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Conceived in Liberty, Volume 5: The New Republic: 1784–1791

Mises Institute - Tue, 20/10/2020 - 16:30

The fifth volume of Conceived in Liberty highlights the most important battle of the American project — one that continues to this day — the conflict between those who want to centralize power, and those who choose to stand to defend the American heritage of liberty.

This book features a foreword by Judge Andrew Napolitano, a preface by Dr. Thomas E. Woods, and an introduction by Dr. Patrick Newman. Narrated by Millian Quinteros.

Download the complete audiobook (41 MP3 files) in one ZIP file here. This audiobook is also available on Soundcloud, iTunes, Google Play, and via RSS.​
Categories: Current Affairs

Breaking Out of the Walrasian Box: The Cases of Schumpeter and Hansen

Mises Institute - Mon, 20/07/2020 - 21:00

      Since World War II, mainstream neoclassical economics has followed the general equilibrium paradigm of Swiss economist Leon Walras (1834-1910).1 Economic analysis now consists of the exegesis and elaboration of the Walrasian concept of general equilibrium, in which the economy pursues an endless and unchanging round of activity—what the Walrasian Joseph Schumpeter aptly referred to as “the circular flow.” Since the equilibrium economy is by definition a changeless and unending round of robotic behavior, everyone on the market has perfect knowledge of the present and the future, and the pervasive uncertainty of the real world drops totally out of the picture. Since there is no more uncertainty, profits and losses disappear, and every business firm finds that its selling price exactly equals its cost of production.

     It is surely no accident that the rise to dominance of Walrasian economics has coincided with the virtual mathematization of the social sciences. Mathematics enjoys the prestige of being truly “scientific,” but it is difficult to mathematize the messy and fuzzy uncertainties and inevitable errors of real world entrepreneurship and human actions. Once one expunges such actions and uncertainties, however, it is easy to employ algebra and the tangencies of geometry in analyzing this unrealistic but readily mathematical equilibrium state.

     Most mainstream economic theorists are content to spend their time elaborating on the general equilibrium state, and simply to assume that this state is an accurate presentation of real world activity. But some economists have not been content with contemplating general equilibrium; they have been eager to apply this theory to the real world of dynamic change. For change clearly exists, and for some Walrasians it has not sufficed to simply translate general equilibrium analysis to the real world and to let the chips fall where they may.

     As someone who has proclaimed that Leon Walras was the greatest economist who ever lived, Joseph A. Schumpeter (1883-1950) faced this very problem. As a Walrasian, Schumpeter believed that general equilibrium is an overriding reality; and yet, since change, entrepreneurship, profits, and losses clearly exist in the real world, Schumpeter set himself the problem of integrating a theoretical explanation of such change into the Walrasian system. It was a formidable problem indeed, since Schumpeter, unlike the Austrians, could not dismiss general equilibrium as a long-run tendency that is never reached in the real world. For Schumpeter, general equilibrium had to be the overriding reality: the realistic starting point as well as the end point of his attempt to explain economic change.2

     To set forth a theory of economic change from a Walrasian perspective, Schumpeter had to begin with the economy in a real state of general equilibrium. He then had to explain change, but that change always had to return to a state of equilibrium, for without such a return, Walrasian equilibrium would only be real at one single point of past time and would not be a recurring reality. But Walrasian equilibrium is a world of unending statis; specifically, it depicts the consequences of a fixed and unchanging set of individual tastes, techniques, and resources in the economy. Schumpeter began, then, with the economy in a Walrasian box; the only way for any change to occur is through a change in one or more of these static givens.

      Furthermore, Schumpeter created even more problems for himself. In the Walrasian model, profits and losses were zero, but a rate of interest continued to be earned by capitalists, in accordance with the alleged marginal productivity of capital. An interest charge became incorporated into costs. But Schumpeter was too much of a student of Böhm-Bawerk to accept a crude productivity explanation of interest. The Austrian approach was to explain interest by a social rate of time preference, of the market’s preference for present goods over future goods. But Schumpeter rejected the concept of time-preference as well, and so he concluded that in a state of general equilibrium, the rate of interest as well as profits and losses are all zero.

      Schumpeter acknowledged that time-preference, and hence interest, exist on consumption loans, but he was interested in the production structure. Here he stressed, as against the crude productivity theory of interest, the Austrian concept of imputation, in which the values of products are imputed back to productive factors, leaving, in equilibrium, no net return. Also, in the Austrian manner, Schumpeter showed that capital goods can be broken down ultimately into the two original factors of production, land and labor.3 But what Schumpeter overlooked, or rather rejected, is the crucial Böhm-Bawerkian concept of time and time-preference in the process of production. Capital goods are not only embodied land and labor; they are embodied land, labor, and time, while interest becomes a payment for “time.” In a productive loan, the creditor of course exchanges a “present good” (money that can be used now) for a “future good” (money that will only be available in the future). And the primordial fact of time-preference dictates that every one will prefer to have wants satisfied now than at some point in the future, so that a present good will always be worth more than the present prospect of the equivalent future good. Hence, at any given time, future goods are discounted on the market by the social rate of time-preference.

     It is clear how this process works in a loan, in an exchange between creditor and debtor. But Böhm-Bawerk’s analysis of time-preference and interest went far deeper, and far beyond the loan market for he showed that time-preference and hence interest return exist apart from or even in the absence of any lending at all. For the capitalist who purchases or hires land and labor factors and employs them in production is buying these factors with money (present good) in the expectation that they will yield a future return of output, of either capital goods or consumer goods. In short, these original factors, land and labor, are future goods to the capitalist. Or, put another way, land and labor produce goods that will only be sold and hence yield a monetary return at some point in the future; yet they are paid wages or rents by the capitalist now, in the present.

      Therefore, in the Böhm-Bawerkian or Austrian insight, factors of production, hence workers or landowners, do not earn, as in neoclassical analysis, their marginal value product in equilibrium. They earn their marginal value product discounted by the rate of time-preference or rate of interest. And the capitalist, for his service of supplying factors with present goods and waiting for future returns, is paid the discount.4 Hence, time-preference and interest income exist in the state of equilibrium, and not simply as a charge on loans but as a return earned by every investing capitalist.

Schumpeter can deny time-preference because he can somehow deny the role of time in production altogether. For Schumpeter, production apparently takes no time in equilibrium, because production and consumption are “synchronized.”5 Time is erased from the picture, even to the extent of assuming away accumulated stocks of capital goods, and therefore of any age structure of distribution of such goods.6 Since production is magically “synchronized,” there is then no necessity for land and labor to receive any advances from capitalists. As Schumpeter writes:

There is no necessity [for workers or landowners] to apply for any “advances” of present consumption goods. . . . The individual need not look beyond the current period. . . . The mechanism of the economic process sees to it that he also provides for the future at the same time. . . . Hence every question of the accumulation of such stocks [of consumer goods to pay laborers] disappears.

     From this bizarre set of assumptions, “it follows”, notes Schumpeter, “that everywhere, even in a trading economy, produced means of production are nothing but transitory items. Nowhere do we find a stock of them fulfilling any functions.” In denying, further, that there is any “accumulated stock of consumer goods” ready to pay laborers and landowners, Schumpeter is also denying the patent fact that wages and rents are always paid out of the accumulated savings of capitalists, savings which could have been spent on consumer goods but which laborers and landowners will instead spend with their current incomes.

     How can Schumpeter come to this conclusion? One reason is that when workers and landowners exchange their services for present money, he denies that these involve “advances” of consumer goods, because “It is simply a matter of exchange, and not of credit transactions. The element of time plays no part.” What Schumpeter overlooks here is the profound Böhm-Bawerkian insight that the time market is not merely the credit market. For when workers and landowners earn money now for products that will only reap a return to capitalists in the future, they are receiving advances on production paid for out of capitalist saving, advances for which they in effect pay the capitalists a discount in the form of an interest return.7

     In most conceptions of final equilibrium, net savings are zero, but interest is high enough to induce gross saving by capitalists to just replace capital equipment. But in Schumpeter’s equilibrium, interest is zero, and this means that gross saving is zero as well. There appear to be neither an incentive for capitalists to maintain their capital equipment in Schumpeterian equilibrium nor the means for them to do so. The Schumpeterian equilibrium is therefore internally inconsistent and cannot be maintained.8

     Lionel Robbins puts the case in his usual pellucid prose:

If there were no yield to the use of capital . . . there would be no reason to refrain from consuming it. If produced means of production are not productive of a net product, why devote resources to maintaining them when these resources might be devoted to providing present enjoyment? One would not have one’s cake rather than eat it, if there were no gain to be derived from having it. It is, in short, an interest rate, which, other things being given, keeps the stationary state—the rate at which it does not pay to turn income into capital or capital into income. If interest were to disappear the stationary state would cease to be stationary. Schumpeter can argue that no accumulation will be made once stationary equilibrium has been attained. But he is not entitled to argue that there will be no decumulation unless he admits the existence of interest.9 (emphasis added)

     To return to Schumpeter’s main problem, if the economy begins in a Walrasian general equilibrium modified by a zero rate of interest, how can any economic change, and specifically how can economic development, take place? In the Austrian-Böhm-Bawerkian view, economic development takes place through greater investment in more roundabout processes of production, and that investment is the result of greater net savings brought about by a general fall in rates of time-preference. Upon such a fall, people are more willing to abstain from consumption and to save a greater proportion of their incomes, and thereby invest in more capital and longer processes of production. In the Walrasian schema, change can only occur through alterations in tastes, techniques, or resources. A change in time-preference would qualify as a very important aspect of a change in consumer “tastes” or values.

     But for Schumpeter, there is no time-preference, and no savings in equilibrium. Consumer tastes are therefore irrelevant to increasing investment, and besides there are no savings or interest income out of which such investment can take place. A change in tastes or time-preferences cannot be an engine for economic change, and neither can investment in change emerge out of savings, profit, or interest.

     As for consumer values or tastes apart from time-preference, Schumpeter was convinced that consumers were passive creatures and he could not envision them as active agents for economic change.10 And even if consumer tastes change actively, how can a mere shift of demand from one product to another bring about economic development?

     Resources for Schumpeter are in no better shape as engines of economic development than are tastes. In the first place, the supplies of land and labor never change very rapidly over time, and furthermore they cannot account for the necessary investment that spurs and embodies economic growth.

      With tastes and resources disposed of, there is only one logically possible instrument of change or development left in Schumpeter’s equilibrium system: technique. “Innovation” (a change in embodied technical knowledge or production functions) is for Schumpeter the only logically possible avenue of economic development. To admire Schumpeter, as many economists have done, for his alleged realistic insight into economic history in seeing technological innovation as the source of development and the business cycle, is to miss the point entirely. For this conclusion is not an empirical insight on Schumpeter’s part; it is logically the only way that he can escape from the Walrasian (or neoWalrasian) box of his own making; it is the only way for any economic change to take place in his system.

     But if innovation is the only way out of the Schumpeterian box, how is this innovation to be financed? For there are no savings, no profits, and no interest returns in Schumpeterian equilibrium. Schumpeter is stuck: for there is no way within his own system for innovation to be financed, and therefore for the economy to get out of his own particularly restrictive variant of the Walrasian box. Hence, Schumpeter has to invent a deus ex machina, an exogenous variable from outside his system that will lift the economy out of the box and serve as the only possible engine of economic change. And that deus ex machina is inflationary bank credit. Banks must be postulated that expand the money supply through fractional reserve credit, and furthermore, that lend that new money exclusively to innovators—to new entrepreneurs who are willing and able to invest in new techniques, new processes, new industries. But they cannot do so because, by definition, there are no savings available for them to invest or borrow.

     Hence, the conclusion that innovation is the instrument of economic change and development, and that the innovations are financed by inflationary bank credit, is not a perceptive empirical generalization discovered by Joseph Schumpeter. It is not an empirical generalization at all; indeed it has no genuine referent to reality. Suggestive though his conclusion may seem, it is solely the logical result of Schumpeter’s fallacious assumptions and his closed system, and the only logical way of breaking out of his Walrasian box.

     One sees, too, why for Schumpeter the entrepreneur is always a disturber of the peace, a disruptive force away from equilibrium, whereas in the Austrian tradition of von Mises and Kirzner, the entrepreneur harmoniously adjusts the economy in the direction of equilibrium. For in the Austrian view the entrepreneur is the main bearer of uncertainty in the real world, and successful entrepreneurs reap profits by bringing resources, costs, and prices further in the direction of equilibrium. But Schumpeter starts, not in the real world, but in the never-never land of general equilibrium which he insists is the fundamental reality. But in the equilibrium world of stasis and certainty there are no entrepreneurs and no profit. The only role for entrepreneurship, by logical deduction, is to innovate, to disrupt a preexisting equilibrium. The entrepreneur cannot adjust, because everything has already been adjusted. In a world of certainty, there is no room for the entrepreneur; only inflationary bank credit and innovation enable him to exist. His only prescribed role, therefore, is to be disruptive and innovative.

     The entrepreneur, then, pays interest to the banks, interest for Schumpeter being a strictly monetary phenomenon. But where does the entrepreneurinnovator get the money to pay interest? Out of profits, profits that he will reap when the fruits of his innovation reach the market, and the new processes or products reap revenue from the consumers. Profits, therefore, are only the consequence of successful innovation, and interest is only a payment to inflationary banks out of profit.

