Blogroll Category: Current Affairs
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The eighth annual meeting of Bishops from Canada and Africa has just taken place in Kenya, with the Bishop of Niagara suggesting the yearly encounter could act as a model for reconciliation across the Communion.
The US criminal justice system is hopelessly broken, riddled with bad incentives and bad actors. In the wake of recent police shootings, Dr. Ed Stringham joins Jeff Deist to help us understand how and why private security firms could create vastly better outcomes for crime victims, society, and even perpetrators. This is a fascinating discussion you won't want to miss.
Recommended reading: Private Governance: Creating Order in Economic and Social Life
When it comes to abortion, men are rarely given a platform to discuss their views. If they try, they are often drowned out by outraged screeches of 'no uterus, no opinion!'.
So when BBC Radio 4 broadcast a programme last week called 'It's my baby too', a half-hour segment focusing on how men are affected by abortion, I was pleasantly surprised.
Last week, a gunman opened fire on a group of Republican members of Congress. Letters sent by the gunman to his local newspaper suggest he was obsessed with Republican policies, and concluded that Donald Trump "Has Destroyed Our Democracy" [sic] and that "It's Time to Destroy Trump and Co."
In the wake of the attack, there have been the usual predictable calls for "unity." These calls, of course, fail to address a central reason why unity appears to be a problem, and why many feel the need to manufacture it where it does not exist.Fear of a "Foreign" Majority
In the wake of the 2016 election, it was not uncommon to read in both the mainstream media, and in social media, predictions that with a Republican victory, a fascist police state would soon be bringing the hammer down on all the enemies of the regime. In this case, "enemy of the regime" was anyone other than the alleged troglodytes who had voted Trump into office.
Nine months later, we're still waiting on that border wall and on that Obamacare repeal, and on that tax cut. In fact, all we're likely to get is more government spending, more deficits, and more war. In short, the new administration will look a lot like the old one.
Nevertheless, there are some significant changes that are likely to take place. The administration may refrain from forcing nuns to pay for someone else's birth control, and environmental regulations are likely to be loosened. The general tenor of the federal government will shift slightly more toward favoring members of a center-right coalition of interest groups. The change, however, is anything but radical.
Nevertheless, any change that disfavors one's own preferred interest groups and ideological groups is a real problem for those who find themselves on the outside of the winning coalitions.
Many voters and activists who now feel powerless saw themselves as being in the majority ruling coalition while Obama was in power. Now that he's been replaced by Trump, the fear of abuse at the hands of the new ruling majority shifts to others.
While the consequences are probably less significant than many imagine, there will be real winners and losers over the next four years compared to what was the case under the previous administration.
Calling for unity and asking people to play nice will do nothing to eliminate this reality. Those groups that saw themselves as being on the outside during the Obama years are all to familiar with what many Obama supporters are now feeling.
Indeed, living among the minority that finds itself out of power is an unpleasant experience in any context.
Ludwig von Mises wrote on this phenomenon. He couched it within the context of immigration, but the lesson learned here applies to any situation in which one group manages to wrest control of government power away from another group:
As long as the state is granted the vast powers which it has today and which public opinion considers to be its right, the thought of having to live in a state whose government is in the hands of members of a foreign nationality is positively terrifying. It is frightful to live in a state in which at every turn one is exposed to persecution—masquerading under the guise of justice—by a ruling majority. It is dreadful to be handicapped even as a child in school on account of one’s nationality and to be in the wrong before every judicial and administrative authority because one belongs to a national minority.
Mises speaks of nationality in this example, but with some modest changes to the text, we could apply this illustration to any number of other examples. It is not necessary for a potentially dangerous majority to be composed of foreigners. Mises might just as easily have said that "the thought of having to live in a state whose government is in the hands of members of a competing ideology is positively terrifying."
For many, the fear is real, and is indeed analogous to those who fear changes in government control fostered by migrations. Consider another passage by Mises:
The entire nation, however, is unanimous in fearing inundation by foreigners. The present inhabitants of these favored lands fear that some day they could be reduced to a minority in their own country and that they would then have to suffer all the horrors of national persecution...
In this case, Mises might have said that "Californians are unanimous in fearing a takeover by Southerners and Christians ... and they fear that some day they could be reduced to a minority in their own country."
The analogy is a bit clunky here, but it's not difficult to see the similarity. For most California voters (59 percent of whom voted for Clinton), there is a real fear that the levers of power in Washington really will be "inundated" by members of the so-called "basket of deplorables" that Hillary Clinton spoke of. In the minds of West Coast leftists, the thought of government under the control of evangelical Christians from Texas really is something to fear.
This same leftist might then imagine himself personally subject to the whims of his rightwing enemies in this manner as described my Mises:
And when he appears before a magistrate or any administrative official as a party to a suit or petition, he stands before men whose political thought is foreign to him because it developed under different ideological influences. ... At every turn the member of a national minority is made to feel that he lives among strangers and that he is, even if the letter of the law denies it, a second-class citizen.
Again, Mises is speaking of ethnic and linguistic differences, but the observation applies to any sort of minority subject to a majority group with differing values.
Now, we can debate as to how much a leftist from Silicon Valley might "suffer" under the alleged yoke of a rightwing regime that might cut taxes.
The perception of the danger posed by "the other" is very real, however. Nor is this limited to leftists, of course. Sarah Palin's declaration that there are "real Americans" (i.e., conservatives) who are to be contrasted with presumably fake Americans highlights the tendency to simply declare other ideological groups to be essentially "foreign" to one's own interests. The fact that these "others" happen to speak the same language or be born in the same legal jurisdiction does little to erase the perception of a rift between different groups.
It's not surprising then, that the issue of "unity" appears to be a growing problem.
