welfare state should avoid poverty traps created by high and inconsistent marginal tax rates: some people on Universal Credit only keep 20p of every extra £1 they earn (although this is still an improvement on previous marginal effective tax rates of up to 95p per £1). It should also be minimally paternalistic, which means as little means-testing as possible and delivery in the form of cash/bank account payments rather than funds that can only be spent on certain goods or services (e.g. housing benefit, food stamps). Finally, it should be a comprehensive overall of all benefits (including housing benefit), with the exception of disability benefits.

Following in the footsteps of Milton Friedman, we therefore support a Negative Income Tax (NIT) paid to individuals (including children) with a fairly low, uniform withdrawal rate. The base amount for the NIT should be set high enough to ensure a basic standard of living, with econometricians using experimental data to determine the exact level of base payment and withdrawal rate.

We plump for a Negative Income Tax over the (very similar) Citizen’s Basic Income (CBI) option, although we would still support the latter if it were the only proposal on the table. While NIT claws back money from higher earners by withdrawing payments as earnings increase, CBI does so through the existing system of taxation (i.e. after the initial lump sum is paid to everyone). The problem with CBI is that giving rich people money then taking it away again through taxation is inefficient: “when the government transfers money, it does so in a leaky bucket.”

A Negative Income Tax could also make it easier to implement other parts of the neoliberal agenda, such as phasing out the minimum wage, introducing a carbon tax, and auctioning off visas. Minimum wage laws aim to guarantee a basic standard of living for those in work, but economic evidence shows that they have disemployment effects and slow down job creation. A Negative Income Tax accomplishes the aim of minimum wage laws without killing jobs and gumming up the labour market, rendering such laws without justification. Carbon taxes—which aim to compensate for externalities generated by pollution—are currently extremely unpopular, but linking revenues to the base NIT level is one way of making them politically palatable. The same link could potentially be established for state revenues from a visa auction system, which would make the well-documented link between immigration and economic prosperity more obvious to people already living in this country.

There are many objections to Negative Income Tax (and Citizen’s Basic Income) from the left and the right. On the left, detractors worry that the system will subsidise employers paying below-subsistence wages, undermine wider socialist struggles, and have negative effects on marginalized groups like disabled people, parents of multiple children, and those with high housing costs.

On the first point, I defer to the Cato Institute’s Ryan Bourne discussing the similar case of tax credits: “employers generally pay people according to the productivity of their work, not some preordained amount to compensate them for a set standard of living.” While the experience of tax credits suggests that wages may drop slightly in the short-run as more people are encouraged to enter the labour market, this effect will quickly dissipate as the supply of labour adjusts accordingly. There’s also the oft-overlooked point that an income floor tends to increase the overall bargaining power of labour!

The claim that NIT/CBI will be used to justify more neoliberal policies at the expense of left-wing ones is partially true. But what this criticism overlooks is that a free market welfare system accomplishes what many on the left desire: poverty alleviation, increased worker bargaining power, and an end to (most) paternalistic means-testing.

Keeping disability benefits separate from the NIT/CBI addresses their potentially higher welfare needs, and targeting payments at individuals (including a rate for children) deals with varying family size. As for those facing high housing costs, it’s important to compare a Negative Income Tax with the failures of housing benefit (which should be abolished). Transition measures are necessary to avoid those receiving housing benefit being left in the lurch, but an equivalent cash payout as part of an NIT/CBI would encourage more efficient allocation of housing stock while stopping rents being hiked up. And of course, the best long-term solution to unaffordable housing is sweeping supply-side reform.

Opposition to Negative Income Tax from the right tends to focus on the purported cost, the potential for widespread idleness, and long-term political risks. It’s vital that cost is viewed in comparison to our current welfare system, and it’s important that those concerned with the overall size of the state remember that its scope also matters. That said, cost remains an open question.

Even if it’s fiscally viable, doesn’t paying everyone an unconditional lump sum kill the incentive to work? Well, not really. Our recently released paper Basic Income Around The World looks at the evidence from Basic Income experiments and finds little evidence of workers exiting the labour market or significantly reducing hours worked.

Perhaps the strongest objection I’ve come across from a centre-right perspective is the worry that any NIT/CBI would be ‘bid up’ and rendered harmful by the political process, as parties compete to offer the highest minimum level of income. As the Institute of Economic Affairs’ Steve Davies put it:

Given that, it is for many a racing certainty that it will be bid up by political competition to a damaging level and that there will also be constant and often successful efforts by special interests to create specific add-ons or separate benefits in addition to the UBI, which will lead to the re-creation of much of the existing welfare state but now in addition to a UBI. This will defeat the main point of a UBI for those who want to replace the costly complications of the existing welfare system.

