Loading...
 

(Cached)
Refresh

Liberty News

  • Do We Really Need a Federal Ban on Horse Meat?    (Ryan McMaken, 2017-11-21)
    By: Ryan McMaken For decades in the United States, turkey has become the centerpiece of the Thanksgiving meal. Some eccentrics may offer other choices, such as roast beef or duck, but nowadays, it's a sure bet that few households will be offering horse meat as one of Thursday's featured dishes. Horse meat has largely disappeared from the Western diet, and not even our pets eat much horse anymore.In the United States, however, this flight from horse meat has been helped along by the federal government, which, as with so many other matters, has taken up the task of micromanaging how meat is produced in the United States. In fact, while Congress debates issues like Obamacare and tax reform, it has also been debating whether or not to end a federal ban on horse meat production: Animal advocates are keeping close watch on Congress amid concern that a moratorium on horse meat production may be in jeopardy.Congress shut down the industry nearly a decade ago by cutting off funds for USDA meat inspectors. But in July, a key House committee approved an annual farm spending bill that would lift the ban.The full House then ratified that shift in policy, for the first time in two years — opening the door to revival of an industry that many Americans find repugnant, but which some horse owners view as a practical way to dispose of unwanted livestock.Horse meat is consumed in a number of countries, including Mexico, Japan, France and Belgium. Two of the three U.S. slaughterhouses serving the export market before the 2006 ban were in North Texas, in Kaufman and Fort Worth.When confronted by such a story, the first thing one might wonder is "why is this a federal issue?" And then: "where exactly in the Constitution is the part that grants federal power to regulate horse meat." Hint: it's not in there. Obviously, this is the sort of issue that can be handled quite easily at the municipal and county level — if at all — but since the US long ago seized for itself the power to inspect meat, it can just as easily decide what meat can be sold in the marketplace. A Brief History of Horsemeat To understand how horse meat came to be something that most Americans couldn't care less about, we must first take a look at its history. It appears the last time there was a concerted effort in the West to encourage the consumption of horse meat by humans as high-end cuisine may have been in the late 19th century. According to Frederick Simoons, particularly notable was a French campaign to promote consumption of horse meat, including a posh event at the Grand Hotel in Paris in 1865. At the event, "the horse soup was judged good, and the boiled horsemeat and cabbage was acclaimed excellent."Simoons continues:That same year, a horsemeat butcher shop (boucherie hippophagique or boucherie chevaline) was opened in Paris, and it was soon followed by others...the French campaign stimulated an interest in horse meat in England; a rise in meat prices following an epidemic among cattle enhanced this interest and led to the holding of horsemeat banquets in England in 1868.In the US, consuming horse has never been terribly popular, largely because other sources of meat have long been so readily available.On the other hand, horse meat was frequently used in the past as pet food. And by "the past" I mean just one generation ago. One need only peruse this June 21, 1963 issue of Life to find an add for Friskies dog food that advertises "Horse Meat with Gravy" dog food, which the ad informs us is made from "selected cuts of finest horse meat." Many Americans over the age of 50 may remember that butchers often made a selection of horse meat cuts available, usually for use as pet food. Children who are fond on the novels of Beverly Cleary may remember that Henry Huggins's beloved dog Ribsy was known to eat horse meat. The prevalence of horse meat in pet food up until the 1960s was even featured in an episode of Mad Men (Season 3: "The Gypsy and the Hobo") in which a dog-food company sought the help of an advertising firm to help hide from the public the fact its food was made from horses. The episode, which portrayed the public as being horrified by horse meat, is actually anachronistic. Few people in the 1960s cared that horse meat was still being fed to dogs. It is true, though, that by the 1960s, the use of horses for meat was in decline. But much of this was driven by the fact that there were fewer and fewer horses in the United States as the decades rolled by. The Rise of Horse Meat as Pet Food In Catherine C. Grier's history of Pets in America, she notes that pre-packaged pet foot was itself highly unusual before the 20th century: "Canned dog food first appeared in the 1910s and developed as a regional business with relatively low start-up costs."Prior to the 1900s, metal cans were too expensive to be feasible for low-priced animal food, and were only used for higher priced food for human consumption. Thanks to the proliferation of mass production methods and mechanization in the early 20th century, however, canned food became a product that families could afford even for their dogs. Prior to this, of course, people fed their pets scraps, and hardly devoted much of the family budget to specially-prepared meals for cats and dogs. But mechanization also contributed to the rise of horse meat as an ingredient in pet food, precisely because the horses themselves were being replaced by automobiles and tractors. As Grier notes, "the American public turned from equine- to gasoline- powered vehicles in the 1910s and 1920s."In the 1930s, butchers began offering regular delivery of horse meat for dog food along with deliveries for the usual human fare, and "[b]y 1940, canned dog food was a profitable business for regional packers."The Stage Is Set for Banning Horse MeatBack then, of course, few people were interested in banning the slaughter of horses, but even if many had been, they would have met fierce opposition from a great many family businesses and local communities were horsemeat was an important source of income. By the 1970s, though, federal legislation and regulation was making it increasingly difficult to sell horse for either human or animal consumption. Thus, by 2006, processing horse meat for consumption in the United States had become a thing of the past. Horse meat is still exported, and horse meat in the form of "animal byproducts" still finds its way into pet food. but long gone are the days when Friskies was openly advertising its use of horse meat. Those who advocate against the federal prohibition on horse meat face an uphill climb, not least of which because sentimentalism about horses — even among people who daily eat beef and pork — is very widespread. A rapidly rising American living standard throughout the 20th century made horse meat irrelevant to the daily lives of Americans. In parts of the world where meat is especially expensive, horse meat continues to be a viable industry, but in the US, thanks to an abundance of pork and beef, horse meat is a concern only of a tiny minority. And in a democratic system ruled by interest group politics — as is the American political system — the wants of the minority are very frequently disposable.