     Inflationary bank credit means, of course, a rise in prices, and also a redirection of resources toward the investment in innovation. Prices rise, followed by increases in the prices of factors, such as wages and land rents. Schumpeter has managed, though not very convincingly, to break out of the Walrasian box. But he has not finished his problem. For it is not enough for him to break out of his box; he must also get back in. As a dedicated Walrasian, he must return the economy to another general equilibrium state, for after all, by definition a real equilibrium is a state to which variables tend to return once they are replaced. How does the return take place?

     For the economy to return to equilibrium, profits and interest must be evanescent. And innovation of course must also come to an end. How can this take place? For one thing, innovations must be discontinuous; they must only appear in discrete clusters. For if innovation were continuous, the economy would never return to the equilibrium state. Given this assumption of discontinuous clusters, Schumpeter found a way: When the innovations are “completed” and the new processes or new products enter the market, they out-compete the old processes and products, thereby reaping the profits out of which interest is paid. But these profits are made at the expense of severe losses for the old, now inefficient, firms or industries, which are driven to the wall. After a while, the innovations are completed, and the inexorable imputation process destroys all profits and therefore all interest, while the sudden losses to the old firms are also ended. The economy returns to the unchanging circular flow, and stays there until another cluster of innovations appears, whereupon the cycle starts all over again.

     “Cycle” is here the operative term, for in working out the logical process of breakout and return, Schumpeter has at the same time seemingly developed a unique theory of the business cycle. Phase I, the breakout, looks very much like the typical boom phase of the business cycle: inflationary bank credit, rise in prices and wages, general euphoria, and redirection of resources to more investment. Then, the events succeeding the “completion” of the innovation look very much like the typical recession or depression: sudden severe losses for the old firms, retrenchment. And finally, the disappearance of both innovation and euphoria, and eventually of losses and disruption—in short, a return to a placid period which can be made to seem like the state of stationary equilibrium.

     But Schumpeter’s doctrine only seems like a challenging business cycle theory worthy of profound investigation. For it is not really a cycle theory at all. It is simply the only logical way that Schumpeter can break out and then return to the Walrasian box. As such, it is certainly an ingenious formulation, but it has no genuine connection with reality at all.

     Even within his own theory, indeed, there are grave flaws. In the Walrasian world of perfect certainty (an assumption which is not relaxed with the coming of the innovator), how is it that the old firms wait until the “completion” of the innovation to find suddenly that they are suffering severe losses? In a world of perfect knowledge and expectations, the old firms would know of their fate from the very beginning, and early take steps to adjust to it. In a world of perfect expectations, therefore, there would be no losses, and therefore no recession or depression phase. There would be no cycle as economists know it.

      Finally, Schumpeter’s constrained model can only work if innovations come in clusters, and the empirical evidence for such clusters is virtually nil.11 In the real world, innovations occur all the time. Therefore, there is no reason to postulate any return to an equilibrium, even if it had ever existed in the past.

     In conclusion, Schumpeter’s theory of development and of business cycles has impressed many economists with his suggestive and seemingly meaningful discussions of innovation, bank credit, and the entrepreneur. He has seemed to offer far more than static Walrasian equilibrium analysis and to provide an economic dynamic, a theoretical explanation of cycles and of economic growth. In fact, however, Schumpeter’s seemingly impressive system has no relation to the real world at all. He has not provided an economic dynamic; he has only found an ingenious but fallacious way of trying to break out of the static Walrasian box. His theory is a mere exercise in equilibrium logic leading nowhere.

     It is undoubtedly at least a partial realization of this unhappy fact that prompted Schumpeter to expand his business cycle theory from his open-cycle model of the Theory of Economic Development of 1912 to his three-cycle schema in his two-volume Business Cycles nearly three decades later.12 More specifically, Schumpeter saw that one of the problems in applying his model to reality was that if the length of the boom period is determined by the length of time required to “complete” the innovation and bring it to market, then how could his model apply to real life, where simultaneous innovations occur, each of which requires a different time for its completion? His later three-cycle theory is a desperate attempt to encompass such real-life problems. Specifically, Schumpeter has now postulated that the economy, instead of unitarily breaking out and returning to equilibrium, consists of three separate hermetically sealed, strictly periodic cycles—the “Kitchin”, the “Juglar,” and the “Kon-dratieff”—each with the same innovation-inflation-depression characteristics. This conjuring up of allegedly separate underlying cycles, each cut off from the other, but all adding to each other to yield the observable results of the real world, can only be considered a desperate lapse into mysticism in order to shore up his original model.

     In the first place, there are far more than three innovations going on at one time in the economy, and there is no reason to assume strict periodicity of each set of disparate changes. Indeed, there is no such clustering of innovations as would be required by the theory. Secondly, in the market economy, all prices and activities interact; there therefore can never be any hermetically sealed cycles. The multicycle scheme is an unnecessary and heedless multiplication of entities in flagrant violation of Occam’s Razor. In an attempt to save the theory, it asserts propositions that cannot be falsifiable, since another cycle can always be conjured up to explain away anomalies.13 In an attempt to salvage his original model, Schumpeter only succeeded in adding new and greater fallacies to the old.

     In the years before and during World War II, the most popular dynamic theory of economic change was the gloomy doctrine of “secular stagnation” (or “economic maturity”) advanced by Professor Alvin H. Hansen.14 The explanation of the Great Depression of the 1930s, for Hansen, was that the United States had become mired in permanent stagnation, from which it could not be lifted by free market capitalism. A year or two after the publication of Keynes’s General Theory, Hansen had leaped on the New Economics to become the leading American Keynesian; but secular stagnation, while giving Keynesianism a left-flavor, was unrelated to Keynesian theory. For Keynes, the key to prosperity or depression was private investment: flourishing private investment means prosperity; weak and fitful investment leads to depression. But Keynes was an agnostic on the investment question, whereas Hansen supplied his own gnosis. Private investment in the United States was doomed to permanent frailty, Hansen opined, because (1) the frontier was now closed; (2) population growth was declining rapidly; and (3) there would be hardly any further inventions, and what few there were would be of the capital-saving rather than labor-saving variety, so that total investment could not increase.

     George Terborgh, in his well-known reputation of the stagnation thesis, The Bogey of Economic Maturity, concentrated on a statistical critique.15 If the frontier had been “closed” since the turn of the century, why then had there been a boom for virtually three decades until the 1930s? Population growth too, had been declining for many decades. It was easy, also, to demolish the rather odd and audacious prediction that few or no further inventions, at least of the labor-saving variety, would ever more be discovered. Predictions of the cessation of invention, which have occurred from time to time through history, are easy targets for ridicule.

     But Terborgh never penetrated to the fundamentals of the Hansen thesis. In an age beset by the constant clamor of population doomsayers and zero-population-growth enthusiasts, it is difficult to conjure up an intellectual climate when it seemed to make sense to worry about the slowing of population growth. But why, indeed, should Hansen have considered population growth as ipso facto a positive factor for the spurring of investment? And why would a slowing down of such growth be an impetus to decay? Schumpeter, in his own critique of the Hansen thesis, sensibly pointed out that population growth could easily lead to a fall in real income per capita.16

     Ironically, however, Schumpeter did not recognize that Hansen, too, in his own way, was trying to break out of the Walrasian box. Hansen began implicitly (not explicitly like Schumpeter) with the circular flow and general equilibrium, and then considered the various possible factors that might change—or, more specifically, might increase. And these were the familiar Walrasian triad: land, labor, and technique. As Terborgh noted, Hansen had a static view of “investment opportunities.” He treated them as if they were a limited physical entity, like a sponge. They were a fixed amount, and when that maximum amount was reached, investment opportunities were “saturated” and disappeared. The implicit Hansen assumption is that these opportunities could be generated only by increases in land, labor, and improved techniques (which Hansen limited to inventions rather than Schumpeterian innovations). And so the closing of the frontier meant the drying up of “land-investment opportunities”, as one might call them, the slowing of population growth, the end of “labor-investment opportunities,” leading to a situation where innovation could not carry the remaining burden. And so Hansen’s curious view of the economic effects of diminishing population growth, as gloomily empirical as it might seem, was not really an empirical generalization at all. Indeed, it said nothing about dynamic change or about the real world at all. The allegedly favorable effect of high population growth was merely the logical spinning out of Hansen’s own unsuccessful variant of trying to escape from the Walrasian box.

     And so Hansen’s curious view of the economic effects of diminishing population growth, as gloomily empirical as it might seem, was not really an empirical generalization at all. Indeed, it said nothing about dynamic change or about the real world at all. The allegedly favorable effect of high population growth was merely the logical spinning out of Hansen’s own unsuccessful variant of trying to escape from the Walrasian box.

The author learned the basic insights of this article many years ago from lectures of Professor Arthur F. Burns at Columbia University.

  • 1. Before World War II, the dominant paradigm, at least in Anglo-American economics, was the neo-Ricardian partial equilibrium theory of Alfred Marshall. In that era, Walras and his followers, the earliest being the Italian Vilfredo Pareto, were referred to as “the Lausanne school.” With the Walrasian conquest of the mainstream, what was once a mere school has now been transformed into “microeconomics.”
  • 2. In maintaining that Schumpeter was more influenced by the Austrians than by Walras, Mohammed Khan overlooks the fact that Schumpeter’s first book, and the only one still untranslated into English, Das Wesen und der Hauptinhalt der Theoretischen Nationalekonomie (The Essence and Principal Contents of Economic Theory) (Leipzig, 1908), written while he was still a student of Böhm-Bawerk, was an aggressively Walrasian work. Not only is Das Wesen a nonmathematical apologia for the mathematical method, but it is also a study in Walrasian general equilibrium that depicts economic events as the result of mechanistic quantitative interactions of physical entities, rather than as consequences of purposeful human action—the Austrian approach. Thus, Fritz Machlup writes that Schumpeter’s emphasis on the character of economics as a quantitative science, as an equilibrium system whose elements are “quantities of goods,” led him to regard it as unnecessary, and, hence, as methodologically mistaken for economics to deal with “economic conduct” and with “the motives of human conduct” (Fritz Machlup, “Schumpeter’s Economic Methodology,” Review of Economics and Statistics 33 (May 1951: 146-47). Cf. Mohammed Shabbir Khan, Schumpeter’s Theory of Capitalist Development (Aligarh, India: Muslim University of India, 1957). On Das Wesen, see Erich Schneider, Joseph Schumpeter: Life and Work of a Great Social Scientist (Lincoln, Neb.: University of Nebraska Bureau of Business Research, 1975), pp. 5-8. On Schumpeter as Walrasian, also see Schneider, “Schumpeter’s Early German Work, 1906-17,” Review of Economics and Statistics (May 1951): 1-4; and Arthur W. Marget, “The Monetary Aspects of the Schumpeterian System,” ibid. p. 112ff. On Schumpeter as not being an “Austrian,” also see “Haberler on Schumpeter,” in Henry W. Spiegel, ed., The Development of Economic Thought (New York: John Wiley and Sons, 1952), pp. 742-43.
  • 3. Thus, Schumpeter wrote that in the normal circular flow the whole value product must be imputed to the original productive factors, that is to the services of labor and land; hence the whole receipts from production must be divided between workers and landowners and there can be no permanent net income other than wages and rent. Competition on the one hand and imputation on the other must annihilate any surplus of receipts over outlays, any excess of the value of the product over the value of the services of labor and land embodied in it. The value of the original means of production must attach itself with the faithfulness of a shadow to the value of the product, and could not allow the slightest permanent gap between the two to exist. . . . To be sure, produced means of production have the capacity of serving in the production of goods. . . . And these goods also have a higher value than those which could be produced with the produced means of production. But this higher value must also lead to a higher value of the services of labor and land employed. No element of surplus value can remain permanently attached to these intermediate means of production (Joseph A. Schumpeter, The Theory of Economic Development: An Inquiry Into Profits, Capital, Credit, Interest, and the Business Cycle. New York: Oxford University Press, 1961, pp. 160, 162).
  • 4. See the attack on this Austrian view from a Knightian neoclassical perspective in Earl Rolph, “The Discounted Marginal Productivity Doctrine,” in W. Fellner and B. Haley, eds., Readings in the Theory of Income Distribution (Philadelphia: Blakiston, 1946), pp 278-93. For a rebuttal, see Murray N. Rothbard, Man, Economy, and State vol. I (Los Angeles: Nash Publishing Co., 1970), 431-33.
  • 5. On this alleged synchronization, see Khan, Schumpeter’s Theory, pp. 51, 53. The concept of synchronization of production is a most un-Austrian one that Schumpeter took from John Bates Clark, which in turn led to the famous battle in the 1930s between the Clark-Knight concept of capital and the Austrian views of Hayek, Machlup, and Boulding. See ibid., p. 6n. Also see F.A. Hayek, “The Mythology of Capital,” in Fellner and Haley, Readings, pp. 355-83.
  • 6. In Khan’s words, for Schumpeter “capital cannot have any age structure and perishes in the very process of its function of having command over the means of production” (Khan, Schumpeter’s Theory, p. 48). Schumpeter achieves this feat by sundering capital completely from its embodiment in capital goods, and limiting the concept to only a money fund used to purchase those goods. For Schumpeter, then, capital (like interest) becomes a purely monetary phenomenon, not rooted in real goods or real transactions. See Schumpeter, Economic Development, pp. 116-17.
  • 7. See Schumpeter, Economic Development, pp. 43-44.
  • 8. Clemence and Doody attempt to refute this charge, but do so by assuming a zero rate of time-preference. Capitalists would then be interested in maximizing their utility returns over time without regard for when they would be reaped. Hence, capital goods would be maintained indefinitely. But for those who believe that everyone has a positive rate of time-preference, and hence positively discounts future returns, a zero rate of return would quickly cause the depletion of capital and certainly the collapse of stationary equilibrium. Richard V. Clemence and Francis S. Doody, The Schumpeterian System (Cambridge, Mass: Addison-Wesley, 1950), pp. 28-30.
  • 9. In the excellent critique of Schumpeter’s zero-interest equilibrium by Lionel Robbins, “On a Certain Ambiguity in the Conception of Stationary Equilibrium,” Economic Journal 40 (June 1930): pp. 211-14. Also see Gottfried Haberler, “Schumpeter’s Theory of Interest,” Review of Economics and Statistics (May 1951): 122ff.
  • 10. Thus, Schumpeter wrote: “It is not the large mass of consumers which induces production. On the contrary, the crowd is mastered and led by the key personalities in production” (italics are Schumpeter’s) in “Die neuere Wirtschaftstheorie in den Vereinigten Staaten” (“Recent Economic Theory in the United States”) Schmollers Jahrbuch (1910), cited in Schneider, Joseph A. Schumpeter, p. 13.
  • 11. See Simon S. Kuznets, “Schumpeter’s Business Cycles,” American Economic Review (June 1940).
  • 12. Joseph A. Schumpeter, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, 2 vols. (New York: McGraw-Hill, 1939).
  • 13. This does not mean that all propositions must be falsifiable; they can be selfevident or deduced from self-evident axioms. But no one can claim that the alleged Kitchin, Juglar, and Kondratieff cycles are in any sense self-evident.
  • 14. See Alvin H. Hansen, Fiscal Policy and Business Cycles (New York: W.W. Norton, 1941). For a clear summary statement of his position, see Hansen, “Economic Progress and Declining Population Growth,” in G. Haberler, ed., Readings in Business Cycle Theory (Philadelphia: Blakiston, 1944), pp. 366-84.
  • 15. George Terborgh, The Bogey of Economic Maturity (Chicago: Machinery and Allied Products Institute, 1945).
  • 16. Schumpeter, Business Cycles, p. 74.
Categories: Current Affairs