The best answer I have here is that the future of any policy is uncertain, and any NIT/CBI could also be bid up or remain in rough equilibrium. More work needs to be done on the possibility of an independent political body (think of the Low Pay Commission or the Bank of England) taking responsibility for setting the details of such a policy out of the hands of politicians. In the end, the future of our welfare system is in our hands, and a Negative Income Tax should be the long-term goal.

Categories: Current Affairs

Okoh libeled over Lagos election claims

Anglican Ink - Tue, 20/02/2018 - 17:06

"Disgruntled" elements in the diocese of Lagos responsible for false accusations of corruption

With Inequality, Some Is Fair and Some Is Unfair

Mises Institute - Tue, 20/02/2018 - 17:00
By: Sascha Klocke

Should we care about inequality? Interventionists and egalitarians of all stripes would answer with a resounding “yes.” They argue that, in the words of former president Obama, inequality is “the defining challenge of our time,” and their criticisms of high and growing inequality such as Occupy Wall Street’s protests against the (symbolic) “1%,” Piketty’s Capital in the Twenty-First Century, or the annual Oxfam report on wealth inequality manage to draw a lot of public attention.

Conversely, free market advocates and proponents of capitalism appear to often categorically reject the notion, as illustrated by Daniel Lacalle’s recent Mises Wire article. Instead of focusing on inequality trends, Lacalle and others argue, we should focus on the achievements of capitalism with regard to the staggering increase in (material) living standards across the globe, and not worry too much that growth has not been evenly distributed. Inequality is seen as a natural outcome of the market process and economic development, provides positive economic incentives, and rewards individuals according to their efforts and services rendered to society at large. Public and political focus on inequality just serves as justification for continued interventionism, which is threatened by steady retreat of absolute poverty across the world. To quote Lacalle: “If the world eradicates poverty, the bureaucrat’s job is gone.”

Inequality, however, is a complex phenomenon, encompassing wealth and income as well as within — and between — country inequality, not all of which move in the same direction (global income inequality, for example, is now falling). More importantly, it is important to analyze what causes inequality. Whether inequality is good, bad, or indifferent is ultimately a moral judgment.1 It is here that the free-market position would benefit from a more nuanced analysis.

Despite different judgments concerning inequality, interventionists and free-market advocates seem to agree that, for the most part, inequality is a natural outcome of the market process or “capitalist development.” Throughout history and across the globe, however, the causes of inequality have been multi-faceted and lie not only in economic processes, but stem also from the institutional realm. It is the latter — inequality caused by (state) intervention — which the supporters of the free market might also find objectionable and in opposition to their ideals.

RELATED: "How Money Production Can Worsen Income Inequality" by Jörg Guido Hülsmann

One example, which should speak to Austrian economists and libertarians and addresses one of the most potent symbols of contemporary social movements, “the fight against the 1%,” is that of modern central banking and monetary policy. As Louis Rouanet and others argue, central bank policy, notably the creation of asset bubbles and Cantillon effects which redistribute income from the bottom to the top via inflation, has played an important part in increasing wealth and income inequality in the US over the last decades. This development has continued unabated in the aftermath of the financial crisis of 2007/08 and the subsequent “unconventional monetary policy,” and does not constitute a “normal” outcome of the market process, but a significant intervention in it (with policies such as bail-outs effectively eliminating one important half of the market’s profit and loss mechanism). It has also not resulted in unevenly distributed “improvement for all,” but in great material improvements for some and stagnation for many others.

Free-market advocates are, of course, often at the forefront of criticizing such policies and interventions. However, it would appear that linking such criticism explicitly to the inequality debate, acknowledging the concerns over rising inequality, and differentiating between “fair” and “unfair” inequality depending on its sources is a better strategy for the advocates of free markets than categorically dismissing that inequality is anything to be concerned with at all.

  • 1. Of course, there are also attempts to make value-free arguments for why inequality is “bad,” such as the proposition that certain levels of inequality harm “growth.” These, however, seem reminiscent of the “neoliberal” pattern where policy recommendations are declared to be “objective” on the grounds that growth or “efficiency” are somehow “objectively” desirable.

Categories: Current Affairs

Church of Nigeria statement denying fraud in the election of the Bishop of Lagos

Anglican Ink - Tue, 20/02/2018 - 16:23

Secretary of the House of Bishops repudiates claims bribery secured the election of Bishop Humphrey Olumakaiya 

Madsen Moment - BBC License Fee

Adam Smith Institute - Tue, 20/02/2018 - 14:53

This week's Madsen Moment sees Dr Pirie take on the BBC License Fee. Making up 10% of all prosecutions in England and Wales, as well as hitting the poorest hardest, the fee is outdated and indefensible. It's time to move to a subscription model. 