If the members of competing political groups aren't "real Americans" or are "deplorables," then one should hardly be motivated to pursue unity with such people. Many may even conclude that violence is necessary.How to Address the Problem
For Mises, one of the primary answers to the problem of oppressing minorities was to make governments smaller and less powerful — and thus less able to oppress minorities. Again, in the context of immigration, Mises concludes:
It is clear that no solution of the problem of immigration is possible if one adheres to the ideal of the interventionist state, which meddles in every field of human activity, or to that of the socialist state. Only the adoption of the liberal program could make the problem of immigration, which today seems insoluble, completely disappear. In an Australia governed according to liberal principles, what difficulties could arise from the fact that in some parts of the continent Japanese and in other parts Englishmen were in the majority?
In other words, even if ethnic Japanese groups took control of the Australian state, it would not matter if the state were conducted along liberal [i.e., libertarian] lines. But the same might be said of feminists, or Christians, university professors or working class white people. If all were "governed according to liberal principles," there isn't a problem. If the state lacks the power to regulate, oppress, and impoverish one group for the benefit of another, then what group is in the majority is irrelevant.
But, if a state "is not conducted along completely liberal lines," Mises concludes,
there can be no question of even an approach to equal rights in the treatment of the members of the various national groups. There can then be only rulers and those ruled. The only choice is whether one will be hammer or anvil.
Put simply: the bigger the government, the greater the threat when the other guys manage to get political power.The Other Option: Secession
Should efforts to restrain the state's overall power fail, another answer is decentralization. And this was Mises's other solution to the problem of minorities subject to majorities. For Mises, the problem of "self-determination" could be addressed through decentralization, secession, and an acceptance that minority groups must have the option of breaking free from political bonds with majority groups of divergent interests:The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars. ... To call this right of self-determination the "right of self-determination of nations" is to misunderstand it. It is not the right of self-determination of a delimited national unit, but the right of the inhabitants of every territory to decide on the state to which they wish to belong...
In his essay on Mises's views on self-determination and nationalism, Joseph Salerno notes that for Mises the answer lies in "providing for the continual redrawing of state boundaries in accordance with the right of self-determination." In other words, in order to prevent the oppression of minorities by majorities, it may be necessary to allow the minority group to separate from the majority.
It is becoming increasingly clear that the United States is becoming a country in which every election brings a perceived mandate to forcefully — and even vengefully — impose the winning coalition's agenda on the losers. In a country where political power is relatively weak, decentralization is effective, and taxes are low, then the effects of a political loss can be relatively minor. But that's not the situation we now face.
Christian Concern reported earlier this year that the General Pharmaceutical Council (GPhC) had amended its guidance to remove any protection for pharmacists and their legal right to freedom of conscience.
Derek Carr has just signed the most lucrative deal in NFL history, receiving a five-year extension worth $125 million with the soon-to-be Las Vegas Raiders. At $25 million per year, Carr edges out Indianapolis Colts quarterback Andrew Luck (though Luck’s contract did reward him with over twice as much in guaranteed money). Carr also becomes a big winner in the Raiders’ taxpayer-funded escape from Oakland, with his contract scheduled so most of the money kicks in after the franchise moves to income-tax-free Nevada.
While the structure of Carr’s contract offers another opportunity to discuss the “jock tax,” it also serves to illustrate a more important issue: why Wall Street wins whenever the Fed expands the monetary supply.
After all consider this: while Derek Carr has certainly proven to be a promising young player at perhaps the most important position in professional sports, he is by no means the most accomplished player at his position or in the NFL. He’s been selected to the Pro Bowl twice, once as an alternate. His career QB rating is beneath players such as Chad Pennington, Carson Palmer, and Colin Kaepernick. Meanwhile he’s led his team to the playoffs once, unfortunately breaking his fibula before he could make a start in the post-season.
So why, then, is he being rewarded with the NFL’s largest contract?
The answer itself is fairly obvious: he was due a new deal at a time when the salary cap has never been higher. As such, NFL salaries have more to do about the size of the salary cap when a contract is signed, than it is about the merit of the individual player. Of course, over time Carr’s yearly salary will be used as a starting point with other more accomplished quarterbacks, and the average for the position will gradually rise over time. Matthew Stafford, for example, is likely to sign an even larger contract in the coming months. Salaries league-wide will rise with salary cap inflation.
But at the moment, Carr is the biggest winner of the NFL’s salary cap moving from $155M to $167M in the past year. Meanwhile a player like Aaron Rodgers may feel underpaid, with his salary averaging $22 million a year.
A similar dynamic plays out in the “real economy” as well.
Now, the relationship between all economic actors and the Fed isn’t as simple as players and their teams. Neither businesses nor consumers constantly renegotiate contracts with their country’s central bank, trying to lock up their relative value compared to everyone else on the market. Instead their earnings are decided, for the most part, based on a never ending series of transactions on the market.
Like the NFL increasing its salary cap, the economy sees constant increases to the money supply due the monetary policy of the Federal Reserve. While the Fed (wrongly) views this monetary expansion as vital to maintaining economic growth, there are consequences to their actions that are often overlooked.
For example, monetary inflation doesn’t impact everyone at the same time. There is no magical helicopter dropping money evenly across the country. Money is created by the Fed and either spent into the economy by the government, or loaned out through the banking system. By having first access these previously unavailable funds, Wall Street has a competitive advantage — relative to the rest of the economy — before the new money works its way throughout the rest of the economy.
Clearly this access to new money has nothing to do with the merit of the financial industry relative to other sectors; it’s simply a byproduct of their proximity to the central bank. The same is true for the industries that are the first to receive the newly created money from Wall Street, which itself plays a role in inflating asset bubbles and spawning business cycles.
This phenomenon was first discovered by Richard Cantillion, and is an issue often completely overlooked in the debates over growing income inequality. While the elimination of “income inequality” should never be the aim of government policy, it is useful to illustrate the ways government enriches Wall Street at the expense of the rest of the economy; especially when the politicians who fundraise off income inequality are the same ones cheerleading the Fed’s inflationary policy.
