Blogroll Category: Current Affairs
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Last week Attorney General Jeff Sessions ordered federal prosecutors in drug cases to seek the maximum penalty authorized by federal mandatory minimum sentencing laws. Sessions’ order represents a setback to the progress made toward restoring compassion and common sense to the sentencing process over the past few years. Sessions’ action also guarantees that many nonviolent drug law offenders will continue spending more time in prison than murderers.
Sessions’ support for mandatory minimums is no surprise, as he has a history of fanatical devotion to the drug war. Sessions’ pro-drug war stance is at odds with the reality of the drug war’s failure. Over forty years after President Nixon declared war on drugs, the government cannot even keep drugs out of prisons!
As was the case with alcohol prohibition, the drug war has empowered criminal gangs and even terrorists to take advantage of the opportunity presented by prohibition to profit by meeting the continued demand for drugs. Drug prohibition enables these criminal enterprises to make profits far above the potential profits if drugs where legalized. Ironically, the so-called “law-and-order” politicians who support the drug war are helping enrich the very criminals they claim to oppose!
The war on drugs also makes street drugs more lethal by incentivizing the creation of more potent and, thus, more dangerous drugs. Of course, even as Sessions himself admits, the war on drugs also leads to increased violence, as drug dealers cannot go to the courts to settle disputes among themselves or with their customers.
Before 9/11, the war on drugs was the go-to excuse used to justify new infringements on liberty. For example, laws limiting our ability to withdraw, or even carry, large sums of cash and laws authorizing civil asset forfeiture were justified by the need to crack down on drug dealers and users. The war on drugs is also the root cause of the criminal justice system’s disparate treatment of minorities and the militarization of local police.
The war on drugs is a war on the Constitution as well. The Constitution does not give the federal government authority to regulate, much less ban, drugs. People who doubt this should ask themselves why it was necessary to amend the Constitution to allow the federal government to criminalize drinking alcohol but not necessary to amend the Constitution to criminalize drug use.
Today, a majority of states have legalized medical marijuana, and a growing number are legalizing recreational marijuana use. Enforcement of federal laws outlawing marijuana in those states is the type of federal interference with state laws that conservatives usually oppose. Hopefully, in this area the Trump administration will exercise restraint and respect state marijuana laws.
Sessions’ announcement was not the only pro-drug war announcement made by the administration this week. President Trump himself, in a meeting with the president of Columbia, promised to continue US intervention in South and Central America to eliminate drug cartels. President Trump, like his attorney general, seems to not understand that the rise of foreign drug cartels, like the rise of domestic drug gangs, is a consequence of US drug policy.
The use of government force to stop adults from putting certain substances into their bodies — whether marijuana, saturated fats, or raw milk — violates the nonaggression principle that is the bedrock of a free society. Therefore, all those who care about protecting individual liberty and limiting government power should support ending the drug war. Those with moral objections to drug use should realize that education and persuasion, carried out through voluntary institutions like churches and schools, is a more moral and effective way to discourage drug use than relying on government force.
This review of Frank D. Graham’s book, Exchange, Prices and Production in Hyper-Inflation: Germany 1920–23 (Princeton, N.J.: Princeton University Press, 1930) was published in Economica (May 1932).
All the misfortunes from which Europe has suffered in the last two decades have been the inevitable result of the application of the theories which have dominated the social and economic philosophy of the last fifty years. Our troubles are the upshot of much laborious thought. The German inflation, above all, was the outcome of the monetary and banking theory which for many years had obsessed the men who occupied the chairs of economics at the Universities, the men who governed the financial policy of the Reich, and the editors of the most influential newspaper and periodicals.
The central feature of these erroneous theories was a total rejection of the Quantity Theory1 and of all the teachings of the Currency School.2 The empirisch-realistische Volkswirt,3 who distrusted every “theory”—especially theories imported from abroad—was firmly convinced that both the Quantity Theory and the Theories of the Currency School were nothing but an inexplicable blunder committed by Ricardo and his followers. The German Kathedersozialisten4 did not waste their time on the study of English political economy. Hence they were unaware of the problems which were the subject of the long-lasting controversy between the Banking School and the Currency School. The only source of their knowledge of the matter was the book published in 1862 by Adolph Wagner under the title Theorie der Peel’schen Bankakte. Wagner lacked absolutely the gift of economic ratiocination. He accepted without any criticism all the statements of the Banking School; from his book it was utterly impossible to gather what objections the Currency School had had against the theories of the Banking School.
The other leading authority on monetary and banking problems, Wilhelm Lexis, was still less endowed with the power of economic reasoning. He, like Wagner, was entirely innocent of any understanding of the Ricardian theory of the foreign exchanges—the “purchasing power parity” theory. Each firmly believed that the foreign exchanges are governed by the balance of payments.
