Blogroll Category: Current Affairs

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The Welsh outcome is worse, is it?

Adam Smith Institute - Tue, 26/05/2020 - 07:01

Back a few weeks there was that interesting sight, the trialling of a meme, in the leftish parts of the national press. The numbers for Covid-19 for England were looking worse than those for Wales and Scotland. The trial was to see whether this could be blamed on the structure of the health care services in the three countries.

NHS England is more market based, has more subcontracting (“privatisation” in the horror stories) and is generally less centrally Stalinist than the other two. It was possible to see chins being rubbed, possibilities considered, could this actually be built up into a story that would reverse this distressing tendency for NHS England to be run on the basis of what worked rather than what was ideologically pure.

We now have more information:

As Britain eyes an end to lockdown, one area is creating a particular headache for public health officials, scientists and politicians: Wales, and especially the old mining communities.

The country has proportionally almost twice the number of cases as the rest of the UK while mortality rates in and around the Rhondda Valley have also been among the very highest in the country.

Across Wales, the latest figures show 409 cases per 100,000 population compared to 262 in England, 273 in Scotland and 247 in Northern Ireland.

As of Sunday, Wales had lost 1,267 people to Covid-19 out of a population of just over three million.

One of the explanations we’re not going to be offered in that leftish press is that the greater centralisation, the lower impact of subcontracting, of NHS Wales has led to this underperformance relative to NHS England.

Odd that, isn’t it? Almost as if some people would prefer to ignore reality and pursue ideological purity at all costs.

Categories: Current Affairs

South Sudan archbishop urges government intervention to halt tribal violence in Jonglei state

Anglican Ink - Tue, 26/05/2020 - 03:51

The Primate of the Episcopal Church of South Sudan has condemned the civil unrest in Jonglei state that has left at least 280 civilians and three aid workers dead this week.

In a pastoral letter dated 20 May 2020, the Most Rev Justin Badi Arama urged the government to intervene in the tribal clashes that have intensified in recent months. A vacuum caused by the absence of functioning local governments and a distant national government had led to an environment were tit-for-tat killings had risen sharply. He urged the national government to “finalize the formation of state governments in order to handle the emerging violent situations at the grassroots level.”

He urged South Sudan’s Christians to be steadfast in their faith during these difficult days. “The time will come when God will bring this pandemic to an end and we will welcome you back to give thanks to God and continue with our normal worship and fellowship.”

The latest round of violence began on 16 May 2020 when members of the Murle tribe attacked the Lou Nuer villages in Uror county in northeastern Jonglei state. A Médecins Sans Frontières staff member was killed in the town of Pieri, along with two aid workers from a local NGO. The violence continued into Sunday, with homes torched and looted in Peiri and surrounding villages.

In February Lou Nuer tribesmen attacked Murle villages killing hundreds, in revenge for Murle raids on Lou Nuer villages. Church leaders and elders warn the cycle of revenge killings will continue unless there is immediate government intervention.

The UN Mission in South Sudan on 20 May 2020 released a statement from UN Special Representative David Shearer saying: “These violent assaults on civilian communities as part of an ongoing cycle of revenge must stop. While politically motivated conflict has reduced in South Sudan, intercommunal fighting has increased, causing massive suffering for families who are trying to rebuild their lives after the devastation caused by years of civil war,

The failure of South Sudan’s political parties to agree on the appointment of governors to ten states, including Jonglei, had created a power vacuum. “Appointments need to be made urgently. We strongly urge the Government and other parties to compromise and agree on these critical positions so the states can take measures to prevent conflict, build peace, and assist with the COVID-19 response,” he said.

“The fresh outbreak of intercommunal violence is being fueled by the economic deprivation caused by devastating floods which wiped away many homes and killed thousands of cattle which families rely on for their survival,” he said, adding those economic factors underlie tit-for-tat revenge attacks.”

No photo description available.

The post South Sudan archbishop urges government intervention to halt tribal violence in Jonglei state appeared first on Anglican Ink © 2020.

Be steadfast and keep you focus on Christ during this pandemic, Archbishop says

Anglican Ink - Tue, 26/05/2020 - 03:14

During this period of lockdown and amidst the difficulties brought about by the coronavirus pandemic, Christians have been charged to not allow the suffering of this present time and the challenges they face in life to become all that they see, and cause them to shift their focus from who God is, what He has done, and His promises for both now and the future.

The Most Rev’d Emmanuel Egbunu, Bishop of Lokoja Anglican Diocese gave this charge in an online broadcast, which is the third on his meditation series on Apostle Peter, on the topic, “Facing difficult times with a healthy perspective.”

The Archbishop who pointed out that there is need for believers to have the right perspective when going through difficult times, noted that such times often come with lessons and teachings that are either very helpful or problematic. He opined that in such times, Christians are expected to remain focused and faithful to Christ and to follow His example of perseverance through suffering. He urged believers to focus on what God has done through His Son, Jesus Christ and allow it to control their attitude towards suffering and life’s challenges.

According to the Bishop of Lokoja Diocese, the finished work of the Cross cannot be reversed or terminated in time or eternity; but on the contrary, suffering is temporary, and it would come to an end with time. He asserted that if one persevered till the end, there is a reward.

He said, “Being born again has a reward, and all these sufferings because of our faith is not for nothing; there is a living hope and an inheritance that is imperishable and unfading, which is already kept in heaven for the children of God.”

He reiterated that in difficult times, Christians should focus on what God has done in the past, what He is doing in the present and what He would do in the future; adding that the power of God guards all who put their faith in Him. The cleric mentioned that trials arise to test the genuineness of one’s faith and that it is for a while, to reveal the glory of God in the life of a genuine believer. He however added that even if trials and tribulations result in death, it is not the end; for Christians have a living hope and an eternal reward that cannot die, because Jesus who resurrected from the dead has assured them of resurrection after death.

He said, “If death meets you now, your inheritance is already waiting for your arrival.”

Therefore, Archbishop Egbunu urged believers to put their investments in heaven, because that is where their inheritance is. He enjoined all
Christians who are facing tribulations because of their faith to not lose hope, because God is still in control and would divinely reveal Himself to all who diligently seek Him.

The post Be steadfast and keep you focus on Christ during this pandemic, Archbishop says appeared first on Anglican Ink © 2020.

Call to reopen churches in Nigeria

Anglican Ink - Tue, 26/05/2020 - 03:10

The head of the Anglican Church in Nigeria has appealed to the Federal Government of Nigeria to allow religious organisations to resume its normal functions, in accordance with the guidelines of the Federal government and the hygienic rules of medical practitioners.

This he said was in reaction to calls for the re-opening of Churches and religious centres that were closed in a bid to curb the spread of the coronavirus pandemic.

In an interview with the press at the National Secretariat of the Church of Nigeria, Anglican Communion, the Most Rev’d Henry C. Ndukuba, who expressed the need for a systematic easing of the lockdown, pointed out that it was necessary for the battle against COVID-19 to also be tackled spiritually.

He said, “The secret things belong to God and He will surely show His people what to do, no matter the situation.”

While he commended the Nigerian government on the actions taken so far, he urged leaders to learn from these happenings and ensure that the lives of the people and the welfare of the society remains above personal and political interests, not just now, but even after the pandemic.

According to Primate Ndukuba, it is not sustainable to continue to lock up places, because the pandemic may not be completely eradicated any time soon. Thus, he pleaded with the government to allow people to carry on with their normal lives, with strict adherence to the guidelines they have given.

He further urged the administration to develop policies and ways that would help sustain the livelihood of the Nigerian people, while the nation continues to battle with the pandemic.

The post Call to reopen churches in Nigeria appeared first on Anglican Ink © 2020.

The Big Reason Mises Rejected Marx's Dialectical Materialism

Mises Institute - Mon, 25/05/2020 - 20:00

The weird thing about dialectical materialism is that Marx seems to have cobbled it together from two philosophies that contradicted each other.

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.

Original Article: "The Big Reason Mises Rejected Marx's Dialectical Materialism"

Categories: Current Affairs

The Big Reason Mises Rejected Marx's Dialectical Materialism

Mises Institute - Mon, 25/05/2020 - 20:00
Listen to the Audio Mises Wire version of this article.

Most people have never heard of dialectical materialism. The term looks so obtuse that you’d be forgiven for thinking that only pretentious students loitering outside the philosophy department smoking hand-rolled cigarettes could imagine that it has anything to do with real life. It certainly can’t exert much influence in the world if only a small number of radical Marxists could even tell you what it means.

On the contrary, writes Mises, dialectical materialism dominates the ideas of more people than you think. It has been absorbed by those who do not call themselves Marxists and even by people who consider themselves anticommunist.