All of this is not to say that Derek Carr should be looked upon with the same disdain American’s should hold for the Federal Reserve. In fact, I would strongly oppose the Raiders replacing Carr with any amount of gold. Obviously the big difference between the quarterback and Wall Street is that the former doesn't have a unique, privileged relationship with the source of new funds. Every quarterback, over time, will have the chance to renegotiate their contract and, as such, they will all have the opportunity to benefit from an ever growing salary cap.
Unfortunately the same cannot be said for the economy as a whole. While various sectors may take turns in being the prized investment of financial markets — dot-coms in the late 90s, housing in the 2000s, tech companies and auto loans (among other things) today — it is always the financial sector that wins first.
As such, until we abolish the Fed, Wall Street will continue to dominate the economy even more than Bill Belicheck has the NFL.
Or at least people are using the OECD report on early years childcare to argue for more indoctrination.
“Give me a child for his first seven years and I will give you the man,” said the Jesuits, though recent developmental work suggests that they would have done better to have got their hooks into him before he was five. Our children are not only most adorable when they are tiny, they are also at their most malleable. They are most sensitive learning about emotional control at one, language and social skills at two, numbers at three. That’s why policymakers, like the Jesuits, long to get at people when they are tiny. That is when governments have their best chance of shaping the country’s future.
And the correct name for that is indeed indoctrination. Get at the little ones and mold them into what the State desires the citizenry be. All very much smacking of New Soviet Man to our ears, where given that state socialism doesn't work with human beings let's try to change the people into something which allows state socialism to work.
It's thus a basic approach which we reject. The aim of the State, whoever runs it and how, is to us to aid and allow us to be ourselves. It is not we who should change to fit the plans, the plans should be devised for us as we are.
That we provide plasticine for 3 year olds to play with while Mummy is at work is just fine. But indoctrination while they do so isn't.
Unsurprisingly, central banks are reluctant to claim credit for inflation. In their latest bulletin, the European Central Bank (ECB) published the graph below explaining what causes inflation.
See the problem? Neither the money supply nor the ECB are mentioned. While there are many factors that influence the purchasing power of money, inflation is still inherently a monetary phenomenon and the role central banks play simply can’t be ignored.
Instead, the ECB prefers to do what all central banks did just before the 2009 great recession: blame inflation on rising food and energy prices. But large central banks like the ECB have a strong and disproportionate effect on energy prices, as predicted by Austrian business cycle theory. The rise in oil prices in 2007, for example, was triggered by the end of the euphoric monetary boom initiated by the Fed and the ECB in the years prior. As investment in energy production was fueled, in part, by credit expansion instead of real savings. The quantity of producer’s goods — or at least of some of them — revealed themselves to be insufficient to complete the plans of entrepreneurs, thus generating a sharp increase in their prices.
Therefore the ECB has some responsibility in the so-called external drivers of inflation.
Another problem worth noting is that the ECB seems eager to revive the old myth of cost push inflation. The author of the ECB bulletin writes that: "Domestic price pressures result mainly from wage and price-setting behaviour, which is closely linked to the domestic business cycle."
But it is the values of the first order goods which are imputed back to productive factors, rather than the other way around. As Henry Hazlitt puts it:
The other rival theory is that inflation and the rise of prices are caused by higher wage demands — by a “cost push.” But this theory reverses cause and effect. “Costs” are prices. An increase in wages above marginal productivity, if it were not preceded, accompanied, or quickly followed by an increase in the supply of money, would not cause inflation; it would merely cause unemployment. It is not true, as so often assumed, that a wage increase in a given firm or industry can be simply “added on to the price.” Without an increased money supply, prices cannot be raised without reducing demand and sales, and hence production and employment. We can stop the “cost push” if we halt the increase in the money supply and repeal the labor laws that confer irresponsible private powers on union leaders.
With a constant demand for money, it is possible for some prices to go up but it is impossible for all prices to go up. For all prices to go up, a central bank must exist and pump more money into the economy. If, in a free market, the cost for oil increases for whatever reason, other prices, ceteris paribus, must fall.
Of course, the ECB is right to argue that global commodity prices affect the domestic price level. Nonetheless, the bulletin deliberately understates the impact the ECB has on the movement of prices. To simply chalk it up to international pressure will, for sure, become a handy justification for the ECB if they fail to maintain inflation under 2%.
But don’t be fooled, central banks, not oil, are responsible for the debasement of the currency.
A Seattle resident told me last night she counted 50 high-rise construction cranes in her hometown. Seattle developer Kevin Daniel provides confirmation, “Seattle is definitely the pretty girl on the dance floor.”
It turns out “there are currently 13 high-rise apartment or condo buildings of at least 24 stories in development or planning in the downtown area. The average is 39 stories. Another 24 high-rises are in the proposal pipeline, according to city and industry reports,” writes Paul Roberts for CrossCut.
The woman from the Emerald City told me the tallest building in Seattle was soon to be built. Perhaps she was talking about Miami developer Sonny Kahn’s proposed 102-story 4/C project which has attracted adverse attention from the FAA.
It’s believed that even if Kahn shortens the building it’ll cost $700 million and the top floor will command $15,000 a month in rent, for “a vertical mansion offering everything from 24-hour concierges to personal shopping and dog-washing, all linked by ‘intelligent mobile technology’ that allows staff to anticipate a tenant’s every need,” Roberts explains.
No one will construct the world’s tallest building in Seattle. But, considerable clusters of cranes must mean we’re near a top.
Mark Thornton explains in his seminal article “Skyscrapers and Business Cycles” that, “the basic components of skyscraper construction such as technology are related to key theoretical concepts in economics such as the structure of production. The findings, empirical and theoretical, suggest that the business-cycle theory of the Austrian school of economics has much to contribute to our understanding of business cycles, particularly severe ones.”
The number of units in downtown Seattle is set to explode, unless a crash gets in the way. Prior to 2010, the number of high-rise rental units in Seattle’s urban “core” was just 2,960. By 2020, the total is projected to be 16,543.