  • Are Markets Really as Calm as they Seem?    (Thorsten Polleit, 2017-11-21)
    By: Thorsten Polleit Indicators for financial market "stress" have reached their lowest levels in decades. For instance, stock market volatility has never been this low since the early 1990s. Credit spreads have been shrinking, and prices for credit default swaps have fallen to pre-crisis levels. In fact, investors are no longer haunted by concerns about the stability of the financial system, potential credit defaults, and unfavourable surprises in the economy or financial assets markets. How come?Monetary policy plays the significant role. By slashing interest rates and ramping up the quantity of money in the banking system, central banks around the world have kick-started the economies following the 2008/2009 crash. But this is not the full story. The fact that investors expect central banks to stand at the ready to fend off a slowdown of the economy and price declines in stock and housing markets is by no means less important.The truth is that investors expect central banks to provide a "safety net." This expectation encourages them to make risky investments again (which they would otherwise have declined). That said, central banks have caused a colossal ‘moral hazard’: Investors feel pretty much assured that the risk-reward profile of their investments has become more favorable — that they can enjoy a considerable upside, while the downside is limited.As a result, investors drive asset prices upwards. As stock prices rise, firms' cost of capital falls, encouraging risky investments. Consumers, with their real estate assets appreciating, go into even more debt. Maturing debt is rolled over at low interest rates, and borrowers’ spending capacity increases. In other words: The downward manipulation of interest rates and the decline in risk aversion translates into a cyclical strengthening of the economy.But wait: Will the Fed's hiking of interest rates and the planned shrinking of its balance sheet not undo the very forces that have pushed economic activity back into positive territory? No, not necessarily. The crucial point is the Fed’s safety net: If investors continue to assume that the Fed willingly remains the ‘lender of last resort’, even a monetary policy of some short-term interest rate hiking is unlikely to do much harm to the current recovery. Here is why: If things turn sour, the Fed is expected to reverse its restrictive monetary policy. This may well explain why financial markets have remained rather relaxed in the light of the Fed's current hiking cycle, which has begun back in December 2015. And markets haven’t become unsettled because of the Fed’s plan to shrink its bloated balance sheet, which means, inter alia, a reduction of liquidity in the US banking system and the quantity of money.Many people welcome output and employment gains, coupled with decent investment returns in asset markets, which have been brought about by the Fed’s ultra-expansionary monetary policy. However, the downside of all this should not be overlooked. Central banks around the world, under the leadership of the Fed, have in fact orchestrated yet another artificial boom — which, sooner or later, will falter and turn into bust.This is, by no means, a pessimistic prediction. But it is based on sound economics: A policy of artificially lowered interest, a relentless increase in the quantity of money and politically manipulated market prices simply cannot bring about greater prosperity and higher employment in the long run. To think so is delusional. The truth is that such a monetary policy will cause another round of trouble further down the road.Here Comes the RiskHigher interest rates have the potential to make the credit pyramid coming crashing down. They would make it hard for many consumers to service their debt, would reveal malinvestment and result in corporate losses, and stock and housing prices would ultimately follow the law of gravity. Credit markets could become jittery as borrowers run the risk of defaulting on their debt, with banks having limited capacity to absorb payment losses in their loan books.This is the scenario if central banks take away the Halloween candy (aka low interest rates). Higher interest rates are one thing. Another thing is the flattening of the yield curve (meaning the difference between long- and short-term yields). A decline in the yield curve makes banks to reign in their credit supply. As bank credit supply dries up, financial market liquidity drops. The party comes to an end. Asset prices start nosediving.As the graph below shows, a flat or even negative yield curve has in the past been accompanied by a stock market crash. Since early 2014, the yield curve has been declining, basically because short-term interest rates have gone up, while long-term interest rates have been declining. Even though the Fed’s interest rate increases have not translated into higher borrowing costs, an ongoing flattening of the yield curve remains a reason to expect the unexpected.But maybe this time is different? Perhaps there is good reason to expect that the Fed will bring up interest rates just a little bit and not too much? By pursues a policy of bringing interest rates back up very slowly, the Fed makes it somewhat easier for debtors and the whole economy to adjust to a regime of higher borrowing and capital costs. As the extreme low level of volatility indicates, markets expect the Fed to succeed in avoiding the next crash.The Fed's slow and gradual approach to tighten monetary policy might indeed be reducing the risk that it could "be raising interest rates too much too fast," pricking the credit bubble, and bringing down the house of (credit) cards. However, a considerable risk remains that the Fed will once again turn the boom into bust. And let’s be honest: In view of its track record, there is little reason to expect that the Fed won’t mess things up this time.
  • Why Are People Buying Bonds with Negative Yields?    (Doug French, 2017-11-21)
    By: Doug French Bloomberg reports an astonishing bit of interest rate news from France. Mark Gilbert reports,French utility Veolia Environnement SA is one of a handful of low-rated borrowers — assessed at BBB or lower by Standard & Poor's — with fixed-rate debt repayable in three years or longer that trades at yields below zero in euros.Fleckenstein Capital LLC put it this way,Sacré BBB-leu!Yesterday a Parisian BBB-rated company (i.e., quasi junk) issued $500 million in three-year notes yielding -0.026%.We have been peppered with so many absurdities, nothing seems absurd anymore, although you can be sure when folks look back at this period, they will wonder, "What were they thinking?" and the list of examples will be quite long.One wonders how this could be. As Guido Hülsmann concluded in his QJAE article “The Theory of Interest,” an acting man earns money interest when his “originary interest causes a positive spread between the money proceeds from selling his product and the money expenditure on the related factors of production.”Time preference is paramount in Austrian theory and Hülsmann quotes Böhm-Bawerk, “Present goods have in general greater subjective value than future goods of equal quantity and quality.”Professor Hülsmann emphasizes Böhm-Bawerk’s qualifying words, “in general.” Böhm-Bawerk didn’t assert that time-preference was always positive, unlike latter Austrians who followed Ludwig von Mises —Murray Rothbard, Walter Block, Roger Garrison, Hans-Hermann Hoppe, and Jeffrey Herbener.  Mises wrote,acting man does not appraise time periods merely with regard to their dimension. His choices regarding the removal of future uneasiness are directed by the categories sooner and later. . . . Satisfaction of a want in the nearer future is, other things being equal, preferred to that in the farther distant future. Present goods are more valuable than future goods.Time preference is a categorical requisite of human action. No mode of action can be thought of in which satisfaction within a nearer period of the future is not—other things being equal—preferred to that in a later period. The very act of gratifying a desire implies that gratification at the present instant is preferred to that at a later instant. He who consumes a nonperishable good instead of postponing consumption for an indefinite later moment thereby reveals a higher valuation of present satisfaction as compared with later satisfaction.But Hülsmann points out that Irving Fisher, Frank Fetter, and Israel Kirzner also believed time preference could be negative.So we have France’s Veolia Environnement S.A.floating €500 million of debt, rated just 2 notches above junk, with a three year maturity priced to yield negative 0.026%. As Grant’s Almost Daily writes, “Even better: Investor demand for the Veolia issue was such that the offering was oversubscribed by more than 4:1.  Said another way, three out of four investors who wished to lose money on a yield-to-maturity basis were left disappointed.”Widows and orphans considering the Veolia bonds might want to consider what the analysts at S&P have to say. While they “praised the Veolia C-suite for its ‘prudent and proactive liability management’ in a June 2 report, while nevertheless noting that: ‘We assess Veolia’s risk profile as significant, given the group’s material debt.’”It seems the only way lenders can make out with negative yielding bonds is for the world to experience massive deflation, while total central bank assets have climbed from $6 trillion in 2008 to $20 trillion in less than a decade with no end in sight.Mario Draghi contends central bank-imposed negative interest rates and an indiscriminate bid under corporate bonds will help “the quality of loans.” Grant’s has its doubts:  “For now, potential issuers of all stripes are able to finance themselves for virtually nothing.  But a crack has recently appeared in the façade: Amidst the modest selloff in U.S. high yield seen recently, the yield on that Bloomberg Barclays Pan-European High Yield Index jumped to a four month high of 2.88% on Wednesday from 2.19%, a 10 year low, recorded less than two weeks prior.”Is this really negative time preference or a central bank induced crack-up bond boom? 
