Blogroll Category: Current Affairs

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Controlling Missouri, Part 2: This Means War

Mises Institute - Wed, 15/08/2018 - 15:55

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

Categories: Current Affairs

Why Scandinavia Isn't Exceptional

Mises Institute - Wed, 15/08/2018 - 12:45

[From the Quarterly Journal of Austrian Economics.]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sadly, The Guardian cannot even get free trade right

Adam Smith Institute - Wed, 15/08/2018 - 07:01

For a paper with its antecendents this is not a good look:

Do trade deficits matter?

Many economists would argue trade deficits are an irrelevance, although surpluses are often seen as economic virility symbols.

Persistent deficits require funding via international borrowing, which becomes harder if confidence in a country falls.

No, absolutely not, go to the back of the class. Given the paper's history this is bad too. For it was founded, as the Manchester Guardian, to argue against the Corn Laws. That is, in favour of free trade.

It is entirely true that a trade deficit must be financed but that it requires borrowing is a horribly misleading untruth. Any current account deficit must be - and will be - offset by an equal and opposite capital account surplus on the grounds that the balance of payments really does balance (yes, it's more complex, but really, this suffices).

OK, but doesn't this require that we borrow money from foreigners? Nope, no it doesn't. It requires that foreigners send their capital into the country. And they can buy stuff. Or even build it. Foreign Direct Investment for example, say a Japanese car factory built Oop North, or some Johnny Foreign buying a flat in London to leave empty. This is capital flowing into the country this finances that trade deficit £ for £ because that's just how that balance of payments thing works.

Of course, we might end up selling the entire country, as Warren Buffett has posited with his Squanderville idea.

The UK trade deficit is some £30 billion a year. Hey, why not exaggerate, let's call it £100 billion, whatever. We must therefore sell that amount of our wealth to finance it each year - in the most restrictive version of this story that is. How much wealth do we have?

Aggregate total net wealth of all households in Great Britain was £12.8 trillion in July 2014 to June 2016

Oh, we can do this for a pretty long time then. A century and more before we're broke.

up 15% from the July 2012 to June 2014 figure of £11.1 trillion.

Actually, we can do this forever. Note that households do the consuming so yes, household wealth is the correct stock we've to use to pay for it. We're creating new wealth at some £1.5 trillion every two years, £750 billion a year say. Of which we've got to flog off £30 billion (hey, why not, call it £100 billion!) to foreigners to finance the trade deficit.

We can not only do this forever, as we do so foreigners will end up owning an ever smaller portion of the capital owned by the people of the country. For we're creating the wealth faster than we spend it.

So, err, yes, trade deficits are an irrelevance. Free trade it is then.

 

Categories: Current Affairs

British Manufacturing Slumps as Bank of England Raises Interest Rates

Mises Institute - Wed, 15/08/2018 - 00:15

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

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

Categories: Current Affairs

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

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

AEN: Any recent thoughts on hermeneutics?

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

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

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

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

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

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

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

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

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

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

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

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

AEN: Did you write the book in sequence?

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

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

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

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

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

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

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

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

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

AEN: Were scholars anticipating the publication of MES?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

AEN: What happened to the Volker Fund?

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

AEN: How did Ethics of Liberty come about?

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

AEN: What about Conceived in Liberty?

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

AEN: What about conferences during the early seventies?

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

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

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

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

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

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

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

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

AEN: How many volumes have been done so far?

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

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

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

AEN: Why has all this been overlooked?

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

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

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

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

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

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

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

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

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

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

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

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

AEN: How are things in Vegas?

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

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

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

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

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

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

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

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

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

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

AEN: Why isn’t private deposit insurance viable?

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

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

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

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

AEN: What role do you think RAE is playing?

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

AEN: What should young Austrians be concentrating on?

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

Categories: Current Affairs

Saudi army prepares for Haj

Anglican Ink - Tue, 14/08/2018 - 23:04

Press release from the Kingdom of Saudi Arabia

Barbados fails to elect bishop after fourth day of voting

Anglican Ink - Tue, 14/08/2018 - 22:49

Selection passes to the House of Bishops

British Manufacturing Slumps as Bank of England Raises Interest Rates

Mises Institute - Tue, 14/08/2018 - 17:55

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

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

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

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

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

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

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

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

Categories: Current Affairs

Perhaps £2 million is too much for one unit of affordable housing

Adam Smith Institute - Tue, 14/08/2018 - 07:01

We don't know for certain that this is so but we'll push it out there for consideration. Perhaps £2 million is a bit much to pay for the one single unit of "affordable" housing in London? Yet that does seem to be the demand being made here, that this price should be paid:

The developers have also ensured that residents won’t have to share walls with anyone on a modest wage as they made a not-uncommon agreement with Westminster city council and the mayor of London that the half-a-billion pound development overlooking Kensington Gardens should not include a single affordable flat despite the “housing crisis” gripping the capital.