“Given the number of high-rise units expected by the end of the decade, this boom implies a downtown transformation that can strain even the most active imagination,” writes Roberts. “While most of the debate around these towers has centered on familiar questions about affordability, inequality, traffic, and our urban character, we also might want to ask questions of another sort.”
Andrew Lawrence, who invented the Skyscraper Index, found that in virtually all cases, the start of new record-breaking skyscrapers was a precursor to financial crisis. “Generally,” writes Professor Thornton, “the skyscraper project is announced and construction is begun during the late phase of the boom in the business cycle; when the economy is growing and unemployment is low. This is then followed by a sharp downturn in financial markets, economic recession or depression, and significant increases in unemployment.”
However, Seattle academics and civic leaders view their downtown as the new Field of Dreams — “Build it and they will come.” And “once all of this intellectual power and capital, and corporate talent comes together,” says Peter Orser, who runs University of Washington’s Runstad Center for Real Estate Studies, “it just feeds on itself and now we’re exponentially growing, from what was once Bill Gates, Paul Allen and Bill Boeing … Now it’s a lot more guys like that.”
Developers assume the new residents coming to rent downtown will live alone with their laptops. Roberts writes, “based on proposed projects, says [real estate consultant Brian] O’Connor, the studio/one-bedroom ratio for new towers will likely hover between 80 percent and 85 percent.”
Normal folk are not wanted, “the towers are key to attracting a very specific category of newcomer — the ‘creatives’ widely seen as the secret sauce for a hot urban economy,” explains Roberts.
As cheap money gushes in to finance new projects, even a journalist like Roberts can identify this skyscraper building binge as a “capital-fueled boom.”
Richard Cantillon, widely credited as the first economic theorist, would be able see what’s going on in Seattle before he hit the Strait of Juan de Fuca. Thornton explains how the Cantillon Effect relates to skyscraper construction,
Combined with a lower cost of capital brought about by a lower rate of interest, land owners will seek to build more capital-intensive structures and, at the margin, this will cause land to be put to alternative uses. In the central business district, this means more intensive use of land and thus higher buildings. Simplified, higher prices for land reduce the ratio of the per-floor cost of tall vs. short buildings and thus create the incentive to build buildings taller to spread the land cost over a larger number of floors. Lower rates of interest also reduce the cost of capital, which facilitates the ability to build taller. Thus, higher land cost leads to taller buildings.
“Although many observers expect some sort of correction in the Seattle high-rise sector, the timing and severity are anyone’s guess,” Roberts writes. “The correction might be so modest that most of Seattle doesn’t really notice.”
Seattle, Mr. Cantillon would contend, you’ll notice.
Reprinted from DouglasinVegas. Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth.
A few upscale restaurants in the United States recently have ended the practice of tipping their wait staff, preferring a fixed labor cost method of compensation. This attempt to change this long-standing cultural practice presents a fascinating opportunity to explore a variety of economic concepts including principal-agent problems, gains-from-trade, price discrimination, and cultural institutions designed to build trust.
Professor Gill argues that tipping remains an economically efficient means of providing quality service wherein restaurant owners, wait staff, and customers all benefit in a win-win-win situation. Furthermore, the norm of tipping also provides an excellent example to teach basic economic principles and foster classroom discussion.
Presented at the Mises Institute on 22 June 2017. Includes a Question-and-Answer period.
The economic arguments against central banks are numerous to say the least. Through the writings of Ludwig von Mises and Murray Rothbard we have a wide variety of critiques that explain the many ways the central banks distort economies, cause booms and busts, punish savers, and chose winners and losers through monetary policy.
But, even if confronted with these arguments, and one remains supportive of central banks, other non-economic arguments must still be addressed.
For example, it is becoming increasing important — in our current age of "non-traditional" monetary policy — to take note of the fact that central banks, and especially the Federal Reserve, are essentially unrestrained by law.
Economists themselves often defend this total unmooring from legal or political accountability, saying it is necessary for the Fed to have "independence" from elected officials.
In reality, however, this "independence" is best described as "total lack of accountability."
Writing in today's Dallas Morning News, Texas Tech economist Alexander William Salter writes:
A phenomenal amount of time and money is spent trying to anticipate what the Fed will do and, afterwards, what the ramifications will be. The reason it takes so many experts to weigh in on Fed behavior is because the Fed's actions are fundamentally unpredictable. This is a huge defect in an organization of such public importance in a nation whose founding principles include the sanctity of the rule of law.
"Rule of law" does not merely mean "according to some official procedure." In order to be truly lawful, the behaviors of government entities must adhere to a more general framework of rules, so that these behaviors are not arbitrary. The more general rules must be more or less fixed, known in advance, and — most importantly — not subject to reinterpretation by those whose hands the rule is supposed to bind. This concept of the rule of law is central to classically liberal constitutionalism and jurisprudence, which underlies the American experiment in ordered liberty.
The behavior of the Fed fails to meet any of these criteria.
Fed activities are more or less unpredictable on any given day, as indicated by the need for various financial houses to devote significant resources to Fed-watching. Congress has almost entirely abdicated its responsibility in holding the Fed accountable, so Fed's actions are not in conformity with any general rule other than what the Fed Board of Governors thinks is expedient. This means the Fed is a judge in its own cause and a law unto itself.
In recent years, some observers — Robert Higgs, for instance — have focused on "regime uncertainty" which is a problem arising from "a pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights."
Much of the focus in this research has been on the presidency and the Congress and the courts while ignoring the central role of the Fed itself in promoting this uncertainty.
As Salter notes, the Fed is now unpredictable, and it's anyone's guess what policy change might be coming down the road at any given time. Needless to say, this isn't great for economic growth for all the reasons laid out in the regime-uncertainty research.