Hence would-be economists who owed their education to the teachings of such men were prepared to accept without criticism the doctrines of Knapp and Bendixen, who in the years immediately preceding the outbreak of the war dominated German monetary and banking theory. Knapp, Professor of Political Science at the University of Strasburg, was a trained statistician and had devoted much time in archives to the study of Prussian policy concerning the peasantry. There is not the slightest indication in his writings that he had ever glanced at Ricardo or any other of the British monetary economists. The occasional allusions to Ricardo’s ideas, which one finds in Knapp’s writings, impute to Ricardo opinions which are rather the contrary of what we read in Ricardo’s books and pamphlets. Knapp ignored absolutely the problem of prices. In his view the task of monetary theory is nothing else than the purely formal classification of the various kinds of currency. He had not the slightest idea that government interference in the mechanism of price-making is subject to certain conditions which cannot be controlled simply by governmental decree.
Not less fatal for the formation of German views on monetary theory was the influence of Bendixen, the manager of a mortgage corporation, who, inspired by Knapp, wrote some booklets, which expounded the principles of the Banking School. The most striking feature of Bendixen’s contribution was that, being unfamiliar with monetary literature, he honestly believed he was enunciating something entirely new!
In passing under review the German monetary and banking policy from the outbreak of the war to the catastrophe of 1923, the most startling thing is the absolute ignorance even of the most elementary principles of monetary science on the part of literally all German statesmen, politicians, bankers, journalists, and would-be economists. It is impossible for any foreigner even to realize how boundless this ignorance was. For this reason, in the last three years of the German inflation, some foreigners came to believe that the Germans ruined their own currency of set purpose in order to involve other countries in their own ruin, and to evade the payment of reparations. Such imputation of secret satanism to German policy does it wrong. The only secret of German policy was Germany’s total lack of any acquaintance with economic theory.
Thus Herr Havenstein, the governor of the Reichsbank, honestly believed that the continuous issue of new notes had nothing to do with the rise of commodity prices, wages, and foreign exchanges. This rise he attributed to the machinations of speculators and profiteers and to intrigues on the part of external and internal foes. Such indeed was the general belief. Nobody durst venture to oppose it without incurring the risk of being denounced both as a traitor to his country and as an abettor of profiteering. In the eyes both of the public and of the rulers the only reason why monetary conditions were not healthy was the lamentable indulgence of the government in regard to profiteering. For the restoration of sound currency nothing else seemed to be necessary than a powerful suppression of the egotistic aims of unpatriotic people.
It would be very interesting to show that this attitude was the necessary sequel to the whole system of social and economic philosophy as taught by the school of Schmoller. According to the étatiste outlook of this school, power (Macht) is the deciding factor in social life. That even the most powerful government is not free to do everything, that there exist certain unalterable conditions of human existence insusceptible to the influence of the most powerful intervention, are propositions which it never admitted. The study of economic theory, it said, was useless, for the various systems of theoretical economics all overlooked the fact that governments had the power to alter all conditions. It was ready to admit that the Ricardian system was a faithful description of the state of England at his time, but it denied its applicability to Germany. In the realm of the Electors of Brandenburg and the Kings of Prussia everything was different. It therefore replaced the study of economic theory by the history of Prussian administration in the academic curriculum. It taught that there is nothing important in social life but power, and its notion of power was very materialistic. Power in its eyes was soldiers and guns. It had never understood Hume’s discovery that all government is founded on opinion.
But to trace this evolution would involve writing the entire history of the transition of the German mind from the liberal thought of Goethe, Schiller, and Humboldt to the militarist ideas of Treitschke, Schmoller, and Houston Stewart Chamberlain. It would involve writing the history of the Prussian hegemony of the nation which has been styled the nation of poets and thinkers, and the history of the Reich founded by Bismarck and lost by Wilhelm II. It is obvious that this would exceed the purpose of these lines.
In these circumstances it is easy to understand that the German books dealing with the history of the Inflation Period are for the greater part of little value. They are so full of prejudices, and are often so entirely lacking in the theoretical insight which must necessarily precede all historical description that they cannot even give an adequate picture of the great historical event. For this reason this work by a learned American is all the more welcome. In his Exchange, Prices and Production in Hyper-Inflation: Germany, 1920–1923, Professor F. D. Graham of Princeton University has taken great pains to provide a reliable narrative.
In judging this valuable book we must bear in mind that all the experience of the German inflation brought nothing that could puzzle the theoretical economist. There were many things which were quite inexplicable to the étatiste Volkswirt5 of the Schmoller type, nay, the whole thing was quite inexplicable to them, but there was nothing that had not been observed and satisfactorily explained by the theorist in previous inflations.