  • 'Fiscal Phil' Has One Chance to Live Up to His Namesake    (Ryan Bourne, 2017-11-21)
    Ryan Bourne For five years, the Conservatives made deficit reduction the key plank of their economic platform. Yet, strangely, chancellor Philip Hammond now finds himself under pressure from much of his own party to substantially loosen the fiscal purse strings. Conventional wisdom says the country is weary of austerity. More money is needed for public services. Committed Brexiteers seem to want the chancellor to bank on some future Brexit dividend to justify yet higher spending and tax cuts. And there are still those who believe that anything labeled “government investment” must by necessity be economically beneficial and worthy of higher public borrowing. But the economic case for higher UK government spending right now is weak. Keynesian economists would suggest that so-called stimulus spending through borrowing is needed when there is lots of spare capacity in the economy and the Bank of England has exhausted lowering interest rates. But with unemployment at 4.3 per cent and the Bank having recently raised rates, the country is not in any need of some “demand-side boost” through more public spending, even if one believes it could at other times be beneficial. The key issue for the UK’s growth prospects is now the outlook for productivity — or the supply-side. The economic case for higher UK government spending right now is weak. Claiming more borrowing will be “good for the economy” is really an argument that the borrowing will boost the country’s growth potential. Tax cuts and commitments to eliminate tariffs after we leave the EU could play a role here. By sharpening incentives to save, produce and invest, or by opening up industry to the productivity-enhancing effects of competition, cutting taxes can raise the potential size of the economy. However, if the path of government spending (the true burden of government) is not adjusted downwards too, tax cuts today are in large part tax rises in future, and blunt much of this growth-inducing impact. Theoretically, some spending on infrastructure investment could enhance productivity too, if the government invested well in high-impact schemes. But that’s a big “if”. Actual government experience of projection selection on infrastructure suggests it unlikely. The UK 2010 Comprehensive Spending Review, for example, deferred, cancelled or placed under review strategic road schemes with average benefit-cost ratios of 6.8, 3.2 and 4.2 respectively, yet persisted with HS2 with an estimated benefit-cost ratio of 1.2. If anything, a government concerned about long-term economic growth might be thinking about constraining spending further. With the tax burden already set to hit the highest level as a proportion of GDP since Harold Wilson was Prime Minister, cutting spending would leave more resources in the private economy, and create space for future cuts to marginal tax rates that will be good for growth. The case for more spending restraint can be justified from a public finance perspective too. The UK is still running a modest deficit of around 2-3 per cent of GDP a decade after the crisis. The government’s independent fiscal watchdog — the Office for Budget Responsibility — considers this deficit almost entirely structural. As a result, the UK’s national debt is rising and is headed towards 90 per cent of GDP, leaving the UK government finances in a vulnerable position given the unknown risk of a potential recession and the known headwinds of an ageing population. The government really should be seeking to get the debt-to-GDP sustainably on a downward path in the coming years, rather than continually pushing off fiscal balance. Again, the implication is tighter control of spending, not loosening it. All this is not to suggest the chancellor should be unambitious this week. There is plenty of scope for him to use the upcoming Budget for pro-growth tax reform. As the main economic ministry, the Treasury should be pressing colleagues to overhaul Britain’s growth-suffocating land-use planning laws. Even for a given amount of funds, Hammond could reorient spending to achieve a bigger economic return. But calls for the chancellor to open the spending taps again are deeply irresponsible. Those who supported Brexit should be honest enough to recognise that it comes with significant uncertainties in the near term. To make it a success requires long-term economic liberalisation with the newly repatriated powers over trade, regulation, and public money. But that liberalisation requires actually doing the hard work of regulatory reform, gaining public acceptance for freer trade, and limiting the size of the state to enable low taxes. All this could enhance growth in future and provide more resources for public services. But to simply tell the chancellor to be more optimistic about Brexit and use that as justification for more public spending is to put the cart before the horse. The case for fiscal restraint is as strong today as ever. Ryan Bourne occupies the R. Evan Scharf Chair in the Public Understanding of Economics at the Cato Institute in Washington DC.
  • Thanksgiving: Celebrating the Birth of American Free Enterprise    (Richard M. Ebeling, 2017-11-21)
    By: Richard M. Ebeling This time of the year, whether in good economic times or bad, is when Americans gather with their families and friends and enjoy a Thanksgiving meal together. It marks a remembrance of those early Pilgrim Fathers who crossed the uncharted ocean from Europe to make a new start in Plymouth, Massachusetts. What is less appreciated is that Thanksgiving also is a celebration of the birth of free enterprise in America.The English Puritans, who left Great Britain and sailed across the Atlantic on the Mayflower in 1620, were not only escaping from religious persecution in their homeland. They also wanted to turn their back on what they viewed as the materialistic and greedy corruption of the Old World.Plymouth Colony Planned as Collectivist UtopiaIn the New World, they wanted to erect a New Jerusalem that would not only be religiously devout, but be built on a new foundation of communal sharing and social altruism. Their goal was the communism of Plato’s Republic, in which all would work and share in common, knowing neither private property nor self-interested acquisitiveness.What resulted is recorded in the diary of Governor William Bradford, the head of the colony. The colonists collectively cleared and worked the land, but they brought forth neither the bountiful harvest they hoped for, nor did it create a spirit of shared and cheerful brotherhood.The less industrious members of the colony came late to their work in the fields, and were slow and easy in their labors. Knowing that they and their families were to receive an equal share of whatever the group produced, they saw little reason to be more diligent in their efforts. The harder working among the colonists became resentful that their efforts would be redistributed to the more malingering members of the colony. Soon they, too, were coming late to work and were less energetic in the fields.Collective Work Equaled Individual ResentmentAs Governor Bradford of the Plymouth Colony explained in his old English (though with the spelling modernized):For the young men that were able and fit for labor and service did repine that they should spend their time and strength to work for other men’s wives and children, without recompense. The strong, or men of parts, had no more division of food, clothes, etc. then he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labor, and food, clothes, etc. with the meaner and younger sort, thought it some indignant and disrespect unto them. And for men’s wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc. they deemed it a kind of slavery, neither could husbands brook it.Because of the disincentives and resentments that spread among the population, crops were sparse and the rationed equal shares from the collective harvest were not enough to ward off starvation and death. Two years of communism in practice had left alive only a fraction of the original number of the Plymouth colonists.Private Property as Incentive to IndustryRealizing that another season like those that had just passed would mean the extinction of the entire community, the elders of the colony decided to try something radically different: the introduction of private property rights and the right of the individual families to keep the fruits of their own labor.As Governor Bradford put it:And so assigned to every family a parcel of land, according to the proportion of their number for that end . . . This had a very good success; for it made all hands very industrious, so as much more corn was planted then otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little-ones with them to set corn, which before would a ledge weakness, and inability; whom to have compelled would have been thought great tyranny and oppression.The Plymouth Colony experienced a great bounty of food. Private ownership meant that there was now a close link between work and reward. Industry became the order of the day as the men and women in each family went to the fields on their separate private farms. When the harvest time came, not only did many families produce enough for their own needs, but also they had surpluses that they could freely exchange with their neighbors for mutual benefit and improvement.In Governor Bradford’s words:By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God. And the effect of their planting was well seen, for all had, one way or other, pretty well to bring the year about, and some of the abler sort and more industrious had to spare, and sell to others, so as any general want or famine hath not been amongst them since to this day.Rejecting Collectivism for IndividualismHard experience had taught the Plymouth colonists the fallacy and error in the ideas that since the time of the ancient Greeks had promised paradise through collectivism rather than individualism. As Governor Bradford expressed it:The experience that was had in this common course and condition, tried sundry years, and that amongst the Godly and sober men, may well convince of the vanity and conceit of Plato’s and other ancients; — that the taking away of property, and bringing into a common wealth, would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed confusion and discontent, and retard much employment that would have been to their benefit and comfort.Was this realization that communism was incompatible with human nature and the prosperity of humanity to be despaired or be a cause for guilt? Not in Governor Bradford’s eyes. It was simply a matter of accepting that altruism and collectivism were inconsistent with the nature of man, and that human institutions should reflect the reality of man’s nature if he is to prosper. Said Governor Bradford:Let none object this is man’s corruption, and nothing to the curse itself. I answer, seeing all men have this corruption in them, God in his wisdom saw another course fitter for them.The desire to “spread the wealth” and for government to plan and regulate people’s lives is as old as the utopian fantasy in Plato’s Republic. The Pilgrim Fathers tried and soon realized its bankruptcy and failure as a way for men to live together in society.They, instead, accepted man as he is: hardworking, productive, and innovative when allowed the liberty to follow his own interests in improving his own circumstances and that of his family. And even more, out of his industry result the quantities of useful goods that enable men to trade to their mutual benefit.Giving Thanks for the Triumph of FreedomIn the wilderness of the New World, the Plymouth Pilgrims had progressed from the false dream of communism to the sound realism of capitalism. At a time of economic uncertainty and growing political paternalism, it is worthwhile recalling this beginning of the American experiment and experience with economic freedom.This is the lesson of the First Thanksgiving. This year, when we, Americans sit around our dining table with family and friends, we should also remember that what we are really celebrating is the birth of free men and free enterprise in that New World of America.The true meaning of Thanksgiving, in other words, is the triumph of Capitalism over the failure of Collectivism in all its forms.Reprinted with permission from the Future of Freedom Foundation. 