When Mises released his book Theory and History: An Interpretation of Social and Economic Evolution in 1957, dialectical materialism was still the official philosophy of the Soviet Union and the Berlin Wall was still a good thirty years from coming down. However, Mises’s critique (found in chapter 7) is still relevant. The ideas that dialectical materialism represents have not fallen out of favor and may even be on the rise.

But what the heck is dialectical materialism?

Well, I’m glad you asked.

Dual Origins: Hegelian Spiritualism and Materialism

Marx theorized that human history is best viewed as a series of class struggles between social forces that have contradictory interests. For example, the class struggles between slaves and their masters, between feudal lords and their subjects, and—in his day—the class struggle between capitalists and their workers. He believed that seeing history as the history of class struggle had better explanatory power than viewing it through other lenses, such as the history of ideas, technological innovations, or military conflicts.

In fact, properly viewed through the lens of class struggle, history would naturally subsume those other ways of seeing the world and illuminate the context in which they unfolded, particularly when it came to technological innovation, which Marx thought would ultimately determine the struggle of the age. He wrote, “The hand-mill gives you society with the feudal lord; the steam-mill society with the industrial capitalist.”1 Mises (1957, p. 72) summarizes Marx's view as follows: “These forces are the driving power producing all historical facts and changes.”

The weird thing about dialectical materialism, Mises notes, is that Marx seemed to cobble it together from pieces of two existing philosophies that contradicted each other. These two philosophies were Hegelian spiritualism (after the influential German philosopher Georg Wilhelm Friedrich Hegel) and materialism. Marx believed that he was building upon them, but Mises believed they were incompatible.

The Prussian government and the intellectuals of Prussian universities preferred Hegelian spiritualism, because it essentially said that history was guided by the world spirit, or weltgeist, which acted through the great men of history and government to bring about its will. Hegelian spiritualism justified their privileged position by giving them a pretext for ruling over the plebs, since the weltgeist had conveniently picked them out for the task.

The materialists, on the other hand, thought that reality was just “what you see is what you get,” and as such didn’t think that the Prussian aristocracy had any right to rule—even less a divine one granted by some elitist specter. They wanted to overthrow the state—by violent revolution if necessary—and see those pampered high hats to hell.

Hopefully you are beginning to see how Marxism combines these two theories.

Marx Tweaks the Hegelian Dialectic

Now, Hegel is as perplexing a philosopher to understand as you’ll find and notoriously difficult to read even for bookish academic types. Despite his impregnable style he did pass on one very famous idea which I think is quite useful and does actually have the power to demystify the world sometimes, if you interpret it generously. It was also adapted and repurposed by Marx. It’s called the Hegelian dialectic and goes something like this: in a society you have a prevailing doctrine which is widely accepted and taken for granted by most people—but this cannot remain indefinitely so. At some time, a movement comes along proposing to challenge and overturn the prevailing wisdom, saying that it is nonsensical and should be repudiated only to be replaced with a new one.

Hegelians call the first doctrine the thesis and the opposing doctrine the antithesis. But here’s where it gets interesting. The antithesis never successfully overturns the thesis and throws it out the window completely. Instead the two doctrines begin to fuse together creating a synthesis, which combines elements of both. This third doctrine becomes the dominant thesis of a new era. But no sooner has this process completed than the whole damn thing is poised to start again. This new prevailing wisdom, combining elements of the old movement and the one which opposed it, will soon come to be opposed by a new antithesis which opposes that. Hegel believed that this process was a law that governed history but that it also mirrored the thinking process and described the logic by which people come to understand the world itself.

Marx extracted the dialectic and fused it into his own philosophy, hoping to prove that socialism was bound to come about “with the inexorability of a law of nature” by a dialectical process of class struggle in which the workers eventually threw off the chains of their capitalist overlords to create a classless society in which everyone would be equal and work for the common good.

Dialectical Materialism in a Nutshell

This philosophy is dialectical materialism:

1) Everything that exists is material. There are no gods, no souls, no spirits to call up at a séance, or any of that eerie supernatural stuff. Weltgeists are completely out of the question. What you see is what you get. Our thoughts and ideas are only reflections of material phenomena in our physical brains. This is materialism.

2) Everything that exists is in contradiction and conflict with something else, like magnetic poles, Republicans and Democrats, or your in-laws arguing furiously over who burnt the turkey at Thanksgiving. They duke it out, and from their struggle emerges something new. This is dialectics.

According to Marx, at a certain stage in their development the existing material productive forces of society come into contradiction with the existing production relations, or the established social system of property laws. This leads to an epoch of social revolution during which the superstructure transforms itself. This is the application of the Hegelian dialectic in Marxism.

The Misesian Critique of Dialectical Materialism

In Theory and History, Mises strives to highlight how Hegelianism stands in stark contradiction to materialism and that no rational fusion of the two is possible. For one thing, Hegelians believed that the ultimate basis of the universe was mind (which they called “spirit” or “geist”), while the materialists believed that it was matter.

For Hegel, the dialectical process of thinking mirrors the creation process. Via logic the mind acquires knowledge of reality. Matter does not have its own substance but arises from the mind of God (in a manner of speaking), named geist.

Mises says that this worldview is completely incompatible with any kind of materialism. In philosophical terms, Hegel is what is called a spiritual idealist—meaning that he thinks the universe is made of something spiritual rather than material. Mises contends that it was “nonsensical” to take dialectics out of its idealistic grounds and transplant it to a system that was empirical, because Hegelianism viewed what we commonly call empirical reality as “ein Faules” (something rotten or inert). Although it seemed real, it was not real at all apart from the way that reason apprehended it. Its true source was divine action—the ultimate truth.

Friedrich Engels, in trying to prove dialectical materialism, studied the natural world and was wowed to find examples of dialectical processes in full bloom wherever he looked. The whole of geology is a series of negated negations, he wrote. A butterfly comes into existence from an egg through negation of the egg, and then is negated again as it dies. The barleycorn is negated by the barley plant, which produces another barleycorn but in several times the quantity. Mises strongly suggests that this is not actually some ground-shaking revelation but just a silly word game. He points out that it is just as sensible to call a butterfly the “self-assertion” of the egg as the negation of it—the maturing of its inherent purpose and fulfillment of its ultimate potential. Engels was only substituting the word negation for the word change.

Although Marx and Engels boasted of putting the philosophy of Hegel on its feet, Mises concluded that the two simply wanted to latch onto him because his philosophy was dominant in their time. Perhaps it would look better, from their point of view, to propose a philosophy claiming to build upon a great master rather than to repudiate him.2

  • 1. Karl Marx, The Poverty of Philosophy (1847).
  • 2. For more, see Theory and History: An Interpretation of Social and Economic Evolution (1957; repr., Indianapolis, IN: Liberty Fund, 2005), particularly pages 69–71. I have taken the liberty of providing the necessary historical context and interpretation of Hegel and Marx necessary for a layperson to understand Mises’s ideas.
Categories: Current Affairs

The Folly of "Ask What You Can Do for Your Country"

Mises Institute - Mon, 25/05/2020 - 17:00

Recently, I was reminded of John F. Kennedy’s most famous line, “Ask not what your country can do for you; ask what you can do for your country,” when I heard it among several famous sound bites leading into a radio show segment. It also reminded me that we will hear it more soon, as we are approaching JFK’s May 29 birthday. However, it is worth reconsidering what it means.

Of particular importance is Milton Friedman’s response that “Ask not” was “at odds with the free man’s belief in his own responsibility for his own destiny….[It] implies the government is the master…the citizen, the servant.”

You can see the reason by noting that “Ask not” is completely consistent with what a tyrannical government—the kind that has beset people throughout most of recorded history—expects of its relationship with citizens. Governors did not exist for the good of the governed; those governed existed for the good of their governors. So citizens shouldn’t waste their time asking what the government will do for them.

But when John Locke argued that government should be for the good of the citizens, not for the good of the governors, he turned that historic reality upside down. And America was formed based on that idea (as illustrated by Richard Henry Lee’s claim that Thomas Jefferson plagiarized the second paragraph of the Declaration of Independence from Locke).

To Locke, a justifiable government would exist for the good of all. If that were so, every citizen would be willing to voluntarily join that society if given the choice. However, most aren’t given that choice. So Locke used the idea of a state of nature—in which one is not automatically committed to being a member of a particular society—to ask what a government that citizens would all willingly join would do for them. That is the opposite of what JFK told us to do. And the answer—very little—is quite different from the government we have.