The City bankers behind the Park Modern development – which is being built on the site of one London’s few remaining hostels – hope to bring in £450m selling all of the 57 apartments in the block to the super-rich. The cheapest 1,000 sq ft apartment at the back is being marketed for sale at £2m. At the top of the nine-storey block, a double-height five bedroom penthouse is offered for £30m.

This is an outrage apparently. At which point, think through what the demand is. Here we've a property which can be sold (the cheapest can be sold for this price) for £2 million. The demand is that instead of being sold for this price it must be offered for an under the more general market rental - that's what affordable means in this context.

Why? 

Imagine that - as we don't in the slightest think should happen - that the building of for market housing should be accompanied by the construction of that affordable unit or seven. Why does it have to be in the same building? To insist upon that is to ignore the second most important part of economics, opportunity costs. That unit can go or £2 million. £2 million, even at London prices, will buy 10 units elsewhere in the capital. OK, maybe five. So, for the same expenditure of resources do we want ten, OK five, units of affordable housing or one?

The demand is that we'd prefer one. Which is, of course, simply lunacy. How did we end up with this foolishness as policy?

Categories: Current Affairs

Does a Fall in Unemployment Lead to Stronger Economic Growth?

Mises Institute - Mon, 13/08/2018 - 23:05

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

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

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

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

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

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

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

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

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

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

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

Unhampered labor market and unemployment

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

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

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

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

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

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

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

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

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

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

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

Categories: Current Affairs

Turkey Could Create A Larger Crisis Than Greece

Mises Institute - Mon, 13/08/2018 - 19:55

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

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

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

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

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

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

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

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

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

Now the Risk Is Rising for the Rest of Europe

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

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

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

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

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

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

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

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

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

Categories: Current Affairs

Who Is Eugen von Böhm-Bawerk?

Mises Institute - Mon, 13/08/2018 - 19:55

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

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

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

Categories: Current Affairs

Freedom Week 2018

Adam Smith Institute - Mon, 13/08/2018 - 16:46
FW18 groupshot.jpeg

Every year, the Adam Smith Institute and the Institute of Economic Affairs hold Freedom Week—a week-long series of lectures, seminars, and social events in the heart of Cambridge for the brightest young thinkers interested in free markets and classical liberalism. I attended Freedom Week in 2013, and half a decade later had just as much fun as one of the organisers.

Freedom Week 2018 took place last week at the illustrious Sidney Sussex College and saw 32 students engage with the fundamental principles of a free and open society. The attendees tackled a wide range of topics, beginning with an opening address from ASI President Dr. Madsen Pirie on the importance of empiricism. Other talks included Professor Len Shackleton on the consequences of automation, Kate Andrews on the gender pay gap, Sam Bowman on the economics of immigration, and Dr. Craig Smith on the perils of paternalism.

Every session was followed by a lively discussion that continued well into the night during evening social activities. We punted on the River Cam, flew drones at a BBQ, debated every topic imaginable at the pub, and tested our knowledge at the annual pub quiz. 

There are few better feelings than being surrounded by a smart, lively group of young people who are interested in the same ideas as you. One of the most satisfying parts of working at the Adam Smith Institute is seeing how our youth programmes ignite a lasting passion for freedom. People make friends for life on Freedom Week and past attendees have gone on to become award-winning journalists, work for think tanks like the Cato Institute and the IEA, and advise ministers and legislators.

The future of neoliberalism is looking bright and it's a privilege to be part of shaping it.

Categories: Current Affairs

Banning the Burkha

Anglican Ink - Mon, 13/08/2018 - 15:00

There are many reasons, writes Michael Nazir-Ali, for restricting the wearing of these garments in a number of important areas of our common life.

IMF Produces Another Bogus Venezuela Inflation Forecast

Mises Institute - Mon, 13/08/2018 - 13:45

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

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

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

IMF World Economic Outlook, October 2016

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

IMF World Economic Outlook, April 2017

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

IMF World Economic Outlook, October 2017

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

IMF World Economic Outlook, April 2018

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

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

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

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

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

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

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

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

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

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

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

Sam Bowman on Neoliberalism

Adam Smith Institute - Mon, 13/08/2018 - 11:51

Sam Bowman, one of our Senior Fellows and former Executive Director, has been interviewed by TriggerPod on neoliberals vs libertarians (and what separates one from the other), drugs (which he thinks should be legalised, and why he thinks legalisation might be sooner than we think), housing (why it’s a regulatory, not a monetary phenomenon) and much more.

The full interview is below: 

Categories: Current Affairs

There's an interesting number we're not being told here

Adam Smith Institute - Mon, 13/08/2018 - 07:01

There's an amusement here as well as a missing number:

One in three people on the government’s new welfare system are having their payments cut to cover debts, the Observer can reveal.