  • Can Telemedicine Boost Medi-Cal Access?    (Shirley Svorny, 2017-11-20)
    Shirley Svorny For years, Medi-Cal patients’ access to doctors has been limited, especially for those who need specialty care or live in rural areas. California’s low physician reimbursement rates are partly to blame. The 2017-18 state budget includes a 2.5 percent increase in reimbursements — the first increase since 2001 and totally dependent on new tobacco tax revenues. There are other options worth considering. Interstate telemedicine would allow an expansion of Medi-Cal services at current reimbursement rates. If California doctors won’t take Medi-Cal patients, why not let out-of-state physicians provide services? If California doctors won’t take Medi-Cal patients, why not let out-of-state physicians provide services? Rents and salaries are lower in some states, which is why call centers are in the Midwest. California could allow physicians licensed in other states to enroll as Medi-Cal providers to offer telemedicine services without obtaining a California license, which is expensive and time consuming. Why would state legislators block out-of-state physicians? According to the physicians’ lobby, the goal of licensing regulations is not to protect them from competition but to ensure high-quality care. But state medical boards don’t protect patients from low-quality care and are notoriously bad at disciplining doctors. Instead, quality assurance comes from efforts by health care providers to protect their reputations and to avoid liability. The U.S. Department of Veterans Affairs, whose problems providing care have made national headlines, will soon allow its physicians to practice telemedicine in any state. Why shouldn’t California do the same for Medi-Cal patients? The Legislature should end the requirement that out-of-state physicians secure a California license to provide telemedicine care to Medi-Cal patients. Not only would such as change expand options for Medi-Cal recipients, it would let the state experiment with interstate telemedicine, which has the potential to make health care more accessible and less costly for all Californians. Shirley Svorny is a professor of economics at California State University, Northridge, and an adjunct scholar at the Cato Institute.
  • Trump's Declaration of North Korea as a State Sponsor of Terror Is Just Another in a Long Line of Policy Flip-Flops    (A. Trevor Thrall, Erik Goepner, 2017-11-20)
    A. Trevor Thrall and Erik Goepner President Trump’s objective of getting North Korea to abandon its nuclear arsenal is clear. His strategy for achieving that goal, however, is not. Even less clear are Trump’s communications to the world, and North Korea, about American intentions. He has flip-flopped and changed his tune on North Korea multiple times in just his first 10 months in office, making it impossible for anyone to know what he will do next. Effective foreign policy, on the contrary, requires the president to signal credible and consistent assurances to allies and threats to adversaries. Trump’s recent trip to Asia and his designation of North Korea as a state sponsor of terrorism, unfortunately, reveal either an inability or disinclination to conduct foreign policy in this manner. The consequences of Trump’s inconsistency are potentially dire. Prior to the 2016 election, then-candidate Trump characterized his North Korea strategy as “What I would do very simply is say, China, this is your baby. … You solve the problem.” Months later the president appeared to abruptly end that strategy, tweeting, “I greatly appreciate the efforts of President Xi & China to help with North Korea, it has not worked out. At least I know China tried!” During his recent trip to Asia, however, the president changed back to an earlier refrain: “China can fix this problem quickly and easily.” On the diplomatic front, in June of this year Trump noted, “The era of strategic patience with the North Korean regime has failed, many years it has failed. Frankly, that patience is over.” A month later he offered an answer to what might come next: “North Korea best not make any more threats to the United States,” or else “[t]hey will be met with fire and fury like the world has never seen.” Then, during his recent Asia trip, he again changed course. Instead of elaborating on his implied military threat and trying to amplify its coercive power, Trump called for “progress, not provocation … stability, not chaos, and … peace, not war.” Those words sounded a lot like a call to the hard and slow work of diplomacy. Bolstering that notion, during the trip Secretary of State Rex Tillerson indicated that Trump had invited the North Korean regime to direct negotiations; an extension, perhaps, of the “direct contact” that Trump appeared to have ruled out previously but that the secretary said had in fact been ongoing. But again on Monday, Trump reversed course yet again, declaring North Korea a state sponsor of terrorism and imposing further sanctions on the regime. So what is the Trump administration’s strategy towards North Korea? Does China play a critical role or not? Have diplomatic means and patience been abandoned? Is the U.S. prioritizing direct talks with the North Korean regime or will only threats and force resolve the situation? In the past year, the president has suggested the answer is “yes” to each of those strategic options. At times, he has said both yes and no to the same option at the same time. If Americans cannot determine what the president’s strategy is, then how can the North Korean regime? Media reports indicate that the North Koreans are indeed confused by Trump and have contacted former American officials trying to ascertain what exactly Trump is doing. Trump’s defenders argue that his vacillations are strategic, designed to pressure North Korea into negotiations by threatening “devastating” attacks. But Trump’s threats have been anything but clear and credible. Not only does North Korea have trouble understanding Trump, his threats are in fact empty. Analysts agree the United States has no real military option at this point. According to a Pentagon assessment and other analyses, any attempt to eliminate North Korea’s nuclear arsenal by force would require a ground invasion, likely resulting in hundreds of thousands of deaths in the first few days of conflict and creating a significant risk that North Korea would use nuclear weapons against Seoul and Tokyo. Nor is there any reason to believe that re-designating North Korea a sponsor of terrorism or imposing additional sanctions will have much impact. Indeed, the very fact that North Korea was able to develop nuclear weapons while laboring under heavy sanctions over decades makes clear how unlikely it is that additional penalties will encourage Kim Jong Un to change course. In light of the facts, Trump’s rhetorical inconsistency makes conflict more likely, not less. If the North Koreans can’t figure out what Trump’s strategy is, but they start to believe his threats about using military force, then the risk of a North Korean pre-emptive strike rises significantly. The risk of U.S. miscalculation also rises. If North Korea begins preparations to defend itself against what it believes is an imminent American attack, the United States might misread the signs and think North Korea was about to attack, thus setting off a conflict that neither side desired. Instead of flip-flopping between approaches, the president needs to focus on sending North Korea consistent and clear messages. If he doesn’t, Kim Jong Un could miscalculate, and that’s a nuclear mistake we cannot afford. Erik Goepner, a retired colonel from the U.S. Air Force, is a visiting research fellow at the Cato Institute. A. Trevor Thrall is a senior fellow at the Cato Institute’s Defense and Foreign Policy Department and associate professor at George Mason University’s Schar School of Policy and Government.