Categories: Current Affairs

End the Drug War for These Very Practical Reasons

Mises Institute - Tue, 20/02/2018 - 12:00
By: Mark Thornton

Timothy Hsiao recently made the rather startling case that libertarians should support the War on Drugs by claiming that recreational drug use undermines a critical precondition for freedom, namely, the ability to think clearly and to choose wisely. Hsiao notes that:

Accordingly, since the government has a responsibility to protect personal freedom, it must also protect and promote a culture that is conducive to clear thinking and discourages impaired thinking. The government, therefore, has a responsibility to restrict activities that impair, destroy, or otherwise undermine clear thinking.

There are many types of libertarianism. They range from the strong version, which is grounded in the non-aggression principle and prohibits any coercion by government, to the weak or impaired version where government can use force to foster particular freedoms and activities. Hsiao’s argument obviously rests on a weak version of libertarianism.

The argument that alcohol and drugs alter our ability to think clearly and therefore need to be restricted is not new. In fact, it can likely be traced back thousands of years, and was a common argument in the modern American movement to prohibit alcohol during the 19th century and during the War on Drugs of the 20th century. Recall, for instance, the “Reefer Madness” hysteria of the 1930s, when the use of cannabis (marijuana) was said to cause insanity, violence, rape, and murder, and acts of superhuman strength.

The larger point here is that Hsiao’s use of libertarianism shows just how popular libertarian thinking has become. In fact, demographically speaking libertarianism and libertarian-conservativism seem to be the wave of the future. However, drug and alcohol prohibition is a policy usually connected to the ideology of progressivism and even fascism.

For the sake of argument, let us grant Professor Hsiao his own version of libertarianism. Let us also grant that alcohol, marijuana, cocaine, heroin and many other drugs impair clarity of thought, choice, and action. Finally, let us further grant that certain drugs are so powerful and addictive that they can take over individuals’ lives and lead to improper actions, violence, accidents, and overdose deaths.

The Opioid Crisis is a painful reminder of these abnormalities. Here we have thousands of Americans becoming new addicts and thousands dying from drug overdoses each month. Furthermore, the crisis involves “normal” Americans, who would never otherwise consider trying heroin, becoming heroin addicts and overdosing.

Professor Hsiao does not discuss this crisis, but surely it is the best evidence for his case that certain drug use impairs individuals in a way that undercuts their self-interest by short circuiting their ability to reason and act rationally. However, this crisis is mostly about the changes in pain prescription guidelines rather than prohibition.

Two Pragmatic Objections to the Drug War

The two objections that I wish to raise to his libertarian case for drug prohibition are pragmatic, not libertarian per se. In fact, I firmly believe, like Professor Hsiao, that society must somehow impose itself on individuals to induce improved clarity of thought and individual responsibility.

The first objection raises the question of whether or not drug prohibition works to achieve its goal. This objection is not a cost-benefit issue, so that achieving even a small fraction of the goal at a high cost is enough to successfully counter this objection.

In my second objection, I ask the questions: What is the general reason why we have such a large problem with alcohol and drugs and what is the best response for dealing with these problems?  

Drug Prohibition Does Not Work

Alcohol and drug prohibition creates more problems than it solves. During alcohol prohibition, circa 1920–1933, beer and wine were virtually non-existent on the black market while spirits of very high potency and high levels of impurities flooded the market. Crime and corruption were rampant. The murder rate nearly doubled. Bribery of public officials was endemic and respect for the rule of law plummeted. It is true that teetotalers and many moderate drinkers did obey the law. However, they were not part of the problem alcohol prohibition was designed to address.

The same is similarly true of the War on Drugs. The Reefer Madness hysteria is now widely considered hokey propaganda, much like the more recent “This is your brain on drugs” campaign. When President Nixon started his War on Drugs, the government measurement of the potency of cannabis was a mere 0.4%. Twelve years later it was ten times as high. The potency has continued to increase and the reason is prohibition itself, not consumer demand. The Iron Law of Prohibition states that prohibition increases drug potency and makes the product more dangerous.

That does not matter much with cannabis because consumers can always use a lower quantity. However, with so much legal pressure on cannabis, drug cartels have increasingly turned to cocaine, heroin, and methamphetamine as the drugs of their choice. The potency of these drugs makes it easier to smuggle a far greater number of doses in a given container compared to bulky cannabis.

The Gateway Theory of drugs has been thoroughly discredited, but the history of the War on Drugs has mimicked the theory because over time law enforcement effort and legal penalties have increased and consequently drugs have become more potent and dangerous to consume.