In reading Professor Graham’s historical survey even those who were witnesses of the inflation must again and again be amazed at the incredible incapacity evinced in regard to the monetary problem by all sections of the German nation. For the economist the most astonishing fact is the inadequacy of the Reichsbank’s discount policy. This is Professor Graham’s verdict: “From the early days of the war till the end of June 1922 the Reichsbank rate remained unchanged at 4 per cent.; it was raised to 6 per cent, in July, to 7 per cent, in August, 8 per cent, in September and 10 per cent, in November 1922, to 12 per cent, in January 1923, 19 per cent, in April, 30 per cent, in August and 90 per cent, in September. But these increases were as nothing when measured alongside the progressive lightening in the burden of a loan during the time for which it ran. Though, after September 1923, a bank or private individual had to pay at the rate of 900 per cent, per annum for a loan from the Reichsbank, this was no deterrent to borrowing. It would have been profitable to pay a so-called interest, in reality an insurance, charge, of thousands or even millions of per cents, per annum, since the money in which the loan would be repaid was depreciating at a speed which would have left even rates like these far in the rear. With a 900 per cent, interest rate in September 1923 the Reichsbank was practically giving money away and the same is true of the lower rates in the preceding months when the course of depreciation was not quite so headlong. The policy of the Reichsbank authorities in encouraging the discount of commercial bills that they might thus mitigate the scarcity of credit was but further evidence of the Alice-in-Wonderland determination of the directors of that institution to run ever faster in order to keep up with themselves. The scarcity of credit was due solely to currency depreciation and the cure prescribed was to increase the volume of means of payment!”6
But one should not forget that the Reichsbank was not alone in this folly. The private banks, too, lent money to every speculator who furnished collateral security. It was very easy to get rich by buying shares with the money borrowed from the banks. In this way some acquired big fortunes in a very short time and painlessly. Since then all these much-admired and envied profiteers have lost all that they won, and in many cases even much more—a proof that they were not gifted with great business ability. Indeed, no great business ability was needed to outwit any one of the big German banks. That their managers and directors were really incompetent has been proved by the subsequent failure of the institutions which they governed.
It took years for German business men to understand that the mark was no longer a suitable unit for economic calculations. For a very long time they really believed that the profits, which an account of profit and loss reckoned in Marks showed, were genuine earnings. They did not understand that a computation made in a more stable currency would lead to quite a different result. Of course the business men discovered this truth somewhat earlier than the general public. They then replaced the Markrechnung by the Goldrechnung. This was the beginning of the end. The Mark-currency had perforce to break down when its unrestrainable depreciation could no longer be overlooked.
As long as the inflation was working, socialist labor leaders and the socialists of the chair were all in its favor and taught that not the increase in quantity of money but the unpatriotic behavior of the profiteers was the cause of the depreciation of the Mark. After inflation was over they changed their minds. Now they accuse the “capitalists” of having of set purpose made the inflation to enrich themselves. For the German public mind every misfortune is due to the machinations of the “exploiter class.”
For the economist the German inflation brought some interesting illustrations of his theoretical principles, but no experience which did not conform to them. In this instance monetary and economic theory had nothing new to learn. Of course, the German politico-economic science of the Schmoller-Knapp type had everything to learn from it. But in fact, with the exception of some of the younger men, they have declined to draw the conclusion. Unteachable as they are, they still believe in the theory which attributes changes in the value of a national currency to variations in the national balance of payments. The failure of the policy of inflation they attribute to lack of energy on the part of the government and to lack of patriotism on the part of the people.
Nor has the German politician learned a whit more from the inflation. The government and the Reichsbank both believe that monetary troubles arise from an unfavorable balance of payments, from speculation and from unpatriotic behavior of the capitalist class. They therefore attempt to fight the menace of depreciation of the Reichsmark by controlling dealings in foreign currency and by confiscating German holdings of foreign assets. They do not understand that the only safeguard against the fall of a currency’s value is a policy of rigid restriction. But though the government and the professors have learned nothing, the people have. When the war inflation came nobody in Germany understood what a change in the value of the money unit meant. The business-man and the worker both believed that a rising income in Marks was a real rise of income. They continued to reckon in Marks without any regard to its falling value. The rise of commodity prices they attributed to the scarcity of goods due to the blockade. When the government issued additional notes it could buy with these notes commodities and pay salaries because there was a time lag between this issue and the corresponding rise of prices. The public was ready to accept notes and to keep them because they had not yet realized that they were constantly losing purchasing power. This went on for years. But as they learned that the government was determined not to stop with the further issue of notes and that the increase of their quantity must needs lead to a progressive rise of prices their conduct changed. Everybody became anxious not to keep the money in his pocket. The service which money renders consists in its being the commodity which is saleable at the best terms. By keeping money in his purse everybody is enabled to buy in the most convenient way any commodity he may want one day. But when money loses purchasing power from day to day its retention involves a loss. Whoever gets money, therefore, spends it immediately—even by buying something for which he has no present use and maybe even no future use. In the last days of the inflation the employees got their payment daily. At once they handed it over to their wives and these hurried to spend it as quickly as possible by buying at any rate something or other. Nobody wished to retain money, everybody dropped it like a live coal. When this tendency, which on the Stock Exchange was called Flucht in die Sachwerte—flight into investments in goods—became general, so that even the least business-like people adopted it, the end was at hand. The Mark broke down. The government gained no further advantage by issuing notes because the depreciation then outran the increase.