  • Freedom for Television and Radio    (Murray N. Rothbard, 2017-11-20)
    By: Murray N. Rothbard There is one important area of American life where no effective freedom of speech or the press does or can exist under the present system. That is the entire field of radio and television. In this area, the federal government, in the crucially important Radio Act of 1927, nationalized the airwaves. In effect, the federal government took title to ownership of all radio and television channels. It then presumed to grant licenses, at its will or pleasure, for use of the channels to various privately owned stations. On the one hand, the stations, since they receive the licenses gratis, do not have to pay for the use of the scarce airwaves, as they would on the free market. And so these stations receive a huge subsidy, which they are eager to maintain. But on the other hand, the federal government, as the licensor of the airwaves, asserts the right and the power to regulate the stations minutely and continuously. Thus, over the head of each station is the club of the threat of nonrenewal, or even suspension, of its license. In consequence, the idea of freedom of speech in radio and television is no more than a mockery. Every station is grievously restricted, and forced to fashion its programming to the dictates of the Federal Communications Commission. So every station must have “balanced” programming, broadcast a certain amount of “public service” announcements, grant equal time to every political candidate for the same office and to expressions of political opinion, censor “controversial” lyrics in the records it plays, etc. For many years, no station was allowed to broadcast any editorial opinion at all; now, every opinion must be balanced by “responsible” editorial rebuttals.Because every station and every broadcaster must always look over its shoulder at the FCC, free expression in broadcasting is a sham. Is it any wonder that television opinion, when it is expressed at all on controversial issues, tends to be blandly in favor of the “Establishment”?The public has only put up with this situation because it has existed since the beginning of large-scale commercial radio. But what would we think, for example, if all newspapers were licensed, the licenses to be renewable by a Federal Press Commission, and with newspapers losing their licenses if they dare express an “unfair” editorial opinion, or if they don’t give full weight to public service announcements? Would not this be an intolerable, not to say unconstitutional, destruction of the right to a free press? Or consider if all book publishers had to be licensed, and their licenses were not renewable if their book lists failed to suit a Federal Book Commission? Yet what we would all consider intolerable and totalitarian for the press and the book publishers is taken for granted in a medium which is now the most popular vehicle for expression and education: radio and television. Yet the principles in both cases are exactly the same.Here we see, too, one of the fatal flaws in the idea of “democratic socialism,” i.e., the idea that the government should own all resources and means of production yet preserve and maintain freedom of speech and the press for all its citizens. An abstract constitution guaranteeing “freedom of the press” is meaningless in a socialist society. The point is that where the government owns all the newsprint, the paper, the presses, etc., the government—as owner—must decide how to allocate the newsprint and the paper, and what to print on them. Just as the government as street owner must make a decision how the street will be used, so a socialist government will have to decide how to allocate newsprint and all other resources involved in the areas of speech and press: assembly halls, machines, trucks, etc. Any government may profess its devotion to freedom of the press, yet allocate all of its newsprint only to its defenders and supporters. A free press is again a mockery; furthermore, why should a socialist government allocate any considerable amount of its scarce resources to antisocialists? The problem of genuine freedom of the press then becomes insoluble.The solution for radio and television? Simple: Treat these media precisely the same way the press and book publishers are treated. For both the libertarian and the believer in the American Constitution the government should withdraw completely from any role or interference in all media of expression. In short, the federal government should denationalize the airwaves and give or sell the individual channels to private ownership. When private stations genuinely own their channels, they will be truly free and independent; they will be able to put on any programs they wish to produce, or that they feel their listeners want to hear; and they will be able to express themselves in whichever way they wish without fear of government retaliation. They will also be able to sell or rent the airwaves to whomever they wish, and in that way the users of the channels will no longer be artificially subsidized.Furthermore, if TV channels become free, privately owned, and independent, the big networks will no longer be able to put pressure upon the FCC to outlaw the effective competition of pay-television. It is only because the FCC has outlawed pay-TV that it has not been able to gain a foothold. “Free TV” is, of course, not truly “free”; the programs are paid for by the advertisers, and the consumer pays by covering the advertising costs in the price of the product he buys. One might ask what difference it makes to the consumer whether he pays the advertising costs indirectly or pays directly for each program he buys. The difference is that these are not the same consumers for the same products. The television advertiser, for example, is always interested in (a) gaining the widest possible viewing market; and (b) in gaining those particular viewers who will be most susceptible to his message. Hence, the programs will all be geared to the lowest common denominator in the audience, and particularly to those viewers most susceptible to the message; that is, those viewers who do not read newspapers or magazines, so that the message will not duplicate the ads he sees there. As a result, free-TV programs tend to be unimaginative, bland, and uniform. PayTV would mean that each program would search for its own market, and many specialized markets for specialized audiences would develop—just as highly lucrative specialized markets have developed in the magazine and book publishing fields. The quality of programs would be higher and the offerings far more diverse. In fact, the menace of potential pay-TV competition must be great for the networks to lobby for years to keep it suppressed. But, of course, in a truly free market, both forms of television, as well as cable-TV and other forms we cannot yet envision, could and would enter the competition.One common argument against private ownership of TV channels is that these channels are “scarce,” and therefore have to be owned and parcelled out by the government. To an economist, this is a silly argument; all resources are scarce, in fact anything that has a price on the market commands that price precisely because it is scarce. We have to pay a certain amount for a loaf of bread, for shoes, for dresses because they are all scarce. If they were not scarce but superabundant like air, they would be free, and no one would have to worry about their production or allocation. In the press area, newsprint is scarce, paper is scarce, printing machinery and trucks are scarce, etc. The more scarce they are the higher the price they will command, and vice versa. Furthermore, and again pragmatically, there are far more television channels available than are now in use. The FCC’s early decision to force stations into the VHF instead of the UHF zone created far more of a scarcity of channels than there needed to be.Another common objection to private property in the broadcast media is that private stations would interfere with each other’s broadcasts, and that such