The War on Drugs has also spread crime, corruption, and violence. The US has the world’s largest prisoner population and highest rate of incarceration. The most salient factor in this is the War on Drugs. America is also home to the largest gang population in the world, largely financed by selling illegal drugs. Our War on Drugs has caused failed states in Central America and is a leading vehicle for financing terrorism.

Why Drug Abuse?

To help solve a problem, it helps to know what is causing the problem. Inner city minorities, war veterans, people with mental illnesses and young males have much higher rates of alcohol and illegal drug use and abuse. What all these groups have in common is that they tend to be marginalized in society and to experience a general condition of hopelessness and anxiety for their future.

We can also see this marginalization and hopelessness in the general population. In the US there are haves and have nots. As an economist I see the group of the “haves” as having a special advantage through government. Think of all the professions that require a government license rather than a good reputation or some form of professional certification to succeed. Think of all the government contractors. Think of all the people employed through government and unions. All these people hold a privileged position in society. They generally work less for greater pay and fringe benefits and have greater job security compared to the “have nots” or unprivileged population. These advantages are typically secured through access to government backing or at least tacit appeal to government coercion.

The unprivileged population has no such advantages. They participate in tight labor markets that do not have restrictions on entry. Therefore, they have a hard time getting and keeping jobs which ultimately pay less and have fewer fringe benefits compared to the privileged groups. They also have a far lower level of job security and rates of employment. Not surprisingly, a great deal of alcohol and illegal drug use and abuse occurs in this group, which can keep the unprivileged people stuck in their dead-end jobs. Alcohol and drugs help them cope with their marginalization and hopelessness. Unlike the privileged, this group also is far less likely to have health insurance which might pay for addiction treatment services. It is government interference, and not drugs themselves, which is the indispensable element in this cycle of despair.

An important solution to this situation would therefore be to eliminate government privileges and allow everyone to compete on a level playing field. Attacking drugs is bound to fail to alleviate societal problems, because the drugs are not the root cause of those problems. If Professor Hsiao’s recommendations were followed, one could anticipate the government becoming even more powerful, which would actually harm, and not help, the very people whom Professer Hsiao seeks to help.

Just as Professor Hsiao’s arguments are not novel, neither are mine. Even Milton Friedman, who structured his entire body of thought on a weak version of libertarianism, openly opposed the War on Drugs for over 34 years and he did so for the pragmatic reason that prohibition did not work, but the marketplace did. Moving from prohibition to legalization does not just make the drugs cheaper; it changes everything for the better.

Categories: Current Affairs

Polly insists Tory NHS policy is working and working well

Adam Smith Institute - Tue, 20/02/2018 - 07:01

This is not, of course, what Polly Toynbee thinks she is saying yet it is still so. Her claim is that recent Cameron/Conservative policy concerning the National Health Service is working and working well:

After Brexit, David Cameron’s second worst legacy is his assault on the NHS. His explosive 2012 Health and Social Care Act was designed to privatise it into small pieces, while an eight-year funding droughtyields new worst ever figures every month. The wonder is that the service still treats so many so well. The number of GPs fell again last month, while graphs for nurses, emergency doctors, ambulance staff and just about everything show a relentless downward trend. Waiting times for cancer treatments rise, as do delays to treating older people’s hip fractures after falls.

The NHS is now the top cause of public anxiety, according to Ipsos Mori. Is there any good news? There is: the Institute for Fiscal Studies finds a continuing steep rise in NHS productivity, treating ever more people, far outstripping dismal overall UK productivity rates. Hold on to that fact,....

The grand problem with the NHS has always been that productivity. As many, including Polly, have told us it has its own inflation rate. 4% or so in fact. That is, unless the budget increases by that amount each year then there will be insufficient resources. Some of this is Baumol's Cost Disease - productivity is more difficult to increase in services than in manufacturing. But the cure to it, in so far as there is to something structural like that, is more markets, as it is in manufacturing and agriculture. Markets and competition are the causes of productivity increases. As someone as notable as Paul Krugman has pointed out, it's entirely possible that the entirely non-market Soviet economy managed not to increase total factor productivity one whit between 1917 and 1989. 

We are not entirely on board with thinking that recent NHS policy has been perfect, to put it mildly. Yet the general gist, more internal markets, more competition, we approve of. And here we have Polly Toynbee no less telling us that it has been working.

Productivity in the NHS is increasing faster than in any other sector of the economy. No, don't wonder whether that is true, just consider the statement and the source. If it is true, as is stated, then that must, definitively, mean that recent NHS policy has been successful at dealing with the system's most glaring fault, the slower than the rest of the economy productivity growth.

And look at our source - Polly Toynbee. Good news, eh? It would be even better if she realised what is was she was saying....

Categories: Current Affairs


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