Blogroll Category: Current Affairs

I read blogs, as well as write one. The 'blogroll' on this site reproduces some posts from some of the people I enjoy reading. There are currently 336 posts from the category 'Current Affairs.'

Disclaimer: Reproducing an article here need not necessarily imply agreement or endorsement!

What Economics Is Not

Mises Institute - Sat, 23/10/2021 - 12:00

The most common misunderstanding about economics is that it is only about money and commerce. The next step is easy: I care about more than money, and so should everyone, so let's leave economics to stock jobbers and money managers and otherwise dispense with its teachings. This is a fateful error, because, as Mises says, economics concerns everyone and everything. It is the very pith of civilization

This is a confusion sown by economists themselves, who postulate something called "economic man" who possesses a psychological propensity to always behave in ways that maximize wealth. Their mathematical models, predictions, and analysis of policy are based on this idea.

In the real world, however, we know this not to be the case. The world as we know involves profit seeking but also extraordinary acts of charity, sacrifice, non-pecuniary giving, and voluntarism (though I dislike that term since all commercial exchanges are voluntary too!).

How to account for these? The Austrian approach to economics dispenses with the idea of "economic man," or rather broadens the meaning of economics to include all action, which takes place in a framework of scarcity. Scarcity requires that we economize on something in all that we do, even when wealth is not the motivation. For this reason, Austrians analyze acting individuals, not maximizing prototypes.

Why is this important? A common complaint against the free market is that it needs to be supplemented by laws that restrict the power of materialism unleashed. The market does "greed" well, people admit, but we need government to provide charity, order, law, and restraint of all sorts, as if these areas lie outside the domain of economics.

The truth is that a theoretical structure that explains stock markets but not charity auctions, chain stores but not church attendance, savings rates but not child rearing, has no claim to be a universal theory at all.

This is why this Rothbard article is so important. He defines the free market as integral to an entire theory of a free society that is ordered and developed through cooperative action of all its membership. That action is not conditioned on profit seeking only, but on the institutions of ownership, contract, and free association.

Economics, then, is a science that is rooted in a larger understanding of what used to be called the liberal order. The central claim of this understanding is that society — just like the smaller subset often called "the economy" — needs no central manager to thrive.

And just as economic structures are best managed by property owners and traders, the entire society contains within itself the capacity for self-management. Any attempt to thwart its workings through the coercion of the state can only create distortions and reduce the wealth of all.

Anyone familiar with current economics texts and journals knows that this is not the view that they promote. They are still stuck in an era where bureaucrats imagined themselves as smarter than the rest of us, where central bankers believed that they could end the business cycle and inflate just enough to cause growth but not ignite inflation, where antitrust experts knew just how big businesses should be.

But can government managers know how to manage daily decisions on production and allocation better than property owners? Can they improve on the agreements, innovations, and rules created by acting individuals? They have neither the intellectual equipment nor the incentive to do so. They are blind to the realities of our lives and incapable of doing more for us than we can do for ourselves, even if they had the incentive to do more than rob and coerce us.

How is it that the economics profession has come to overlook these points? Murray Rothbard believed it was partially due to the decline of the general treatise on economic theory, systematic books that begin with fundamentals and trace cause and effect through the whole range of human action.

These books were common in the 19th century (and we distributed books like J.B. Say's Principles, and a similar book by Frank Fetter!). Thank goodness that Mises wrote his amazing work Human Action, and Rothbard wrote his elaboration on Misesian economics in the form of Man, Economy, and State. The Mises Institute publishes both.

You know what? They are still being read, teaching each new generation of economists through the work of the Mises Institute. And not just in the United States: we receive regular progress reports from study groups in China, Latin America, Eastern Europe, and Africa. A universal theory is once again having a universal impact.

Categories: Current Affairs

Proponents of Forced Vaccines Want You to Think Healthcare Is a Communal Resource

Mises Institute - Sat, 23/10/2021 - 11:30

One narrative currently being circulated in support of vaccine mandates is that unvaccinated people will cause an undue strain on the healthcare system because they are more likely to contract covid-19 and take up hospital beds that could be used for other people. Presumably, by “other people” they mean those who took the vaccine like they were told to do.

This sentiment seems to be behind statements like the one in a recent Washington Post opinion article that “[t]he unvaccinated are killing people in ways they probably never imagined.” It also seems to be behind the decision of about seventy-five doctors in Florida to stage a “symbolic walkout” to “protest a surge in unvaccinated COVID-19 patients.” A glance through any social media platform will likely turn up more of this narrative that unvaccinated people will cripple the US healthcare system.

This narrative is ultimately being used by supporters of vaccine mandates to paint anyone who declines to fall in line with their wishes regarding vaccination as not only dangerous, but immoral.

The Implied Assumption That Healthcare Is a Communal Resource

Those who oppose mandates appear to have a strong argument that, if the vaccines work, the vaccinated should have no need to force others to be vaccinated as well. The burdens of being unvaccinated will fall on the shoulders of the unvaccinated, so no justification exists to require them to do differently.

In response, many of those seeking to impose vaccine mandates have taken up the argument that the unvaccinated will still harm society simply by putting undue strain on the healthcare system when they inevitably fall ill in droves. This group claims that failure to be vaccinated represents a needless exhaustion of scarce healthcare resources and is therefore an unethical choice.

Even if true, and there are reasons to be skeptical of it, this is merely a utilitarian argument, but somehow it has managed to transform into a moral one in many people’s eyes. How has this happened?

We typically do not view someone purchasing a service as injuring others just because he leaves a little less of it behind for everyone else, as all human activity would be unethical by that standard. Most people would only view this as unethical if it involved consuming resources belonging to someone else. For this reason, in order to cast the act of being unvaccinated as unethical, healthcare resources must be viewed as a communal good, i.e., as resources that belong to society collectively rather than to the individuals who produce or buy them. Individuals who get sick do not merely purchase medicine, they use up medicine that belongs to everyone else.

That our political elites already hold something like this collective attitude toward healthcare is no secret, the US president recently scolding that “our patience is wearing thin” with the unvaccinated and their personal medical choices.

Communal Attitudes to Healthcare Foster False Moral Claims about Its Use

If the average person can be habituated to adopt this communal attitude toward healthcare resources, it can then be wielded as a moral bludgeon against anyone dissenting from the mandates of the community’s leaders. This supposed collective ownership of healthcare resources implies the right of society to control how individuals use those resources. Those found wasting the community’s resources are to be disdained as its enemies.

The intensity of emotion around the subject of healthcare during a pandemic can only push this tendency further. Panicked members of society can be more easily convinced that others are morally obligated to preserve those communal healthcare resources at the expense of all other considerations.

Thus members of society come to vilify an individual’s simple act of considering alternatives and weighing the costs and benefits to himself. It is not acceptable that a person use his own judgment to determine what course of action will be in his own interest; he is required to concede to the collective judgment and adopt whatever medical interventions society deems best—not what society deems best for his personal health, but what it deems best for society as a collective whole.

The primary problem with this characterization is that it just isn’t true that healthcare is a “communal resource” in this sense. Healthcare resources are simply those medical materials and services individuals are willing to provide to purchasers who are willing to pay for them (artificial state programs like Medicare notwithstanding).

Thousands of individuals make healthcare decisions and purchase medical services for themselves like this every day. But the average person does not see each individual doing these things for himself. He sees only the net effect of those thousands of actions going on day after day, resulting in the “healthcare system” as we know it. It is something akin to a mass delusion that this collection of interconnected individual actions is conflated in the minds of many as a collective entity.

Ludwig von Mises dealt with the idea of collective social systems adroitly in Socialism: An Economic and Sociological Analysis. Mises addressed the long history of intellectual thought in which it was assumed some external purpose imbued society with something like a personhood of its own. But early thinkers were naïve to the fact that the existence of interconnected societies is only made possible once individuals begin to engage in a division of labor. It is this action by individuals, explainable entirely by their desires to serve their own individual ends, that is responsible for the advancement of societies. Mises says that “the primitive thinker always sees things as having been organized from outside, never as having grown themselves, organically” (p. 296).

Instead, Mises teaches that society is the result of many individuals acting independently and voluntarily for their own interests. Cooperation is therefore required, not by force, but because this cooperation is the means by which one man may cause another to do something voluntarily that benefits him. “Society exists only where willing becomes a co-willing and action co-action. To strive jointly towards aims which alone individuals could not reach at all, or not with equal effectiveness—that is society.” (p. 297)

The collective view stands opposed to this understanding of society:

The collectivist movement of the present day derives its strength not from an inner want on the part of modern scientific thought but from the political will of an epoch which yearns after Romanticism and Mysticism. Spiritual movements are revolts of thought against inertia, of the few against the many; of those who because they are strong in spirit are strongest alone against those who can express themselves only in the mass and the mob, and who are significant only because they are numerous. Collectivism is the opposite of all this, the weapon of those who wish to kill mind and thought. (p. 64)

Almost one hundred years after this writing, the collectivist elements in our societies seem even more eager to crush mind and thought than before. Today, the threat of moral condemnation for anyone daring to question their directives on vaccination is just one more instrument they have adapted for this purpose.