At heart, what we all want government to do is what John Locke laid out in chapter 9 of his Second Treatise on Government:

Why…subject himself to the dominion and control of any other power?….[T]he enjoyment of the property he has in this state is very unsafe, very unsecure…[so] he seeks out, and is willing to join in society with others…for the mutual preservation of their lives, liberties and estates, which I call by the general name, property. The great and chief end, therefore, of men’s uniting into commonwealths, and putting themselves under government, is the preservation of their property.

The most basic functions of government amount to better protecting property rights. National defense protects our lives, liberties, and estates from foreigners; police, courts, and jails protect them from our neighbors; and the Constitution (especially the Bill of Rights) protects them from our most powerful and dangerous neighbor—the federal government itself. How do those protections benefit us all? They better protect us from coercion by those who might overcome our ability to protect our property rights with superior force. That protection is the basis that enables uncountable acts of voluntary cooperation to jointly benefit us all, and which have made us incomparably better off than our forebears.

Given the apparent chasm between what Friedman recognized as the theory that inspired America and JFK’s inaugural address, is there a way to reconcile them? Yes. The key is who is being addressed by the statement. The inspiration for “Ask not” addressed politicians, not citizens. It was a Kahlil Gibran article, whose Arabic title translates as “The New Frontier.” It said “Are you a politician asking what your country can do for you, or a zealous one asking what you can do for your country? If you are the first, then you are a parasite; if the second, then you are an oasis in the desert.”

Clearly, politicians who abuse their positions to benefit themselves are parasites on their society. We can condemn them for asking what the country can do for them. But applying “ask what you can do for your country” to citizens instead of politicians turns America’s founding upside down. Advancing the general welfare means advancing the welfare of the individuals that comprise our country. But asking citizens to sacrifice for the country, especially when the government is misleadingly used as a proxy for American society, implies that we were made for the government’s benefit, rather than it for ours.

If we take what politicians should not do to citizens and extend it to citizens who conspire with politicians to get special treatment at others’ expense, the same criticism applies. We can condemn both those politicians and their special friends that pick the pockets of the rest of us. To that extent, “Ask not” also applies to citizens, and Americans broadly endorse the sentiment against special treatment.

However, that latter step puts the blame in the wrong place. If government followed the principle of “give not” special favors, we wouldn’t need to worry that people might seek them. In other words, we should not blame citizens for asking for what it is a central purpose of politicians in our constitutional system to say no to.

Even the recognition of how something that was originally addressed to politicians can also apply to citizens, however, does not answer Friedman’s critique. That requires asking something more. It is impossible to have a government that advances the interests of all its citizens—that will benefit all of us—unless we first ask the Lockean question of what government will be empowered to do. If what it is allowed to do goes far beyond the Lockean purpose of defending of our property rights against coercion, which enables far more mutually cooperative arrangements, then both politicians and citizens will violate America’s founding principles. Rather than advancing freedom, we will sacrifice people’s lives, liberty, and pursuit of happiness to the unjustifiable violations of rights that will consequently dominate politics.

Once we think about what we must ask, we might actually find more useful inspiration in what Richard Nixon said we must ask and ask not: “In our own lives, let each of us ask not what government will do for me, but what can I do for myself,” because nothing is more inspiring than what individuals can achieve by pursuing their own advancement in liberty, through peaceful, voluntary cooperation that respects others’ equal rights. But when government and its special friends use its coercive power to interfere in such arrangements and impose their own dictates, it punishes rather than promotes the greatest source of societal advancement that exists.

Americans need to recognize that “ask not what your country can do for you,” beyond what advances our joint interests, is good advice, but that to “ask what you can do for your country” has been used to rewrite our founding principles. What government now demands of us “for our country” offers no guarantee to advance our interests.

Categories: Current Affairs

Do Lockdowns Work? Mounting Evidence Says No

Mises Institute - Mon, 25/05/2020 - 12:30

Most of the world's regimes enthusiastically destroyed their economies and consigned millions to destitution (and a rising tide of resulting health problems) in pursuit of a trendy and unproven theory. There's still not evidence that the lockdowns worked.

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.

Original Article: "Do Lockdowns Work? Mounting Evidence Says No"

Categories: Current Affairs

To Prevent Problematic Inflation, We Need More Production. Which Means There's Trouble Ahead.

Mises Institute - Mon, 25/05/2020 - 12:00

The science of economics is different from natural science. In natural science, it is possible to detect regularities in the form of “When A, then B” or “If A rises by x percent, B changes by y percent.” As a result, in natural science it is in principle possible to come up with more or less reliable quantitative predictions. This is impossible in economics, for there are no quantitative regularities, or behavioral constants, in the field of human action comparable to those to be found in natural science. Different people—and even the same people—at different instants of their lives react differently to the same external stimulus.

At the same time, however, there are inexorable economic laws such as the law of supply and demand or the law of diminishing marginal utility. These laws govern human action and can be logically derived from the irrefutably true proposition that “humans act.” It is in this sense that we can know the outcome of various modes of action in qualitative but not in quantitative terms. Take, for instance, the case of the central bank increasing the quantity of money in the economy.

More money in the hands of acting man will, other things being equal, lead to a decline in the marginal utility of the additionally received money unit, meaning that other vendible items will, from the viewpoint of the actor, gain in marginal utility. This, in turn, leads acting man to exchange his money unit, which he considers to be of lower value, against vendible items which he considers to be of higher value. And as more money is exchanged for goods and services, the money prices of said goods and services go up. This economic law will no doubt always and everywhere make itself felt in real life.

However, it might not always be easy to detect it, for in real life the law of diminishing marginal utility of money typically unfolds under “special conditions.” For instance, the rise in the quantity of money may be accompanied by an increase in the demand for money (for whatever reason). If this is the case, the rise in the quantity of money may not be accompanied by a rise in money prices of goods and services—because the rise in the demand for money, the “special condition,” prevents goods prices from going up. They would have increased had it not been for the increase in the demand for money. This has important implications for making inflation forecasts.

A Cause for Inflation ConcernUS Money Stock Supply

As a reaction to the politically dictated lockdown, central banks are churning out ever greater amounts of money. In the US, for instance, the Federal Reserve (Fed) monetizes debt on an unprecedentedly grand scale. Not only is the monetary base growing strongly, but also the monetary aggregates M1 and M2: in the middle of May 2020, M1 grew by 31.4 percent year over year (y/y), M2 by 22.3 percent y/y. To most people this looks inflationary. Mainstream economists, however, downplay any inflation concern by saying that the “velocity of money” has declined, so the rise in the money supply will not make goods prices go up.

What they have in mind is the so-called transaction equation: M*V = Y*P, where M = money stock, V = velocity of money, Y = production, and P = price level. The velocity of money—the frequency with which a money unit is used to finance the nominal transaction volume—is: V = Y*P / M. It is obvious that V declines if Y drops and M rises, and if P remains constant, falls, or rises by less than Y declines, and M rises. The important question is: What is the relation between V and P? In the US, for instance, the decline in the velocity of M2 since 1994 was accompanied by rising prices across the board. The same holds true for the euro area. The lesson to learn is that a declining velocity of money does not necessarily prevent goods prices from rising!

Figure 1: Falling Money Velocity and Goods Price Inflation, USMoney Velocity Figure 2: Falling Money Velocity and Goods Price Inflation, Euro AreaEuro Area Eurozone Money Inflation Putting Things in Perspective In view of the “lockdown”-driven economic collapse and central banks’ monetization schemes, it might be helpful to take a look at a simple numbers game to put things in perspective. Fig. 1 depicts real gross domestic product (GDP) falling by an assumed 10 percent in 2020 against last year. In 2021, GDP recovers 80 percent per cent of its previous loss. The money stock rises, say, 25 percent in 2020. Fig. 2 shows the corresponding “monetary overhang,” defined as GDP minus the money stock. As we can see, the monetary overhang would go up significantly in 2020, coming down somewhat in 2021 as the economy recovers but remains at an elevated level.Inflation

If we assume that the monetary overhang is what drives the level of the money prices of goods (perhaps with a time lag), the purchasing power of money would be falling quite substantially: in this scenario it will have lost around 30 percent after five years, implying an annual rise in money prices of vendible items of around 6.5 percent per annum—a number which, as should be noted, refers to the combined effect of rising consumer goods prices as well as rising asset prices (such as the prices of stocks, bonds, and real estate). In view of current circumstances, this appears to be a rather positive scenario—and people may be well advised to prepare for something worse than that.