A nation which has experienced inflation till its final breakdown will not submit to a second experiment of this type until the memory of the previous one has faded. No German government could succeed in the attempt to inflate the currency by issues in favor of the Treasury as long as the men and women are still alive who have been the witnesses and victims of the 1923 inflation. Made overcautious by what they suffered, at the very outset of the inflation they would start a panic. The rise of prices would be out of all proportion to the increase in the quantity of paper money; it would anticipate the expected increase of notes. The more money the government issued, the less it would be able to buy. The higher the salaries the civil servants and the soldiers drew, the less goods would they be able to purchase. So the government would fail in the endeavor to ameliorate its financial position by issuing notes. From the point of view of officialdom, inflation would be nugatory.
The economist might urge that this lesson could have been learned at a lower cost from theory than from experience. Had the German people paid more attention to the teachings of economic theory they could have learned all these things without having to pay so dearly. This is a melancholy comment to have to make after the event.
But in any case the monetary history of the last three lustrums in Germany and many other European countries proves that no nation can afford to treat economic theory with contempt.
- 1. [The Quantity Theory says that the general price level is primarily a function of the money supply—Ed.]
- 2. [As Mises understood it both the British Currency School and the British Banking School, broadly speaking, were advocates of central banking. The Currency School, however, advocated rules for the expansion of money and credit with some theorists even favoring 100% specie reserves. The Banking School advocated a discretionary central banking policy with few or no rules concerning money and credit expansion—Ed.]
- 3. [Translated as empiricist-relativist political economist—Ed.]
- 4. [Members of the “Younger” German Historical School who used their university positions as vehicles to advocate political intervention and reform in the economy. These professors were called “academic socialists” or “socialists of the chair”—Ed.]
- 5. [Translated as a political economist who advocates total control of all economic planning as a function of the government—Ed.]
- 6. Cf. p. 65 of Graham’s book.
As with the opera not being over until the Fat Lady has sung about her youth, beauty and slenderness the Greek debt saga is not going to end until the one important decision is taken - how much debt should Greece repay? We've been making this point for a number of years now in a number of venues. There is just this one question that must be answered:
Policymakers were still in disagreement this weekend over assumptions about Greece’s long-term growth trajectory, and the ability of the country to maintain a sizeable primary surplus over the medium term.
Countries such as Germany believe stronger growth in Greece will remove the need for debt relief, with the country’s expansion alone enough to reduce its debt burden to sustainable levels.
However, the International Monetary Fund has called for more conservative estimates of growth and primary surpluses, insisting that it will not join Greece’s €86bn (£74bn) third bail-out package unless there was meaningful debt relief.
A simple truth about our universe is that debts which cannot be repaid will not be repaid. Thus putting rather a large weight upon the definition of "cannot." Which is where the disagreement is here.
The IMF thinks that Greece can run a primary budget surplus (the primary meaning before interest and debt repayment, the implication being this is the amount that can be used to pay down debt) of 1.5% of GDP for some decades. Run that forward and that means Greece can repay some portion but not all of the current debt.
Everyone else is a politician and a politician quite aware of the fact that they've lent their voters' funds to Greece. And they'd just hate for said electorate to find out that they've lost that money by so lending it. So they've cut the interest rate to near nothing (a few basis points over the ECB's current QE influenced very low rates on much of it) and extended repayment out towards the end of the century. Losing money through opportunity cost, inflation and interest not paid is less politically painful than cutting the capital sum. Even the dimmest voter on the Chemnitz Omnibus would cotton on to the loss if there was a reduction in the outstanding sum.
But this still leaves them coming up short - unless Greece runs a primary surplus of 3.5% of GDP. So, that's the demand. Not what can Greece achieve, but what must Greece achieve to save political positions?
Which is where the problem is. No democratic system can run a primary surplus of that size over time. It can be done for a year or two but sending that much of the economy off to foreigners just isn't going to happen over the long term. The only person we know of who did manage it was Ceausescu in Romania and they machine gunned him and his wife in the end.
The IMF is correct here but then this is Europe, political desires do so often seem to win out over economic reality. But that's why the whole thing is still rumbling on after all of these years. And it will continue to do so too. Until that basic truth is recognised by all, debts that cannot be repaid will not.
Jeff Deist has excellent advice for us: listen to dead economists. He explains how economics has lost its way by trying to emulate the physical sciences and their empirical method. He cites Menger, Mises, Hayek, and Rothbard as primary resources for those interested in understanding economics as a “theoretical science.” According to Austrian economists, economic theory is constructed through deduction and not experimentation or mathematical modeling.