We've moved the clocks forward, let's keep it that way

Adam Smith Institute - Sun, 29/03/2020 - 16:15

Now we have put the clocks forward, we will have longer, lighter evenings.

Lets’ leave it that way. Changing the clocks on everything is a hassle, and there is no scientific basis for it. In Britain, it started in 1916, based on the belief that lighter evenings would save energy during the First World War. In the Second World War we added yet another hour, with Double Summer Time.

But changing the clocks does not save energy. Several US states and cities straddle time zones, and there’s no difference in their energy use.

We’re told that farmers like it. They don’t: animals waiting to be fed don’t care what the clocks are saying. And farmers are only 1.5% of the workforce anyway.

My Scottish relatives complain that if the clocks didn’t go back in winter, children would be going to school in the dark and there would be more accidents. That’s wrong. Most road accidents happen in the evening—when people are tired after a day’s work and rushing to get home. Winter darkness just compounds the risk.

These arguments aren’t new. Boris Johnson rehearsed them in a newspaper article several years ago. Come October, he has the opportunity to do something about it—to improve our evenings and save us all a lot of hassle.

Categories: Current Affairs

My viral thoughts

Lustig's Letter - Sun, 29/03/2020 - 15:05
Speaking during a news conference on 12 August, 1986, the US president Ronald Reagan famously said: ‘The nine most terrifying words in the English language are: I'm from the Government, and I'm here to help.’ (Source: reaganfoundation.org)
Not any more, they’re not. Delete and replace: ‘I’m from the Government, and there’s no help available.’ O tempora, o mores. Small government good, big government bad? Heavens above, where on earth did that idea come from? Hey, we’re all Big Spenders now.
And quite right, too.
Oh, and while we’re demolishing hoary old nostrums, remember Theresa May telling an underpaid nurse ‘There’s no magic money tree’? Well, yes, there is, actually, and there always was. It’s just that until the coronavirus appeared, governments preferred to use it to bail out the banks and pay for nonsenses such as the woefully-misnamed independent nuclear deterrent. (Four nuclear-armed submarines, each capable of carrying 40 nuclear warheads. Cost: £5 billion per year.)
As Matthew Parris correctly asked in The Times: ‘Doesn’t the apparent discovery of a magic money tree kick the props from beneath the most potent and persuasive of all Conservative beliefs: that there is no magic money tree? … The Tories had better brace themselves for serious questions about how we can [find the cash] for a virus but not to save a shipyard, or the planet from climate change. Or double the future capacity of our hospitals, or prison modernisation plans, or legal aid limits, or nurses’ and carers’ wages.’
Precisely so. Parris, with whom I rarely disagree, is a life-long Conservative from the humane, thinking wing of his party, but for him, watching Rishi Sunak turn on the Treasury taps at full throttle is akin to a devoted Catholic watching in horror as the Pope announces he intends to get married.
Government spending is about political choices, not magic money trees. Ministers spend tax-payers’ money on what they think is important, and what they think is important depends on their political philosophy. By their spending choices shall ye know them.
Exhibit A, courtesy of Harry Davies in The Guardian: ‘Documents show that officials working under former health secretary Jeremy Hunt told medical advisers three years ago to “reconsider” a formal recommendation that eye protection should be provided to all healthcare professionals who have close contact with pandemic influenza patients.
‘The expert advice was watered down after an “economic assessment” found a medical recommendation about providing visors or safety glasses to all hospital, ambulance and social care staff who have close contact with pandemic influenza patients would “substantially increase” the costs of stockpiling.’
Exhibit B, courtesy of David Aaronovitch in The Times: ‘Four years ago, the independent Commission on a Global Health Risk Framework for the Future issued a report on how something like a flu epidemic could kill millions, cost trillions and derail the global economy. It recommended an annual expenditure in the US of $4.5 billion on prevention, detection and preparedness for such an event.
‘Last September the Global Preparedness Monitoring Board published an expert report warning that “the threat of a pandemic spreading around the globe is a real one – a quick-moving pathogen has the potential to kill tens of millions of people, disrupt economies, and destabilise national security.” Its chairwoman Gro Harlem Brundtland characterised world leaders’ approach as being a “cycle of panic and neglect.”
Ministers chose to ignore the warnings. Just as local councillors chose to ignore the warnings about dangerous materials being used in cladding for tower blocks. And the warnings about flood risks unless money was spent on flood protection. And the warnings about climate change. I could go on.
Who woulda thunk it? Experts know their stuff. When they publish carefully-researched reports warning of trouble ahead, they deserve to be taken seriously. ‘Project Fear’ isn’t always politically-motivated. Sometimes it’s people who know what they are talking about trying to make cloth-eared politicians understand the foolishness of their ways.
As I fear the US is about to discover. The world’s most powerful economy, the engine room of technological innovation, the home of cutting-edge medical research, is about to be laid low by a virus that it has had months to prepare for. No one will ever again be able to argue that it doesn’t matter who sits in the Oval Office.
Here’s what his coronavirus task force coordinator said on the Christian Broadcasting Network about the current occupant:  ‘He’s been so attentive to the scientific literature, the details and the data – and his ability to analyse and integrate data that comes out of his long line of history in business has been a real benefit in these discussions about medical issues.’
You want evidence of that? Verbatim quote from the man himself: ‘You can call it a germ, you can call it flu, you can call it a virus, you know you can call it many different names. I’m not sure anybody even knows what it is.’
Or how about this photo, showing how well the President understands the scientific data?


And this attack ad makes the point even more effectively.

I’m usually reluctant to draw conclusions about crises until well after they are over. This one, no doubt, will be the subject of countless inquiries in the years to come. But here are two lessons we can learn right now: planning for worst-case scenarios is never a waste of money; and experts are always worth taking seriously.
Meanwhile, if you need a break from all this stuff, do yourself a favour and de-stress by listening to me read some of my favourite classic children’s stories on my new podcast series Robin Lustig reading stories. You can find them at all the usual podcast places or by clicking here, or here to see me on YouTube.
And when you’re in the mood for some more of my journalism, my five-part documentary series The Future of Free Speech is now being broadcast on the BBC World Service. The first two episodes are available here, and the remaining three will become available every Wednesday until mid-April. As you will discover in the final episode, the free speech debate is directly relevant to the current pandemic.
Categories: Current Affairs

This is not the dawn of a new progressive age

Adam Smith Institute - Sun, 29/03/2020 - 07:01

We around here insist that we’re progressives. We’re also liberals and radical. However, where we differ from those who more usually call themselves radical, progressive, liberals is that while we agree that the power of the state is hugely important in being both liberal and radical we do have this niggling insistence that often enough it is less state which creates the radical liberalism. For example, unilateral free trade would be both radical and liberal yet it’s not exactly an extension of the activities or powers of the government now, is it?

However, put that aside and use progressive in its more usual meaning, someone who is insistent that we need more government to solve whatever ails society. Because there isn’t any money left to extend that power of government:

Spectre of soaring debt will haunt governments for years to come

Nations are borrowing hand over fist to battle the economic fallout of coronavirus, putting severe strain on their balance sheets

In general we don’t agree that every problem can be solved by throwing more tax money at it. But, as is obvious, that’s what is being done right now. And that means that there simply isn’t the fiscal room to be doing any more of that for the next few years, decades - generations if that’s how long it takes to pay off the spree - and therefore there is no room left for politics to be that conventionally progressive.

In which, of course, there is more than a glimmer of hope. We entirely agree that we should have a more radically liberal society and we’ve that antipathy to government being the vehicle for it. Antipathy based upon both preference and the logical objection that more government doesn’t actually work. The inability to finance more state intrusion will mean that all radical liberals are going to have to use other methods - markets, liberty perhaps, possibly even a culling of current state power - to gain that better world.

We really are where Liam Byrne said we were. The money has run out. Which is, actually, excellent, for now we’re constrained to solutions that actually work.

Categories: Current Affairs

Board of Inquiry finds cause to bring Bishop Jackson to trial for misconduct

Anglican Ink - Sat, 28/03/2020 - 21:13

The Board of Inquiry has determined that there is probable cause for canonical charges against The Right Reverend Ronald Jackson to be brought to an ecclesiastical trial.

Background and Timeline

In November of 2019, as the Archbishop’s Office looked into information that had been brought forward, The Rt. Rev. Ronald Jackson, then Bishop of the Anglican Diocese of the Great Lakes, went on administrative leave to ensure the integrity of an investigation and allow for due canonical process.

In January of 2020 Bishop Jackson resigned his role as the diocesan bishop due to health reasons, while the provincial process continued.  Following the canonical process outlined in Title IV, Articles of Presentment were filed, and the Board of Inquiry has now finished its work.


Board of Inquiry’s Findings

According to canon, “If in the judgment of two-thirds of the Board of Inquiry there is probable cause to present the accused Bishop for trial for violation of Canon 2 of this Title, it shall make a public declaration to that effect (Canon IV.4(6)).”

The Board of Inquiry did not find evidence that any criminal or civil laws had been broken.
However, the Board of Inquiry has unanimously determined that there is probable cause for the accused to be brought to ecclesiastical trial regarding:

1. Sexual Immorality (Canon IV.2(6)).
2. Conduct giving just cause for scandal or offense (Canon IV.2(4)).
3. Willful refusal to follow a lawful Godly Admonition (Canon IV.2(12)). 
4.  Violation of ordination and consecration vows of true and canonical obedience to the Archbishop (Canon IV.2(3)).


Canonical Process

When a Board of Inquiry has determined probable cause to proceed to trial a bishop may:

1. Voluntarily submit to the discipline of the Church on all accusations in the Presentment;
2.  Voluntarily submit to the discipline of the Church on some accusations and proceed to trial on the others; or
3. Proceed to trial on all of the accusations in the Presentment

What Happens Next?

Bishop Jackson has been informed of the Board of Inquiry’s decision. If the matter should proceed to trial, the Court for the Trial of a Bishop will be called together.  Its membership consists of the three bishops, two presbyters, and two lay persons which have been elected by the Provincial Council. 

The canons afford an accused bishop the protections of due process, a trial, and the opportunity to appeal any decision. If a bishop voluntarily submits to discipline or is found guilty by the ecclesiastical court, the sentencing is carried out by the College of Bishops in accordance with Title IV.8(3).

Archbishop Beach asks for prayer for all involved in this procedure including Bishop Jackson and his family.

The post Board of Inquiry finds cause to bring Bishop Jackson to trial for misconduct appeared first on Anglican Ink © 2020.

The New Euro Stimulus Won't Save the Greek Economy

Mises Institute - Sat, 28/03/2020 - 16:00

With fear of the coronavirus continuing to wreak havoc on every country in the West, almost all governments have taken radical measures for containment of the virus: mandatory quarantines for many, the closing of businesses, and the prohibition of many economic and social activities. I am not going to pretend that I am a medical expert and share my thoughts about how serious the virus really is. I will, however, focus on its economic consequences.

(Two very informative articles on healthcare policies for the virus are "Government Is No Match for the Coronavirus" and "The 'Bootleggers and Baptists' of the Coronavirus Crisis.")

The New Stimulus and QE for the Greek Economy

On Thursday, the European Central Bank (ECB) announced massive new stimulus programs, saying that it could buy up to €750 billion ($820 billion) in state and corporate bonds. This news comes just a week after it announced the last stimulus package. The aim is clearly to keep borrowing costs low and to provide money for European countries to deal with the current crisis. This is the first time that Greece has been included in an ECB QE program in a long time.