Categories: Current Affairs

Why Censorship Advocates Are Obsessed with Stories about Yelling “Fire!” in a Theater

Mises Institute - Sat, 23/10/2021 - 11:00

If one boldly asserts the importance of the right of freedom of speech, it is almost inevitable that another will respond with one of the most common apologetic arguments for the government limitation of speech, “But you can’t yell ‘Fire!’ in a crowded theater.” The non sequitur argument is supposed to humble the right of free speech in favor of some government restriction. This argument fails logically because it does not follow that because a theater may restrict speech of those it admits through sale of a ticket that government must be empowered to legally restrict the speech of its citizens in general.

Additionally, the problem is largely theoretical and imaginary. This is a common tactic of statism and argumentation in favor of statism: Problem X might arise in society, therefore, government must prevent X by action Y. In other words, we are expected to believe that the government must legally restrict freedom of speech because otherwise people would be free to shout “Fire!” in crowded theaters. This is not the case logically or practically. Have you ever heard of this happening in real life?

With that said, where does this common argument come from and when was the first time it was used?

One might understandably think that this common colloquial example of why speech must be limited came from a case in which someone actually yelled “Fire!” in a crowded theater, causing panic, injury, or death. In fact, the “fire” example does not come from a law or case having to do with theaters at all. The statement comes from Schenck v. United States (1919), in which Justice Oliver Wendell Holmes Jr. stated on behalf of the unanimous court,

The most stringent protection of free speech would not protect a man in falsely shouting fire in a theatre and causing a panic…. The question in every case is whether the words used are used in such circumstances and are of such a nature as to create a clear and present danger that they will bring about the substantive evils that Congress has a right to prevent. It is a question of proximity and degree.

This famous statement, though most people have no idea where it originated, has been used for over a century to allegedly demonstrate the dangers or limits of freedom of speech. As such, this argumentation has been the foundation of many government restrictions of freedom of expression. Ironically, this case was a decision that people who passed out literature that claimed that the draft for World War I was a form of slavery, contra the Thirteenth Amendment, and encouraged others to resist the draft, could be legally prohibited from such speech. The case itself had nothing to do with theaters. It is not as if this was a pervasive problem in theaters across the United States, demanding federal government action to solve. Again, such an example of someone yelling in a theater in order to cause a panic is not actually an issue of freedom of speech but of property rights and contract.

Just as one who does not allow someone else to yell “Fire!” in his or her home without consent, the theater owner(s) and those who attend the theater have mutual expectations of one another, even if not stated directly. The purchase of a ticket allows one entrance to the theater, the viewing of a movie, access to the facilities like bathrooms, and the ability to litter. In return, the moviegoer agrees to an implicit contract to behave by watching the paid-for movie without disturbing others. People get removed from theaters all the time for disturbing others without yelling “Fire!” This issue does not come up that often because it hardly exists and is not a societal problem for which government(s) must restrict freedom of speech. The reason that this problem is uncommon is because implicit contract, informed consent, and property rights regulate the potential issues. The fact that such a vacuous example became such a compelling argument for the government restriction of freedom of speech in many other areas is disturbing. To summarize, Walter Block has argued concerning this very issue that

to override the right of free speech, for any reason, is a dangerous precedent, and never necessary…. The rights of theater patrons can be protected without legally prohibiting free speech. For example, theater owners could contract with their customers not to yell “fire!” … The situation would be entirely analogous to that of someone under contract to sing at a concert, but who refuses to sing, and instead lectures on economics. What is involved in both cases is not the right of free speech, but the obligation to honor a contract.

Categories: Current Affairs

Speech Isn't a "Threat" Just Because a Government Official Says So

Mises Institute - Sat, 23/10/2021 - 10:00

Speech doesn't become a "threat" just because a government official calls it that. Yet the National School Boards Association (NSBA) got the Justice Department to open an investigation after labeling parents' speech as "threats and acts of violence" when it occurred in controversies over "critical race theory" and "masking requirements" in the public schools. As the Washington Examiner notes, "A few of the most outrageous examples of these 'threats and acts of violence,' according to the association, include a man filming himself while calling school administrators and another man labeling a school board as 'Marxist.'" The NSBA's letter lists as an example of such threats and violence "A resident in Alabama, who proclaimed himself as 'vaccine police,' has called school administrators while filming himself on Facebook Live."

The NSBA letter falsely claims that "critical race theory is not taught in public schools and remains a complex law school and graduate school subject well beyond the scope of a K-12 class." In reality, 20 percent of urban school teachers have taught or discussed critical race theory with their K-12 students, along with 8 percent of teachers nationally, according to a survey by Education Week. These percentages are even higher in high schools, where books by critical race theorists are much more likely to be assigned to students than in elementary schools. The Loudoun County, Virginia, public schools paid a contractor to train their staff in critical race theory, giving it $3,125 to conduct "Critical Race Theory Development."

The NSBA complained about a man filming himself talking to school administrators. But filming yourself is not threatening, and it is less intimidating than filming other people, which courts have ruled is still protected by the First Amendment. For example, courts have ruled that filming the police is free speech in cases such as Fields v. Philadelphia (2017). If you can videotape the police during a tense encounter or an arrest, then you can certainly film yourself talking to school officials, even if they think their responses make them look bad to the public. 

Speech can't be punished just because it makes someone look bad and leads to them getting hate mail. The Wisconsin Supreme Court made that clear when it ruled in favor of a conservative professor whose criticism of a bossy progressive instructor led to her getting hostile emails and hate mail from angry members of the public. (See McAdams v. Marquette University [2018]). So even if a school board receives angry emails after a parent films them or calls them "Marxist," that's still speech protected by the First Amendment.

The Justice Department's response followed NSBA's request that the Justice Department "intervene against … cyberbullying attacks," and prosecute "these crimes and acts of violence under … the PATRIOT Act in regards to domestic terrorism," the "Hate Crimes Prevention Act," and federal civil rights laws. The NSBA's letter also lists some less benign conduct, such as unspecified alleged "physical threats" and the arrest of a man for supposedly committing battery and disorderly conduct at a school board meeting.

In response to the NSBA's letter, Attorney General Merrick Garland said the Justice Department would investigate "harassment, intimidation, and threats" aimed at school officials or employees. But the conduct alleged by the NSBA is mostly heated rhetoric or bad publicity, not true threats that the government should prosecute. The Supreme Court has ruled that speech isn't an unprotected threat just because it contains harsh rhetoric or someone feels threatened by it. For example, it ruled a man couldn't be prosecuted for saying, "I have already [been drafted] and I have got to report for my physical this Monday coming. I am not going. If they ever make me carry a rifle the first man I want to get in my sights is [President Johnson]."

Government officials often feel "harassed" or "intimidated" by angry voters threatening to vote them out of office, but that doesn't render such speech an unprotected threat. Voters have the right to threaten to remove school board members from office, even if government officials find that "harassing" or "intimidating." As judges noted in striking down a school "harassment" code that restricted speech critical of homosexuality, "there is no categorical 'harassment exception' to the First Amendment's free speech clause." (See Saxe v. State College Area School District [2001]).

The NSBA's complaint about "cyberbullying attacks" follows coordinated parent email campaigns against the teaching of critical race theory in the public schools. When recipients receive hundreds of angry emails, such as from outraged parents, they regard them as "cyberbullying." That it's labeled as "cyberbullying" does not mean that speech is unprotected. People have a right to express their anger about government policies, even if they do so by the thousands and that leaves school board members with thousands of angry emails in their inboxes.

New York's highest court struck down a cyberbullying law as a violation of free speech in People v. Marquan M. (2014). That law restricted "sending hate mail" with "the the intent to harass, annoy, threaten, abuse, taunt, intimidate, torment, humiliate, or otherwise inflict significant emotional harm on another person," which is how government officials often view angry messages from constituents. And it criminalized "disseminating … personal … information"—even if it’s not "false" or "sexual"—about any person if it was done "with the intent to … annoy …, abuse, [or] taunt” and “with no legitimate private, personal, or public purpose," whatever that might mean. Taping school board members saying stupid things could run afoul of that provision, such as the example the NSBA gave of a man calling school officials while on Facebook Live.

But legislators continue to pass overly broad laws against "cyberbullying" and "cyberstalking." Indeed, the federal Violence Against Women Act already contains an overly broad cyberbullying provision that the Justice Department may attempt to use against parents. One judge found that certain applications of that law were unconstitutional in United States v. Cassidy (2011). As a result, the judge dismissed a prosecution over harsh, repeated criticism of a religious leader on Twitter, finding that the criticism was free speech. But Congress has since expanded the law's reach even further, giving Attorney General Garland a potential weapon to go after some parents.

The NSBA's letter also cited federal civil rights laws such as the "Conspiracy Against Rights statute" and the "Violent Interference with Federally Protected Rights statute." That is ominous, because there is a very real danger that the Biden administration, like past Democratic administrations, will misuse the civil rights laws to censor speech. During the Clinton administration, progressive civil rights officials investigated citizens for "harassment" and "intimidation" merely because they spoke out against or used lawsuits to block, housing projects for classes of people protected by the Fair Housing Act (such as recovering substance abusers). These speech-chilling investigations came to an end in 2000, after the Ninth Circuit Court of Appeals court ruled such investigations violated the First Amendment in White v. Lee (2000). But in 2017, liberal judges wrongly allowed condo owners to be sued for "interference" with civil rights, because they published angry blog posts that created a "hostile housing environment" for a disabled neighbor who later committed suicide.