It is unfortunate that this position elicits more backlash than almost any other claim made by Austrian economists, because this one is so fundamental. If there cannot be agreement about how to do economics, then how fruitful can a discussion about policy be?
Much of the criticism I see is based on a misunderstanding and caricaturization of what Mises called “praxeology.” The same critics would not say the same things about logic, but praxeology is logic, just applied to human choice, or action. This is why I often avoid the term “praxeology” in mainstream company, and just use “the logic of action.”Criticism #1: “‘Logic of action’? But some people are irrational!”
One initial misconception that usually arises is that this method must assume everybody is “logical” or “rational” in the colloquial senses of those terms. Relatedly, some take this terminology to mean that Austrian economists believe that all human behavior is deliberate. None of this is the case. The logic of action pertains to the primitive man choosing to do a rain dance to bring about rain as much as the climate scientist choosing what sort of thermometers to employ in his next experiment.
Also, taking conscious, purposeful choices as a subject matter does not mean that the existence of unconscious, reflexive behavior must be denied. Climate scientists take the climate as their subject matter, but they do not deny the existence of everything that isn’t the climate. There is no “economics of sneezing” for the same reason there is no “climatology of the stomach.”Criticism #2: “But what can it do?”
Another common criticism is that such a method would get you nowhere. The critic asks, “How much can really be logically deduced from ‘Human action is purposeful behavior.’?” I would point this critic to some of the larger tomes in Austrian literature, like Human Action and Man, Economy, and State. Mises and Rothbard began with the same starting point — human action — and filled hundreds of pages with valuable economic theory and policy analysis.
For those who are still doubtful about the practicality of such a method, but don’t want to read so many pages, I can briefly show how to get to diminishing marginal utility. All economic theory hinges on being able to reach this conclusion.
When individuals act, they necessarily employ some means toward the satisfaction of a preferred end. A limited supply of means can only satisfy a limited number of ends. A homogeneous stock of means may be dedicated to a variety of ends. As such, an individual will use this stock of means to satisfy the most important or most desired ends, and leave the less important ends unsatisfied. Therefore, additional units of this homogeneous stock of means would be employed by the individual to satisfy lower-ranked ends, because the most highly preferred ends that could be satisfied by the means would be attained first.
This line of reasoning gives us a powerful claim: diminishing marginal utility. It is a rock-solid explanation of the way we value the things around us. It tells us a lot about the world and the way we deal with scarcity. It is universal and incontrovertible because of the way it was derived, and it is impossible to act in violation of this law.
It is useless to try to come up with some experiment to disprove it. It literally cannot be disproven in the same way that 1+1=2 cannot be disproven. You may wonder, “who in the world is out there trying to disprove diminishing marginal utility?” I would point you to the mainstream fascination with Giffen goods, which are goods that supposedly violate the law of demand, a close corollary to the law of diminishing marginal utility.1Criticism #3: “Why do you hate data so much?”
This is the basis for a third frequent criticism of Austrian economists. Detractors say that Austrians are afraid of data and stubbornly plug their ears and sing “lalala” whenever they are confronted with supposedly inconvenient facts about the real world. But we’ve seen that there is no aversion to data, math, or statistics. These are just properly used in economic history or psychology and not in the testing of economic theory. The most that observation can do for theory is to guide the theoretician to construct relevant theory and perhaps to encourage the theoretician to take another look at a theory when all of the data “goes against it”, so to speak. Importantly, observations cannot falsify logically derived economic theory, but they can point an accusatory finger at a flawed step in the logic sometimes.
Thus you see how differences in method quickly lead to differences of theoretical conclusions. Differences in theoretical conclusions inevitably lead to debate over policy prescriptions. Even though normative claims like “There ought not to be a minimum wage” are technically outside the realm of positive economics, there is not a big jump from “Binding minimum wage laws cause unemployment” to “We shouldn’t enact minimum wage laws.” This is why there is such a large overlap of Austrian economists and libertarians.The consequences of starting on different methodological grounds
The Giffen good concept obviously is not the extent of the differences between the mainstream and Austrians. The two schools start on different epistemological and methodological grounds and construct two different edifices of economic theory. The differences become especially polarizing in macro-level theory, even though there are some similar-looking façades on the micro-level.
Mainstream macroeconomics is so deeply flawed even mainstream macroeconomists are starting to admit it. It is marked by ridiculous levels of aggregation, outlandish policy proposals, and high-powered mathematical modeling that doesn’t seem to have anything to do with the way real human beings live and act. Though their science is founded on prediction, the 2007–08 financial crisis seemed to catch them all by surprise.
Austrian economists had been warning of a housing bubble for years, and it’s because they are equipped with a method of doing economics that is firmly grounded in the logical implications of real choices made by real humans.