The simple example indicates that much depends on the rise in the quantity of money relative to the decline in production: The higher this “gap” is, the higher the upward price pressure and the more severe the loss in purchasing power can be expected to be. Of course, the velocity of money plays an important role. Although it is currently declining (as Y (production) has fallen and M (money stock) has risen, and P (the price level) has remained relatively stable), the question is: Will it remain that low, and will it force prices down? Or will it not fall enough to prevent prices from inflating?

These questions cannot be answered with scientific reliability. However, the chances seem to be relatively high that the latest increase in the quantity of money will ultimately push money prices higher, eroding the purchasing power of money. It is not that likely that the additionally created money stock will be matched by an equal increase in the demand for money—simply because incomes have fallen and interest rates are very low, and may even go further into negative territory in inflation-adjusted terms, all of which makes holding money less attractive.

Finally, central banks’ policies are meant to prevent the financial and economic system from collapsing; this goal has priority. So price inflation as a result of ramping up the quantity of money is considered to be “acceptable collateral damage.” This is, in fact, the cold-hearted political strategy which Ludwig von Mises (1881–1973) in January 1923 captured succinctly in the following words: “As serious an evil as inflation is, it is not considered the most serious. If it is a choice of protecting the homeland from enemies, feeding the starving and keeping the country from destruction, then let the currency go to rack and ruin.”1

  • 1. Ludwig von Mises, The Causes of the Economic Crisis, and Other Essays before and after the Great Depression, ed. Percy L. Greaves Jr. (1978; repr., Auburn, AL: Ludwig von Mises Institute, 2006), p. 31.
Categories: Current Affairs

A deep and painful misunderstanding about how economies work

Adam Smith Institute - Mon, 25/05/2020 - 07:01

There’s a consensus emerging and as with most forms of groupthink it’s the wrong one:

A consensus has emerged that the only route out of the lockdown is with government cash. From across the political divide there is support, offered reluctantly in some quarters, for the idea that only state-funded agencies will have the financial muscle and the will to put the wheels of the economy in motion once the pandemic has receded.

And:

Economists warn that the coronavirus crisis could see a return to the persistent and damaging levels of unemployment of the 1980s, with the jobless rate averaging 10% or more for the next five years.

Therefore government must do something and job guarantees and planning and creating jobs and……we agree that government must do something but we insist that what must be done is less.

At heart here this is a misunderstanding of the basics of how an economy works. We have those human desires and wants, we have scarce resources with which to sate them. What can be sated and how at any one time depends upon tastes, fashions, the state of technology. It is possible, of course it is, to mix and match those varied resources to meet different human desires and to do so in different ways.

So, who are those people who do so? By definition of the word those who essay attempts to meet desires by combining the extant resources are entrepreneurs. That’s just what the technical meaning is to run alongside the economic definitions of land, labour and capital.

So, we have an excess supply, at current prices, of one of those resources? That’s what unemployment is, more labour than can be usefully employed given the current structure of attempting to sate wants. You see the implication here? We want more experimentation with the employment of that surplus resource. We also want to make sure that actual human needs and desires are sated by the resultant output.

Cool - that means we want more entrepreneurs doing more entrepreneuring. What’s the greatest barrier today to being entrepreneurial? The regulations, licences, permissions, required to do anything new or something old in a new manner. Thus, to get those unemployed usefully back to work we need to reduce those barriers.

We need more free marketry red in tooth and claw, free of the restraining hand of the bureaucracy, because that’s how new businesses that employ people get started.

Sure there’s something for government to be doing in these trying times. Less.

Categories: Current Affairs

The Shutdown May Soon Collapse in Pennsylvania Thanks to Local Resistance

Mises Institute - Mon, 25/05/2020 - 05:30

With such chaos, confusion, and incompetence playing out, it is little wonder that more and more Pennsylvanians are refusing to obey lockdown decrees.

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.

Original Article: "The Shutdown May Soon Collapse in Pennsylvania Thanks to Local Resistance"

Categories: Current Affairs

We'd hope that policy making would be a little better informed than this

Adam Smith Institute - Sun, 24/05/2020 - 07:01

This is not, of course, a policy maker, it’s Philip Aldrick, the Economics Editor of The Times. But it’s a good guide, as that, to the sort of things that is being said in policy making and influencing circles.

One lesson we have since learnt is that more of the austerity savings should have come from targeting wealth. Taxes that skimmed the froth off asset prices that were inflated by quantitative easing and low interest rates would have spread the pain more evenly.

No, not really. The entire point of QE was to raise asset prices and thus reduce yields. This would push people out along the risk curve in their investment behaviour and thus mitigate the slump. To tax the returns from those rises in asset prices would be to cancel the very effect which the struggle is to produce.

Yes, of course government is like isometric exercise, a lot of effort and going nowhere but we should at least try to not kill the very policy we’re enacting.

This is also a common and mistaken thought:

The highest rate of capital gains tax is 28 per cent, on second homes and private equity “carried interest”, far lower than the 50 per cent top rate of income tax. Even dividends attract more, at 30 per cent.

A familiar structure would be to draw a salary of less than £50,000, taxed at 20 per cent, and take a dividend, taxed at 30 per cent.

This is to miss that there’s a third tax in the mix here, corporation tax. The dividends can only be paid out of post corporation tax profits and it’s a matter of design and policy that the CT plus income tax rate on dividends is about the same as the pure income tax rate upon labour income. The system is deliberately set up to do this.

CT also falls heavily upon the capital value of the ownership of the company. Something that makes £100 a year to distribute is worth more than something which makes £80. If we charge £20 a year in CT to that £100 of profits then we’ve just made the company shares worth less. That is taxation of the ownership of the company, isn’t it?

It’s entirely true that we can - and should- make useful changes to the current taxation system. But it’s rather important that we actually understand the current system before we do so. It’s not entirely obvious that those doing the discussing at present do so.

Categories: Current Affairs

Texas Supreme Court Repudiates ECUSA’s Sophistries

Anglican Ink - Sat, 23/05/2020 - 23:48

In a comprehensive and unanimous thirty-page decision filed Friday morning, May 22, the Texas Supreme Court ruled in favor of Bishop Jack L. Iker and reversed the Court of Appeals’ earlier decision to the effect that ECUSA’s rump diocese, and not Bishop Iker’s diocese, controlled the Texas corporation which holds title to the properties of those parishes which in 2008 voted to withdraw their diocese from the unaffiliated and unincorporated association that historically has been called the (Protestant) Episcopal Church in the United States of America.

The decision is as straightforward an application of “neutral principles of law” (espoused by the U.S. Supreme Court in Jones v. Wolf) as one could find among the courts to which ECUSA has presented its “hierarchical church” sophistries. It repudiates those sophistries in a succinct passage (pp. 24-25):

In sum, TEC’s determinations as to which faction is the true diocese loyal to the church and which congregants are in good standing are ecclesiastical determinations to which the courts must defer. But applying neutral principles to the organizational documents, the question of property ownership is not entwined with or settled by those determinations. The Fort Worth Diocese’s identity depends on what its documents say. To that end, the Diocesan Constitution and Canons provided who could make amendments and under what circumstances; none of those circumstances incorporate or rely on an ecclesiastical determination by the national church; and nothing in the diocese’s or national church’s documents precluded amendments rescinding an accession to or affiliation with TEC. Applying neutral principles of law, we hold that the majority faction is the Fort Worth Diocese and parishes and missions in union with that faction hold equitable title to the disputed property under the Diocesan Trust. 

The opinion then makes short shrift of ECUSA’s remaining arguments. It demolishes ECUSA’s Dennis Canon, first by holding that a beneficiary like ECUSA cannot declare a trust in its favor in Texas on property that it does not own, and second by holding that even if the Dennis Canon could be said to create a trust in ECUSA’s favor, the Canon does not, as Texas law specifies, make the trust “expressly irrevocable”. Thus it was well within the power of Bishop Iker’s Fort Worth Diocese to revoke any such trust, which it did by a diocesan canon adopted in 1989 — to which ECUSA never objected in the twenty years following that act.

The Texas Supreme Court affirmed the Court of Appeals’ holding that ECUSA could not assert title to the parishes’ properties by way of any “constructive” trust (a creation of the law to prevent a wrongdoer’s “unjust enrichment”), or by the ancient doctrines of estoppel or trespass-to-try-title, or by accusing Bishop Iker and his fellow trustees of the diocesan corporation of breaches of fiduciary obligation allegedly owed to ECUSA. Each of those claims would involve the civil courts unconstitutionally in disputes over religious doctrine.

In conclusion, the Court affirmed the judgment of the Court of Appeals on the grounds last noted, reversed its principal holding that as an ecclesiastical matter, ECUSA got to say which corporation under Texas civil law was the entity which held the parishes’ property in trust, and reinstated the trial court’s judgment that Bishop Iker’s corporation was in law the trustee of the properties of the parishes in his diocese.