widespread interference would virtually prevent any programs from being heard or seen. But this is as absurd an argument for nationalizing the airwaves as claiming that since people can drive their cars over other people’s land this means that all cars—or land— must be nationalized. The problem, in either case, is for the courts to demarcate property titles carefully enough so that any invasion of another’s property will be clear-cut and subject to prosecution. In the case of land titles, this process is clear enough. But the point is that the courts can apply a similar process of staking out property rights in other areas— whether it be in airwaves, in water, or in oil pools. In the case of airwaves, the task is to find the technological unit — i.e., the place of transmission, the distance of the wave, and the technological width of a clear channel—and then to allocate property rights to this particular technological unit. If radio station WXYZ, for example, is assigned a property right in broadcasting on 1500 kilocycles, plus or minus a certain width of kilocycles, for 200 miles around Detroit, then any station which subsequently beams a program into the Detroit area on this wavelength would be subject to prosecution for interference with property rights. If the courts pursue their task of demarking and defending property rights, then there is no more reason to expect continual invasions of such rights in this area than anywhere else.Most people believe that this is precisely the reason the airwaves were nationalized; that before the Radio Act of 1927,stations interfered with each other’s signals and chaos ensued, and the federal government was finally forced to step in to bring order and make a radio industry feasible at last. But this is historical legend, not fact. The actual history is precisely the opposite. For when interference on the same channel began to occur, the injured party took the airwave aggressors into court, and the courts were beginning to bring order out of the chaos by very successfully applying the common law theory of property rights — in very many ways similar to the libertarian theory — to this new technological area. In short, the courts were beginning to assign property rights in the airwaves to their “homesteading” users. It was after the federal government saw the likelihood of this new extension of private property that it rushed in to nationalize the airwaves, using alleged chaos as the excuse.To describe the picture a bit more fully, radio in the first years of the century was almost wholly a means of communication for ships — either ship-to-ship or ship-to-shore messages. The Navy Department was interested in regulating radio as a means of ensuring safety at sea, and the initial federal regulation, a 1912 act, merely provided that any radio station had to have a license issued by the Secretary of Commerce. No powers to regulate or to decide not to renew licenses were written into the law, however, and when public broadcasting began in the early 1920s, Secretary of Commerce Herbert Hoover attempted to regulate the stations. Court decisions in 1923 and 1926, however, struck down the government’s power to regulate licenses, to fail to renew them, or even to decide on which wavelengths the stations should operate.1 At about the same time, the courts were working out the concept of “homestead” private property rights in the airwaves, notably in the case of Tribune Co. v. Oak Leaves Broadcasting Station (Circuit Court, Cook County, Illinois, 1926). In this case the court held that the operator of an existing station had a property right, acquired by prior use, sufficient to enjoin a new station from using a radio frequency in any way so as to cause interference with the signals of the prior station.2 And so order was being brought out of the chaos by means of the assignment of property rights. But it was precisely this development that the government rushed in to forestall.The 1926 Zenith decision striking down the government’s power to regulate or to fail to renew licenses, and forcing the Department of Commerce to issue licenses to any station that applied, produced a great boom in the broadcasting industry. Over two hundred new stations were created in the nine months after the decision. As a result, Congress rushed through a stopgap measure in July 1926 to prevent any property rights in radio frequencies, and resolved that all licenses should be limited to 90 days. By February 1927 the Congress passed the law establishing the Federal Radio Commission, which nationalized the airwaves and established powers similar to those of the current FCC. That the aim of the knowledgeable politicians was not to prevent chaos but to prevent private property in the airwaves as the solution to chaos is demonstrated by the legal historian H.P. Warner. Warner states that “grave fears were expressed by legislators, and those generally charged with the administration of communications . . . that government regulation of an effective sort might be permanently prevented through the accrual of property rights in licenses or means of access, and that thus franchises of the value of millions of dollars might be established for all time.”3 The net result, however, was to establish equally valuable franchises anyway, but in a monopolistic fashion through the largesse of the Federal Radio Commission and later FCC rather than through competitive homesteading Among the numerous direct invasions of freedom of speech exercised by the licensing power of the FRC and FCC, two cases will suffice. One was in 1931, when the FRC denied renewal of license to a Mr. Baker, who operated a radio station in Iowa. In denying renewal, the Commission said:This Commission holds no brief for the Medical Associations and other parties whom Mr. Baker does not like. Their alleged sins may be at times of public importance, to be called to the attention of the public over the air in the right way. But this record discloses that Mr. Baker does not do so in any high-minded way. It shows that he continually and erratically over the air rides a personal hobby, his cancer cure ideas and his likes and dislikes of certain persons and things. Surely his infliction of all this on the listeners is not the proper use of a broadcasting license. Many of his utterances are vulgar, if not indeed indecent. Assuredly they are not uplifting or entertaining.4Can we imagine the outcry if the federal government were to put a newspaper or a book publisher out of business on similar grounds?A recent act of the FCC was to threaten nonrenewal of license of radio station KTRG in Honolulu, a major radio station in Hawaii. KTRG had been broadcasting libertarian programs for several hours a day for approximately two years. Finally, in late 1970, the FCC decided to open lengthy hearings moving toward nonrenewal of license, the threatened cost of which forced the owners to shut down the station permanently.5 1. 2In the decisions Hoover v. Intercity Radio Co., 286 Fed. 1003 (Appeals D.C., 1923); and United States v. Zenith Radio Corp., 12 F. 2d 614 (ND. Ill., 1926). See the excellent article by Ronald H. Coase, “The Federal Communications Commission,” Journal of Law and Economics (October 1959): 4–5. 2. Ibid., p. 31n. 3. Harry P. Warner, Radio and Television Law (1958), p. 540. Quoted in Coase, “The Federal Communications Commission,” p. 32. 4. Decisions of the FRC, Docket No. 967, June 5, 1931. Quoted in Coase, “The Federal Communications Commission,” p. 9. 5. The best and most fully elaborated portrayal of how private property rights could be assigned in radio and television is in A. DeVany et al., “A Property System for Market Allocation of the Electromagnetic Spectrum: A Legal-Economic-Engineering Study,” Stanford Law Review (June 1969). See also William H. Meckling, “National Communications Policy: Discussion,” American Economic Review, Papers and Proceedings (May 1970): 222–23. Since the DeVany article, the growth of community and cable television has further diminished the scarcity of frequencies and expanded the range of potential competition.