- 1. Giffen goods are theoretically possible in neoclassical microeconomics when the income effect outweighs the substitution effect for an inferior good. They are theoretically impossible in Austrian microeconomics because the two bundles of goods that are bought when the price of one of the items in that bundle changes are not viewed by the individual as homogeneous. For example, two pounds of potatoes and 16 ounces of meat consumed at the lower price for potatoes versus five pounds of potatoes and 10 ounces of meat consumed at the higher price for potatoes. Diminishing marginal utility only applies to an individual’s valuation of a homogeneous stock of a good, and bundles of items satisfy a different end for the individual than what the items would satisfy for the individual separately. You can see Peter Klein’s full explanation here.
Letter of May 17, 2017 from Bishop David Parsons to Archbishop John Privett's rejection of reconsideration of Worley decision
Charges of cant and hypocrisy have been leveled by Bishop Donald Parsons against the bishops of British Columbia and Yukon
There's obviously something we've missed in this argument about Facebook and the other internet giants and their collection and manipulation of our data. The specific fine handed out this past week we're just fine with. Facebook was more than a little economical with the actualite to the regulators over its capabilities and intentions. Whether there should be such regulators we think doubtful but if there are going to be then they should indeed be told the truth. It's like the courts and perjury and contempt - these are very serious crimes on the grounds that if we're going to have courts then people must take them seriously and also tell them the truth.
So with regulators, this is a rule of law matter. However, he larger issue here is something we've missed:
Equipping competition law for the formidable task of properly tackling data-rich behemoths is a fertile area of research and policy, but still awaits enforcement. Challenges include market definition, accurately valuing data assets and dealing with the particular modes of virtual competition.
If the value of data were more appropriately considered, the commission might not have waved through the Facebook/WhatsApp merger so easily.
We're not even understanding the concern here. The data, to the individual, isn't worth a great deal. That's why they're willing to hand it over in order to share cat pictures. The individual pieces of data are worth nothing. It's only the information, in aggregate, and when processed, that has any value. And that's what Facebook really is, an aggregator and processor of such information. That's the function of the beast, so why people are worrying about something doing what it says on the tin we're really just not sure.
We assume this is just the usual about people doing something new and damn it, they're Americans, so we had better stop them.
If we are really to change the dynamics of the modern data economy, it is going to take more than just targeted arrows and small-fry fines.
Again, we're missing this. Was there a meeting at some point, one we weren't invited to, which decided that the dynamic must be changed? If so, what was the justification? That they're Americans or something useful?
Although we think we do understand this bit:
For the future to offer anything more than resignation to the power of Facebook and its ilk requires dedicated finance for sustainable, civic-oriented technology, strategies to incentivise growth and for people to vote with their feet. How many lies will it take until we hit that point with Facebook?
Yes, we get this bit:
Dr Julia Powles researches technology law and policy at Cornell Tech and at the University of Cambridge
Give my department a big grant please.
Other than that, what actually is the problem that is being complained about?
The media insists the US economy has recovered from the 2008 crash. Equities markets have enjoyed a bull run since the election. Housing prices are rising in expensive coastal cities. Government offices continue to report that GDP is growing while inflation remains in check. And insiders like JPMorgan Chase CEO Jamie Dimon insist that American consumers and businesses are upbeat about the future.
But is the supposed recovery an illusion, fueled by an artificial supply of money and cheap credit from the Fed? Are housing and equity prices headed for a fall? Is inflation actually much higher than reported? Will older Americans ever recover their savings lost in the last crash? Will savers continue to lose ground to artificially low interest rates?
Has the US economy recovered, or is it a house of cards? Jeff Deist assesses the Trump economy.
Unemployment is of course a problem, there's those vague whispers of technological unemployment coming down the pike, so, what should we be doing about it?
Should the Government Guarantee Everyone a Job?
No. That's one of those questions where it's entirely and quite clear that the answer is no.
As to why it's no it's because it's a solution that's at least a century, if not near a millennia, out of date as an answer to the problem.
One way of detailing the problem is OK, so government guarantees a job for everyone. Which job?
Back when work was, to a large extent, the application of human muscle power to either farm work or some form of building (roads, canals, buildings, sea defences, whatever) then labour was homogeneous. Someone who could guide a plough might not be quite capable of surveying a dyke, for example, but they'd be perfectly, reasonably at least, efficient at doing the spade work to build one. Thus the various make work schemes in times of dearth familiar to the varied Chinese and Indian administrations of the past were sensible reactions to dearth.
The 1930s experience in the US, well, still, building a dam did need tens of thousands equipped with little more than a shovel and wheelbarrow.
But today we just don't have homgeneous labour. It's hugely, highly, heterogeneous. This is, of course, just the side effect of that much greater division and specialisation of labour which makes the modern world so rich. But it does mean that there isn't anything that we do which either requires or benefits from the mobilisation of large amounts of untrained, in this task, labour.