Where does the matter go from here? First of all, back to the trial court, whose judgment (now made final by the Texas Supreme Court) “permanently enjoined [ECUSA]’s clergy and leaders from acting as “The Episcopal Diocese of Fort Worth” (opinion, p. 11).  That injunction may now be enforced, and so ECUSA and its rump diocese will have to come up with a different name.

(That is one of the downsides of a litigation strategy pursuant to which you pretend to be the “true” diocese that continued in the place of the one that withdrew. You argue that the vote to withdraw was “illegal” under ECUSA’s Constitution and Canons, which in fact are silent on that subject [see the Court’s opinion, p. 23], and so conclude that it is the withdrawing entity that has to find a new name. It is a game with all-or-nothing stakes. Now ECUSA and its followers in Fort Worth have played it and lost.)

Also facing a required change will be the ECUSA-aligned parish of All Saints in Fort Worth, which  thanks to the graciousness of Bishop Iker was allowed to stay in property which the trial court ruled belonged to Bishop Iker’s corporation, pending the final outcome of the appeal. See my earlier post on that topic for details.

ECUSA’s provisional bishop in Fort Worth issued a pastoral letter to his parishioners in which he stated he was joined by ECUSA’s Presiding Bishop, Michael Curry — you may read it here. The letter is remarkable for showing a lack of understanding as to what the Court held, when it says:

I remain convinced that we are right in our affirmation that we are the continuing Episcopal Diocese of Fort Worth and that I am its bishop.

Can the man not read English? Look at what the Court says in the first sentence of the paragraph that I first quoted above: “In sum, TEC’s determinations as to which faction is the true diocese loyal to the church and which congregants are in good standing are ecclesiastical determinations to which the courts must defer” (my emphasis added). The Court says it again on page 20: “No one disputes that TEC’s determinations as to its denominational leaders and “good standing” with the church are ecclesiastical questions.” (The Court also said the same thing in its earlier opinion in the 2013 case of Masterson v. Diocese of Northwest Texas, as it shows by quoting a passage from it in its current opinion at page 23.)

This Texas case is not about whether ECUSA needs to follow its own Constitution and Canons when it fashions an ersatz diocese out of the remnant clergy and parishioners who elect to remain in ECUSA when one of its member dioceses votes to cancel its affiliation with General Convention. Those are ecclesiastical matters which cannot be determined in the civil courts, as ECUSA’s own canons recognize.

By the same token, however, ECUSA’s ecclesiastical powers do not extend to overriding the laws of the various States in which it operates. The very essence of “neutral principles” is that a church is treated just as any other citizen of that State would be when it comes to complying with the laws and regulations dealing with entities like corporations and unincorporated associations. To hold otherwise — as the high courts in New York, California, Connecticut, Georgia and several other States have done — is not only to misread Jones v. Wolf, but also to violate the First Amendment by favoring one religious denomination at the expense of others.

ECUSA and its rump diocese may be speaking softly for now, but true to their form, they most likely will petition the United States Supreme Court to review this decision in an effort to get that Court to explain just what it really meant in Jones. Given that Court’s reluctance, in each of the dozen or so instances it has been asked to do so in the forty-odd years since 1979, I would not take any bets on ECUSA’s chances of success. But when you have over $350 million in trust funds at your disposal, and have had no qualms about spending well over $60 million on attorneys and church property litigation since 2000, one’s chances of success would not appear to be a factor under consideration.

In other words, keep your powder dry, and stay tuned for more.

The post Texas Supreme Court Repudiates ECUSA’s Sophistries appeared first on Anglican Ink © 2020.

Central Banks Are Destroying What Was Left of Free Markets

Mises Institute - Sat, 23/05/2020 - 20:00

President Reagan memorably said that the nine words you don’t want to hear are “I’m from the government, and I’m here to help.” Governments in all the major jurisdictions are now making good on that unwanted promise and are taking responsibility for everything from our shoulders.

Those receiving subsidies and loan guarantees are no doubt grateful, though they probably see it as the government’s duty and their right. But someone has to pay for it. In the past, the redistribution of wealth through taxes meant that the haves were taxed to give financial support to the have-nots, at least that was the story. Today, through monetary debasement nearly everyone benefits from monetary redistribution.

This is not a costless exercise. Governments are no longer robbing Peter to pay Paul. They are robbing Peter to pay Peter as well. You would think this is widely understood, but the Peters are so distracted by the apparent benefits they might or might not get that they don’t see the cost. They fail to appreciate that printing money is not just the marginal source of financing for excess government spending, but that it has now become mainstream.

There is almost a total absence in the established media of any commentary on the consequences of monetary inflation, and in a cry for more we even have financial experts warning us of a deflationary collapse and the need for the Fed to introduce negative interest rates to stave off deflation. Yes, there are deflationary forces, because banks wish to reduce their loan exposure at a time of increasing risk. But we can be sure that central banks and their political masters will do everything they can to counter the trend of contracting bank credit by increasing base money. There can only be one outcome: the debasement and eventual destruction of fiat currencies.

There is an aspect of the destruction brought about by monetary policy which is almost never considered by policymakers, and that is how it distorts the allocation of capital and leads to its misallocation. In free markets, capital is scarce and must be used to greatest effect if the consumer is to be properly served and the entrepreneur is to maximize his profits.

Capital comes in several forms and encompasses every aspect of production: principally an establishment, machinery, labor, semimanufactured goods and commodities to be processed, and money. An establishment, such as a factory or offices, and the availability of labor are relatively fixed in their capacity. Depending on their deployment and capacity they produce a limited amount of goods. It is just one form of capital, money and credit, which central banks and the banking system now provide, and which in its unbacked form is infinitely flexible. Consequently, attempts to stimulate production by monetary means still run into the capacity constraints of the other forms of capital.

Monetary policy has been increasingly used to manipulate capital allocation since the early days of the Great Depression. The effect has varied, but it has generally come up against the constraints of the other forms of capital. Where there is excess labour, it takes time to retrain it with the specialized skills required, a process hampered by trade unions ostensibly protecting their members but in reality resisting the reallocation of labor resources. Government control over planning and increasingly stifling regulations, again putting a brake on change, mean that changes and additions to the use of establishments have lengthened the time before entrepreneurial investment is rewarded with profits. Government intervention has also discouraged the withdrawal of monetary capital from unprofitable deployment, or malinvestments, lengthening recessions needlessly.

When the advanced nations had strong industrial cores, the periodic expansions of credit and their subsequent sudden contractions led to observable booms and busts in the classical sense, since production of labor-intensive consumer goods dominated production overall.

There have been two further developments. The first was the abandonment of the Bretton Woods agreement in 1971, which led to a substantial rise in prices for commodities. The broad-based UN index of commodities rose from 33 to 157 during the decade, a rise of 376 percent.1 This input category of production capital compared unfavorably with US consumer price increases of 112 percent  over the decade, the mismatch between these and other categories of capital allocation making economic calculation a fruitless exercise. The second development was the liberation of financial controls in the mid-eighties, London’s Big Bang and the repeal of America’s Glass-Steagall Act of 1933, allowing commercial banks to fully embrace and exploit investment banking activities.

The banking cartel increasingly directed its ability to create credit toward purely financial activities mainly for their own books, thereby financing financial speculation while deemphasising bank credit expansion for production purposes for all but the larger corporations. Partly in response, the nineties saw businesses move production to low-cost centers in Southeast Asia, where all forms of production capital, with the exception of monetary capital, were significantly cheaper and more flexible.

There then commenced a quarter-century of expansion of international trade replacing much of the domestic production of goods in the US, the UK, and Europe. It was these events that denuded America of its manufacturing, not unfair competition as President Trump has alleged, and Germany’s retention of manufactures proves this. But the effect has been to radically alter how we should interpret the effects of monetary expansion on the US economy and others, compared with Hayekian triangles and the like.

Business cycle research had assumed a capitalistic structure of savers saving and thereby making monetary capital available to entrepreneurs. Changes in the propensity to save sent contrary signals to businesses about the propensity to consume, which caused them to alter their production plans. Based on the ratio between consumer spending and savings, this analytic model has been corrupted by the state and its licensed banks by replacing savers with former savers now no longer saving, and even borrowing to consume.

Today, the inflationary origins of investment funds for business development are hidden through financial intermediation by venture capital funds, quasi-government funds, and others. Being mandatory, pension funds continue to invest savings, but their beneficiaries have abandoned voluntary saving and run up debts, so even pension funds are not entirely free of monetary inflation. Insurance funds alone appear to be comprised of genuine savings within an inflationary system.