Shortly after the announcement, the Greek prime minister said that the Greek economy will receive a €10 billion stimulus package. This will be followed with other interventionist policies, the most notable of which provides an €800 subsidy to private workers, entrepreneurs affected by the current crisis, and every worker fired after March 1. But the madness doesn’t end there. There will also be new welfare benefits for almost every Greek, and a 40 percent discount on all rent payments has been enacted for the months of March, April, and May. The government has also made it illegal to fire employees during the crisis.

Why Will It Fail?

There is an old saying that you’ve got to save for a bad day. This means that you need to save some money so that you have the proper funds to get through a tough time. The problem that Greece and the EU face is that they don’t have any savings. Instead the Greek economy—and most European economies—are dependent on debt and on people spending money that they don’t have.

In a healthy economy people would be able to afford not working for a few weeks during such an emergency, because they would have savings, something that mainstream economists hate and have waged a huge war against. The Fed the ECB have artificially pushed down interest rates, prompting government, corporations, and consumers to borrow unsustainable amounts of money. Their response is more spending and “showering” the economy with money.

Bailing out one or two specific industries, although definitely bad economically, is at least feasible, because there are others to pay for it. But bailing out everyone is another matter. Where will the money come from for that? And where will it come from when the government decides to suspend tax payments because of the virus? There is no free lunch. If you cut taxes, you have to cut spending, and if you want to increase spending, you have to tax more. In the end, the deficit will have to be paid by future taxpayers. The money won't come from lenders. After all, the bond market is crashing, since every country is facing the same crisis.

The only source for all this free money that remains is the ECB, which just like its American counterpart creates money “out of thin air.” But this won’t solve supply shortages in the market, which are sure to result from so few people working.

An Economy That Never Recovered

In Greece things are worse than in most of Europe. The country's two biggest industries are tourism and sailing, which provide almost half of GDP. These have been hit hard as virus fears have mounted.

And Greece is facing this from an already weak position. According to the Heritage Foundation's economic freedom index, government spending already amounts to 48 percent of GDP, layered over the still massive public debt, equivalent to 183 percent of  GDP. The economy never really recovered from the recession. Labor laws make hiring very expensive and risky. Public union cartels are the ones that really control the country, and they undermine production and entrepreneurship given any chance. The agricultural sector is heavily subsidized, and the the service industry is subjected to many price controls. Even during the years of the “austerity” government surpluses were minimal and were overtaken by deficits from future years. Indeed, the governments failed to cut spending and taxes, and in fact the massive debt has only increased.

Basically, the Greek economy is just a huge bubble of debt and spending. This was situation was sustained by endless bailouts from European taxpayers and low interest rates (even though they were some of the highest in the EU). If it had not been for that, Greece might have been more rational and less likely to be fooled by cheap credit, or it would have had to deal with consequences alone, becoming Europe’s Argentina. After all, if other Europeans were lending them money, the Greeks would have to print the money themselves. Or just stop spending. But the Greeks never saved or produced enough to justify their high standard of living compared to other countries. In other words, we are living beyond our means. Its not that Greeks are lazy; once again, it's the state that is undermining production and fuels Greece’s famous anticapitalist mentality.

But the ECB’s repeated bouts of QE really do make things worse. It’s foolish to think that businesses that aren't sustainable at 1.5 percent interest rate will suddenly become productive at 0 percent. If the economy runs on a 0 percent interest rate and doesn’t recover, what will happen when interest rates rise to 0.5 percent? Panic will ensue, making another European debt crisis likely. An economy in which business can’t pay for debts and expenses even with 0 percent interest is an economy ready to collapse.

Conclusion

The Greek state needs to stop its unsustainable policies involving ever growing handouts. Government spending always undermines the private sector's production, which is made possible by saving. Instead, government policies should be encouraging saving. In order for Greece to survive the economic fallout of the coronavirus it needs to realize that it needs to let the bubble pop.

This means that there will be even harder years ahead for Greeks. But in the long term, it makes more sense. With unsustainable bubble businesses evicted from the market, resources and capital can be used less wastefully. Greece needs more production of goods and services. That’s what makes a nation and its citizens wealthy. Paper money isn’t wealth. If Greece doesn’t do this, then, yes, in the short term it will be less painful. But this means more pain in the long run.

Categories: Current Affairs

"Cost Cutting" Is Necessary to Expand Real Investment

Mises Institute - Sat, 28/03/2020 - 11:00

Some commentators regard cost cutting by companies in order to secure profits as a major threat to the economy. They hold that if everyone tries to cut costs and save more, demand for goods and services from retrenched workers will fall, which in turn will hurt corporate revenues and thus profits. This allegedly sets in motion new layoffs and again eats into revenues and makes profits disappear. The process supposedly continues until there are not enough workers and salaries left to generate sales and profits.

Economists call this the "corporate paradox of thrift." If everyone tries to cut costs and save more, then eventually no one saves more. Therefore, if every company decides to cut costs, this will ultimately hurt revenues and hence profits. The conclusion, then, is that collectively it is impossible to raise profits through cost cutting. On the contrary, it will lead to an economic slump. What these economists recommend, then, is that the central bank counter the negative side effect of cost cutting through easy monetary policy.

The "corporate paradox of thrift" follows the famous Keynesian "paradox of thrift," which asserts that an attempt by an economy as a whole to increase aggregate savings not only will not succeed, but also in fact may lower aggregate output, income, and employment. This is because increased savings at a given level of aggregate income means decreased consumption. With a fall in aggregate income, people will find it much harder to save. This implies that aggregate savings in the economy will decline because people have decided to save more. According to Keynes: "Every such attempt to save more by reducing consumption will so affect incomes that the attempt necessarily defeats itself."​1

In this theory, although saving may pave the road to riches for an individual, if the nation as a whole were to decide to save more, the result could be poverty for all.2

Does the "Paradox of Thrift" Make Sense?

According to mainstream thinking, saving is seen as a leakage that weakens the flow of spending, thereby weakening the overall economic growth. But this is not necessarily so. When a baker produces ten loaves of bread and consumes one, his saving is nine loaves of bread. The baker may decide to do several things with his saved bread. He could use it to sustain himself over the coming week, he could exchange some of it for other consumer goods, or he could exchange it for various parts that will enhance his oven.

Contrary to conventional thinking, at no point does his saved bread cause a "leakage," and hence a fall, in economic activity. On the contrary, saving is exactly what sustains economic activity.

When the baker exchanges his bread for shoes and shirts, he enhances his well-being and that of the shoemaker and the shirt producer. His saved bread sustains the shoemaker and the shirt producer, enabling them to continue in their production of shoes and shirts.

By exchanging his bread for various parts that improve his oven, the baker’s productivity increases and more bread production follows. This enables the baker to save more and acquire a greater variety of goods and services.

There are, of course, difficulties in saving various perishable goods, and this is where money comes in handy. Instead of storing his bread, the baker can now exchange his bread for money. His unconsumed production is now stored, so to speak, in money. Money here fulfills the role of medium of saving. It is fully backed by the goods that the producer has produced.

There is, however, one prerequisite for all of this—that the flow of the production of goods and services continues unabated. This means that whenever a holder of money decides to exchange some of that money for goods, those goods are there for him, and that whenever a producer who has exchanged his production for money decides to exchange the money for the goods that he requires, he can always do so.

Note that when the baker exchanges his nine loaves of bread for five dollars with a shoemaker, he in fact supplies the shoemaker with his real savings, which is nine loaves of bread. These loaves of bread will sustain the shoemaker during the production of shoes. Likewise, when a baker decides to exchange his five dollars for the services of a technician to enhance his oven, he is in fact supplying the technician with access to various unconsumed goods, i.e., the real savings of other producers.

For instance, when he exchanges the five dollars for vegetables, the technician in fact exchanges them for a proportionate amount of the vegetable's real savings. These vegetables, in turn, sustain the technician. Again, at no point has saving caused a "leakage" that weakens economic activity; on the contrary, it reinforces its pace.

Does Money Hoarding Curtail Demand for Goods and Services?

What would happen if people were to decide to hold on to their money and not spend it? Would this curtail the demand for goods and services and collapse economic activity?

Hoarding of money is not saving; it is merely raising the demand for money. What would it mean if people had an unlimited demand to hold money? It would mean that they would not use it to trade for the goods and services they require. Obviously, this is not a realistic scenario.

So long as people want to stay alive, they will exchange money for goods. Moreover, they will have to produce goods and services and trade them. The exchange of one good for others requires the use of money. The whole idea of hoarding money for its own sake, i.e., not using money in exchange, does not correspond to the nature of human beings in that they must consume in order to live.

Now, if everyone were to decide to raise their level of savings, i.e., to raise the amount of final consumer goods supplied to the market, how could this lower the pace of economic activity?

On the contrary, a greater production of goods would only support a greater demand for goods. After all, when a baker produces bread, he is not producing everything for his personal consumption. He exchanges most of the bread that he makes for other goods and services that he needs. Hence, his production enables him to acquire goods and services. Thus, we can conclude that the so-called paradox of thrift is a questionable idea.

Why Cost Cutting Is Good for the Economy

If a company trims costs in order to make a profit, what is wrong with this? By making the transition from a loss to a profit, the company in fact makes more efficient use of its resources. The use of its resources now generates a positive return—i.e., the company has created real wealth. According to Mises,

The only goal of all production activities is to employ the factors of production in such a way that they render the highest possible output. The smaller the input required for the production of an article becomes, the more of the scarce factors of production is left for the production of other articles.3

Consider a farmer who plants ten seeds and harvests only five seeds. Obviously, he cannot continue this practice for long before he eventually runs out of seeds. One he does, he will be faced with the threat of starvation. Hence, the farmer is forced to alter his conduct, i.e., to find better land or a better way of planting his seeds. So why would a change that generates a surplus be bad?

With a greater crop, the farmer could improve his well-being and also increase his savings, thus giving rise to a much greater future crop, all other things being equal.

The principle of the example we have employed can be applied to any company. The crux of the matter remains the same: profit adds to real wealth and hence raises the living standards of individuals in the economy. An expansion in real wealth due to cost cutting by an initial wealth producer will strengthen his demand for the goods and services of another wealth producer. This, in turn, will likely boost the demand for the goods and services of a third wealth producer, etc.

What about all the workers who were made redundant by the change? Are not their incomes are likely to fall, weakening the demand for goods and services? In fact, a general rise in profits as a result of cost cutting lifts the overall real wealth in an economy. This generates employment opportunities. In a market economy, retrenched workers would have to adjust to new conditions and find jobs elsewhere; they would have to find jobs that contribute to wealth creation.

Actions aimed at trimming costs are the only way companies can correct erroneous past decisions. When they take these actions in the face of past business errors that resulted in losses, companies are trying to normalize the situation through the liquidation of various excesses. Any attempt, therefore, to stifle their adjustment measures by means of monetary pumping only amounts to a further stifling of the economy and to impoverishment.

The way to eliminate the pain of adjustment is not to increase the dosage of monetary pumping, but to forbid the central bank to pump money and tamper with interest rates in the first place. Also, all the loopholes that allow the banking sector to create credit out of "thin air" must be completely sealed off.

Conclusion

Cost cutting by companies is an important means of correcting previous erroneous decisions in order to return to a situation of real wealth generation. The suggestion that the central bank employ monetary pumping to stimulate demand to counter businesses' cost cutting measures and keep economic activity "going" is, in fact, a recipe for economic disaster.

  • 1. John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: MacMillan and Co., Ltd., 1964), p. 84.
  • 2. William J. Baumol and Alan S. Blinder, Economics: Principles and Policy, 2d ed. (Toronto: HBJ-Holt, 1985), p.187.
  • 3. Ludwig von Mises, Planning for Freedom, 3d ed. (South Holland, IL: Libertarian Press, 1974), p. 121.
Categories: Current Affairs

How Governments (and the Fed) Make Life Harder for Young Families

Mises Institute - Sat, 28/03/2020 - 11:00

Young people today are delaying starting “adult” life until later and later. The median age of first marriage has climbed to nearly 30, up from the mid-20s a generation ago.

The median age of the first-time homebuyer hit a record 33 in 2019, while the average age for women having a baby climbed to 26.9 in 2018, up from 22.7 in 1980.

Clearly there are plenty of cultural changes that influence such shifts, but we shouldn’t underestimate the added burdens created by government overreach that make it more difficult for young people to settle down and start a family.

College Debt

In higher education, as with healthcare, a system increasingly reliant on third-party payers for the expenses has been a major driver of exploding tuition costs. As summed up in this College Board article “with third parties paying part or all of the bills (via government and private ‘scholarships,’ subsidized loans, and subsidies of institutions), schools can often raise fees without dire financial or academic consequences.”

In 2018–19, according to College Board, undergraduate and graduate students received a total of $246 billion in student aid in the form of grants, tax credits and loans.

Indeed, there’s been a stunning 416 percent rise in total federal, state and institutional student aid loans since 1989, adjusted for inflation. Pell Grants, the federal government’s largest college grant tuition assistance program nearly tripled in real terms during that time.

With billions in federal student aid, grants and below-market interest loans courtesy of the US Department of Education artificially inflating demand for college, tuition prices were sure to explode.

From 1993 to 2018, consumer expenditures on higher education exploded by 260 percent, roughly 4.5 times as fast as overall consumer expenditures.1

Higher Education vs. Consumer Expenditures

One obvious result is higher student loan debt. In an article published by Salon, former Labor Secretary Robert Reich notes, “the average graduate carries a whopping $28,000 in student loan debt,” and that as a generation, “millennials are more than one trillion dollars in the red.”