Well, perhaps government could work out what needs to be done, then train people to do it and that's how we'll provide everyone with a job? But that runs straight into Hayek, pointing out that the market is the only method we've actually got of processing through the information to work out what needs to be done and in what manner. We know very well that government trying to decide that is going to be less efficient than just leaving well alone.
And as a final kick in the fork for the argument that we can just move labour from one task to another at will. If we could do that then there would be no such thing as technological unemployment, for labour could be moved from one task to another at will.
The tsunami of government spending and easy-money monetary policy shows no sign of letting up. In spite of many claims of strong economic growth, the world's central banks refuse to do much at all in terms of scaling back their huge balance sheets or their rock-bottom interest rates. Not coincidentally, household debt has now returned to pre-recession levels in the US while government spending on everything from firemen to foreign wars continues unabated.
And not surprisingly, well-funded governments have all the money they need to put more non-violent people in jail, as AG Jess Sessions wants to do, and expand the drug war even over the protests of the states themselves.
The Mises Institute is excited to return to Seattle this weekend, discussing the "House of Cards: Has the US Economy Recovered?" Our terrific lineup of speakers include: Doug Casey, Tom Woods, Walter Block, Bob Murphy, and Jeff Deist. If you can’t attend the event in person, watch it live at Mises.org/live.
And in case you missed them, here are this weeks Mises Wire articles, covering a wide array of topics including libertarianism, US household debt on the rise, entrepreneurship, Venezuela's decline, net neutrality, behind the doors of our fire departments, the war on drugs, and the absurd laws governing paddleboarding.
- How Magical is the Keynesian Multiplier? by Frank Shostak
- Why the Left Refuses to Talk About Venezuela by Ryan McMaken
- The American Way of War Is a Budget-Breaker by William Hartung
- NFL Teams are Right to Blackball Colin Kaepernick by Tho Bishop
- Bylund: Entrepreneurship Can Fix Healthcare by Per Bylund
- Venezuela: Forty Years of Economic Decline by José Niño
- It’s Against the Law to Paddleboard Without a Whistle by Tho Bishop
- US Household Debt Rises to All-Time Highs by Ryan McMaken
- Balance Sheet Normalization, Or Not by C. Jay Engel
- Libertarianism at the Brink by David Gordon
- 4 Problems With Jeff Sessions's New "Tough on Crime" Stance by Ryan McMaken
- Entrepreneurship’s Split-Personality Problem by Per Bylund
- The World's Central Banks Are Frozen with Fear by Ryan McMaken
- Marx: The Economist's Economist by Carmen Elena Dorobăț
- The States Are Revolting Against the War on Drugs by Mark Thornton
- Brexit Has Put EU Politicians in Panic Mode by Alasdair Macleod
- Economists Are Not Plumbers by Peter Klein
- Public-Sector Unions Keep the Gravy Train Flowing to Fire Departments by Ryan McMaken
- Ditch Net Neutrality Now by Chris Calton
On January 30, 2017, President Trump issued an executive order entitled: “Reducing Regulation and Controlling Regulatory Costs.”1 Known as the “One-In, Two-Out” rule, it calls for dramatically reducing the regulatory burden upon the US economy. This executive order may do more for the US economy than any other economic proposal by the Trump administration, perhaps even far more than any enacted tax cuts.
There is no doubt regulatory reform is needed. From anecdotally looking at the effects upon particular industries (e.g., Dodd-Frank’s impact on preventing new community banks from opening), to the number of pages in the Federal Register, to estimates of lost man hours and direct expenditures from the Congressional Budget Office: the degree of the regulatory burden is clear. The US economy has never suffered to this extent.
How did it get this bad? Three primary reasons exist. First, unlike fiscal or even monetary policy, the burden imposed by regulations is more difficult to quantify and assign causality. Second, regulations exist and have increased in number by benefiting two primary constituents: entrenched businesses using regulations as a barrier to entry, and their politically connected lobbyists. Third, and of most significance, mainstream economists agree that without regulation, planes would crash in the sky, the food supply would be contaminated, and working conditions would degenerate to Neolithic-period levels. The acceptance of regulations is as widespread as the supposed underlying rationales are numerous.
Of all the rationales proffered, perhaps the strongest argument for regulations concerns the perceived “market failure” of negative externalities. If the justification for the regulation of negative externalities proves faulty, then the rationale, form, magnitude, and/or existence of all regulations should also be questioned. Analyzing the history of negative externality analysis provides insight into the “justification” of regulation.Negative Externalities Defined and Pigou’s Recommendation
Externalities exist when costs are imposed (negative externalities) or benefits are realized (positive externalities) by parties other than the economic actor performing or participating in the action creating the costs or benefits. Pollution is a classic example of negative externalities: a power plant operating alongside a cold river may discharge warm water which interferes with a downstream brewery’s similar need for cold water.