Of course, the Fed has always essentially been unaccountable to any outside institutions. Nevertheless, both political ideology and prevailing views among many economists helped to restrain Fed action over the past century. Since World War II, another important factor has been the fact that the US economy has often been relatively strong, and there rarely appeared to be ample justification for the sorts of radical monetary policy now routinely being discussed among Fed policymakers.
As a perfect example of how radical monetary thought has become might be the discussion surrounding Marvin Goodfriend, who was recently revealed to be a leading candidate for appointment by Donald Trump to the Fed's board of governors. According to the Financial Times, Goodfriend possesses "a radical willingness to embrace deeply negative rates."
As a member of the Fed's board, would Goodfriend push for negative rates under the "right" conditions? Who knows?
But if he was successful in winning over a majority of voting members to such a position what could anyone do about it? More importantly, what documents, guidelines, or statutes would indicate for us ahead of time what the "right" conditions would be for implementing negative rates?
There are none. Whether or not the "time is right" for negative rates is completely up to the whims of Board members.
This situation is, as Salter points out, the complete opposite of "the Rule of Law" and has no place in a legal or political regime that claims to respect such a concept.
Moreover, the situation that now prevails at the Fed is exactly the sort of thing F.A. Hayek warned about in The Road to Serfdom when Hayek outlines the incompatibility between the rule of law and an economy controlled by government planners.
...stripped of all its technicalities, [the rule of law] means that government in all its actions is bound by rules fixed and announced beforehand — rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one's individual affairs on the basis of this knowledge.
Serious problems begin to arise, Hayek continues, when "ad hoc actions" on the part of government planners prevent market actors from planning for their own economic futures.
Unfortunately, "ad hoc" would appear to be one of the most apt phrases for describing how the Fed functions in today's world.
The Fed's defenders will tell us that this unrestrained capriciousness must be tolerated or else the Fed will no longer have its precious "independence."
Of course, applying this logic to any other political institution — and the Fed most certainly is a political institution — would be immediately denounced as absurdly authoritarian.
And rightly so.
But the Fed's lack of accountability continues to be sacrosanct among many in power — and it continues in spite of a decade of lackluster economic performance under the Fed's "leadership. Salter is forced to conclude:
But when money is governed by the arbitrary rule of central bankers, things become much more uncertain. Trade slows. The economy stagnates, jobs are hard to come by, and the gains from trade mostly accrue to politically connected financial elites. The Fed bears no small responsibility for the past 10 years of anemic economic performance.
A report on the sexual misconduct by a disgraced Church of England bishop makes for “harrowing reading," the Archbishop of Canterbury said today.
The word “deflation” can be defined in various ways. According to the most widely accepted definition today, deflation is a sustained decrease of the price level. Older authors have often used the expression “deflation” to denote a decreasing money supply, and some contemporary authors use it to characterize a decrease of the inflation rate. All of these definitions are acceptable, depending on the purpose of the analysis. None of them, however, lends itself to justifying an artificial increase of the money supply.
The harmful character of deflation is today one of the sacred dogmas of monetary policy. The champions of the fight against deflation usually present six arguments to make their case.1 One, in their eyes it is a matter of historical experience that deflation has negative repercussions on aggregate production and, therefore, on the standard of living. To explain this presumed historical record, they hold, two, that deflation incites the market participants to postpone buying because they speculate on ever lower prices. Furthermore, they consider, three, that a declining price level makes it more difficult to service debts contracted at a higher price level in the past. These difficulties threaten to entail, four, a crisis within the banking industry and thus a dramatic curtailment of credit. Five, they claim that deflation in conjunction with “sticky prices” results in unemployment. And finally, six, they consider that deflation might reduce nominal interest rates to such an extent that a monetary policy of “cheap money,” to stimulate employment and production, would no longer be possible, because the interest rate cannot be decreased below zero.
However, theoretical and empirical evidence substantiating these claims is either weak or lacking altogether.2 First, in historical fact, deflation has had no clear negative impact on aggregate production. Long-term decreases of the price level did not systematically correlate with lower growth rates than those that prevailed in comparable periods and/or countries with increasing price levels. Even if we focus on deflationary shocks emanating from the financial system, empirical evidence does not seem to warrant the general claim that deflation impairs long-run growth.3
Second, it is true that unexpectedly strong deflation can incite people to postpone purchase decisions. However, this does not by any sort of necessity slow down aggregate production. Notice that, in the presence of deflationary tendencies, purchase decisions in general, and consumption in particular, does not come to a halt. For one thing, human beings act under the “constraint of the stomach.” Even the most neurotic misers, who cherish saving a penny above anything else, must make a minimum of purchases just to survive the next day. And all others—that is, the great majority of the population—will by and large buy just as many consumers’ goods as they would have bought in a nondeflationary environment. Even though they expect prices to decline ever further, they will buy goods and services at some point because they prefer enjoying these goods and services sooner rather than later (economists call this “time preference”). In actual fact, then, consumption will slow down only marginally in a deflationary environment. And this marginal reduction of consumer spending, far from impairing aggregate production, will rather tend to increase it. The simple fact is that all resources that are not used for consumption are saved; that is, they are available for investment and thus help to extend production in those areas that previously were not profitable enough to warrant investment.
Third, it is correct that deflation—especially unanticipated deflation—makes it more difficult to service debts contracted at a higher price level in the past. In the case of a massive deflation shock, widespread bankruptcy might result. Such consequences are certainly deplorable from the standpoint of the individual entrepreneurs and capitalists who own the firms, factories, and other productive assets when the deflationary shock hits. However, from the aggregate (social) point of view, it does not matter who controls the existing resources. What matters from this overall point of view is that resources remain intact and be used. Now the important point is that deflation does not destroy these resources physically. It merely diminishes their monetary value, which is why their present owners go bankrupt. Thus deflation by and large boils down to a redistribution of productive assets from old owners to new owners. The net impact on production is likely to be zero.4
Fourth, it is true that deflation more or less directly threatens the banking industry, because deflation makes it more difficult for bank customers to repay their debts and because widespread business failures are likely to have a direct negative impact on the liquidity of banks. However, for the same reasons that we just discussed, while this might be devastating for some banks, it is not so for society as a whole. The crucial point is that bank credit does not create resources; it channels existing resources into other businesses than those which would have used them if these credits had not existed. It follows that a curtailment of bank credit does not destroy any resources; it simply entails a different employment of human beings and of the available land, factories, streets, and so on.