Making matters worse is that a significant share of recent graduates are not earning enough to afford the debt payments.

Young people are often drawn into college on the promise that a college degree is their only ticket to career success.

But increasingly, it is not. As Ohio University economist Richard Vedder has written, “The Federal Reserve Bank of New York said that 41.4 percent of recent college graduates in December 2018 were ‘underemployed,’ doing jobs mostly held by those with lesser education.”

In other words, more than two-fifths of recent grads are in jobs that don’t require a college degree. As Vedder notes, this is because “(W)e actually have too many college graduates for the number of professional, managerial, and technical jobs available.”

With a glut of college graduates flooding the job market, there is little bargaining power for millennials entering the job market, outside of those with degrees in highly technical areas. In too many cases, a college degree simply does not translate into earning power sufficient enough to pay off formidable student loans.

And that glut can in no small part be attributed to the massive sums of money flowing from government programs.

Housing

With many young folks already strapped with large college loan debts and starting salaries ill equipped to pay it back, taking on a mortgage is something many are increasingly reluctant to do.

And taking that next step is made even more difficult by rapidly rising housing prices. Housing expenditures climbed by 95 percent from 1993 to 2018, far outpacing overall consumer expenditures.2

Housing vs. Consumer Expenditures

Overly zealous housing regulations have restricted supply, especially in growing urban areas where new professionals tend to migrate. Even the left-leaning Brookings Institution had to acknowledge in this 2019 article that “increasingly strict local government regulations have driven up the cost of building new homes in many large metro areas along both the East and West Coasts.”

Meanwhile, the Federal Reserve's dovish monetary policy has meant more money supply inflation and more dollars chasing the housing stock. Given that the Fed has kept interest rates extremely low for an extended period of time, this has led to that new money naturally finding its way into the housing market as the demand for mortgages is particularly sensitive to interest rates.

Interest Rates

Other government policies worked to direct all that newly printed money toward the housing market as well. Programs such as the Community Reinvestment Act and government-sponsored entities like Fannie Mae buying up and guaranteeing mortgages are well documented.

Young potential homebuyers are priced out of the housing market by spiraling prices, despite the low interest rates. Moreover, many are reluctant to add a mortgage to their already imposing student loan debt.

Day Care

As if struggling with student loans and escalating housing costs wasn’t enough, young people are then confronted with the high costs of raising children. Specifically, costs of day care have been soaring, thanks in large part to government intervention in that market.

According to a 2019 Atlantic article, “per-child spending on childcare increased by a factor of 21 from the 1970s to the 2000s.” And more recently, “The Census Bureau has found that child-care expenditures rose more than 40 percent from 1990 to 2011, during a period when middle-class wages stagnated. Since the 1990s, childcare costs have grown twice as fast as overall inflation.”

The Atlantic article attributes a part of child care’s hefty price tag to the industry being “highly regulated,” further noting that “states with strict labor laws tend to have the most expensive facilities.”

Caregiver-to-child ratio requirements are probably the most expensive regulatory mandate. But state licensed child care centers are burdened with massive amounts of intricate, complex, and often puzzling regulations. If you ever want to fully appreciate the busybody tendencies of the nanny state, try thumbing through your state’s child care regulation book some time (for example, here is 197 pages of “child care rules” from the state of North Carolina for your reading pleasure).

Such requirements limit the supply of day cares. The more personnel required per child (and thus per facility) means the available workers must be consolidated into fewer facilities. Moreover, the dizzying maze of red tape serves as a disincentive for potential entrepreneurs to even open a day care facility in the first place, further restricting supply.

Meanwhile, rapidly growing government subsidies serve to inflate the demand for childcare. According to the Office of Child Care within the US Department of Health and Human Services, the major federal program subsidizing child care is the Child Care Development Fund (CCDF). The discretionary portion of this fund is called the Child Care and Development Block Grant (CCDBG), and between the two total federal subsidies came to about $8.1 billion in 2018.

Head Start, the federal government’s cornerstone free day care program for low-income children, spent nearly $9.9 billion in 2018.

All told, the three subsidized and free day care programs spent just over $18 billion in 2018. Head Start spending has exploded from $4.3 billion in 1998, more than doubling in twenty years, and in 2018 1.3 million children received subsidies from the Child Care Development Fund program alone.

Naturally, with so much government funding being directed into the day care industry, demand is propped up significantly. States also add subsidies and free day care programs of their own.

Furthermore, the free Head Start facilities divert scarce day care resources (like personnel and facilities) that could otherwise be used for paying customers, further restricting the supply.

The significant government interventions restricting supply and inflating demand will naturally serve to drive prices upward. Middle class families are squeezed the most, as they are taxed to pay for the subsidies and free programs but earn too much to receive the benefits—and then are forced to pay the inflated prices to boot.

Conclusion

The trends are clear: young people today are starting “adult life” and families at a later age. The debate of whether this is good or bad for society is beyond the scope of this article. But like many other broad cultural shifts, this too can in no small part be attributed to the influence of a leviathan government.

  • 1. Bureau of Economic Analysis, table 2.4.4, "Price Indexes for Personal Consumption Expenditures by Type of Product."
  • 2. Ibid.
Categories: Current Affairs

Canada Has Abolished Civil Liberties in the Name of "Safety"

Mises Institute - Sat, 28/03/2020 - 11:00

To limit the spread of COVID-19 in Canada, “The federal government has advised Canadians to stay at home and limit their contact with others if they have been diagnosed with the virus, exposed to someone who has or if they traveled outside the country within the past 14 days.”

However, on March 21, Patty Hajdu, Canada’s minister of health, promised more draconian measures if people do not accept the government’s recommendations—which means that the government’s recommendations are actually commands, backed by the use of force, which has already begun:

In Quebec City, police arrested a woman Friday who was infected with the virus and who was walking around outside after being mandated to stay indoors. The arrest was the first time Quebec City's public health director issued an order to police under emergency powers granted after Premier Francois Legault declared a public health emergency March 14.

Dr. Horacio Arruda, the province's chief medical officer, told reporters Saturday that regional health directors across the province "will have no problem" ordering police to make arrests and ensure people carrying the virus are isolated.

In Ontario the provincial police issued a notice Friday warning people that they could face fines of $750 if they defy the "expert advice provided by the chief medical officer of health to close certain businesses and institutions and limit gatherings to 50 people or less." Corporations defying orders can face a fine of $500,000.

In Saskatchewan, people not following isolation orders can also face fines or arrest.

Civil Liberties

Section 2 of the Canadian Charter of Rights and Freedoms states that everyone has the freedom of assembly and freedom of association. To forcibly confine someone in their own home is to deny them these freedoms. However, Section 1 of the Charter says that these freedoms are “subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.” This means the Charter is a sham, because the government reserves the right to arbitrarily decide when it will grant civil liberties and when it will deny them. Thus, Health Minister Hajdu said:

When people are playing loose and hard [sic] with the rules like this it does actually put our civil liberties at jeopardy. It makes governments have to look at more and more stringent measures to actually contain people in their own homes.

In other words, Hajdu is telling us that our civil liberties will remain intact as long as we obey the government’s quarantine orders. However, she fails to acknowledge that it is the quarantine order itself which violates civil liberties by presuming to restrict the freedom of assembly/association. Moreover, even without quarantine orders a significant loss of civil liberties occurred when the government prohibited large gatherings and ordered many private businesses to shut down.

Therefore, to disobey a government quarantine order is not the act which gives rise to a loss of civil liberties, but simply reflects an attempt by individuals to exercise the few civil liberties they have left.

Has it occurred to the health minister and the various provincial authorities that their draconian measures may be counterproductive? When people read about arrests, fines, and forcible confinement, is it not likely that many of them will be discouraged from seeking a diagnosis, fearing that a positive test will put them in the crosshairs of the authorities? It is possible that a positive test would otherwise prompt them to voluntarily isolate themselves—perhaps not 100 percent isolation, but close to it. In contrast, when faced with the jackboot of government, many people may simply skip the test and convince themselves that they do not have the coronavirus, and thus make little effort to isolate themselves.

Politicians and Bureaucrats Are Not Omniscient

The political response to the spread of the coronavirus demonstrates that the government does not recognize any limits to its authority. Politicians consider themselves to be omniscient as they formulate policy, i.e., the government is always right.

The reality is that the various aspects of the pandemic—as with all pandemics—are incredibly complex. There is much that we do not know, meaning that politicians and bureaucrats do NOT have access to a sufficient amount of reliable data on which to justify their policies.

However, we do know that millions of Canadians get the flu—which is contagious—resulting in about 3,500 deaths annually, compared to 21 deaths from the coronavirus as of March 22. But we don’t see the government violating civil liberties under the pretense of stopping the spread of the flu.

More to the point, there is no justification for any government policy which violates civil liberties. If the government has any role in the coronavirus crisis, it should be limited to the dissemination of information and advice—advice, not orders. Individuals should be free to consider this information and advice, as well as that provided by other sources. Naturally, each of us will assess the risk differently, just as we assess risk differently in other aspects of our lives. We must be free to make our own decisions based on our own personal circumstances.

Those who believe that there is a high risk of contracting the virus, and a high risk of severe symptoms or death, will rarely leave their homes and will likely wear gloves and a mask if they do venture out. Those who believe that these risks are low will stick to their normal daily routines. Still others will modify their behaviour to various degrees.

Decisions must remain in the hands of those affected by them. In the past, whenever I made a decision to attend a hockey game, a baseball game, or a music concert surrounded by thousands of other people, I accepted the fact that my decision could have unpleasant consequences. I could catch the flu from the person sitting next to me. Among the many thousands of people in attendance at these events, the odds are that one or more of them will have something that is contagious. I am pretty sure that most adults realize this.

Moreover, I think that it is fair to say that the vast majority of people have, on one or more occasions during their lives, gone to school, to a job, to a game or concert, to a party, to the mall, when they have a cold or the flu or something else that is contagious. We all know this. We have seen it with our own eyes. The risk of infection cannot be eliminated, not even by the government. In fact, governments often make things worse when they "take action" in response to a supposed crisis.

Cabin Fever

Aside from the violation of civil liberties, the government appears oblivious to other likely consequences of its policies. On March 12, the National Hockey League temporarily suspended its season and players were asked to isolate themselves. One week later, Ritch Winter, a player's agent, said:

One player I reached on the phone was driving somewhere and I said, "where are you headed?" and he said "I don’t know, but my wife needed me to get out of the house as much as I needed to get out of the house."

Though this player was not under a government quarantine order, he left his home after just one week, and it is not surprising. We should expect serious consequences if the government continues to violate civil liberties. Forcible confinement in one’s home may result in high levels of mental stress and anxiety, not only for those confined, but also for their families or roommates. This compounds the stress and anxiety which many of them may already be experiencing as a result of losing employment income because the government has shut down numerous businesses. Furthermore, stress and anxiety weakens the immune system, which means that these people will be easier targets for COVID-19, which is contrary to the government’s supposed goal of limiting its spread. Finally, will high levels of stress and anxiety lead to more suicides, homicides, domestic violence, and divorces?

The various levels of government in Canada have responded to the coronavirus pandemic. Their ill-advised solutions are to inflict economic hardship and withdraw civil liberties. The longer these authoritarian policies persist, the greater the risk to the social fabric.

Categories: Current Affairs

To show the terrors of cost benefit analysis we must perform a cost benefit analysis

Adam Smith Institute - Sat, 28/03/2020 - 07:01

There could be a reason why this gentleman is a Media Studies professor, not one of economics or logic:

In the late 18th century, Malthus warned that the poor would breed at a rate that would outpace the resources necessary to sustain a growing population, resulting in famine and misery. His predictions failed but were still deployed for decades to limit public amelioration of poverty.

Well, no, Malthus showed that they had and up to the point he wrote he was right too. It was capitalism and the Industrial Revolution that changed that historic truth. But leave facts aside and consider the logic here:

In the late 18th and early 19th centuries, Bentham promoted the idea that public moral decisions should be made to foster the greatest good for the greatest number, forging the calculus that has pushed policymakers and economists to invoke simplified “cost-benefit analyses” to decide if a measure is worthy of consideration.

Overall, this approach is a stark example of a troubling ideology that grips too many of those with power and influence in the world. Economism is a belief system that leads people to believe that everything can be simplified to models and curves, and that it’s possible to count and maximize utility in every circumstance. What economism misses includes complexity, historical contingency and the profound, uncountable power of human emotion.

To set up a false choice between driving the economy into the ground while saving millions of lives or reviving the economy while sacrificing millions of lives ignores a core fact: the global economic depression unleashed by the deaths of millions in the United States, millions in Europe, millions in Asia, millions in India, millions in Mexico and millions in Brazil would be beyond our experience or imagination.

No one would trade with anyone for years. Trade would grind to a halt because of mourning, fear of infection, society-wide trauma and social unrest.

Those last three sentences detail the costs of allowing the pandemic to rip through the population. We don’t agree with that analysis of what would happen for Spanish ‘Flu did exactly that, killing those numbers and more, and the 1920s were a great flowering of trade and economic growth. No, we would not justify Spanish ‘Flu on those grounds.

But look again at the logic there. We must not use cost benefit analysis, economism, to inform our decision making. For here is a cost that is very large, which outweighs the benefits of the decision being taken.

That is, we’ve just performed a cost benefit analysis to claim that we must not perform cost benefit analyses.