Categories: Current Affairs

Well, yes Polly, but the NHS still isn't very good

Adam Smith Institute - Sat, 23/10/2021 - 06:01

Polly Toynbee tells us that the National Health Service is very green, as health services go:

But one event at Cop26 will raise the spirits. The NHS, far out ahead, will make a key presentation to the world’s other health systems to show what can be done. The NHS is responsible for 5% of the UK’s carbon emissions: the recently departed head of NHS England, Simon Stevens, put climate targets firmly into the NHS long-term plan, warning: “If health services across the world were their own country, they’d be the fifth-largest emitter on the planet.”

You might think going green was the last thing the NHS could do right now, after its decade of unprecedented underfunding, with waiting lists going through the roof, acute doctor and nurse shortages, and burnt-out staff being awarded paltry pay rises. But no. Jackie Daniel, head of Newcastle upon Tyne hospitals, has pioneered the green cause within the NHS and is making the Cop26 presentation to world health services. “A few, exhausted trusts did think this was the last thing they could cope with now,” she tells me. “But astonishingly, nearly everywhere has seized on this. We’ve found it’s something that really enthuses staff, and they have been the ones driving it forward.”

We also know that the NHS is very equitable, most fair and offers equal access to all. All quite possibly desirable attributes of a health care system.

We can’t help but keep reminding ourselves that even with all of this the NHS isn’t in fact a good health care system. As the OECD (and others, there are a number of attempts at quantifying this) points out the NHS just isn’t very good at “mortality amenable to health care”. That is, stopping people from dying from things which medical treatment could stop them dying from. We may indeed be merely neoliberal utilitarians but we do think that could be a significant aim of having a health care system.

Even to the point that worrying a little less about greenery, equity, equality and so on might - just possibly, you know? - lead to an improvement in actually curing patients?

Categories: Current Affairs

Why Some People Are Poorer

Mises Institute - Fri, 22/10/2021 - 20:00

Throughout history, until about the middle of the 18th century, mass poverty was nearly everywhere the normal condition of man. Then capital accumulation and a series of major inventions ushered in the Industrial Revolution. In spite of occasional setbacks, economic progress became accelerative. Today, in the United States, in Canada, in nearly all of Europe, in Australia, New Zealand, and Japan, mass poverty has been practically eliminated. It has either been conquered or is in process of being conquered by a progressive capitalism. Mass poverty is still found in most of Latin America, most of Asia, and most of Africa.

Yet even the United States, the most affluent of all countries, continues to be plagued by "pockets" of poverty and by individual poverty.

Temporary pockets of poverty, or of distress, are an almost necessary result of a free competitive enterprise system. In such a system some firms and industries are growing or being born, others are shrinking or dying; and many entrepreneurs and workers in the dying industries are unwilling or unable to change their residence or their occupation. Pockets of poverty may be the result of a failure to meet domestic or foreign competition, of a shrinkage or disappearance of demand for some product, of mines or wells that have been exhausted, of land that has become a dust bowl, and of droughts, floods, earthquakes, and other natural disasters. There is no way of preventing most of these contingencies, and no all encompassing cure for them. Each is likely to call for its own special measures of alleviation or adjustment. Whatever general measures may be advisable can best be considered as part of the broader problem of individual poverty.

This problem is nearly always referred to by socialists as "the paradox of poverty in the midst of plenty." The implication of the phrase is not only that such poverty is inexcusable, but that its existence must be the fault of those who have the "plenty." We are most likely to see the problem clearly, however, if we stop blaming "society" in advance and seek an unemotional analysis.

Diverse and International

When we start seriously to itemize the causes of individual poverty, absolute or relative, they seem too diverse and numerous even to classify. Yet in most discussion we do find the causes of individual poverty tacitly divided into two distinct groups — those that are the fault of the individual pauper and those that are not. Historically, many so-called "conservatives" have tended to blame poverty entirely on the poor: they are shiftless, or drunks or bums: "Let them go to work." Most so-called "liberals," on the other hand, have tended to blame poverty on everybody but the poor: they are at best the "unfortunate," the "underprivileged," if not actually the "exploited," the "victims" of the "maldistribution of wealth," or of "heartless laissez faire."

The truth, of course, is not that simple, either way. We may, occasionally, come upon an individual who seems to be poor through no fault whatever of his own (or rich through no merit of his own). And we may occasionally find one who seems to be poor entirely through his own fault (or rich entirely through his own merit). But most often we find an inextricable mixture of causes for any given person's relative poverty or wealth. And any quantitative estimate of fault versus misfortune seems purely arbitrary. Are we entitled to say, for example, that any given individual's poverty is only 1 percent his own fault, or 99 percent his own fault — or fix any definite percentage whatever? Can we make any reasonably accurate quantitative estimate of the percentage even of those who are poor mainly through their own fault, as compared with those whose poverty is mainly the result of circumstances beyond their control? Do we, in fact, have any objective standards for making the separation?

A good idea of some of the older ways of approaching the problem can be obtained from the article on "Poverty" in The Encyclopedia of Social Reform, published in 1897.1 This refers to a table compiled by a Professor A. G. Warner in his book, American Charities. This table brought together the results of investigations in 1890 to 1892 by the charity organization societies of Baltimore, Buffalo, and New York City, the associated charities of Boston and Cincinnati; the studies of Charles Booth in Stepney and St. Pancras parishes in London, and the statements of Böhmert for 76 German cities published in 1886. Each of these studies tried to determine the "chief cause" of poverty for each of the paupers or poor families it listed. Twenty such "chief causes" were listed altogether.

Professor Warner converted the number of cases listed under each cause in each study into percentages, wherever this had not already been done; then took an unweighted average of the results obtained in the fifteen studies for each of these "Causes of Poverty as Determined by Case Counting," and came up with the following percentages. First came six "Causes Indicating Misconduct": Drink 11.0 percent, Immorality 4.7, Laziness 6.2, Inefficiency and Shiftlessness 7.4, Crime and Dishonesty 1.2, and Roving Disposition 2.2 — making a total of causes due to misconduct of 32.7 percent.

Professor Warner next itemized fourteen "Causes Indicating Misfortune": Imprisonment of Bread Winner 1.5 percent, Orphans and Abandoned 1.4, Neglect by Relatives 1.0, No Male Support 8.0, Lack of Employment 17.4, Insufficient Employment 6.7, Poorly Paid Employment 4.4, Unhealthy or Dangerous Employment 0.4, Ignorance of English 0.6, Accident 3.5, Sickness or Death in Family 23.6, Physical Defect 4.1, Insanity 1.2, and Old Age 9.6 — making a total of causes indicating misfortune of 84.4 percent.

No Objective Standards

Let me say at once that as a statistical exercise this table is close to worthless, full of more confusions and discrepancies than it seems worth analyzing here. Weighted and unweighted averages are hopelessly mixed. And certainly it seems strange, for example, to list all cases of unemployment or poorly paid employment under "misfortune" and none under personal shortcomings.

Even Professor Warner points out how arbitrary most of the figures are: "A man has been shiftless all his life, and is now old; is the cause of poverty shiftlessness or old age?… Perhaps there is hardly a single case in the whole 7,000 where destitution has resulted from a single cause."

But though the table has little value as an effort in quantification, any attempt to name and classify the causes of poverty does call attention to how many and varied such causes there can be, and to the difficulty of separating those that are an individual's own fault from those that are not.

An effort to apply objective standards is now made by the Social Security Administration and other Federal agencies by classifying poor families under "conditions associated with poverty." Thus we get comparative tabulations of incomes of farm and nonfarm families, of white and Negro families, families classified by age of "head," male head or female head, size of family, number of members under 18, educational attainment of head (years in elementary schools, high school, or college), employment status of head, work experience of head (how many weeks worked or idle), "main reason for not working: ill or disabled, keeping house, going to school, unable to find work, other, 65 years and over"; occupation of longest job of head, number of earners in family; and so on.

These classifications, and their relative numbers and comparative incomes, do throw objective light on the problem, but much still depends on how the results are interpreted.

Oriented Toward the Future

A provocative thesis has been put forward by Professor Edward C. Banfield of Harvard in his book, The Unheavenly City.2 He divides American society into four "class cultures": upper, middle, working, and lower classes. These "subcultures," he warns, are not necessarily determined by present economic status, but by the distinctive psychological orientation of each toward providing for a more or less distant future.