In the light of the preceding considerations it appears that the problems entailed by deflation are much less formidable than they are in the opinion of present-day monetary authorities. Deflation certainly has much disruptive potential. However it mainly threatens institutions that are responsible for inflationary increases of the money supply. It reduces the wealth of fractional-reserve banks, and their customers-debt-ridden governments, entrepreneurs, and consumers. But as we have argued, such destruction liberates the underlying physical resources for new employment. The destruction entailed by deflation is therefore often “creative destruction” in the Schumpeterian sense.5Excerpted from The Ethics of Money Production
- 1. For an overview, see Federal Reserve Bank of Cleveland, Deflation— 2002 Annual Report (May 9, 2003); R.C.K. Burdekin and P.L. Siklos, eds., Deflation: Current and Historical Perspectives (Cambridge: Cambridge University Press, 2004). On the latter volume, see Nikolay Gertchev’s excellent review essay in Quarterly Journal of Austrian Economics 9, no. 1 (2006): 89–96.
- 2. For recent Austrian analyses of deflation, see the special issue on “Deflation and Monetary Policy” in Quarterly Journal of Austrian Economics 6. no. 4 (2003). See also Murray N. Rothbard, America’s Great Depression, 5th ed. (Auburn, Ala.: Ludwig von Mises Institute, 2000), part 1; idem, Man, Economy, and State, 3rd ed. (Auburn, Ala.: Ludwig von Mises Institute, 1993), pp. 863–65.
- 3. See George Selgin, Less Than Zero (London: Institute for Economic Affairs, 1997); Michael D. Bordo and Angela Redish, “Is Deflation Depressing? Evidence from the Classical Gold Standard,” NBER Working Paper #9520 (Cambridge, Mass.: NBER, 2003); A. Atkeson and P.J. Kehoe, “Deflation and Depression: Is There an Empirical Link?” American Economic Review, Papers and Proceedings 94 (May 2004): 99–103.
- 4. One might argue that, even though deflation had no negative impact on production, the aforementioned redistribution is unacceptable from a moral point of view. We will discuss some aspects of this question in the second part of the present book, in the section dealing with the economics of legalized suspensions of payments.
- 5. See Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (London: Allen & Unwin, 1944), chap. 7.
Theresa May described Islamophobia as a form of extremism in her response to the Finsbury Park attack on Monday. Tim Dieppe comments on the relationship between Islamophobia and extremism and the risks to freedom of speech that this poses.
You may or may not recall this but Ken Livingstone, when Mayor of London (well, sort of, wasn't he?), brought in a policy that we here at the ASI had long championed, the Congestion Charge. And now we see another London Mayor thinking about bringing in a further policy which we have equally championed, pay per mile driving.
London is to consider pay-per-mile road pricing and banning car parking in new developments under plans to cut 3m car journeys a day in the capital.
A transport strategy to be published on Wednesday by the London mayor, Sadiq Khan, will set targets to ensure 80% of journeys are made by public transport, walking or cycling.
Khan said: “As London’s population is set to increase beyond 10 million, our future health and prosperity is more and more dependent on us reducing our reliance on cars.
“We have to be ambitious in changing how our city works. While there will be 5m additional journeys being made across our transport network by 2041, at the same time we’re setting ourselves a bold target of reducing car journeys by 3m every day.
Of course, much of this is barking inanity. Having a target for the number of journeys is simply nonsense. Set the basic rules and then leave people be to sort it out themselves by responding to the incentives.
But the basic idea of the charging per mile driven is entirely correct. We've a scarce resource, road space. We need to design some method of allocation of that scarce resource. And resource allocation is almost always best done by price. Thus, charge people for use of the scarce resource.
Space on the Embankment at 4 am is not scarce so there need to be charge. Space in the same place at 4 pm is scarce and thus a charge should be made. Technology has moved on since the original Congestion Charge so we are indeed able to bring in a more fine grained solution.
We're not, as we've noted, enamoured with the ideas of targets and so on. But the basic underlying concept is indeed correct. Charge people the correct price for a scarce resource and the correct amount of said resource will be used.
As many who follow websites like mises.org already know, Ross Ulbricht was sentenced to life in prison for running a dark web drug marketplace known as Silk Road under the pseudonym Dread Pirate Roberts. After receiving his sentence — a deliberately harsh ruling for a man barely in his thirties — Ulbricht’s defense team began to work on his appeal. On May 31, Ulbricht lost the appeal, meaning that his life sentence will stand.
To libertarians, this is a tragedy. Even for many supporters of the Drug War or at least some regulation of narcotics, Ulbricht’s punishment was far from proportionate to the crime. But the consequences of Ulbricht’s ruling and the underlying problems with our justice system that allowed it do not end there. The Drug War has created an environment for our justice system that frequently places people in a position where they are pressured to go to jail, even if they’re innocent, for fear of suffering an even greater sentence if they choose to fight for their freedom, and Ulbricht will now serve as the go-to example for defense attorney’s warning clients to avoid going to jury trial at all costs.The Justice System as a Public Good
Because the government holds a monopoly on the justice system in the United States, courtrooms are treated as public goods. For public goods, costs are socialized, so there is no individual cost to using this resource. From the perspective of the criminals, of course, this seems like a no-brainer — a defendant is hardly going to pay the cost of his own conviction. But the socialized costs of courtrooms remove the incentive to economize for two specific groups of people: legislators and police officers.