To retreat to economism once again, Adam Smith’s division and specialisation of labour. We might be better served if journalism on particular subjects were done by those who understood particular subjects rather than by those who understand journalism.

Only a thought.

Categories: Current Affairs

Turning the Diamond: George Herbert on Prayer, Day 8

Anglican Ink - Sat, 28/03/2020 - 01:35

Engine against the Almighty, sinner’s tower,
Reversed thunder, Christ-side-piercing spear,
The six-days world transposing in an hour,
A kind of tune, which all things hear and fear;

It may seem at first that we have passed from the violent images of the first two verses to a more transformative one in the third verse. But Dennis Lennon returns to Christ’s death on Calvary as the “transposing hour” of the new creation, which inaugurates the apocalyptic battle between Satan, the ruler of this world, and the Church Militant, the Woman who brought forth the man-child. who is to rule the nations with a rod of iron:

At the risk of overloading the imagination and blowing all the fuses, try to visualize this: a world which took God “six days” to create is changed, transformed, “transposing” (as in a shift of key in music) in the space of “an hour.” It was Christ’s “hour” of his passion and resurrection that released indescribable energies to lift the world’s guilt and heal the rift between God and his children. “An hour” in which Jesus broke the satanic “principalities and powers” oppressing the human family. “An hour,” therefore, which makes “transposing” possible, energizing the transposition of the world from a condition of “Paradise Lost” to the potential for Paradise Regained.

Prayer speaks the language of the “hour” and of the “transposing.” It flows out of the one and celebrates the other. In prayer we invoke the authority of Christ’s “hour” and follow the logic of the “transposing” work in the world. Everything we ask for in prayer, everyone we pray for, it is to bring all into the renewal of Christ’s transposing of the world. In fact prayer, says George Herbert, is “the six-days world transposing in an hour.”…

The question is – to put it as plainly as we can – if Christ broke the satanic power by his “hour” on the cross and resurrection, how can we account for present wickedness and the demonic in the world? Indeed the forces of evil seem if anything to grow more audacious and ingenious with the passing of time. If this is a pressing question for us, how much more was it for those young churches in Asia Minor towards the end of the first century AD, conscious of the Domitian persecution boiling up over their heads. Where is Christ’s victory over Satan while Caesar (Hitler, Stalin, Pol Pot, Milosevic, etc.) is slaughtering the innocent?

We find the answer in Revelation chapter 12. It opens with what is the essence of spiritual warfare on earth, with all the appearance of a hopelessly unequal contest: a pregnant woman against a dragon (12:1-4). Nothing could be more defenceless than this mother and her newborn child. She is the messianic community, the Church, and her labour pains are the dangers and sufferings endured by the true Israel as they await the advent of their kingly redeemer (Galatians 4:24-27). She is the Church in touch with “the powers of the coming age” (Hebrews 6:5)….

The Satan-dragon must, above all things, snuff out the threat to his domination posed by the woman’s Christ-child. As God continuously creates the cosmos, Satan strives to destroy it. As God created all things good and beautiful, the devil distorts and perverts them. God plants a field of wheat, and the devil strews it with weeds. Above all else, Satan strives to dishonor and discredit God, to deface his image in humankind.

Imagine, then, the demonic fury when there appears in the midst of the human family an individual who perfectly carries the divine image in his truly human nature. He does so on behalf of all humanity and as their saving representative. Hence the chaotic panic in the fallen spiritual of “rulers and powers” (Ephesians 6:12). Small wonder the dragon “stood in front of the woman who was about to give birth, so that he might devour her child the moment it was born (Revelation 12:4)….

There is a power, which overcomes the Great Dragon, but is so extraordinary that Satan himself utterly misunderstood it. Tot the hate-ridden demonic mind, Christ had surely fallen under his enemies’ control when they nailed him to the cross. Now surely the dragon devours the child-redeemer. Crucifixion not only killed its victim but also utterly humiliated him, obliterating his reputation. Crucifixion allowed the caprice and sadism of the executioners full rein. On the cross the total force of satanic spite slammed into Christ’s defenceless body….

But the cross totally outwitted Satan. It has a wisdom and a power incomprehensible to the fallen spiritual powers (1 Corinthians 2:8). Thus an event, which happened in AD 33 outside Jerusalem, is described by John in terms of its impact in the spiritual realm: “And there was war in heaven” (Revelation 12:7). The chaos-dragon, in its serial incarnations from Babylon to Rome and down to our own times, is defeated and ruined by the Christ it crucified (vv. 7-9). It is a moment, or “an hour,” precisely marked with the hymn beginning “Now have come the salvation and the power and the kingdom of our God” (v. 10). Christians believe that world history hinges on what happened in Christ’s “hour.”…

To summarize: Christ decisively defeated Satan in his “hour.” Where men and women believe in Jesus they share in the cry of joy that permeates the New Testament: “Christ has died, Christ is risen, the power of Satan has been broken!” But God allows the Evil One to continue in existence fatally wounded, crazed with frustration, its time running out. Take him with utmost seriousness because his remaining destructiveness is directed against the Church. Satan loathes and fears the Church for her truth. She is entrusted with the truth that sets the world free. Only the Church understands what is going on in the cosmic warfare, she can name names, she can expose Satan for the doomed and damned creature he is, she holds divine revelation, the scriptures, under the Holy Spirit of “wisdom and revelation.” She worships and proclaims “our Saviour, Christ Jesus, who has destroyed death and has brought life and immortality to light through the gospel” (2 Timothy 1:10). Satan dreads the Church when she is true to her truth, … “the light of the world. A city set on a hill cannot be hidden.” (Matthew 5:14).

Notice carefully the significance for us of the next image in the Revelation 12 vision. The mortally damaged serpent pursues “the woman” spewing a jet of water out of its mouth to “sweep her away with a torrent” (vv. 13-15). It spews a torrent of lies, negative propaganda, malicious rumours (think of the glee with which the national media seize upon instances of Christian failure or decline in church attendance figures) to discredit Christ and his truth incarnated his Christian people. It is a war of ideas for hearts and minds and the Church is in the middle of it: the focus of it. This is the point: a Church which holds the truth entrusted to her, constantly meditating in it and applying it in practice, teaching and proclaiming it, is essential to the wholeness of society. “You are the salt of the earth.” But we can expect the forces of darkness to hate us for it. Prayer for the world should begin with prayer for the Church to be true to her truth.

We need protection. Christ has set his Name upon us: “In my name they will drive out demons” (Mark 16:17)…. We are saying that in the struggle to hold to, and to communicate the truth of, Christ, prayer is first a deliberate clothing of the Church with the protecting name of Christ. Against the vast and insidious outpouring of illusions and distortions in the life of our society only such prayer will guard the mind and hold us faithful, strong, clear and resourceful in the Truth. It follows that our prayers for Christ’s transposing of the world will have a dimension of “deliverance” about them.

Tomorrow we “transpose” from the grim battle for the soul of the church and the world to “a kind of tune, which all things hear and fear.”

The post Turning the Diamond: George Herbert on Prayer, Day 8 appeared first on Anglican Ink © 2020.

TSM prof appointed interim bishop

Anglican Ink - Sat, 28/03/2020 - 01:30

Ambridge, PA, March 25, 2020 – At the request of Archbishop Foley Beach and the College of Bishops of the Anglican Church in North America (ACNA), the Rt. Rev. Dr. Grant LeMarquand, Trinity’s professor of missions and director of the Stanway Institute for World Mission and Evangelism, has been asked to take on episcopal responsibilities for the Anglican Diocese of the Great Lakes. This is a temporary, part time position until a new bishop for that diocese can be elected in the fall of this year and, God willing, consecrated in early 2021.

The position of bishop in the Anglican Diocese of the Great Lakes (most of whose parishes are in Ohio, Kentucky, Indiana, and Michigan) became vacant when their bishop stepped down pending an investigation, which is nearing completion, and subsequently retired for health reasons. Bishop John Miller (a Trinity School for Ministry graduate) had been the temporary bishop for some months, but has had to step down also for health reasons.

Bishop Grant will remain a full-time professor at Trinity, although a few of his duties will be delegated for the coming months. His primary responsibilities in his interim bishop role are to meet with Standing Committee and other committees of the diocese on a regular basis, to keep in regular contact with the clergy and diocesan staff, and to perform episcopal functions (confirmations, ordinations, etc.).

Please pray for Bishop Grant, for the Anglican Diocese of the Great Lakes, and for Trinity School for Ministry during this unusual and fragile time.

The post TSM prof appointed interim bishop appeared first on Anglican Ink © 2020.

Bishop of Chichester suspends canon law to permit solo Eucharists

Anglican Ink - Sat, 28/03/2020 - 01:10

26th March 2020

Dear brothers and sisters,

The pilgrimage of faith is taking us into challenging territory: let us walk together in hope and in the certainty of the presence of Jesus Christ as our companion and guide.   

Government regulations on how we now live must be observed.  I believe that as Christians we have a moral duty to do play our part in the disciplines needed to contain the coronavirus.  This means that our church buildings must be closed and not used for any gathering.  Baptisms and weddings in church are also suspended.

The Archbishops have written to clergy, and the Church of England website notes the following specific guidance from that letter: 

  • Emergency baptisms can take place in hospital or at home, though subject to strict hygienic precautions and physical distancing as far as possible.
  • Funerals can only happen at the crematorium or at the graveside.
  • Only immediate family members can attend.
  • That is defined as a spouse or partner, parents and children – all maintaining a physical distance.
  • Clergy are encouraged to be as creative as possible with streaming services, teaching, and other resources.  

NB If you are streaming from home, this must also take into account demonstrating attention to both hygiene and safeguarding regulations.

  • Foodbanks should continue where possible under strict guidelines and may have to move to be delivery points not places where people gather.

In this diocese I would also encourage clergy to use the Government’s allowance of daily exercise as an opportunity to check that church buildings and their contents, for which you are responsible, are safe.  We will be providing further guidance from the DAC on this duty of care.

Many clergy have asked about whether they are forbidden to enter their churches.  It is vital that we model best practice in terms of public safety, protecting the limited resources of the NHS, and attention to the care of the most vulnerable to infection.  Nothing we do should compromise these concerns or the regulation of them by Government instruction.

If you can ensure that these requirements are met, and you still decide to go into church to pray and celebrate the Eucharist, I would respect your decision on the basis that it is made in conscience and informed by legitimate pastoral, spiritual, missional and legal considerations. Thank you to all who streamed services and messages last Sunday.  Any service must clearly be solo-streamed or you should explain that it is being done with the aid of a person who lives in your home.

Many of you have also asked about celebrating the Eucharist alone, without a congregation.  In some cases clergy will wish to do this at home.  I repeat the permission of the Ad clerum on 19 March that gives an exceptional dispensation to a priest (licensed or with PTO in this diocese) to celebrate the Eucharist without a congregation, during the course of the present restrictions.

If it is your practice to reserve the consecrated elements in your church, then please ensure that they are replenished.  If you are celebrating the Eucharist at home, then you should take a supply to church for this to be done. 

If you are not celebrating the Eucharist at all, please consume the supply of consecrated elements that have been reserved and leave the place of reservation open and unlocked.

You should not reserve the sacrament at home.  I have asked for legal advice on this and that is the advice I have been given.  The purpose of reservation in the Church of England is the giving of communion; any devotional practice is recognised as a consequence of this. 

The continuation of reservation in church would be as a confident and symbolic statement that it is the place of holy communion for the gathered people of God, and the potential for that gift to be recovered is not being intercepted.

The dispensation to celebrate the Eucharist without a congregation can seem generally foreign to the Church of England’s tradition. What are we to make of it?  How are we to do it?

There is perhaps some guidance from the book of Exodus, when the children of Israel are going through their desert experience. 

This resonates with this season of Lent.  It is also a model for our life as a pilgrim people, journeying together in “darkness and in the shadow of death” (Luke 1.79), with our sights fixed on Jesus Christ, the source of light and peace. 

In the provisional dispensation of this pilgrimage, we read that “Whenever Moses went out to the tent [of meeting], all the people would rise and stand, each of them, at the entrance of their tents and watch Moses until he had gone into the tent” (Exodus 33.8).

There are further details of the rituals of this meeting and the role that both Moses and Aaron are given.  These two Old Testament figures were foundational for the Church of England self- understanding of itself in the 1662 Book of Common Prayer.  They feature in the title page of prayer books and the King James Version of the Bible; they are prominent in the decoration of many churches in this period. 

The focus of the ordained minister interceding for the people in ritual is well-established in the Church of England’s imagination, though it is now overlaid by other important considerations of the nature of the Church and the active participation of the whole people in worship.

When an incumbent is inducted, the ritual of going to the church door, tolling the bell and being placed in a stall all have meaning.  The priest is the doorkeeper (just as Jesus describes himself as the Door of the sheepfold).  The bell is the indication of proclamation, witness to the Church’s activity of prayer, and the stall is the study desk of scripture, liturgy and meditation.  These distinctively Church of England rituals are indicative of a profound sense of the church as temple, a building that expresses in its sacred geometry a material delineation of the body of Christ.

It is important, however, that we draw from our scriptural and ecclesial tradition in order to make arrangements that will meet the provisional limitations which are likely to be with us for some time.

Moses, and on other occasions, Aaron, go into the tent alone, in order to pray for the people.  But the people are not passive.  They go to the door of their dwellings as witnesses to this work.  They stand in the presence of God with them: they watch, and they pray.