Other than pension funds and insurance companies, Keynes’s wish for the euthanasia of the saver has been achieved. He went on to suggest there would be a time “when we might aim in practice…at an increase in the volume of capital until it ceases to be scarce, so that the functionless investor will no longer receive a bonus.”2

Now that everywhere bank deposits pay no interest, his wish has been granted, but Keynes did not foresee the unintended consequences of his inflationist policies which are now being visited upon us. Among other errors, he failed to adequately account for the limitation of nonmonetary forms of capital, which leads to bottlenecks and rising prices as monetary expansion proceeds.

The unintended consequences of neo-Keynesian policy failures are shortly to be exposed. The checks and balances on the formation and deployment of monetary capital in the free market system have been completely destroyed and replaced by inflation. So, where do you take us from here, Mr. Powell, Mr. Bailey, Ms. Lagarde, Mr. Kuroda?

Taking Stock

We can now say that America, the nation responsible for the world’s reserve currency, has encouraged policies which have turned its economy from being a producer of goods with supporting services as the source of its citizens’ wealth into little more than a financial casino. The virtues of saving and thrift have been replaced by profligate spending funded by debt. Unprofitable businesses are being supported until the hoped-for return of easier times, which are now gone.

Cash and bank deposits (checking accounts and savings deposits) are created almost entirely by inflation and currently total $15.2 trillion in the US, while total commercial bank capital is a little under $2 trillion. This tells us crudely that the $13 trillion sitting in customer accounts can be attributed to bank credit inflation. Increasing proportions of those customers are financial corporations and foreign entities, and not consumers maintaining cash and savings balances.

On the other side of bank balance sheets is consumer debt, mostly off balance sheet, but ultimately funded on balance sheet. Excluding mortgages, the total consumer debt, comprising credit card, auto, and student debt, was $3.86 trillion in mid-2019, amounting to an average debt of $27,571 per household, confirming the extent to which consumer debt has replaced savings.3

At $20.5 trillion, bank balance sheets are far larger than just the sum of cash and bank deposits, giving them a leverage of over ten times their equity. Bankers will be very nervous of the current economic situation, aware that loan and other losses of only 10 percent wipe out their capital. Meanwhile, their corporate customers are either shut down, which means that most of their expenses continue while they have no income, or they are suffering payment disruptions in their supply chains. In short, bank loan books are staring at disaster. Effectively, the whole banking system is underwater at the same time that the Fed is extolling them to join with it in rescuing the economy by expanding their balance sheets even more.

The sums involved in supply chains are considerably larger than the US’s GDP. Onshore, it is a substantial part of the nation’s gross output, which captures supply chain payments at roughly $38 trillion. Overseas, there is a further mammoth figure feeding into the dollar supply chain, taking the total for America to perhaps $50 trillion. The Fed is backstopping the foreign element through currency swaps and the domestic element mainly through the commercial banking system. And it is indirectly funding government attempts to support consumers who are in the hole for that $27,571 on average per household.

In short, the Fed is committed to rescuing all business from the greatest economic collapse since the Great Depression and, probably greater than that, to funding the US government’s rocketing budget deficits and funding the maintenance of domestic consumption directly or indirectly through the US Treasury, while pumping financial markets to achieve these objectives and preserve the illusion of national wealth.

Clearly, we stand on the threshold of an unprecedented monetary expansion. Part of it will be, John Law–style, to ensure that inflated prices for US Treasurys are maintained. At current interest rates, debt servicing was already costing the US government 40 percent of what was expected to be this year’s government deficit. That bill will now rise beyond control even without bond yields rising. Assistance is also being provided to the corporate debt market. Blackrock has been deputed to channel the Fed’s money-printed investment through ETFs (exchange-traded funds) specializing in this market. So not only is the Fed underwriting the rapidly expanding US Treasury market, but it is underwriting commercial dollar debt as well.

In late 1929, a rally in the stock market was prolonged by a similar stimulus, with banks committed to buying stocks and the Fed injecting $100 million in liquidity into markets by buying government securities. Interest rates were cut. And when these attempts at maintaining asset prices failed, the Dow declined, losing 89 percent of its value from September 1929.

Today, similar attempts to rescue economies and financial markets by monetary expansion are common to all major central banks, with the possible exception of the European Central Bank (ECB), which faces the unexpected obstacle of a challenge by the German Federal Constitutional Court claiming primacy in these matters. There is therefore an added risk that the global inflation scheme will unravel in Europe, which would rapidly lead to funding and banking crises for the spendthrift member states. Doubtless, any financial contagion will require yet more money printing by the other major central banks to ensure that there are no bank failures in their domains.

Whither the Exit?

So far, few commentators have grasped the implications of what amounts to the total nationalization of the American economy by monetary means. They have only witnessed the start of it, with the Fed’s balance sheet reflecting the earliest stages of the new inflation which has seen its balance sheet increase by 61 percent so far this year. Not only will the Fed battle to fund everything, but it will also have to compensate for contracting bank credit, which we know stands at about $18 trillion.

The Fed must be assuming that the banks will cooperate and pass on the required liquidity to save the economy. Besides the monetary and operational hurdles such a policy faces, it cannot expect the banks to want responsibility for the management of businesses that without this funding would not exist. The Fed, or some other government agency, then has to decide on one of three broad options: further support, withdrawing support, or taking responsibility for business activities. This last option involves full nationalization.

We must not be seduced into thinking that this is an outcome that can work. The nationalization of failing banks and their eventual privatization is not a good precedent for wider nationalization, because a bank does not require the entrepreneurial flair to estimate future consumer demand and to undertake the economic calculations to provide for it. The state taking over business activities fails for this reason, as demonstrated by the collapse of totalitarian states such as the USSR and the China of Mao Zedong.

That leaves a stark choice between indefinite monetary support or pulling the rug from under failing businesses. There are no prizes for guessing that pulling rugs will be strongly resisted. Therefore, government support for failing businesses is set to continue indefinitely.

At some stage, the dawning realization that central banks and their governments are steering into this economic cul-de-sac will undermine government bond yields, despite attempts by central banks to stop it, even if the deteriorating outlook for fiat currencies’ purchasing power does not destroy government finances first.

Earlier in the descent into the socialization of money, nations had opportunities to change course. Unfortunately, they had neither the knowledge nor the guts to divine and implement a return to free markets and sound money. Those opportunities no longer exist, and there can be only one outcome: the total destruction of fiat currencies, accompanied by all the hardships that go with it.

  • 1. Bank of England Quarterly Bulletin, March 1981.
  • 2. J.M. Keynes, General Theory, concluding notes.
  • 3. See Debt.org.
Categories: Current Affairs

Why Official Inflation Measures Don't Work

Mises Institute - Sat, 23/05/2020 - 17:00

In theory, it is possible to adjust inflation measures to account for the many constant changes in prices resulting from changing demand, quality, and innovations. But it's essentially impossible to execute these adjustments accurately.

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.

Original Article: "Why Official Inflation Measures Don't Work"

Categories: Current Affairs

Why Official Inflation Measures Don't Work

Mises Institute - Sat, 23/05/2020 - 17:00
Listen to the Audio Mises Wire version of this article.

Modern macroeconomics has made price stability the primary objective of monetary policy. It is assumed that central banks can ensure price stability by skillfully managing the money supply, thereby creating the conditions for economic growth and prosperity.

In order to provide a safety buffer against the dreaded price deflation, central banks around the world try to generate a positive but moderate rate of price inflation. Price stability thus means a stable rate of inflation. The prices of goods and services should on average rise slowly at a constant rate over the medium and long term. In the eurozone, the aim is to achieve a price inflation rate close to but below 2 percent.

However, it cannot be denied that measuring a general price level and its rate of change is associated with major problems. The formal inflation target of the central banks must be operationalized in practice. It is therefore necessary to determine which prices are targeted and how they are to be summarized in a weighted average.

The Harmonized Index of Consumer Prices

The member states of the eurozone have agreed on a standardized procedure for measuring inflation. The Harmonized Index of Consumer Prices (HICP) is the operationalized target variable of monetary policy. The calculation of the HICP is relatively complex,1 as attempts are made to eliminate possible distortions in the measurement of inflation by means of elaborate procedures and estimates. However, it is highly questionable whether this is successful. In the following, I would like to take a closer look at two important sources of bias.