In a sign of the troubling levels of indebtedness affecting some of the most impoverished communities, official figures show that hundreds of thousands of universal credit payments are being subject to deductions used to pay back arrears in rent, council tax and utility bills.

The amusement being that a critique of universal credit was that it took too long to arrive, that first payment. So, a system of advance payments was instituted, those advance payments obviously enough being clawed back. Now the complaint is about their being clawed back. Quite why we're not sure, we don't think any demand that people should gain more than their allotment of benefits is going to be popular.

The missing number is this:

Up to 40% of a standard monthly universal credit payment can be deducted – a higher proportion than under the old benefits system.

That old benefits system. It too had a system of clawbacks for overpayments. There were 6 benefits too meaning that it's obviously possible that even if each had a lower number of clawbacks a greater portion of the claimant population were subject to them. 

Which is our missing number of course. What was the portion of claimants subject to clawbacks under the old system compared to the new? That is, are things getting better or worse? That is what we want to know isn't it? Are we moving in the right direction? 

Or perhaps not, perhaps it is true that we're just looking for something, anything, to complain about.

Categories: Current Affairs

Venezuela Campaign: Censored Speech

Adam Smith Institute - Sun, 12/08/2018 - 09:01

Freedom of expression and of the press is under attack in Venezuela.  The Government is cracking down on any perceived opposition. The ongoing humanitarian crisis has made these responses more brutal, as food becomes scarce and desperation grows.

Even discussing poverty is taboo. In 2015, the government stopped publishing statistics about poverty in the country and attributes Venezuela’s problems to a supposed ‘economic war’ instigated by the United States. The government blames the opposition for causing chaos and accuses them of colluding with the United States. Brutal attacks on opposition protests in 2017 led to more than 120 deaths, most of them at the hands of security forces or government-backed vigilante groups known as "colectivos". During the protests thousands of demonstrators were arrested, with almost a fifth then subjected to humiliating treatment or torture. Officials use terms such as "terrorists" or "armed insurgents” to describe protestors. Human rights activists such as Theresly Malavé are the subject of government-backed threats and intimidation. With paper scarce in Venezuela, the government frequently prevents critical newspapers from buying in the paper they need to print their editions and also cuts off electricity to critical radio stations

At universities and other educational centres, academic autonomy is being replaced by political control. Students have been expelled simply  for watching a television station that was not the State-owned channel. Hundreds of students were detained during last year’s protests, and 17 university professors were arrested for criticising the government, with some turned over to military courts. Faced with accusations of “disturbing public order” or “threatening the revolution”, Venezuelans are afraid of airing their views on social media. Popular Twitter user Pedro Jaimes was arrested and detained for merely tweeting the flight path of President Maduro.

The case of the Lorent Saleh is instructive. Saleh, a student activist, was detained in 2014 and accused of plotting to overthrow the government. His court hearing has been deferred 44 times. Kept in solitary confinement at La Tumba, Saleh occupies a small underground cell where  the lights are never turned off, and prisoners are unable to see sunlight or breath fresh air. As of 5th July 2018, it has been 50 days since anything has been heard about him. Despite the fact that a few political prisoners were conditionally released this year, there are hundreds like Saleh of whom we hear nothing.

The international community should do everything it can to support freedom of expression and freedom of the press. At a time of acute crisis, these freedoms are vital to Venezuela’s democracy.

More information on the Venezuela Campaign can be found on their website

Categories: Current Affairs

Phil Hammond's misunderstanding the rates problem and Amazon

Adam Smith Institute - Sun, 12/08/2018 - 07:01

There's long been a muttering that Amazon and the other online sellers should be taxed in some manner. They're not paying the business rates of he High Street retailers and this is unfair, not a level playing field. Phil Hammond seems to be thinking along these lines which is a mistake. For internet sales use less of, and lower priced, commercial property. Therefore they should in fact be paying less of a tax upon commercial property.

The demand that they pay the same is as if we had a tax upon, say, the use of fossil fuels and then we taxed people who didn't use them because they weren't. Somewhere between silly and nonsensical that is.

Philip Hammond has raised the prospect of an “Amazon tax” for online retailers amid fears that high street shops are being put out of business, as House of Fraser was rescued in a last-ditch deal on Friday.

The Chancellor said the tax system had to be fairer to traditional retailers and that the EU was looking at imposing revenue-based taxes on online firms, but that Britain would introduce its own levies if progress was too slow.

There is that interesting technical point that business rates are not incident upon the retailer in the first place but upon the landlord. Lightening the tax burden for commercial property landlords might be a Tory principle but it's not quite how to run an economy.

But it's that claim being made, that different ways of doing the same thing - providing retail services - must carry the same tax burden which is off. We do not have equality of taxation between restaurants, takeaways and home cooking and we'd be mad to think of doing so. Why should we have equality of taxation between physical retail and virtual? 

We shouldn't should we?

Categories: Current Affairs

Nonsense on Deflation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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