Legislators have an incentive to flood the courtrooms because if they want to get elected, they need to appear “tough on crime.” The product of this incentive is legislation geared toward continually creating newer infractions or criteria for arrest that signal to the voters that you, the politician, are going to clean up the streets. Naturally, the focus of these infractions tends to be on non-violent crimes because the scope of violent crimes is narrower and has long been an established part of criminal law. But any new criteria for arrest means more people being funneled through the criminal justice system, and the costs are borne by the citizenry.
A corollary of the “tough on crime” image is the pressure for police precincts to keep up arrest rates. If arrest rates are low, it looks to the layperson like they are failing to do their jobs. Few people actually make a conscious distinction between the different types of crimes people are arrested for, so the general assumption is that the more people are arrested, the safer everybody else is. Thus, the pressure is created for police to not merely make arrests, but to make easy arrests. Finding a drug dealer or a prostitute to arrest has a lower cost in time and energy than hunting down a rapist or murderer, at least in part due to the fact that there are fewer violent criminals in general. So more arrests again mean that more criminals are being shuffled through the courts.A Game Theory Analysis of the Justice System
In The Economic Anatomy of a Drug War, David Rasmussen and Bruce Benson offer an insightful analysis regarding the effects that these incentives have on the court and prison systems.
Because individual police and legislators have nothing to lose and everything to gain from sending people through the court system, the courts became incredibly overcrowded. The incentive this creates for the legal teams and the judges is to work together to get people in and out as quickly as possible. Because jury trials are lengthy and expensive, plea bargains are the go-to option.
Because defense attorneys, prosecutors, and judges frequently deal with each other, their court interactions are essentially “repeat games,” meaning that without directly colluding, they learn how to tacitly appeal to each other’s interests to maximize their own gains. Unfortunately for the defendant, they are engaged in a “one-shot game,” and are thus at the mercy of the incentives for the repeat players.
The judges incentivize defense attorneys to encourage their clients to accept plea bargains by offering significantly lighter sentences to avoid time consuming jury trials. Because the prosecutors want to avoid any situation in which losing is an option, they capitulate by offering lighter terms as well. Both the prosecutor and the defense have an incentive to agree on a plea bargain because of the power that the judge has over them in the courtroom. If either legal team plays hardball — such as in the case of the defense attorney seeking a jury trial for a legitimately innocent defendant — they run the risk of facing the consequences of harsher sentences (for the defense) or statistic-damaging losses (for the prosecutors), not to mention the disadvantages the judge may create for them in the court setting. Although direct collusion has been known to happen, Rasmussen and Benson demonstrate that no overt interaction need take place for these consequences to take effect. This phenomenon is known as “Group Cohesion.”
The plea bargain incentive creates a mechanical process of herding prisoners quickly through the court system and into the prison. The logical result is the well-known problem of prison overcrowding. Overcrowded prisons have their own unseen consequences, but that will be the topic for a different article.Ross Ulbricht and the Plea Bargain Pressure
For anybody who cares about the Bill of Rights, the overcrowding of the court system should be a concern. The Sixth Amendment guarantees the right to a speedy trial. Unfortunately, by not defining what constitutes “speedy,” modern interpreters have enough leeway to ignore this right entirely. But court backlogs grow steadily due to the incentives created by victimless crimes — most significantly being drug crimes.
In the years Rasmussen and Benson had data for when doing their research, court backlogs in federal courts grew from 1,200 cases to a whopping 7,400 cases in a one-year time period (1989 to 1990).1 Since then, we have only seen more “tough on crime” legislation, such as the Joe Biden-sponsored Crime Control Act that significantly increased funding for state and city law enforcement to target drug crimes.
For libertarians, the problems of the justice system hardly need to be expanded upon. But for people who support drug laws, the overcrowded courtrooms, and concomitant violation of the Constitution should still be a reason for concern. But there are only two solutions: either repeal legislation regarding non-violent crime or significantly expand the legal system — which would require a tax increase of a magnitude that even the most severe “drug warrior” would be unlikely to tolerate.
With Ross Ulbricht’s unjust and severe ruling, he will undoubtedly be the example cited by state-appointed defense attorneys to any defendant facing a drug charge. “It doesn’t matter if you’re innocent,” I can already hear a defense attorney telling one of the thousands of young people arrested for dealing drugs, “if you don’t accept their plea bargain, you might end up like Ross Ulbricht.”
- 1. Rasmussen, David W., and Bruce L. Benson, The Economic Anatomy of a Drug War: Criminal Justice in the Commons (Lanham, MD: Rowman and Littlefield Publishers, 1994), p. 23.
Chinese billionaire and Alibaba founder Jack Ma predicted this week that in 30 years, people will be working less than they do now. According to NBC:
I think in the next 30 years, people only work four hours a day and maybe four days a week," Ma said. "My grandfather worked 16 hours a day in the farmland and [thought he was] very busy. We work eight hours, five days a week and think we are very busy.
Only time will tell if Ma's prediction will come true in terms of its time horizon and magnitude. But, if the next century follows the pattern of the previous 150 years, we could be looking at continued and significant reductions in total working hours.
Some of the biggest gains are likely to occur in the so-called "developing" world, but even the wealthy West will continue seeing gains in this regard.
For many Americans, at least, comments such as Ma's may cause them to scoff. Remarkably, there still seems to be an impression among many Americans that they are working more hours now than their grandparent did.
This is no doubt true in some specific cases, but overall, the evidence is clear that people are working less now than in the past — with the possible exception of the recent past.
RELATED: "Why Median Incomes Probably Are Really Going Down" by Ryan McMaken
Indeed, if we look at a survey or total work hours conducted by Michael Huberman and Chris Minns, we find that total hours worked have declined over time:
In Germany, for example, total hours worked declined from 3,284 hours in 1870 to 1,463 in 2000. In Canada, work hours declined over the same period from 2,845 to 1,835.
The overall trend is obvious, and only the US, Sweden, and Canada in this sampling of wealthy countries shows something other than a decline from 1980 to 2000.