Substitution Effects

The HICP consists of twelve subindices2 which group together different classes of goods. Each of the subindices consists of different subcategories, which are again subdivided until the individual prices of certain goods and services are reached at the lowest level. These unit prices must be adequately weighted for the calculation of the index. The principle is that goods and services on which a large proportion of income is spent must be given a higher weighting than those goods and services that are purchased only very sporadically and in small quantities. Formally, therefore, the weights are determined by the real turnover shares. In Germany, for example, the weight of the subindex "Food and non-alcoholic beverages" (CP01) currently stands at 11.3 percent, which means that the average German household is assumed to spend 11.3 percent of its consumption expenditure on goods in this category. By comparison, the weight for "Alcoholic beverages, tobacco and narcotics" (CP02) is 4.2 percent.

As consumption decisions are constantly changing, the weighting scheme applied may lead to distortions in the measurement of inflation. In the 1990s, for example, the Boskin Commission found a systematic overestimation of price inflation rates in the US of 0.4 percentage points per year.3 The cause of the distortion was the systematic substitution behavior of households.

The argument is as follows. Let us assume a base year with a given weighting scheme for all individual goods and services included in the index. This weighting scheme reflects the consumption behavior of households in the base year. This behavior changes over time, partly because prices for some goods rise faster than for others. Over time, households will tend to buy less of those goods whose prices rise faster. And they will instead buy more of other goods that have remained relatively cheap. Households will thus substitute goods with a relatively high rate of inflation for goods with a relatively low rate of inflation. If the weighting scheme is not changed, an upward distortion of the measured price inflation will result. One would overestimate price inflation.

Let me illustrate this with a simple example. Imagine a price index for soft drinks. The purchase prices of Coke and Pepsi are included in the index at 50 percent each, because on average households spend proportionally the same amount on both beverages. Assume that over a certain period of time the price of Pepsi increases by 5 percent per year. The price of Coke increases by only 1 percent annually. If the weighting is not changed, the overall inflation rate is 3 percent. In fact, however, the consumption behavior has shifted due to the different inflation rates. On average, households now buy more Coke and less Pepsi. Let us assume that households now spend four times as much on Coke as on Pepsi. The weighting would therefore have to be adjusted so that Coca Cola is included in the index at 80 percent and Pepsi at only 20 percent. The adjusted annual inflation rate, using the new weighting scheme, would therefore be 1.8 percent instead of 3 percent.4

As a result of this reasoning, the weighting scheme of the HICP is now continuously adjusted, with the result that reported price inflation is lower than it would have been otherwise. Let us disregard any possible inaccuracies and assume that the adjustments to the weighting scheme perfectly reflect changing consumer behavior. Wouldn't this be overlooking a crucial point?

The answer is yes. If consumers do not switch to other products because of changing preferences, but simply because the prices of the products they would actually prefer have risen disproportionately, then consumers are worse off. The economist would call this a welfare loss. This welfare loss corresponds to a real increase in the cost of living, which is not reflected in the official figures if the weighting scheme in the index is adjusted accurately according to the changing consumption decisions of households. We end up with a downward distortion of the measured price inflation. The rate of inflation is then underestimated.

Quality Changes

The second major sources of distortions in official inflation statistics are changes in the quality of goods. Here, too, the Boskin Commission of the 1990s found an upward bias of 0.4 percentage points per year in the US because quality improvements in products were not adequately priced in.5 The measured inflation rate was therefore once again too high.

The theoretical argument is compelling. Assume that prices do not change over a given period of time, but that the quality of the goods increases steadily. Then consumers get better quality for the same money. If you now say that the inflation rate is 0 percent, you are exaggerating. In fact, ceteris paribus the standard of living has improved: you get more quality for the same money, or the same quality for less money. Hence, the reported inflation rate should be negative.

In the following period, not only in America, but also in Europe, so-called hedonic methods of quality adjustment were introduced. For many products, therefore, not only are the observed purchase prices included in the index, but adjusted prices that are supposed to reflect the quality changes.6 In the following, I would like to address only two fundamental problems with quality adjustment.

First, producers have an incentive to highlight the quality improvements in the products they sell. When a car or computer becomes more powerful or faster, this can be seen in measurable core values. The car has more horsepower. The computer has a faster CPU. Manufacturers will openly communicate these core values and use them to promote their products. Quality improvements will thus be made transparent and comprehensible for buyers. They can therefore also be taken into account relatively easily in official statistics.7

On the other hand, producers have an incentive to conceal possible deteriorations in quality from buyers. If the casing and wiring of a computer are made of inferior material, this is usually not mentioned in the product description. If you want to detect deteriorations in quality, you often have to look very closely. In many cases, they are not easily detectable and cannot be quantified.

This leads to a systematic distortion. On the one hand, quality improvements are visible and taken into account. The prices of the products in question are reduced in the official statistics. Quality deteriorations, on the other hand, remain undetected and the prices of the products concerned are not increased accordingly. It is therefore probable that the adjustments made here also create a downward bias. The official statistics then report a price inflation rate that is too low.

The second point I would like to add has not yet been taken into account at all in the relevant literature. Let us assume that all quality changes are accurately priced in by official statistics. Even if this were the case, it would create a downward bias in reported price inflation. The reason for this is that a given quality improvement in a product already creates deflationary price pressures on other goods without any adjustment being made at all. This pressure arises in particular for the previously common and now inferior predecessors of the new product.

For example, when Apple launched the very first smartphone on the market, the iPhone, a negative price pressure on conventional mobile phones arose, because Apple dug away market shares from competing mobile phone manufacturers with its new product. As a result, competitors were forced to charge lower prices for their products than would otherwise have been the case. Only by offering lower prices could at least some buyers be convinced not to switch to the new iPhone.

This negative price pressure on competing products, which results from innovation, is already reducing the measured inflation rates. This means that a given improvement in quality is partly reflected in falling prices for other goods. If the price of the quality-improved good is adjusted in addition to this market adjustment (assuming that it is even possible to do this accurately), we would overshoot the mark. Price inflation would be underestimated.

Conclusion

There is no doubt that both substitution effects and changes in the quality of goods and services pose practically insoluble problems for official inflation statistics. Quality changes cannot be quantified objectively. This circumstance alone opens up enormous discretionary scope for official price statistics, which also has an impact on monetary policy. The M1 money supply in the euro area has increased more than fivefold since its inception.8 This could also be politically justified, because the reported price inflation was relatively low. Prices in the euro area have officially increased by only slightly more than 40 percent since 1999. Is price inflation systematically underestimated? The suspicion is obvious.

Even if the practical problems of measuring inflation, which arise from substitution effects and quality changes, could be solved sufficiently well, the application of the procedures currently used in official statistics would lead to a systematic underestimation of price inflation. The upward biases, which are undoubtedly relevant, once identified are reversed into downward biases when we consider other factors. On both points—substitution effects and quality changes—the results would overshoot the mark, even if the current methods could be applied accurately and flawlessly.

In addition, there are other gaps in the official measurement of inflation. Asset prices are not taken into account. However, disproportionate price inflation has been taking place in recent decades, especially for long-term assets such as real estate and stocks. It is not surprising that the median of subjectively perceived price inflation rates in the eurozone is 5 percentage points higher per year than the officially reported inflation rate.9

  • 1. It is therefore also not transparent for the outside observer. The statistical offices provide much of the data used, but far from all. In particular, they do not provide information on the raw data used, i.e., on the prices actually observed and documented before they are included in the statistics after various adjustments.
  • 2. The twelve subindices are CP01: Food and non-alcoholic beverages; CP02: Alcoholic beverages, tobacco and narcotics; CP03: Clothing and footwear; CP04: Housing, water, electricity, gas and other fuels; CP05: Household goods and routine household maintenance; CP06: Health; CP07: Transport; CP08: Post and telecommunications; CP09: Recreation and culture; CP10: Education; CP11: Restaurants and hotels; and CP12: Miscellaneous goods and services.
  • 3. For Germany, the distortion was found to be somewhat less pronounced shortly afterwards (0.1 percentage points). See Hoffmann "Probleme der Inflationsmessung in Deutschland" (Discussion Paper, Deutsche Bundesbank, 1998).
  • 4. In this simplified example, the adjusted inflation rate results from the newly weighted average of the individual inflation rates: 0.8*1+0.2*5=1.8; in contrast to the original weighting: 0.5*1+0.5*5=3.
  • 5. For Germany, the estimated distortion due to quality improvements was 0.45 percentage points.
  • 6. No information on the extent of the quality adjustments is provided by the relevant offices. Raw data prior to quality adjustment are not made publicly available in Europe.
  • 7. The word "relatively" is important here. In the final analysis, quality improvements are of course impossible to price in and quantify, because they are subjective.
  • 8. From January 1999, when the euro was introduced as book money, M1 rose from €1,807,005 million to €9,335,181 million in March 2020, an increase of 5.17 times.
  • 9. See Karl-Friedrich Israel, "Why Has There Been So Little Consumer Price Inflation?," Mises Wire, May 11, 2020, https://mises.org/wire/why-has-there-been-so-little-consumer-price-inflation?fbclid=IwAR2y6PQnZpTM2kuQp-XLCom3r0SP2rWC1WLzqOQ3npAWFaEFRaAyQ61PJeA.
Categories: Current Affairs

It Seems That Everyone Who Isn't a Hard-Core Leftist Is a "Libertarian"

Mises Institute - Sat, 23/05/2020 - 12:00

Back in the summer of 2006, perhaps sensing momentum for Democrats going into the midterm, Daily Kos founder Markos Moulitsas gave it a push by making a play for the libertarian vote. Considering the degree to which the Bush/GOP years disappointed, it made sense.