The economist A.C. Pigou in his treatise The Economics of Welfare provided the classic and still widely accepted solution: tax or regulate the negative externality.2 Either assess an impactful tax on the warm water discharge from the power plant, or regulate the amount, nature, and timing of this pollution (or ban it altogether). Either way, the effect of warm water upon the downstream brewery and other river users would be lessened.Coase Counters, But Misses the Solution
Ronald Coase’s classic essay, “The Problem of Social Cost,” challenged the traditional Pigou solution to negative externalities.3 While Pigou saw only liability with the creator of negative externalities, Coase assumed blame to be ambiguous:
The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A?
In other words, preventing the power plant from discharging warm water would harm its business just as the downstream brewery’s operations would be impaired by any permitted warm water discharge. Coase saw the solution to negative externalities as the recognition of property rights in order to avoid “the more serious harm.” The introduction of property rights would, according to Coase, maximize welfare as one party compensated the other for the negative externality. Either the brewery owns a property right to the river surrounding it, or the power plant owns the right to release warm water into the river.
It did not matter to Coase which party owned the property right, as long as such property rights were recognized and could be potentially adjudicated, a solution should be found which maximized welfare: either A would compensate B, or B would compensate A. According to Coase:
In devising and choosing between the social arrangements we should have regard for the total effect. This, above all, is the change in approach which I am advocating.Rothbard Solves the Problem
But while Pigou ignored property rights, Coase neutered them in subsuming their ethical basis while attempting to maximize the “total effect” on the economy. Murray Rothbard, in his paper entitled “Law, Property Rights, and Air Pollution,” disagreed with Coase’s value-free property rights:
... income and wealth are important to the parties involved, although they might not be to uninvolved economists. It makes a great deal of different to both of them who has to pay whom.4
Rothbard reconstructs the negative externality solution in accordance with the libertarian theory of property. The concept of homesteading recognizes property ownership when individuals mix their labor with unowned natural resources. Introducing property recognition with the ethical basis of homesteading leads to a natural question regarding the river example: who was there first?
If the power plant started dumping warm water before the down river brewery established its property right, then the power plant has established an “easement right” to its warm water pollution (although limited to that particular waste and only at those levels in existence when downstream owners established their property rights). Alternatively, if the brewery established itself downstream and homesteaded a property ownership in the surrounding waterway, it is protected from warm water discharge by the legal concepts of trespass (physical entry in direct interference with the property) or nuisance (interference with the use and enjoyment of the property).
Rothbard’s proposed legal remedy generates flexibility to address the unique negative externality issues particular to each situation. By invoking property rights grounded in an ethical basis, and not assigned willy-nilly to parties, it eliminates the need for regulations by removing what is regulated: the water is transformed from an unowned item to be regulated by the government into private property with disputes settled by common law.Conclusion
Regulations have the potential for more mischief than ill-conceived laws, for their enactment derives from bureaucratic edict by unaccountable and nameless officials. Worse, their authorization generally precludes recourse and their enforcement typically abrogates due process.
Reducing the regulatory burden is possible, for Reagan almost cut the Federal Register down by half (from over 90 thousand pages to under 50 thousand). Trump’s efforts, while laudable and beneficial, will likely be mitigated in their potency by entrenched interests and bureaucrats. And ultimately, with a new administration, the efforts could be rendered but temporary.
True regulatory reform requires the recognition, extension, and proper adjudication of property rights as uniquely advocated by the Austrian school. Until then, the ligation of economic regulation will continue.
- 1. Exec. Order No. 13771, 30 January 2017.
- 2. A. C. Pigou, The Economics of Welfare, 4th ed. (London: Macmillan and Co.,1932).
- 3. Ronald H. Coase, “The Problem of Social Cost,” The Journal of Law & Economics III (October 1960).
- 4. Murray N. Rothbard, “Law, Property Rights, and Air Pollution,” Cato Journal 2, no. 1 (Spring 1982).
Power to the People: 1.7 Million European Citizens have their pro-life voice heard before the European Court of Justice
The Christian Legal Centre has this week been involved in defending the preborn child at EU level. CLC's Standing Counsel, Paul Diamond, argued that the European Commission was wrong to refuse to introduce the One of Us initiative for debate at the European Parliament. Roger Kiska reports.
Human embryos are being made into jewellery by an Australian company. Baby Bee Hummingbirds turns unused embryos from In-vitro fertilisation (IVF) treatment into keepsakes in a process the company's founder describes as "sacred art".
Regan King writes of the "epidemic of ignorance and confusion" concerning IVF and assesses the scientific and moral issues surrounding the treatment. "Christians believe that life begins at conception", he says.
Regan King comments on Liberal Democrat leader Tim Farron's recent compromise on Christian morality.