At the most future oriented end of this scale, the upper-class individual expects long life, looks forward to the future of his children, grandchildren, even great-grandchildren, and is concerned also for the future of such abstract entities as the community, nation, or mankind. He is confident that within rather wide limits he can, if he exerts himself to do so, shape the future to accord with his purposes. He therefore has strong incentives to "invest" in the improvement of the future situation — e.g., to sacrifice some present satisfaction in the expectation of enabling someone (himself, his children, mankind, etc.) to enjoy greater satisfactions at some future time. As contrasted with this:

The lower class individual lives from moment to moment. If he has any awareness of a future, it is of something fixed, fated, beyond his control: things happen to him, he does not make them happen. Impulse governs his behavior, either because he cannot discipline himself to sacrifice a present for a future satisfaction or because he has no sense of the future. He is therefore radically improvident: whatever he cannot consume immediately he considers valueless. His bodily needs (especially for sex) and his taste for 'action' take precedence over everything else — and certainly over any work routine. He works only as he must to stay alive, and drifts from one unskilled job to another, taking no interest in the work.3

Professor Banfield does not attempt to offer precise estimates of the number of such lowerclass individuals, though he does tell us at one point that "such ['multi problem'] families constitute a small proportion both of all families in the city (perhaps 5 percent at most) and of those with incomes below the poverty line (perhaps 10 to 20 percent). The problems that they present are out of proportion to their numbers, however; in St. Paul, Minnesota, for example, a survey showed that 6 percent of the city's families absorbed 77 percent of its public assistance, 51 percent of its health services, and 56 percent of its mental health and correction casework services."4

Obviously if the "lower class culture" in our cities is as persistent and intractable as Professor Banfield contends (and no one can doubt the fidelity of his portrait of a sizable group), it sets a limit on what government policy makers can accomplish.

By Merit, or by Luck

In judging any program of relief, our forefathers usually thought it necessary to distinguish sharply between the "deserving" and the "undeserving" poor. But this, as we have seen, is extremely difficult to do in practice. And it raises troublesome philosophic problems. We commonly think of two main factors as determining any particular individual's state of poverty or wealth — personal merit, and "luck." "Luck" we tacitly define as anything that causes a person's economic (or other) status to be better or worse than his personal merits or efforts would have earned for him.

Few of us are objective in measuring this in our own case. If we are relatively successful, most of us tend to attribute our success wholly to our own intellectual gifts or hard work; if we have fallen short in our worldly expectations, we attribute the outcome to some stroke of hard luck, perhaps even chronic hard luck. If our enemies (or even some of our friends) have done better than we have, our temptation is to attribute their superior success mainly to good luck.  

But even if we could be strictly objective in both cases, is it always possible to distinguish between the results of "merit" and "luck"? Isn't it luck to have been born of rich parents rather than poor ones? Or to have received good nurture in childhood and a good education rather than to have been brought up in deprivation and ignorance? How wide shall we make the concept of luck? Isn't it merely a man's bad luck if he is born with bodily defects — crippled, blind, deaf, or susceptible to some special disease? Isn't it also merely bad luck if he is born with a poor intellectual inheritance — stupid, feebleminded, an imbecile? But then, by the same logic, isn't it merely a matter of good luck if a man is born talented, brilliant, or a genius? And if so, is he to be denied any credit or merit for being brilliant?

We commonly praise people for being energetic or hardworking, and blame them for being lazy or shiftless. But may not these qualities themselves, these differences in degrees of energy, be just as much inborn as differences in physical or mental strength or weakness? In that case, are we justified in praising industriousness or censuring laziness?

However difficult such questions may be to answer philosophically, we do give definite answers to them in practice. We do not criticize people for bodily defects (though some of us are not above deriding them), nor do we (except when we are irritated) blame them for being hopelessly stupid. But we do blame them for laziness or shiftlessness, or penalize them for it, because we have found in practice that people do usually respond to blame and punishment, or praise and reward, by putting forth more effort than otherwise. This is really what we have in mind when we try to distinguish between the "deserving" and the "undeserving" poor.

What Happens to Incentive

The important question always is the effect of outside aid on incentives. We must remember, on the one hand, that extreme weakness or despair is not conducive to incentive. If we feed a man who has actually been starving, we for the time being probably increase rather than decrease his incentives. But as soon as we give an idle able-bodied man more than enough to maintain reasonable health and strength, and especially if we continue to do this over a prolonged period, we risk undermining his incentive to work and support himself. There are unfortunately many people who prefer near destitution to taking a steady job. The higher we make any guaranteed floor under incomes, the larger the number of people who will see no reason either to work or to save. The cost to even a wealthy community could ultimately become ruinous.

An "ideal" assistance program, whether private or governmental, would

  1. supply everyone in dire need, through no fault of his own, enough to maintain him in reasonable health;
  2. would give nothing to anybody not in such need; and
  3. would not diminish or undermine anybody's incentive to work or save or improve his skills and earning power, but would hopefully even increase such incentives.

But these three aims are extremely difficult to reconcile. The nearer we come to achieving any one of them fully, the less likely we are to achieve one of the others. Society has found no perfect solution of this problem in the past, and seems unlikely to find one in the future. The best we can look forward to, I suspect, is some never-quite-satisfactory compromise.

Fortunately, in the United States the problem of relief is now merely a residual problem, likely to be of constantly diminishing importance as, under free enterprise, we constantly increase total production. The real problem of poverty is not a problem of "distribution" but of production. The poor are poor not because something is being withheld from them, but because, for whatever reason, they are not producing enough. The only permanent way to cure their poverty is to increase their earning power.

[The Freeman, 1972.]

  • 1. Ed. by Wm. D. P. Bliss (New York: Funk & Wagnalls).
  • 2. Boston: Little Brown, 1970.
  • 3. Ibid., p. 53.
  • 4. Ibid., p. 127.
Categories: Current Affairs

How the Fed's Easy Money Spurred Today's Financial Frenzies

Mises Institute - Fri, 22/10/2021 - 19:00

It was government policies that kick-started the engine of financial innovation, wrongly blamed by many in the press and left-leaning academia for this increased economic instability.

Original Article: "How the Fed's Easy Money Spurred Today's Financial Frenzies"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Categories: Current Affairs

Is Solidarity a Good Thing?

Mises Institute - Fri, 22/10/2021 - 17:00

In his book Let’s Have Socialism Now! (Yale University Press, 2001), the French economist Thomas Piketty places great emphasis on “solidarity,” and his opposition to the free market rests to a large extent on its conflict with that purported value. In this week’s column, I’d like to examine what he says about solidarity, and, as you might expect, my conclusions are negative.

Solidarity is closely related to equality, but it isn’t quite the same thing. We can get a preliminary idea of what Piketty means by it if we look at this example from the book: local autonomy, Piketty thinks, has its place; but it must never be allowed to interfere with the power of the nation to impose income and wealth taxes. Otherwise, local regions might compete to attract investment by lowering tax rates, and we can’t have that, can we? Discussing a Spanish law that lets regions set the income tax rates for half the total tax base, he says that the system “challenges the very idea of solidarity within the country and comes down to playing the regions against one another, which is particularly problematic when the issue is one of income tax, as this is supposed to enable the reduction of inequalities between the richest and the poorest, over and above regional or professional identities.” (p. 159)

By “solidarity,” then, Piketty means that people in a nation ought to regard themselves as part of a joint enterprise, in a way that precludes subgroups being in competition with one another. He doesn’t jettison the market entirely, but in his scheme of things it occupies at best a subordinate place. In one respect, this account has to be modified to get Piketty’s view. Solidarity need not be confined to nations; he speaks favorably, for example, of proposals to unite Europe more closely than now. But what is crucial, once more, is that the people in the unit share a sense of common commitment.

The importance to him of solidarity in part motivates his insistence on equality. If people are divided into classes according to their income and wealth, then they won’t see themselves as part of a common enterprise. Instead, the poor will resent the rich, while the rich will look with condescension on those not in their elite group. By strictly enforced progressive taxes on income and wealth, the rivalries can be ended and social solidarity maintained. I say “in part motivates,” because Piketty attaches independent weight to equality, apart from its effect on solidarity, but I won’t be addressing that topic here.

The most obvious way to attack what Piketty says is to challenge the value of solidarity. What is supposed to be so good about people in a nation or other large society viewing themselves as part of a common enterprise? Piketty takes it as obvious that it is valuable, but for many of us, this isn’t at all evident, and we would like arguments in favor of it. One such argument, which I think Piketty would favor, is that without solidarity, society would be riven with conflict and turmoil; but this contention rests on a false premise. If turmoil and conflict are bad, then we should try to avoid them, but it doesn’t follow that we need solidarity in order to do so. Solidarity is more than the absence of conflict: people who believe in amicable relations with others can do so without thinking of themselves as involved in a common enterprise. Piketty might respond that even if that is true, solidarity is better, but that just repeats his opinion that solidarity is a “good thing” and isn’t an argument for it. He might also say that solidarity makes conflict and turmoil less likely than less demanding ways of preserving peace, but this would be to advance an empirical hypothesis that requires testing, not to state a principle known just by thinking about it to be true.