This dispersed work of prayer is also the work of Christian laity.  It is what we are now being asked to nurture in their lives, as well as our own, of as we emphasise and celebrate the link between the corporate worship of Church and the domestic worship of home.  In each home, for example:-

  • the chair in which you sit to read the Bible is the domestic lectern where together we hear read what the daily scriptures are saying to us. 
  • your front window is the pulpit where the mystery of Christ in your life can be articulated.  In the diocese of Chichester we have offered an A4 Passiontide poster that proclaims, Praying for you.  Here
  • your meal table is the place where you give thanks for creation, for the food by which God sustains your life, and for the mystery of Christ who is present to us in this same manner as the food of the Eucharist.  (Grace at times of meals could reference this more carefully.)

The role of the priest in the celebration of the Eucharist is to bear all this to the altar in church through the rites of word and sacrament that unite earth with heaven and thereby give glory to God the Father. 

The celebration of the Eucharist without a congregation should heighten our awareness that this act does not belong to the priest. 

The celebrant of every Eucharist is Jesus Christ, the new Moses.  The gifts on the altar are the manifestation of the life of the people of the new Israel, the Church, in their daily working life, and in prayer and worship in their homes.  Jesus unites these gifts with the offering of himself to God for the salvation of the world.   

How do you celebrate this without the people of God being present?  (This would also apply to celebrating the Eucharist in your own home.)

  1. As a priest, remember you also belong to the people of God.  You are a sinner like any other Christian.  In offering the gifts at the altar, you also come in search of mercy and forgiveness.
  2. Extra special preparation is needed for this distinctive celebration.  Liturgical texts, vessels and bread and wine must all be in place and easily accessible.  Work out carefully how you will place a lectern, altar and chair or stool and move easily between them. 
  3. Speak at a volume that you would use in conversation with a person who is in need of reassurance.  Imagine you are speaking to any one of the people who are saddened by not being able to get to church.
  4. Prepare carefully what you intend to bring to God in the offering you are about to make, i.e. the names of people, places, etc.
  5. Light the candles, vest and go to the altar as you normally would.
  6. Remember that the Eucharist is a conversation: with the members of the Church on earth, and with the angels and saints in heaven, and with the persons of the Holy Trinity.  The text of the rite should be essentially the same as you would use if a congregation were present.  You should say only the words of the priest or reader, and the words that priest and people say together.  Do not say the responses of the people who are not present.
  • Do say, “The Lord be with you.”  Do not say, “And also with you.”
  • Do say, “Let us pray.” 
  • Do not say the responses in a responsorial psalm
  • Do not say, “Thanks be to God” after the OT and/or NT reading
  • Do not say the responses to the announcement and conclusion of the gospel
  • Do not invite an exchange of peace
  • Do not say the people’s response in the Sursum Corda
  • Do say the Sanctus and Benedictus
  • You may say the Mystery of faith and you may say the Agnus Dei
  • Do say the invitation to communion and its response
  • Communicate yourself in both kinds
  • Do say the blessing and dismissal
  1. Think carefully about where you focus your attention, given that no one else is present.  Read the texts carefully; look at the gifts you place on the altar.
  2. Allow time for silence.  This is especially important after the gospel and after holy communion.  Ensure that there is a chair or stool conveniently nearby.
  3. Enter the celebration in the services register, noting that there was no congregation, under the terms of permission from the bishop, to meet Covid-19 restrictions.  This will be a significant record for history.
  4. Make sure that after the liturgy you set aside time for thanksgiving.

Finally, please ensure that you take good are of yourselves, spiritually, emotionally, medically.  There is much that will cause anxiety and grief in the weeks to come.  I hope that you will also carve out time for spiritual refreshment, reconnection (safely!) with friends and people who encourage your in your ministry and faith.  Look, too, at what will enliven your hope and imagination.  Even now, we might begin to think about what we will be wanting to do and to be, when this dark episode draws to its close.  What will we have learnt? 

I leave you with some words from a Bible commentary by St Bede (spoken of so brilliantly by Karen Kilby at our last Clergy Conference):

Christ is the morning star who, when the night of this world is past brings to his saints the promise of the life and opens everlasting day.

With thanks and with joy in sharing with you our apostolic calling,

+Martin Warner

The post Bishop of Chichester suspends canon law to permit solo Eucharists appeared first on Anglican Ink © 2020.

Anglican Unscripted 587 – The Covid Sabbath

Anglican Ink - Fri, 27/03/2020 - 20:06

Kevin Kallsen, George Conger, and Gavin Ashenden talk about the Covid19 Pandemic as Government has ordered the Churches to close.

The post Anglican Unscripted 587 – The Covid Sabbath appeared first on Anglican Ink © 2020.

Human Action Part Four with Dr. Jeffrey Herbener

Mises Institute - Fri, 27/03/2020 - 17:30

We dive into Part Four of Human Action with Professor Jeffrey Herbener, Chair of the Economics Department at Grove City College.

This is a fantastic discussion of money and market exchange, with Mises proving timely as ever given the current financial meltdown and crazed response from Washington. Dr. Herbener and Jeff Deist cover catallactics and how imaginary constructs help us understand basic economics; markets as a system of social cooperation; how ordinal preferences find expression in money prices; the structure of production; consumer sovereignty; Mises's conception of monopoly; and the various media of exchange which complicate what ought to be the market's provision of commodity money.

Use the code HAPOD for a discount on Human Action from our bookstore: Mises.org/BuyHA.

Additional Resources

Human Action: Mises.org/HumanAction

Bob Murphy's Study Guide to Human Action: Mises.org/Study

Categories: Current Affairs

The Last Thing We Need Right Now Is Bernie's Proposed Tax on Financial Transactions

Mises Institute - Fri, 27/03/2020 - 17:00

When one imagines working on Wall Street, he envisions stock traders scrambling to place buy or sell orders, perhaps even some puts or options. Today’s powerful artificial intelligence tools allow traders to game stock market trading. In some ways, this computer-driven high-frequency trading resembles actual gaming in that it may seem as if one is simulating various trading scenarios. Unexpectedly, politicians view this sort of behavior as providing little value to society, thus some progressives are seeking to institute a Wall Street speculation tax or a financial transaction tax.

Progressives Introduce a “Sales Tax” on Financial Transactions

Progressive members (including Senator Bernie Sanders) of the 116th Congress introduced the “Inclusive Prosperity Act of 2019,” which imposes “a tax on certain trading transactions to invest in our families and communities…strengthen our financial security, [and] expand opportunity and reduce market volatility.” Finding 9 of the introduced bill delineates Congress’ interest in limiting “high frequency trading which may be as high as 70 percent of the market and results in declining market stability through extreme price volatility, distorted market prices, and structural vulnerability to speculation far in excess of the liquidity needs of commercial hedgers.”

Senator Bernie Sanders has spearheaded this effort to end computer-driven high frequency trading. According to the Tax Policy Center, this trading constitutes “roughly half [of] all stock market volume.” High-frequency trading relies on “arbitraging tiny spreads in stock prices,” which Sanders seeks to tax. In addition to high-frequency trading, some investors engage in stock market speculation. The Tax Policy Center continues, “thanks to lower transactions costs, the rise of investment vehicles such as mutual funds and exchange-traded funds (ETFs), and the growth of 401(k)s and IRAs, middle-income households have been able to enjoy some of the benefits of investing in the stock market.”

Moreover, losses on Wall Street can result in large losses for those outside of the financial sector as well. Pension funds, 401(k)s and IRAs, mutual funds, exchange traded funds, and college endowments rely on investing through the stock and bond market. Similarly, some employees are paid in stock options. Financial transactions and investments have far-reaching influence into the business of everyday Americans. Barron’s makes note of the irony of this tax: “a levy on transactions would come just when there has been a race among investment firms to slash costs to individual investors through such things as free commissions and zero-expense exchange-traded funds. A trading tax would more than offset those advantages.” While some seek to portray high-frequency trading as doing little or nothing to improve market liquidity, a financial transaction tax is likely to discourage trading and have wide-reaching effects.

Think of a financial transactions tax as the following: You spend $20,000 on a stock investment. The financial transaction tax for stocks is 20 basis points or 0.2 percent. Your initial investment is $20,000 but you incur an initial tax of $40. In five years, you sell your stocks for the price of $40,000. The sale of stocks also requires a financial transactions tax, so you owe $80. In addition, a capital gains tax applies to your $20,000 you made from the sale. For the ease of calculation, the capital gains tax rate of 20 percent requires you to pay $4,000 in addition to the $120 you have paid for the financial transaction tax. Never mind that the $20,000 in capital gains is only the nominal value because of inflation over the course of five years. Of course, if you are fortunate enough to afford a top-quality lawyer and accountant, you can use the bevy of tax loopholes that exist to help taxpayers avoid taxes.

Proponents of a financial transactions tax note that the tax rates are fairly low and would only affect larger investors. While this may appear true on the surface, this cost would be passed on to consumers inevitably. It is incredibly naïve to believe that financial investors are going to “eat the costs” associated with this tax. As the Investment Company Institute stated, the initial tax would be “very modest,” but it “becomes very tempting to increase it. You’re on a slippery slope.”

Past Problems Might Be Indicative of Future Concerns

Between 1914 and 1966, the United States had a transaction tax on the issuance and transfer of stocks. According to a National Tax Journal paper, the taxation rate increased over time. The financial transactions tax (FTT) is meant to curb stock market speculation; however, during the 1920s, the tax did not “reduce speculation sufficiently to avert the stock market crash.” The paper’s authors note that in recent years several developed nations “have repealed FTTs…presumably because of competitive pressures stemming from globalization and technological changes that have made shifting trading to other markets less costly.”

Proponents of the FTT would likely argue that investors will not materially shift trading outside of the United States, especially given the low tax rate. “With adequate international coordination, offshore transactions by United States taxpayers could still be captured by a transaction tax, just as an out-of-state Internet purchase can face the sales tax that prevails in the purchaser’s states,” writes the New York Times . Of course, “a transaction tax would be more effective if it were adopted worldwide,” the New York Times continues. Overall, the idea of a financial transactions tax is highly contentious given the possibility of negative externalities on unexpecting parties.

Section 2 of Inclusive Prosperity Act of 2019 outlines numerous findings pertaining to demonstrate how Wall Street’s alleged greed was the sole contributor to the Great Recession. Unfortunately for Senator Sanders, a financial transactions tax would not eliminate or even adequately address the overwhelming structural policies that contributed greatly to the crisis. For example, as Martin Mayer writes in The Greatest-Ever Bank Robbery: The Collapse of the Savings and Loan Industry, “deposit insurance has proved to be the crack cocaine of American finance.” Sanders in his typical, antiwealth rhetoric is equating wealth generation in general with the greed of some. This approach to politics may amp up his base in the Democratic primary, but it is sure to rattle the establishment and Wall Street Democrats.

Categories: Current Affairs

Eminent Domain: Are Holdouts Really a Problem?

Mises Institute - Fri, 27/03/2020 - 16:00

Eminent domain gives the government the power to take over private property for public use. A popular argument that this interference with private property is needed goes like this: We can’t measure subjective utility, but we can take increases in wealth as a rough proxy for increases in utility. (This assumption is mistaken, but I won’t get into that here.) Suppose, on this assumption, that some public project will add a great deal of wealth to the economy. Unfortunately, someone owns a small parcel of land necessary to get the project underway. Often, a little old lady who refuses to sell her house, preventing a road from being built, is given as an example of the problem.

You might be inclined to dismiss this argument immediately. Wouldn’t it be unfair to the old lady to take away her house, just so total wealth goes up? But supporters of the argument have an answer. They say, “Can’t we give the old lady enough money so that she is as well off as she was before? Then, the economy is better off and she is no worse off.”

I have never found this argument persuasive. I think it suffers from a crucial flaw. Before explaining what that flaw is, let’s look at a statement of the argument by the distinguished classical liberal legal scholar Richard Epstein. In his book Simple Rules for a Complex World (Harvard, 1995), he says: "Often the government needs to obtain material resources from individuals in order to supply services to the public at large. . . . Holdout and coordination problems preclude that consensual solution for certain key assets, such as specific parcels of land needed for the construction of a fort or a public road. This problem is best met by government taking with payment of just compensation. Ideally, the individual citizen is left indifferent to the loss."

What is the crucial flaw in the argument? You might at first think that it is the failure to take account of the non-monetary value of her house to the old lady. What if has great sentimental value to her; maybe it is the house she has lived in all her life. Or what if the property taken is a religious shrine? To offer compensation based only on the real estate value seems unfair.

This is an excellent point, but it isn’t the one I want to concentrate on here. The argument is still flawed, even if you disregard this type of value. Even if the owner attaches no sentimental or religious value to her house, but views the takeover in a strictly dollars-and-cents way, there is a problem that involves the compensation that is offered.

The problem is this: When it is said that the owner has to be made as well off as she was before, something important is being disregarded. The property is now much more valuable than it was before the project to build a bridge entered the scene. By hypothesis, the bridge adds immensely to the wealth of the economy. If the government had to buy the land from the owner in order to build the road, it would have to offer much more than the value of the property, leaving the bridge out of account. In brief, the owner could “holdout” in order to capture a substantial part of the economic gain from the project.

Supporters of eminent domain have an obvious answer to this point. Isn’t the owner taking unfair advantage by holding out? Isn’t some sort of action needed to prevent the owner from exploiting the situation?