  • Trump's Foreign Policy, One Year In    (Sahar Khan, 2017-11-20)
    Sahar Khan President Trump was elected on the promise to make America great again. As best as one can decipher from a campaign that consistently contradicted itself and was headed by a candidate with no real foreign policy experience, this meant prioritizing U.S. interests and security and improving America’s standing in the world. Russia and China’s growing assertiveness, fears over terrorism and cyber security, and costly military quagmires Afghanistan and Iraq certainly indicated a need to reassess American foreign policy. Yet, after a year in office, it remains unclear how the president’s approach to foreign policy will accomplish this reassessment. The bigger question: what are the core principles of Trump’s foreign policy? And how have these principles affected U.S. interests and status in the world? The Trump Doctrine seems to consist of three characteristics: protectionist trade policies (dubbed “economic nationalism”), cracking down on immigration in the name of security (e.g., the current travel ban), and basing foreign policy decisions on personal relationships rather than strategic interests. A year of the Trump Doctrine has not fundamentally changed U.S. interests or U.S. foreign policy, but has eroded the moral high ground the United States’ used to enjoy - and use to its advantage. The first two characteristics of Trump’s foreign policy approach are deeply ideological. For example, Trump’s withdrawal from the Trans-Pacific Partnership trade agreement was based on the notion that the agreement was taking jobs away from Americans. In reality, the TPP would have expanded economic freedom and was projected to increase growth and American jobs. While NAFTA may not suffer the same fate as the TPP, Trump’s insistence on renegotiating parts of it is creating tension between the United States and its two neighbors, Mexico and Canada. Similarly, the president’s focus on countering terrorism via immigration, which he suggests is the most prominent threat to the American homeland, ignores empirical evidence saying otherwise. Not only is 99.7 percent of migration legal, but the greater threat facing the U.S. homeland is coming from domestic right-wing groups. It is not coming from refugees nor is it coming from Muslim migrants inspired by jihadism. Furthermore, none of the countries listed in the travel ban have been responsible for terrorist attacks within the United States. The most disturbing characteristic, however, remains the president’s penchant for choosing inexperienced national security officials as top foreign policy advisors. For instance, the president chose Rex Tillerson, the ex-CEO of ExxonMobil, to lead the State Department. Tillerson, however, had no foreign policy experience, which was blatantly obvious during his confirmation hearing, but was offered the position because of his business expertise. As a result, the State Department is in disarray and roughly half of the positions, including an ambassadorship to South Korea, remain empty. Similarly, Trump named Jared Kushner a senior advisor to the White House simply because he is the president’s son-in-law. In his capacity, Kushner is tasked with addressing some of the most intractable international disputes and routinely meets with other world leaders; he was just recently in Saudi Arabia - his third trip this year. The president’s nepotism, contempt for the political process and democratic institutions, and attempts to discredit the media by making claims of “fake news” and “alternative facts” are all hallmarks of authoritarianism. Trump continues to surround himself with yes-men (and women, like UN Ambassador Nikki Haley), resulting in a self-proclaimed foreign policy of “principled realism,” which is in fact inconsistent, incoherent, and bears little resemblance to realism. Still, Trump has yet to implement major changes to U.S. foreign policy. For example, traditional alliances are still holding up, and in some instances, are growing stronger, as is the case with both U.S.-Israeli and U.S.-Saudi Arabia relations. Even though the president is trying to hold foreign states more accountable for their own security, the United States continues to maintain its military bases and security commitments all over the world. In fact, Trump has decided to increase U.S. troops in Afghanistan, which has been followed by a NATO troop increase. And the contested liberal world order — though faltering — still remains intact. What has changed is the United States’ reputation and image, both of which have steadily declined under Trump. One consequence seems to be the erosion of the United States’ credibility as a reliable partner. For example, Trump’s decertification of the Obama-era Iran Deal, which effectively halted Iran’s nuclear weapons program, not only highlights his carelessness and ignorance regarding the complexity of the region, but also leaves European allies wondering if the United States can be trusted as a partner. In sum, a year of the Trump Doctrine has not fundamentally changed U.S. interests or U.S. foreign policy, but has eroded the moral high ground the United States’ used to enjoy — and use to its advantage. The Trump Doctrine, however, is based on the president’s unpredictability, and hence, it is hard to predict what U.S. foreign policy will look like in the remaining years of this administration. Sahar Khan is a visiting research fellow in the Cato Institute’s Defense and Foreign Policy Department.
  • Venezuela's Default Disaster    (Daniel Lacalle, 2017-11-20)
    By: Daniel Lacalle Socialism always promises heaven and gives hell.In the early hours of Thursday, November 2, the Maduro regime certified its latest failure with what they promised would never happen: technical default. With his usual arrogance, Maduro issued a “decree” demanding “the refinancing and restructuring of the debt as of November 3.” That is, default.The bad news for investors or high-yield hunters is that the likelihood of being swindled again is almost 100%.Chavez once said “put me oil at zero and Venezuela will not suffer,” and Maduro stated that “a revolutionary government with economic power as the one I preside has plans to surpass any situation arising from any price of oil.” Reality has now kicked in.Venezuela was not destroyed by low oil prices, but by high socialism.Socialism has led Venezuela to an unparalleled economic disaster . No, it’s not “the price of oil.” Venezuela is the only OPEC country that has fallen into default, depression, and hyperinflation. It’s not oil, it’s socialism.The management disaster is spectacular and the greatest example of the devastating effect of socialism is the state-owned oil company. PdVSA, the national oil company, has gone from being one of the most efficient and profitable twenty years ago, to end up importing oil.Although Venezuela has the largest reserves of crude oil in the world — 296 billion barrels — the country began importing oil last year. Its production is less than 2.7 million barrels per day, a drop of 20% in less than two decades, while the Chavez.Maduro regime multiplied its workforce by five, to 175,000 “workers”.Brutal cost increases, spectacular worsening of production, collapse in margins and plundering of the cash to pay for subsidies led the company from being one of the most profitable and with the best balance sheet in the world to borrow more than 43 billion US dollars.During the presidency of Maduro, the regime has led the country to hyperinflation, which already exceeds 2000% and a shortage of more than 80% in goods, while foreign currency reserves have plummeted 64%, the worst level in forty years.This disaster is not because of low oil prices, it is a reflection of the reality of what socialism does. No oil producing country shows such atrocious figures, not even close.In fact, if anything can be said about the fall in oil prices is that the vast majority of producing countries have managed it admirably, with GDP drops that ended being much lower than feared, keeping their reserves in foreign currency at comfortable levels, and adapting to the new reality quickly and efficiently. Almost all, except Venezuela.The True Economic War in Venezuela: the Chavez-Maduro Regime Against the PeopleVenezuela had 12,700 private companies when Chávez took power, according to Conindustria. Today there is less than one-third of that figure. To the economic destruction, the regime added the assault on private property with expropriations of more than 690 companies in twelve years. Today, those expropriated companies are technically bankrupt and those that survive are zombies producing less than half of the figures prior to the confiscation.As always happens in socialism, the first thing was to deny reality. “Investors should not worry about the debt repayments of 2017 and 2018,” said Rafael Ramírez. And indeed, they should not have worried. They should have panicked. One of the largest investment banks in the world, which bought $ 2.8 billion of bonds is now facing the false “restructuring” decreed by Maduro.Maduro “decrees” restructuring as if it were a miracle. But it is another nail in the coffin of the regime. Economic destruction is not only not changing, it is getting worse.The restructuring simply has no solution. Correa, in Ecuador, has already experienced the “success” of default.Ecuador, the “example” that populists used on how to “confront the IMF” and encourage default, has doubled its debt, mortgaged the country with China at much higher rates than those of the IMF and finally had to ask for help to… the IMF. This is “success.”Correa in Ecuador defaulted on 3.2 billion US dollars to finish depending on China at a much higher cost (7.5%) and shorter maturities (8 years). And Ecuador now discovers that its real debt is more than 41.8 billion dollars instead of the 27.8 billion that Correa left as “official”. That hole will cost billions in adjustments. This is the reality of default and re-structuring. Things get worse.But Ecuador at least had an economy with growth possibilities. Maduro now seeks to refinance with … what? He has devastated the country. Between 1999 and 2014, Venezuela received 960.5 billion US dollars of oil revenues, 56.5 billion annually for 17 years, five times more than the average annual real income of previous governments between 1993 and 1998, according to the BBC quoting Ecoanalítica.That huge oil revenue was squandered and at the same time the economy was destroyed by assaulting legal security and investment initiative with savage expropriations. Who is going to lend to such disastrous managers, even at higher rates and different terms? Now the string of litigation and complaints about breach of contracts will begin. And the credit tap closes.This restructuring is not going to be a relief nor the beginning of the solution. It is the verification of an absolute failure of the Venezuelan government and it will cost a lot, as always, to the poorest citizens. Because there has never been a story of default that is accompanied by higher real public spending. Never .The lesson of this new example of socialist failure is that it is a system based on lies that ignores the most basic principles of the economy and destroys even the richest country.In the end, the socialist promise of free money is very expensive for all. Let’s learn the lesson.