In what follows, though, I won’t challenge the value of solidarity. For the purposes of argument, I’ll grant Piketty his premise and ask: Does solidarity require massive redistribution to bring about equality, as he thinks? I doubt that it does. Why can’t people with different amounts of wealth and income regard themselves as part of a common enterprise? Do poor people view the rich as their enemies, as Piketty believes, or is the resentment he ascribes to them just a projection onto them of his own egalitarian ideology? Again, he needs to supply evidence for his view. Instead, he presents many charts and tables about the extent of inequality in particular societies, but this doesn’t establish that the poor want greater equality. No doubt they would like to improve their standard of life, but this is a different question from whether they think others shouldn’t have much more than they do and resent them for this. Piketty’s case would be stronger if he distinguished, as he doesn’t, between those who owe their wealth to government subsidies and grants and those whose wealth rests on their success in the free market. Resentment against ill-gotten gains of the former sort does not imply resentment of those whose wealth stems from their excellence in best fulfilling the demands of consumers.

Further, if solidarity is a value, why can’t the common enterprise that people in a society share be a commitment to the free market? Isn’t the thought of people peacefully cooperating to advance their common welfare through taking advantage of the economic calculation made possible only by free market prices an inspiring ideal? Why must social solidarity be based on compulsory redistribution and antimarket ethics?

The mention of compulsion raises another issue. People in a free market who agree with Piketty are at liberty to establish egalitarian institutions of the kind he wants. He thinks, for example, that firms should be required to give 50 percent of the seats on their board of directors to workers and that there should be quotas for women and minority groups he favors. Why force people to do these things? Shouldn’t it be up to them whether they wish to live in a society of this kind? Piketty doesn’t think so: for all his professions of faith in democracy, you are democratic only if you do what he and his fellow elitists think best.

I’ll close with one more problem. Suppose that Piketty were right, as I of course do not think, that we need solidarity and that without redistribution of wealth we won’t get it. It doesn’t follow that if we impose redistributive taxes, we will have solidarity; to think otherwise is to confuse a necessary with a sufficient condition. The result may well be to create more social tension than existed before. Piketty’s socialist blinders prevent him from seeing this, and much else as well.

Categories: Current Affairs

Why a Bear Market in Bonds Points to a Weakening Economy

Mises Institute - Fri, 22/10/2021 - 14:00

Years of bubbles and malinvestment have a downside: the destruction of the productive, wealth-building parts of the economy. And that could mean higher interest rates.

Original Article: "Why a Bear Market in Bonds Points to a Weakening Economy"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Categories: Current Affairs

Central Banks and Socialism Are Forever Linked Together

Mises Institute - Fri, 22/10/2021 - 12:00

It is well known that socialism is a shortage economy. It is the economy of inefficiency and corruption, of indifferent workers and of bigwigs, of lacking spare parts, of lacking funds, of failure, of permanent reform needs and of constantly unsuccessful reforms. This concerns in particular total socialism, as it was realized in the Soviet Union or under National Socialism. But it is no less evident in the numerous partial socialisms that are featured in the real existing welfare state, in its numerous state “systems.” Budget deficits year in, year out despite high contributions—that is the reality in the state pension system and in the state health system. The state education system is similar: declining student performance and growing illiteracy despite sky-rocketing expenditure. No private entrepreneur could afford to let the costs get out of hand in such a way. Anyone who is in competition has to keep improving. Only those who have a legal monopoly and can make use of taxpayers’ money if necessary do not need it.

Now there is one partial socialism that stands out from the usual array of failures. Here we see gains instead of losses. Here we often find all the other signs of a successfully run company, from the private legal form to the pinstripe-filled boardroom. We are talking about central banking. The term “central bank” actually refers quite clearly to a centrally planned economy. But when people talk about the Fed, the ECB or other central banks today, hardly anyone thinks that they are talking about an offspring of the socialist spirit. On the contrary, central banks are typically viewed as particularly “capitalist.” After all, what would be more capitalist than money? And what would be more closely related to money than a bank?

Upon closer inspection, however, it appears that this connotation may not be entirely correct. In the unbridled market economy, private property and competition prevail. Central banks, on the other hand, are usually state institutions. Even those central banks that are private-law organizations (as in the United States, Japan, and Switzerland) are subject to special laws and their directors are appointed by national governments. In addition, central banks always and everywhere enjoy a legal monopoly. Their banknotes and their deposit money are largely withdrawn from free competition. The market participants are compelled to use the money of the central banks.

This money is one of a kind. Indeed, it can basically be produced in unlimited quantities. The production of money by the private commercial banks is limited by their equity capital and also by the cash deposits of their customers. But central banks do not need equity or cash deposits. It is they who create cash. They can generate cash out of nothing and practically for free. Certain legal limits are set for them, but in times of crisis, as in 2008–09 and in 2020–21, these limits can be relaxed quickly and dramatically. If necessary, they can also be abolished entirely.

Central banks therefore have potentially tremendous power. If only let loose, they can control all of the economy and society. There is almost no limit to the number of new loans they can issue. The can provide these loans to some and deny them to others. And by implication they can also control the use of all available resources. After all, labour usually moves where it is best paid. Raw materials and capital goods are typically sold to those who offer the highest prices. If you control the printing press, you can also let the real resources flow exactly where you think it is right. Whether this use of funds is also profitable plays a rather subordinate role for central banks (unlike commercial banks). You do not have to work hard and invest well to cover losses. One push of a button is enough.

Central banks are therefore made for do-gooders. He who runs a central bank does not need to do painstaking educational work in order to bring about any social change. The humanitarian with the printing press can finance all changes he wishes for at the push of a button. He can just pay other people to do what he wants. He does not need any savings or capital for this. He does not need a democratic majority either. As long as he has the printing press under control, he could by and large give a damn about what other people think or wish.

This momentous fact has not escaped the attention of socialist theorists. The Saint-Simonians in France had already grasped it at the beginning of the nineteenth century. They understood that the economy of a country could be controlled particularly easily and safely with the help of the printing press. A few years later, the demand for the “centralization of credit in the hands of the state through a national bank with state capital and an exclusive monopoly” soon also held center stage in the 1848 Communist Manifesto by Marx and Engels.

Unsurprisingly, the enormous possibilities of creating money from nothing have been used again and again to finance state industrial policy and socialist experiments. In the 1970s, British historian Antony Sutton reported that some of New York’s Wall Street banks had financed the radical transformation of traditional European societies. They supported Lenin and Stalin as well as Adolf Hitler with billions of dollars. That would not have been possible without the refinancing from the American central bank.

In our day, too, the historical connection between the central banking system and political utopias is being brought back to life. This time it appears in the form of a “green” and egalitarian transformation of the economy and society. The directors of the ECB [European Central Bank] and the Fed have already officially committed to this.

The new humanitarians with the printing press are undoubtedly a great danger to humanity. They threaten everyone’s prosperity by channeling scarce resources into unprofitable (and therefore unsustainable) uses. But they also threaten the free social order as a whole, in that they are preparing to disempower the open competition of all social forces. They want to replace this competition with the rule of a nonelected leadership caste.

However, green central bank policy is not to be condemned primarily because it supposedly pursues ecological goals, but because a central bank comes into its own here. Central banks are by their very nature destructive. Even if they are not led by self-proclaimed ecologists and socialists, they favor the cousin, favoritism and the bigwig economy. The economists of the Austrian school have shown, among other things, that central banks always and everywhere weaken economic growth by undermining the propensity to save; that they are destabilizing the economy by fueling a debt economy; that they incite greed and avarice; and that they create blatant inequalities in income and wealth. Central banks cannot be reformed, they must be abolished.

This article is a translation of an article that has appeared in the German edition of the Epoch Times, in October 2021.

Categories: Current Affairs

Understanding Money Velocity and Prices

Mises Institute - Fri, 22/10/2021 - 11:00

The yearly growth rate of US's "Austrian money supply" jumped by almost 80 percent in February 2021 (see chart). Given such massive increase in money supply, it is tempting to suggest that this lays the foundation for an explosive increase in the annual growth of prices of goods and services sometime in the future.

veloc

Some experts are of the view that what matters for increases in the momentum of prices is not just increases in money supply but also the velocity of money—or how fast money circulates. The velocity of AMS fell to 2.4 in June this year from 6.8 in January 2008. In this way of thinking, a decline in money velocity is going to offset the strong increase in money supply. Hence, the effect on the momentum of goods prices is not going to be that dramatic. What is the rationale behind all this?

veloc The Popular View of What Velocity Is

According to popular thinking, the idea of velocity is straightforward. It is held that over any interval of time, such as a year, a given amount of money can be used repeatedly to finance people's purchases of goods and services.

The money one person spends for goods and services at any given moment, can be used later by the recipient of that money to purchase yet other goods and services. For example, during a year, a particular ten-dollar bill might be used as follows: a baker, John, pays the ten-dollars to a tomato farmer, George. The tomato farmer uses the ten-dollar bill to buy potatoes from Bob, who uses the ten-dollar bill to buy sugar from Tom. The ten dollars here served in three transactions. This means that the ten-dollar bill was used three times during the year; its velocity is therefore three.