Before I respond to this, one point of clarification is essential. From a Rothbardian perspective, the whole issue dissolves at once. If you have a right to certain property, then it can’t be taken away from you and that is that. Rights cannot be taken away from you because total wealth would go up if they were. Readers won’t be surprised that this is my own view, but here I’m considering the argument just on its own terms.

Those who don’t accept absolute property rights may say the case is that that of the person who demands from a victim of thirst in the desert a million dollar fee for a drink of water. Isn’t someone who does this taking advantage of the victim’s misfortune in a morally unacceptable way? (Again, I am not questioning whether he has a right to act like this.)

But the holdout case isn’t like this example. The owner is engaging in strategic bargaining. She is not taking advantage of anyone’s misfortune, other than the “misfortune” that those who would economically benefit from the bridge will have to pay more money and will end up with less of a net gain.

But suppose that you disagree with me about this. What if you think that it would be unfair for the owner to capture nearly all the economic gain from the bridge? It does not follow that she may be deprived of any gain at all. Why should all the profit from the bridge go to those who initiate the project and none to the owner? Isn’t she entitled to something more than being put back to her previous level of well-being?

Practically no one finds my view persuasive, but, rightly or wrongly, that is usually not enough to get me to shut up. Whether it should in this instance I’ll leave to my readers to judge.

Categories: Current Affairs

Governments Can't Fix This Economic Crisis They Caused

Mises Institute - Fri, 27/03/2020 - 16:00

Before analyzing the emergency plans that the global economy needs, we must remember that, as in the past, the prudence and responsibility of the civil society and businesses will help us to get out of this crisis .

In the face of an unprecedented crisis, we have to be realistic, responsible and cautious.

This is a supply shock added to a mandatory shutdown of the economy. As such, a serious response must be supply-side driven. It is ludicrous to try to stimulate demand with printed money and public spending in a forced lockdown where any extra demand will not drive supply up, even may drive it down.

A mandatory shutdown due to a supply shock is not solved with government spending or demand-side measures. Printing money and lowering rates help the already indebted and governments with already historic-low bond yields, deficits are already going to soar due to automatic stabilizers.

Governments that overspent in growth times, massively increased debt and ignored the pandemic risks only to then create a widespread lockdown cannot present themselves as the solution.

Small and medium enterprises do not need a government to incentivize demand, because this is not a demand problem, the shutdown is imposed by law due to a health epidemic that lawmakers preferred to ignore.

We cannot fall into the trap of believing that what the economy needs is more monetary easing when it fails, and if it does not work then we must try even more monetary insanity.

Monetary insanity is not the solution to monetary excess and lunacy.

It is our duty to warn of the risks of falling into irresponsible optimism, precisely so that we can get out of this crisis sooner and better.

What Recovery Will There Be?

Estimates of economic growth are plummeting at breakneck speed . The closure, albeit temporary, of economic activity, transport and trade, will mean an inevitable recession. The biggest mistake policymakers can make is to believe in a V-shaped recovery. All governments should prepare for an L-shaped recovery. If I am wrong, economies will be stronger anyway, but if I am right, massive stimulus implemented only three weeks after a market all-time high and immense deficit spending policies at the very beginning of a pandemic crisis will cripple the economy to an irreparable situation.

Leading economies have a great capacity to face a shock like this. This is not the case in Italy or Spain. Calculations for the United States indicate that unemployment will skyrocket to 6.5 percent, in the case of the United Kingdom to 7 percent and in Germany to 6 percent. In weak and highly intervened economies, the combination of already high unemployment, high debt, and high government spending can lead to a Greece-style crisis when the measures to address a forced shutdown come from more government intervention.

In the eurozone, most of the plans announced by governments are based on three important flaws: Ignore that many countries were already close to a recession in 2019, assume a low-impact parenthesis and estimate a rapid and exponential recovery that will inflict no real damage on employment or public and private accounts.

In the eurozone, Germany, France, Italy, and Spain’s fourth-quarter GDP already reflected a significant slowdown, so the European Commission, ECB and governments’ responses start from the wrong diagnosis: that the problem we are facing is one of demand and access to credit and not of sales collapse due to an imposed lockdown, with an accumulation of tax liabilities and fixed costs.

The United States must avoid making the mistakes that the eurozone nations are already starting to make.

Deadlines

European governments are unwillingly creating a worse long-term impact on the economy by giving citizens unrealistic small doses of negative information and extending lockdowns in fifteen days periods. This is leading to massive cash flow problems all over the economy because businesses find that the support mechanisms only last for a few days while the extension of losses destroys cash flow and balance sheets. Businesses are seeing current invoices delayed or unpaid while orders for November and December are being canceled.

The vast majority of companies do not face a problem of access to credit (there is ample liquidity and credit supply on solvent demand and at very low rates), they face complete closure and layoffs due to cessation of activity. Zero income, but fixed costs and accumulated taxes. Many businesses will find that delaying tax payments or provide loans doesn’t solve anything.

Most businesses problem is not one of loan guarantees, but of the impossibility of requesting a loan. We are not in a crisis due to lack of access to credit, but rather a crisis due to the disappearance of activity.

The Private Contribution

Governments expect banks to provide massive relief through more loans, ignoring the fact that banks in the eurozone still have billions of nonperforming loans and face a massive increase in delinquencies in Europe but also in their growth subsidiaries, mostly in Latin America and Asia.

Banks are going to face an increase in default on existing assets both in Europe and abroad. Banks can cope with this situation and they have done it well, but they are not going to be able to increase risk by tens of billions while helping their current clients to come out of the crisis Most European governments assume a balance sheet strength in private agents that is neither evident in large companies nor is it existent in SMEs (small and medium companies).

Additionally, Europe’s large companies already have high levels of indebtedness, although it has decreased admirably in recent years. Net debt to EBITDA in nonfinancial companies is already likely to soar due to the downgrades in earnings and cash flow.

Credit, liquidity and short-term aid measures are suitable for those who would have survived anyway before these new central bank and government measures. Liquidity was immense, rates were low and the banks did everything possible to lend.

The losers from this crisis will likely be those who have done their homework and live month by month, without large assets to cover a loan and without muscle to face months of zero income. And those, the ones who are going to suffer the most these months, were already drowned in taxes last year.

Governments are already going to consume all the fiscal space they have and more. The idea is that this enormous liquidity at negative real rates may be used for something effective for once, not to increase structural imbalances in current spending.

This is not asking the state to intervene, it is asking the government to stop intervening so much, stop the tax burden machine during an unprecedented business cataclysm, and unite in responsibility and austerity with those who are fighting every day to survive.

If governments and central banks decide to multiply the previous mistakes adding larger ones, like direct monetization of spending or helicopter money, they will add a monetary crisis to a mandatory supply shock. A mistake is not corrected doing the same but more aggressively.

We must ask the government to stop intervening so much, not to exploit an unprecedented business cataclysm to increase interventionism.

If governments insist on maintaining the few tax revenues they can scratch from the wreckage they will jeopardize the receipts of 2020 and those of 2021 and 2022, because of the massive increase in unemployment and closure of businesses.

Keeping the tax wedge system in a crisis of this magnitude generates a double negative. The domino of business failures and job losses will take years to recover, and with it, tax bases and receipts. Second, the potential growth is curtailed because of disproportionately high regulatory taxation, making it even more difficult to attract the little investment that could come after the recovery.

A widespread economic closure shock is not solved with demand measures or using the private sector balance sheet to add debt and accumulate risk, but with urgent supply measures that respond to the reality of businesses and, with them, of workers and families.

The US and the world will rise from this crisis. What the government has to do is allow it. The government is there to facilitate, not to pick winners and losers.

Excerpted from dlacalle.com.

Categories: Current Affairs

The Benefits of a Free Society during Pandemics

Mises Institute - Fri, 27/03/2020 - 11:00

In this time of crisis, many exclaim how impressed they are by the “swift and decisive” actions by the Chinese regime. Instead of recognizing the abhorrent disrespect for human life, the Chinese response is put forth as an exemplar for combatting a pandemic.

These hailers conveniently forget the many weeks of silencing and censorship that preceded the brutal shutting down of the city of Wuhan and the whole Hubei province. They also turn a blind eye to the nature of hierarchy and bureaucracy, pretending what is needed to choose proper action is simply power and that access to accurate, reliable information is of little concern.

The calls for a strongman solution are misguided at best, but have been used to paint the picture of freedom as being impotent. As per the strongman delusion, libertarianism would seem to lack exactly what is needed for “swiftly and decisively” dealing with a pandemic—centralized power.

A Free Society Is Not a Free-for-All

There is no question that locking (and even welding) people into their homes should limit the spread of a contagious virus compared to having people moving freely about and spreading the disease. Similarly, stopping air travel should limit the spread as compared to carrying on flying as if nothing happened.

But those are, in fact, two extremes neither of which applies in a libertarian society. The former extreme is based on centralized authoritarian power over people’s lives and property, which is rather obviously incompatible with freedom. This is, of course, the strongman critique of freedom: its lack of such power.

But the same is true also for the latter extreme, which presumes that any society has significant public property and limitations to the rights of owners of private property. Neither could be the case in a libertarian society. Under private property, you do not automatically have the right to enter someone’s store or walk on their sidewalk just like you don’t have a right to enter their home as you see fit. While you are typically welcome to enter a store – the store owner wants you to consider purchasing their goods for sale—your entry is on their terms.

As they are in control, they are also responsible for what they allow to happen. This is why even today private stores and malls, just like private communities, typically have their own security (despite the state police monopoly). They are liable if they welcome anyone without restrictions, and thereby subject others to potential harm. This includes welcoming without restrictions carriers of a deadly virus.

We saw this oft-overlooked fact in action, to a limited extent, as airlines suspended flights to affected areas before being grounded by government decree. Why? Because they do not want to risk the health of their employees and customers—for which they would be held liable. In a libertarian society, there is no right to use another’s property but also no limitation to the owner’s responsibility for what happens with their (explicit or implicit) approval.

This is, of course, not a perfect solution that completely does away with all problems, including detaining a virus before it starts to spread. But there are no perfect solutions. The point is that a libertarian society is not like the status quo plus or minus some regulation or state agency. The libertarian ‘normal’ is very different from what we have gotten used to under the state.

The fact is neither of the extremes assumed by strongman proponents applies in a free society. Yes, it would lack authoritarian power, but it is also not a free-for-all where everyone’s wish somehow trumps property rights.

The Problem with One-Size-Fits-All

But surely the lack of authoritarian power must mean freedom is impotent in dealing with large threats? No, this is another strongman illusion that does not actually follow. It simply isn’t the case that centralization is a solution. To instate a central power means adopting a one-size-fits-all approach, but there are more problems of centralization: it makes us more vulnerable and our responses less appropriate.

Most would agree that a one-size-fits-all approach would in fact be a good fit for very few, just like a one-size sweater would be a poor fit on practically everyone wearing it. Conditions are different in different places, which means each place would have a different best response.

We actually saw this in the coronavirus outbreak, where governors adopted different policies for their respective states. It makes sense for them to do this, because the states are very different and were also differently affected by the virus. While far from perfect, this shows that even career politicians recognize that a centralized solution isn’t appropriate. If they truly believed in one-size-fits-all they would have adopted the same policy. But they didn’t, because the situations were different.

Information about what works and what doesn’t, and important differences between locales and populations, is lost as information is aggregated and statistics are produced to guide centralized decisions. This is Hayek’s famous argument about the dispersed, tacit knowledge that guides our actions but cannot guide the central planner.

Decentralization and Flexibility Make Systems More Resilient

But a centralized solution also makes us more vulnerable. An example might illustrate this. Consider the difference between a structured, centralized national defense and an armed populace. Switzerland is the popular example of the latter, but this is not a unique idea. For examples, Sweden’s defense comprises both a traditionally structured military and the Home Guard. While you can rather easily cripple the military by taking out a couple of their bases, the decentralized and dispersed forces of the Home Guard are almost impossible to wipe out.

What does this have to do with a virus pandemic? It illustrates the false promises of centralization, which is a costly and inadequate solution that in fact makes a society more vulnerable. The same argument applies whether it is the national defense, centralized education, or the monopoly of the CDC. A centralized command structure offers only a false sense of security.

Libertarian society is exactly the decentralized structure that our present society is lacking. Rather than a pyramid with information selected and repackaged on its way up and orders issued from the top, it would be a collaborative network of individuals and neighborhoods. A neighborhood affected by an outbreak could quickly and easily choose to contain the virus, perhaps in collaboration with adjacent neighborhoods. Others could choose to temporarily quarantine themselves to not get infected.

There would also be little reason for them to not share information. While the Chinese apparently believed they didn’t have to do anything, other than silencing whistleblowers, a government is typically not held responsible for its failures. It’s the other way around: a government agency that fails in its task is not punished, but instead offered larger budgets and more discretion.

In rather stark contrast, a libertarian neighborhood that chooses to suppress vital information about an outbreak could (and would) be held liable for the harm caused to others. They face the same mechanism as the private store owner, who would be liable if s/he welcomes those knowingly carrying a virus to enter the premises and infect other customers. It is thus in their interest not to hide the fact, as is the government modus operandi, but to share the information and get in front of the problem.

None of what is appropriate action during an outbreak or pandemic requires central command. The downsides of centralization in fact make matters worse and is what made us vulnerable to begin with. The many calls for increased centralization, and their outright dismissal of libertarianism and freedom as "impotent," are fundamentally confused. Rather than being reasonable and rational, these outcries are emotional and contrary to fact. They are but symptoms of the strongman ideology.

Categories: Current Affairs

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