At the outset, he targeted “government efforts to intrude in our bedrooms” and “NSA spying,” a couple of sore spots in light of President Bush’s proposed constitutional restriction of marriage to between a man and a woman and new state powers enacted to conduct the war on terror.

Slowly but surely, though, Moulitsas started cutting out on his target audience, alluding to free healthcare and “poverty prevention programs.” San Antonio Express-News Smart Money columnist Michael Taylor has trodden similarly shaky ground lately.

First, in astutely pointing out how some Republican senators are unwittingly greasing the skids for a huge new entitlement called a universal basic income (UBI), he erroneously asserted that “trusting people” with such a handout is a “deeply small-government idea.” Now, he’s criticizing the moralization of “poverty-reduction programs.”

To be sure, he starts out on solid footing in shaming government for picking winners and losers by deciding which types of businesses merit public help after being shut down the last couple months.

Libertarians have been at the forefront of freeing so-called victimless crime from the chains of the supposed morally superior. More and more jurisdictions are decriminalizing marijuana and legalizing gambling; criminal system reform passed a couple years ago.

Taylor’s case becomes tenuous, however, when he equates restrictions on public welfare programs to “blaming poverty on the immorality of its victims.”

Few would disagree that children born into destitution are the most unfortunate segment of society. That consensus is reflected in the $13–18 million that the local United Way spends on helping them every year. But giving their parents checks with no strings attached is not a solution.

While anyone who demands the efficient use of taxpayer funds (assume for the sake of argument that this is possible) would certainly support reducing bureaucracy, giving free reign to the beneficiaries of public aid funded by resources taken from others’ earnings, the thrust of Mr. Taylor’s pitch, is the real immoral act.

Pairing the loosened strings with commensurate cuts to these programs’ provision would be a logical step. Include a reduction on individual payouts, and you might even have a deal. Best of all, transfer these programs entirely to state and local jurisdictions. But even following a more proper federalist path, you can’t call it “libertarian,” despite the best efforts of those who try to appropriate the label.

With a headline that read “An Unusual Breed: A Libertarian Democrat,” The Economist parroted Colorado governor Jared Polis’s self-identification as such upon assuming office last year. In the same paragraph, they touted his support for “universal health care, investments in renewable energy, etc.”

Apparently wanting to lower income taxes is just enough to qualify for the moniker. Cute.

One state-run program that Mr. Taylor holds up as immorally administered is unemployment assistance.

The wages you forgo when your employer is forced to contribute to this program is already a tough pill to swallow. To not insist that those out of work look for a job while drawing benefits would not only compound that burden, but would be counterproductive. Taylor seems to lack an understanding of incentives, a tenet of economics 101.

In the immediate aftermath of the recession a decade ago, the unemployment rate hovered around 9 percent. Once expanded benefits were rolled back, it started dropping. This is roughly the inverse of what happened when Lyndon B. Johnson declared “war on poverty.”

Before Uncle Sam got involved, the poverty rate had been in clear free fall. Once he joined the battle, that trend was arrested, never to escape an 11–15 percent range.

The problem with these appeals to liberty-minded citizens is a confusion over rights.

The petitioners are cool with protecting people’s right to privacy in their home, to do whatever they please as long as they hurt no other. But they also feel that some segments of society are entitled to the resources or support of others, as embodied by Mr. Polis’s support for “paid parental leave.”

The former are negative rights, many of which are the foundation for prosperity (property, trade, etc.), while the latter are positive rights. The two cannot coexist, as the latter necessarily intrude upon the former.

Whether they’re the party faithful, trying to reform the GOP from the inside, or so irritated with the process that they lodge a protest vote for Democrats, libertarians know that “all efforts by government to redistribute wealth…are improper to a free society” and that “agreements between private employers and employees…should not be encumbered by government-mandated benefits.” Their strength of principle is impervious to flaccid, linguistic sleights of hand.

Categories: Current Affairs

A call for the return of peasant agriculture

Adam Smith Institute - Sat, 23/05/2020 - 07:01

We think The Guardian has made a mistake here. This is from Fridays for Future, the Greta Thunberg thing, calling for changes in the Common Agricultural Policy:

“[We] demand a pathway to climate neutrality for the EU’s agricultural and food sector,” the activists wrote in an open letter published ahead of the virtual meeting. “We need to transform direct payments into payments for public goods. Public money needs to flow into the transition to sustainable, climate-friendly and peasant [sic] agriculture. We need a new evidence-based and just CAP.”

The error being The Guardian’s addition of the “sic” there. For the demand really is that we move back to peasant agriculture, not to pleasant or some other word that has been misspelt.

The entire point of industrial agriculture - we can call it chemical, non-organic, other names exist - is to reduce the amount of human labour required to perform it. The removal of all of those substitutes for human labour will require adding that backbreaking work back in.

The problems with this idea being at least twofold. Firstly, the backbreaking labour. Very few of us indeed wish to do this as evidenced by the difficulty in recruiting people to go pick the fruit and veg crops. You might have seen something in the newspapers just recently about this. Secondly, to go back to us all standing around in muddy fields is to kill off the very idea of civilisation itself.

For if we are all to be growing food there’s no one left to staff the NHS, run the libraries, dance the ballets, put up the phone masts and serve the pints. Don’t forget, back when we did have machine free and organic agriculture some 80% of the population had to be doing that fields thing. Currently we have perhaps 2% - that’s 78% of the population that’ll have to move from doing all those non-farming, non-food things we so enjoy consuming back to providing that winter diet of turnips.

We’ve just spent the last 8,000 years since the invention of agriculture itself trying to haul ourselves up out of the workload that non-industrialised farming imposes. To kill off the results of that effort and return to peasant farming is, quite literally, insane. And if only the call were a typo….

Categories: Current Affairs

Next meeting of bishops and the provincial standing committee will be on-line says Capetown archbishop

Anglican Ink - Fri, 22/05/2020 - 23:52

Archbishop Thabo Makgoba has announced that the September 2020 sessions of the Synod of Bishops (SOB) and the Provincial Standing Committee (PSC) will be held virtually using video-conferencing software.

In a letter to the Province’s bishops and members of the PSC, the Archbishop said there was a real prospect that in a number of countries in the Province, lockdowns would still be in force in September. In addition, some members of PSC had a heightened vulnerability to becoming seriously ill if they contract the virus.

“It is imperative under the Canons that we hold a PSC meeting, inter alia because we have to approve the 2021 budget, and the Legal Team has advised… that such a virtual PSC meeting will be legal in terms of the Canons,” he said.

PSC includes episcopal, clerical and lay representatives from each Diocese in the Province and meets annually. It comprises about 120 people, including representatives of organisations.

The PSC Service Committee, which is responsible for planning the Committee’s meetings, met on May 20 to discuss detailed arrangements for this year’s meeting, to be held on September 22-24.

It is proposed that members of each Diocese’s delegation will meet in a central venue, such as a Diocesan Centre, where physical distancing can be implemented, and that they will be able to view proceedings on a screen and contribute to discussions via audio links. The Service Committee urged that each Diocese ought to have an IT expert available to ensure an uninterrupted connection.

The Service Committee asked for a draft liturgy for opening worship to be prepared and is seeking ideas for how the 150th anniversary of the founding of the Province can be celebrated during the meeting.

The Archbishop and the Service Committee urges everyone to use the following special Collect for PSC in the months leading up to the meeting:

Almighty God, our refuge and strength,
As we face the realities of the Covid-19 pandemic
Keep us faithful to you,
Strengthen us to care for one another and your planet,
For you led your people out of exile,
You walked the road to Calvary,
And you continue to equip us for ministry with your Holy Spirit,
One God, world without end.
Amen

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