A $10 bill, which is circulating with a velocity of 3 financed $30 worth of transactions in that year. Now, if there are $3 trillion worth of transactions in an economy during a particular year and there is an average money stock of $500 billion during that year, then each dollar is used on average six times during the year (since 6*$500 billion =$3 trillion). Five hundred billion dollars by means of a velocity factor have effectively become $3 trillion. This implies that the velocity of money can boost the means of finance. From this it is established that

Velocity = Value of transactions / stock of money

This expression can be also presented as,

V = P*T/M

Where V stands for velocity, P stands for the average price, T stands for the volume of transactions, and M stands for the stock of money. This expression can be further rearranged by multiplying both sides of the equation by M. This in turn will give us the famous equation of exchange:

M*V = P*T

This equation states that money multiplied by velocity equals the value of transactions. Many economists employ GDP instead of P*T, thereby concluding that

M*V = GDP = P*(real GDP)

The equation of exchange appears to offer a wealth of information regarding the state of an economy. For instance, if one were to assume a stable velocity, then for a given stock of money one could establish the value of GDP. Furthermore, information regarding the average price or the price level allows economists to establish the state of the real output and its growth rate. Note that from the equation of exchange a fall in the velocity of money (V) for a given money (M) results in a decline in economic activity as depicted by GDP. In addition, for a given money (M) and a given volume of transactions (T), a fall in velocity results in a decline in the average price (P).

For most economists the equation of exchange is regarded as a very useful analytical tool. The debates that economists have are predominantly with respect to the stability of velocity. If velocity is stable, then money becomes a very powerful tool in tracking the economy. The importance of money as an economic indicator, however, diminishes once velocity becomes less stable and hence less predictable. It is held that an unstable velocity implies an unstable demand for money, which makes it so much harder for the central bank to navigate the economy toward the path of economic stability.

Does the Concept of Money Velocity Make Sense?

From the equation of exchange, i.e., M*V = GDP it would appear that for a given stock of money an increase in velocity helps to finance a greater value of transactions than money could have done by itself. But actually neither money nor velocity have anything to do with financing transactions. Here is why. Consider the following: a baker, John, sold ten loaves of bread to a tomato farmer, George, for ten dollars. Now, John exchanges the ten dollars to buy five kilograms of potatoes from Bob the potato farmer. How did John pay for potatoes? He paid with the bread he produced.

Note that John the baker financed the purchase of potatoes not with money but with bread. He paid for potatoes with his bread, using money to facilitate the exchange. Money fulfils here the role of the medium of exchange and not the means of payment. (John has exchanged bread for money and then money for potatoes, i.e., something is exchanged for something with the help of money).

The number of times money changed hands has no relevance whatsoever on the baker’s ability to fund the purchase of potatoes. What matters here is that he possesses bread that serves as the means of payment for potatoes.

Imagine that money and velocity were indeed been the means of funding or the means of payments. If this were the case, then poverty worldwide could have been erased a long time ago. If rising velocity is boosts effective funding, then it would be to everyone’s benefit to make sure that money circulates as fast as possible. This implies that anyone who holds on to money should be classified as menace to the society, for he slows down the velocity of money and hence the creation of real wealth. But does not make any sense to argue that money circulates, as the popular thinking has it. It always belongs to somebody.

According to Ludwig von Mises, money never circulates as such:

Money can be in the process of transportation, it can travel in trains, ships, or planes from one place to another. But it is in this case, too, always subject to somebody's control, is somebody's property. (Human Action, p. 403).

Why Velocity Has Nothing to Do with the Purchasing Power of Money

Does velocity have anything to do with the prices of goods? According to the equation of exchange, for a given M and the volume of transactions (T), a fall in velocity V results in a decline in the average prices (P), i.e., P= (M/T)*V. This is erroneous. Prices are the outcome of individuals' purposeful actions. Thus, John the baker holds that he will raise his living standard by exchanging his ten loaves of bread for ten dollars, which will enable him to purchase five kilograms of potatoes from Bob the potato farmer. Likewise, Bob has concluded that by means of ten dollars he will be able to secure the purchase of ten kilograms of sugar, which he holds will raise his living standard.

By entering an exchange, both John and Bob are able to realize their goals and promote their respective well-being. John agreed that it is a good deal to exchange ten loaves of bread for ten dollars, for it will enable him to procure five kilograms of potatoes. Likewise, Bob had concluded that ten dollars for his five kg of potatoes is a good price, for it will enable him to secure ten kilograms of sugar. Observe that price is the outcome of different ends, and hence the different importance that both parties to a trade assign to means. Individuals' purposeful actions determine the prices of goods and not velocity. The fact that so-called velocity is 3 or any other number has nothing to do with goods prices and the purchasing power of money as such. According to Mises,

In analyzing the equation of exchange one assumes that one of its elements—total supply of money, volume of trade, velocity of circulation—changes, without asking how such changes occur. It is not recognized that changes in these magnitudes do not emerge in the Volkswirtschaft [political economy, or more loosely "economy"] as such, but in the individual actors' conditions, and that it is the interplay of the reactions of these actors that results in alterations of the price structure. The mathematical economists refuse to start from the various individuals' demand for and supply of money. They introduce instead the spurious notion of velocity of circulation fashioned according to the patterns of mechanics (Human Action, p. 399).

Velocity Does Not Have an Independent Existence

Velocity is not an independent entity—it is always the value of transactions P*T divided into money M, i.e., P*T/M. On this Rothbard wrote (Man, Economy, and State, p. 735), "But it is absurd to dignify any quantity with a place in an equation unless it can be defined independently of the other terms in the equation."

Given that V is P*T/M, it follows that the equation of exchange is reduced to M*(P*T)/M = P*T, which is reduced to P*T = P*T, and this is not a very interesting truism. It is like stating that ten dollars equals ten dollars. This tautology conveys no new knowledge of economic facts. Since velocity is not an independent entity, it as such causes nothing and hence cannot offset effects from money supply growth. Velocity also cannot increase the means of funding, as the equation of the exchange implies. Moreover, the average purchasing power of money cannot be even established. For instance, in a transaction the price of one dollar was established as one loaf of bread. In another transaction, the price of one dollar was established as a half kilogram of potatoes, while in the third transaction the price was one kilogram of sugar. Observe that since bread, potatoes, and sugar are not commensurable, no average price of money can be established.

Now, if the average price of money cannot be established, it follows that the average price of goods (P) cannot be established either. Consequently, the entire equation of exchange falls apart. Conceptually, the whole thing is not a tenable proposition and covering it in mathematical clothing cannot make it more tenable. Additionally, does so-called unstable velocity imply an unstable demand for money? The fact that people change their demand for money does not imply instability. Because of changes in an individual’s goals, he/she may decide that at present it is to his/her benefit to hold less money. Sometime in the future, he/she might decide that raising his/her demand for money would serve better his/her goals. What could possibly be wrong with this? The same goes for any other goods and services—demand for them changes all the time.

Conclusions

Contrary to popular thinking, the velocity of money does not have a life of its own. It is not an independent entity and hence it cannot cause anything, let alone offset the effect of increases in money supply on the momentum of prices of goods. In addition, velocity cannot strengthen the means of funding, as conveyed by the equation of exchange, which is religiously followed by most economists and economic commentators. 

Categories: Current Affairs

Price caps never are a good idea

Adam Smith Institute - Fri, 22/10/2021 - 06:01

Sensible people would take the Californian deregulation of electricity supply as an example of what not to do. Of course, the powers that be took it the other way, as something to copy. Specifically, they insisted upon the silliness of allowing wholesale prices to vary with the market but retail prices remaining fixed. This had two effects. Firstly, when power became more expensive this did not feed through into consumer pockets and therefore prices didn’t do their thing of moderating demand. Secondly, all those suppliers in the middle between those wholesale and retail prices - all those unhedged at least - started to go bust. As happened in California.

One manager of just such a supplier says in The Guardian:

The frustrating thing is that a simpler approach to regulation that encourages competition and innovation, while guaranteeing that the most loyal customers are not penalised, is possible. Why not bin the price cap?

Quite so. Price fixing simply never does work.

Categories: Current Affairs

Rothbard: With Interest Rates, "There Are Two, Opposite Causal Chains at Work."

Mises Institute - Thu, 21/10/2021 - 20:00

Editor's Note: Interest rates and inflation are certainly connected to efforts on the parts of central banks to loosen and tighten the money supply. These relationships, however, are much more complex than many people suppose. As we've seen in recent weeks, with constant talk about what the Fed will do next, expectations are an important factor in how markets respond to central bank actions. In his article "Ten Great Economic Myths," Murray Rothbard addresses some of these issues.

Myth 4: Every time the Fed tightens the money supply, interest rates rise (or fall); every time the Fed expands the money supply, interest rates rise (or fall).

The financial press now knows enough economics to watch weekly money supply figures like hawks; but they inevitably interpret these figures in a chaotic fashion. If the money supply rises, this is interpreted as lowering interest rates and inflationary; it is also interpreted, often in the very same article, as raising interest rates. And vice versa. If the Fed tightens the growth of money, it is interpreted as both raising interest rates and lowering them. Sometimes it seems that all Fed actions, no matter how contradictory, must result in raising interest rates. Clearly something is very wrong here.

The problem is that, as in the case of price levels, there are several causal factors operating on interest rates and in different directions. If the Fed expands the money supply, it does so by generating more bank reserves and thereby expanding the supply of bank credit and bank deposits. The expansion of credit necessarily means an increased supply in the credit market and hence a lowering of the price of credit, or the rate of interest. On the other hand, if the Fed restricts the supply of credit and the growth of the money supply, this means that the supply in the credit market declines, and this should mean a rise in interest rates.