From 1870 to 2000, though, total work hours declined 39 percent in the United States, 40 percent in the UK, and 55 percent in Germany. While it's certainly possible that some Americans may be working as much as their great-grandparents did, overall, most of us work more than a third less time than they did.
Other studies have shown similar results.
A study by Thomas Juster and Frank Stafford, it was found that from 1965 to 1981 in the United States, “market work” hours per week fell from 51.6 hours to 44 hours for men. For women, market work rose from 18.9 hours to 23.9 hours. We would expect an increase for women over this period as women began to take on “market work” at higher rates than before.
In yet another study by Mary Coleman and John Pencavel, average weekly hours worked fell for white men from 44.1 hours in 1940 to 42.9 hours in 1988. It fell for white women from 40.6 hours to 35.5 hours over the same period.
Most of this is thanks to continued progress in worker productivity. As recently explained by Ferghane Azihari at mises.org, we work less for more as capital accumulation and productivity increases. Obviously, our standard of living is higher than that of our grandparents. And yet, we're often working less than they did.
Moreover, our working lives are shorter than they were in the past.
As Ben Powell has noted in his work on sweatshops on child labor, wealthy countries enjoy the luxury of eschewing child labor nearly in its entirety.
By the 20th century, thanks to increasing productivity, the adult members of the family could produce enough to pay a family's expenses in a way that had previously required the labors of the family's 9- and 10-year-olds.
It was the decline in the necessity of child labor that made it feasible to finally outlaw child labor in wealthy countries in the early 20th century. Today, labor activists act as if laws prohibiting child labor were the primary driver behind its decline. It is far more likely that the opposite is true. Namely, that growing wealth allowed for more children to leave the work force. Prohibitions on child labor came only in the late stages of this process. Powell writes:
In the United States, Massachusetts passed the first restriction on child labor in 1842. However, that law and other states’ laws affected child labor nationally very little.11 By one estimate, more than 25 percent of males between the ages of 10 and 15 participated in the labor force in 1900.12 Another study of both boys and girls in that age group estimated that more than 18 percent of them were employed in 1900.13 Economist Carolyn Moehling also found little evidence that minimum-age laws for manufacturing implemented between 1880 and 1910 contributed to the decline in child labor.14 Similarly, economists Claudia Goldin and Larry Katz examined the period between 1910 and 1939 and found that child labor laws and compulsory school-attendance laws could explain at most 5 percent of the increase in high school enrollment.15 The United States did not enact a national law limiting child labor until the Fair Labor Standards Act was passed in 1938.
And it wasn't just the children who could afford the new luxury of skipping work.
During this same period, the elderly were beginning to enjoy for the first time the concept of "retirement."
Just as increased productivity had made it possible to for parents to more fully support children with just the parents' wages, so too did these gains make new pension programs — both governmental and private — possible.
After all, the implementation of the Social Security tax would have been a political impossibility in an earlier era when workers were living closer to subsistence levels.Thanks to the surpluses made possible by growing industrialization and worker productivity, both private corporations and government agencies could skim off enough of the surplus to hand over to elderly workers who were no longer actively producing products or services as wage workers.
Thus, like child workers, elderly workers began to disappear from the work force. W Andrew Achenbaum writes:
In [1890 in the US], about two-thirds of men aged 65 and older were still in the labor force — roughly the same proportion found today in developing countries such as Brazil and Mexico. By 1920, that number had dropped to 56 percent, and by 1940 it was down to 42 percent. Today it is 27 percent.
Today, not only are modern workers working fewer hours in many cases, but fewer workers are necessary to produce at least as much wealth.
This is especially true when we look at these trends through a global lens. As Powell notes, child labor declines the most in those countries where real incomes exceed $12,000. The number of countries where this is actually the case continues to expand, just as poverty continues to decline in the developing world.
This isn't to say that everything is perfect or getting better in every way all the time. Nor are things the gains evenly distributed. The relative gains being made in recent decades in the US, for example, have slowed as American workers face greater competition from foreign workers. Gone are the days when the European competition was still digging out from the rubble of World War II. Also gone are the days when workers in places like India and Latin America and China offered little competition. Workers in the Western world once had a near monopoly on the benefits of being in close proximity to the world's best capital — including the best factories and the best technology. Nowadays, highly advanced production facilities can be found throughout the world. And this means more competition from workers in the developed world.
Moreover, continued interventionism by states and their central banks may drive real wages and economic opportunities down. Regulations on starting small business, coupled with central-bank driven asset price inflation, takes its toll on earnings for many throughout the world.
Time will tell if war, unchecked government regulation, or some other disaster may put a halt to the declines in working hours we've been enjoying for so long. If not, our descendants will be looking back on five-day weeks the way we should now look at the grueling work schedules of our great-grandparents.
We're as fond of the white hot heat of the technological revolution as the next person but we're really not sure about this:
Avocados with laser-printed barcodes are going on sale at M&S as part of a drive to reduce paper waste.
The labels, which are etched onto fruit's skin with lasers instead of stickers, will save 10 tonnes of paper and five tonnes of glue every year according to M&S.
If that's what a business wants to do then let them get on with it of course. But there's at least the possibility that this isn't such a good idea. Paper seems to be about $1,000 a tonne, glue perhaps $2,000. So we're talking about a saving of $20,000, which is what, £15,000 a year?"
Sustainability is at the heart of our business and the laser labelling is a brilliant way for us to reduce packaging and energy use."
"We have the potential to reduce packaging exponentially which is very exciting."
There is just a hint of a soupcon of a suspicion here that we're not being entirely rational. Using fewer resources to achieve the same task is obviously delightful, it's the process also known as "making us all richer" because we can then do another thing as well with those resources so saved. But that soupcon, there's a possibility that we've reified packaging and the use of less of it. It's seen as something indubitably good, when in fact it should be a rational calculation each time.
It isn't true that "less packaging" is a good thing, it depends, but that's just not how the public belief seems to be going, is it?