And this is precisely what happens in the first decade or two of chronic inflation. Fed expansion lowers interest rates; Fed tightening raises them. But after this period, the public and the market begin to catch on to what is happening. They begin to realize that inflation is chronic because of the systemic expansion of the money supply. When they realize this fact of life, they will also realize that inflation wipes out the creditor for the benefit of the debtor. Thus, if someone grants a loan at five percent for one year, and there is seven percent inflation for that year, the creditor loses, not gains. He loses two percent, since he gets paid back in dollars that are now worth seven percent less in purchasing power. Correspondingly, the debtor gains by inflation. As creditors begin to catch on, they place an inflation premium on the interest rate, and debtors will be willing to pay it. Hence, in the long run anything which fuels the expectations of inflation will raise inflation premiums on interest rates; and anything which dampens those expectations will lower those premiums. Therefore, a Fed tightening will now tend to dampen inflationary expectations and lower interest rates; a Fed expansion will whip up those expectations again and raise them. There are two, opposite causal chains at work. And so Fed expansion or contraction can either raise or lower interest rates, depending on which causal chain is stronger.

Which will be stronger? There is no way to know for sure. In the early decades of inflation, there is no inflation premium; in the later decades, such as we are now in, there is. The relative strength and reaction times depend on the subjective expectations of the public, and these cannot be forecast with certainty. And this is one reason why economic forecasts can never be made with certainty.

Categories: Current Affairs

The Weak Jobs Report Shows the Failure of Keynesian Policies

Mises Institute - Thu, 21/10/2021 - 19:00

We can see that these massive trillion-dollar stimulus programs generate a virtually nonexistent long-term positive impact, just a short-term bounce that lasts less than a quarter.

Original Article: "The Weak Jobs Report Shows the Failure of Keynesian Policies"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Categories: Current Affairs

What Spooner Can Teach Us in Our Age of Neofascism

Mises Institute - Thu, 21/10/2021 - 17:00

Mises Wire readers are probably familiar with nineteenth-century American proto-libertarian Lysander Spooner (1808–87). Spooner’s radical challenges to statism are best summed up by the title of Murray Rothbard’s edited collection of Spooner’s greatest writings: Let’s Abolish Government. Spooner was a great American, an anarchist committed to the free administration of justice, anticollectivism, dismantling slavery, and preventing the federal government from setting up a new kind of nationwide statist enslavement on the ruins of the wartorn South.

Lysander Spooner’s most prominent work is probably his post–Civil War tract No Treason. Spooner wrote No Treason to argue that secession from the federal union is no crime.

Of this work, section 6, “The Constitution of No Authority,” stands out. In “The Constitution of No Authority,” Spooner saps the battlements of the federal edifice, the Constitution itself. The Constitution, he writes, is at best a contract, and even then at best a contract among the very few “who had already come to years of discretion” living at the time who were consulted on the document. The Constitution begins with “We, the People,” but Spooner pulled the curtain back on that rhetoric to argue that “the People” could mean, at most, the people alive and of majority age who had some say in how and when the document was signed and ratified. That is all.

The Constitution,” Spooner writes, “so far as it was their contract [referring to the handful of people with a hand in making the document], died with them.” The entire sentence is emphasized in the original. Lest anyone miss the meaning, Spooner begins the section with his conclusion: “The Constitution has no inherent authority or obligation.”

In other words, no one living in Spooner’s time, approaching a century since the Constitution was hammered out and inked at the bottom, can be said to be engaged in unconstitutional acts. Because there is no Constitution, Spooner says. Whatever it was, it ended when the people who signed it passed from the scene. The framers “had no natural power or right to make [the Constitution] obligatory upon their children,” he writes. Americans cannot and should not be bound by contracts which some people made among themselves long ago.

In short, because there is no Constitution, there is “no treason.”

(As for the arguments that voting and paying taxes count as tacit agreements to participate in the Constitution’s imagined governmental regime, Spooner demurs. People could vote without a Constitution as well as with one, he says, and paying taxes is akin to being the victim of highway robbery, to which no person would consent if he had the choice. So, neither voting nor paying taxes implies a personal ratification of the parchment from 1789.)

Spooner’s pioneering arguments against organized theft known as centralized government are especially powerful in our time. I would love to have read Spooner’s assessment of the 2020 “election,” for example, and his views on the “stimulus,” inflation, shortages, counterfeiting, polymorphic infrastructure, and imperialist boondoggles which the 1789 Constitution has placidly overseen. I think Spooner might have said, in a Massachusetts deadpan, “There is no treason in checking out of that mess. There is no reason not to.”

But if Lysander Spooner were alive today, and were reprising “The Constitution of No Authority,” he might take much farther some of the elements found in his original work. He might push his arguments so far as to give rise to a new kind of Spoonerism, a neo-Spoonerism. I think this neo-Spoonerism would be the natural complement to the original. For the obverse of the Constitution’s having no authority is the plain fact that no one who purports to uphold the Constitution actually does so. Not only is the document itself void—not a single soul among us having signed it, as Spooner argues at great length. But even if “We the People” had signed such a contract, it would still be void, because the counterparty, namely the government, has violated, I think it is no stretch to say, every single promise and clause. The Constitution is invalid on its face, and invalidated by egregious and habitual breach.

Spooner points this out in a narrowcast way in “The Constitution of No Authority.” He writes:

It is no exaggeration, but a literal truth, to say that, by the Constitution—not as I interpret it, but as it is interpreted by those who pretend to administer it—the properties, liberties, and lives of the entire people of the United States are surrendered unreservedly into the hands of men who, it is provided by the Constitution itself, shall never be ‘questioned’ as to any disposal they make of them. (pp. 22-23; emphasis in original)

The Constitution creates an absurdity, Spooner argues, in which the document claiming to safeguard our liberties makes us the “property” (Spooner’s term) of the government. On the Constitution’s own terms, the Constitution does the opposite of what it purports. This, too, Spooner says, is a mark against anyone’s having to abide by it.

But let us take a much broader view of the Constitution and its applications. Much has changed since Spooner’s day. Do those who claim constitutional authority abide by the Constitution? Do they legitimately work within the confines of the document which we are to believe gives them the right to govern “the People”? If they do not—that is, if the government itself does not follow the Constitution—then there is a second powerful argument extending from Spooner’s original insights and reinforcing them.

This is neo-Spoonerism, as I call it, or the argument that the Constitution has no authority in the broad sense as well as the narrow. Not only does the Constitution fail on the technical charges Spooner brought against it, such as that no one living today signed it and that the government which the Constitution sets up is the opposite of what it claims. But also, and perhaps even more damning, no one in government today even abides by this specious document in the first place. The Constitution is undone by itself, by reason, and by circumstances. The third, circumstantial indictment of the Constitution is what I refer to as neo-Spoonerism, an organic outgrowth of the Spoonerist philosophy.

To test this hypothetical neo-Spoonerism, choose any part of the Constitution at random and see whether it is being faithfully observed. For example, from Article I, Section VIII: “The Congress shall have the Power to … raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years.” This is evidently breached.

Or, from the Bill of Rights, Sixth Amendment: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” On this, for a start, let us call the National Security Agency, the Federal Bureau of Investigation, and every Foreign Intelligence Surveillance Act judge on the list to the witness stand. Just to get warmed up.

Or from the Bill of Rights, Eighth Amendment: “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” Civil asset forfeiture seems almost a parody designed to flout this Amendment, and the spirit of the Constitution as a whole.

This list could go on for quite some time. I did not even touch the Ninth or Tenth Amendments, by a faithful reading of which the majority of the federal Colossus would have to be torn down. The federal government is tracking and trammeling our speech, limiting our freedom of assembly, endangering us with reckless involvement in foreign wars, keeping political prisoners, staging coups against sitting presidents, forcing us to inject experimental serums, and shadowing journalists. Does it make “the People” any more than mocked fools to abide by the Constitution when the “people’s government” does no such thing?

Lysander Spooner argued that there is “no treason” against the Constitution because it has no authority over Americans. Another nail in the Constitution’s coffin, and a powerful rejoinder to the neofascism of the hour, should be neo-Spoonerism: there is no treason against the federal government, because the federal government does not abide by the document which it claims as its foundational authority to govern.

Categories: Current Affairs

Why Did Google Ads Ban LewRockwell.com?

Mises Institute - Thu, 21/10/2021 - 14:00

Google says it can only tolerate "accurate" information and has banned LewRockwell.com from its advertising program. This position only makes sense if one makes some faulty assumptions about how information is spread.

Original Article: "Why Did Google Ads Ban LewRockwell.com?"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Categories: Current Affairs

Three Things the Fed Must Do to Normalize Bond Markets

Mises Institute - Thu, 21/10/2021 - 12:00

By late in the second decade of the twenty-first century, we could say that the long-term US interest rate market had been dysfunctional for a long time. We could identify the starting point as being the immediate aftermath of the Nasdaq bust and recession of 2000/01. In signalling that the rise in the Fed funds rate would be slow and gradual over a prolonged period (described by central bank watchers as a pre-commitment to a given rate path), the Greenspan Fed put an unusual dampener on long-term interest rates at the time—in hindsight the start of manipulation under the 2% inflation standard and a powerful impetus to the asset price inflation which started to form during that period. Many contemporary market critics, including senior monetary officials, attributed the “artificially low” long-term rates not to their own manipulations in the short-term rate markets but to such factors as the “Asian savings surplus”. Indeed, Federal Reserve speakers stimulated that particular speculative narrative followed widely by carry traders (including prominently the “Asian savings surplus”!) in search of term risk premium to bolster the meagre returns available in the money markets. (It is also possible that the only contained rise of long-term rates at this time reflected widespread concern that present asset inflation would end with a bust and that indeed the long series of Fed rate rises could end in speculative over-kill).

Even so the corruption of signalling in the long-maturity interest rate markets in the early 2000s paled in comparison to what was to occur under the use of the non-conventional tool box in the second decade. And the central bankers added to the corruption by citing the low long-maturity interest rates as evidence that the so-called neutral level of interest rates had indeed fallen. Yes it was a puzzle why ostensibly low long-term rates were not sparking strong growth of capital spending. Central bankers, however, were not ready to embrace the obvious explanation that their monetary manipulations had created such huge uncertainty which discouraged long-run investment spending. In particular, if almost everyone and their dog realized that a wide range of asset prices—including, crucially, equities—had become hot due to the monetary manipulations and that they were likely to crash within a few years, this would surely restrain capital spending especially for long-gestation projects to well below levels which would pertain if the hot prices were for real.

And so the prevailing central bank doctrine became long-term rates were not very different if at all from neutral. Yes, it made sense for central banks to gradually shed their huge portfolios of long-maturity debt built up during the active years of [quantitative easing] QE, but they should be ultra-cautious not to set off a snowball process of rising long-term rates and falling asset prices. Gradual should be the order of the day—or, better yet, glacial. And to match, the rise in short-term rates strictly under the control of the authorities should proceed very cautiously.

There was an alternative to the phoney normalization programme, which in any case could readily implode along the way. This would have been to turn the clock back on interest payments on reserves (permanently zero again as before 2008) accompanied by immediate action to restore the monetary base to a normal proportion of the broader money supply. Yes, long-term rates could well jump under this programme, and there could be some decline in asset prices (from the sugar highs of peak asset price inflation). But the return of reliable signalling could also have gone along with a new robustness in spending, especially capital spending, given no longer the malaise of “artificial” capital prices which could break at any point.

Policy normalization—defined as closing down the non-conventional tool box and restoring a well-functioning price signalling mechanism to the bond market—is in fact multi-dimensional. At the most fundamental level, it requires abandoning the 2% inflation standard—in particular its ignoring of the natural rhythm of prices over time. The second dimension is to get the monetary base back to the pivot of the monetary system. This means no payment of interest on reserves and the supply of monetary base in line with demand as consistent with a non-inflationary path forward. The third dimension is getting the share of long-maturity government debt in the total liabilities of the government sector (including the central bank) back to normal proportion. That can be accomplished over a period of many years.

Action in the second dimension can take place very quickly. The central bankers take their portfolio of long-maturity bonds to the Treasury and exchange them for short-maturity Treasury bills (T-bills). The central bank conducts open market operations in Treasury bills (short maturity) to shrink the monetary base to “normal”. Of course there is much ambiguity about where is normal, and so the process of normalization on this dimension could go along with some considerable monetary turbulence for some time. That is an inevitable consequence of the huge experiment.

The normalization in the third dimension starts from the situation where the Treasury department, looking at the consolidated balance sheet of the Treasury and central bank, admits that years of QE mean in effect that an abnormally large share of government bonds outstanding are in the form of floating rate short maturities. Traditionally such a high proportion of floating rate is seen as exposing the central bank to large political pressure not to raise the short-term rates under their control (because of direct funding cost implications in terms of budget deficit)—even when it suspects that monetary inflation has got under way. If the central bank buckles under such pressure, then it becomes indeed an important source of tax collections for the government—in the form of inflation tax. One form is the suppression of interest rate income (to below what would be the case under sound money) on Treasury paper—the other is the capital tax (in real terms) on government bonds and monetary base enacted by inflation erosion.

This article is a selection from The Case Against 2 Per Cent Inflation: The Negative Rates to a 21st Century Gold Standard (Palgrave Macmillan, 2018).

Categories: Current Affairs

Rather missing the point about economic development

Adam Smith Institute - Thu, 21/10/2021 - 06:01

Not that we are arguing that this specific person, or even these people, deserve to lose their jobs but it is necessary to point out an economic basic:

The steel industry supports thousands of high-quality jobs in some of our most disadvantaged communities. Steel jobs are good union jobs. They are jobs that pay well, above the national average, and they support families and communities as they do so. We don’t want to see these jobs go under any circumstances.

Yes, we do. The entire process of economic development is destroying jobs. That’s the aim, point and purpose.

Here, in this state, we require this much human labour to perform this task. There, in that more advanced state, we require less human labour to perform that same task. That’s what economic development is, an increase in the productivity of human labour. As Paul Krugman is quoted to the point of cliche, productivity isn’t everything but in the long run it’s almost everything.

We would, in fact, be absolutely delighted if the entire steel industry, with its labour demands, were replaced with a little black box which required just the one flip of a switch each year. We would then gain our steel with less labour. Meaning that that workforce could be off doing something to assuage or even sate some other human need, want or desire.

The entire point of economic advance, of economic development, is to destroy jobs. Any political argument which starts with the claim that we don’t want to kill jobs is doomed to logical failure. Not that that will stop people making such arguments but it does mean we must jeer at them when they do.

Categories: Current Affairs

What Happens when the Public Realizes Inflation Will Get Worse

Mises Institute - Wed, 20/10/2021 - 20:00

[Excerpted from Human Action, Scholar's Edition, pp. 423–425]

 

The deliberations of the individuals which determine their conduct with regard to money are based on their knowledge concerning the prices of the immediate past. If they lacked this knowledge, they would not be in a position to decide what the appropriate height of their cash holdings should be and how much they should spend for the acquisition of various goods.

A medium of exchange without a past is unthinkable. Nothing can enter into the function of a medium of exchange which was not already previously an economic good to which people assigned exchange value already before it was demanded as such a medium.

But the purchasing power handed down from the immediate past is modified by today's demand for and supply of money. Human action is always providing for the future, be it sometimes only the future of the impending hour. He who buys, buys for future consumption and production.

As far as he believes that the future will differ from the present and the past, he modifies his valuation and appraisement. This is no less true with regard to money than it is with regard to all vendible goods. In this sense we may say that today's exchange value of money is an anticipation of tomorrow's exchange value.

The basis of all judgments concerning money is its purchasing power as it was in the immediate past. But as far as cash-induced changes in purchasing power are expected, a second factor enters the scene, the anticipation of these changes.

He who believes that the prices of the goods in which he takes an interest will rise buys more of them than he would have bought in the absence of this belief; accordingly he restricts his cash holding. He who believes that prices will drop restricts his purchases and thus enlarges his cash holding.

As long as such speculative anticipations are limited to some commodities, they do not bring about a general tendency toward changes in cash holding. But it is different if people believe that they are on the eve of big cash-induced changes in purchasing power. When they expect that the money prices of all goods will rise or fall, they expand or restrict their purchases.

These attitudes strengthen and accelerate the expected tendencies considerably. This goes on until the point is reached beyond which no further changes in the purchasing power of money are expected. Only then does the inclination to buy or to sell stop and do people begin again to increase or to decrease their cash holdings.

But if once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome.

This phenomenon was, in the great European inflations of the '20s, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse). The mathematical economists are at a loss to comprehend the causal relation between the increase in the quantity of money and what they call "velocity of circulation."

The characteristic mark of the phenomenon is that the increase in the quantity of money causes a fall in the demand for money. The tendency toward a fall in purchasing power as generated by the increased supply of money is intensified by the general propensity to restrict cash holdings which it brings about. Eventually a point is reached where the prices at which people would be prepared to part with "real" goods discount to such an extent the expected progress in the fall of purchasing power that nobody has a sufficient amount of cash at hand to pay them.

The monetary system breaks down; all transactions in the money concerned cease; a panic makes its purchasing power vanish altogether. People return either to barter or to the use of another kind of money.

The course of a progressing inflation is this: At the beginning the inflow of additional money makes the prices of some commodities and services rise; other prices rise later. The price rise affects the various commodities and services, as has been shown, at different dates and to a different extent.

This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services.

These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.

But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against "real" goods, no matter whether he needs them or not, no matter how much money he has to pay for them.

Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German Mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last forever.

This article is excerpted from Human Action, Scholar's Edition, pp. 423–425.]

Categories: Current Affairs

Polygamy Is a Problem for Economic Development

Mises Institute - Wed, 20/10/2021 - 19:00

Research reveals that in sub-Saharan Africa children in polygamous families are 24.4 times more likely to die when compared with children in monogamous families.

Original Article: "Polygamy Is a Problem for Economic Development"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Categories: Current Affairs

Pages

Subscribe to oakleys.org.uk aggregator - Current Affairs
Additional Terms