  • Is Trump Restoring Separation of Powers?    (Josh Blackman, 2017-11-20)
    Josh Blackman Our Constitution carefully separates the legislative, executive, and judicial powers into three separate branches of government: Congress enacts laws, which the president enforces and the courts review. However, when all of these powers are accumulated “in the same hands,” James Madison warned in Federalist No. 47, the government “may justly be pronounced the very definition of tyranny.” The rise of the administrative state over the last century has pushed us closer and closer to the brink. Today, Congress enacts vague laws, the executive branch aggrandizes unbounded discretion, and the courts defer to those dictates. For decades, presidents of both parties have celebrated this ongoing distortion of our constitutional order because it promotes their agenda. The Trump administration, however, is poised to disrupt this status quo. In a series of significant speeches at the Federalist Society’s national convention, the president’s lawyers have begun to articulate a framework for restoring the separation of powers: First, Congress should cease delegating its legislative power to the executive branch; second, the executive branch will stop using informal “guidance documents” that deprive people of the due process of law without fair notice; and third, courts should stop rubber-stamping diktats that lack the force of law. Executive power is often described as a one-way ratchet: Each president, Democrat or Republican, augments the authority his predecessor aggrandized. These three planks of the Trumpian Constitution — delegation, due process, and deference — are remarkable, because they do the exact opposite by ratcheting down the president’s authority. If Congress passes more precise statues, the president has less discretion. If federal agencies comply with the cumbersome regulatory process, the president has less latitude. If judges become more engaged and scrutinize federal regulations, the president receives less deference. Each of these actions would weaken the White House but strengthen the rule of law. To the extent that President Trump follows through with this platform, he can accomplish what few (myself included) thought possible: The inexorable creep of the administrative leviathan can be slowed down, if not forced into retreat. Congress Should Cease Delegating Legislative Power to the Executive Branch The Federalist Society for Law & Public Policy Studies is the leading organization for conservative and libertarian lawyers interested in the current state of the legal order. I joined when I was in law school, and I frequently speak at their events. Every November, the Federalist Society holds its annual meeting in Washington, D.C. But this year, the gathering had a highly unusual dynamic. It is common for scholars to criticize Congress for delegating its power to the executive branch, a violation of what is known as the non-delegation doctrine. It is unprecedented for the executive branch to share that concern. In a keynote speech, Don McGahn, who serves as White House counsel, lamented the fact that Congress gives the White House too much power. “Often Congress punts the difficulty of lawmaking to the executive branch,” he said, “then the judiciary concedes away the judicial power of the Constitution by deferring to agency’s interpretation of what Congress’s vague statutes.” Several of his officials are working to contain the administrative state. One would think that a lawyer for the president would relish this abdication by Congress and the courts. But no. Instead, McGahn praised a recent concurring opinion by Justice Thomas, in which Thomas “called for the non-delegation doctrine to be meaningfully enforced” to prevent the “unconstitutional transfer of legislative authority to the administrative state.” Again, reflect on the fact that if Justice Thomas’s position gained four more votes, much of Congress’s legislation — which carelessly lobs power to the White House with only the vaguest guidelines — would no longer pass constitutional muster. Though, to be frank, there is no need to rely on the Supreme Court to enforce the non-delegation doctrine. The president has the power to veto half-baked legislation. (Recall what Speaker Nancy Pelosi said of Obamacare: “We have to pass the bill so you can find out what is in it.”) If Trump returned a bill to Congress, stating in his message that it failed to include sufficient guidelines, there would be a paradigm shift in Washington, D.C. Both Republicans and Democrats would have to go back to the drawing board and relearn how to legislate with more precision. This process would strengthen the rule of law. Or Congress could simply override the veto and reaffirm that it has shirked its constitutional responsibility and could not care less about what this president, or any president for that matter, actually does. The Executive Will Stop Depriving People of Due Process of Law without Fair Notice The problems of the administrative state extend far beyond Congress’s delegations. During his address, McGahn deplored the very bureaucracy his boss presides over. “The ever-growing unaccountable administrative state,” he warned, “is a direct threat to individual liberty.” To be sure, the president cannot remove the heads of so-called “independent” agencies, such as the Federal Trade Commission or the Securities and Exchange Commission. Over the rest of the executive branch, in theory at least, the president should have complete control. But such is not the case. Over a half century ago, Justice Robert H. Jackson observed that the administrative state had grown into a “veritable fourth branch of the Government, which has deranged our three-branch legal theories.” Citing Jackson’s wisdom, McGahn explained that the administration will take steps to rein in this unruly power. “The Trump vision of regulatory reform,” he said, “can be summed up in three simple principles: due process, fair notice, and individual liberty.” Generally, when an administrative agency wants to affect a person’s liberty or property, it must go through a fairly complicated and cumbersome process that seeks public input. (Whether or not that input makes any difference is a different story.) However, in recent decades, administrations of both parties have sought to bypass this process through the use of so-called “sub-regulatory actions.” By issuing memoranda, guidance documents, FAQs, and even blog posts, agencies have avoided the need to formalize their rules. Yet they still expect Americans to comply with these transitory documents or face ruinous fines or even litigation. In particular, during the Obama administration, the Department of Education used “Dear Colleague” letters to deprive students of due process on college campuses. McGahn called these missives “Orwellian.” And he’s right. In September, Betsy DeVos, the secretary of education, rightfully rescinded these guidance documents, announcing that “the era of rule by letter is over.” More recently, in another speech at the Federalist Society meeting, Attorney General Jeff Sessions announced that his agency will cease issuing guidance documents that effect a change in the law. Under the leadership of Associate Attorney General Rachel Brand, who also spoke at the convention, the Justice Department will review existing guidance documents and propose modifying or even rescinding some. “This Department of Justice,” Brand said, “will not use guidance documents to circumvent the rulemaking process, and we will proactively work to rescind existing guidance documents that go too far.” This is a remarkable and refreshing position, as it retroactively and prospectively constrains the ability of the Justice Department to expand its own authority. Depending on how rigorous the review of past guidance documents is, we could actually see a contraction of the administrative state. In Federalist No. 51, James Madison wrote of the “great difficulty” in framing a government: “you must first enable the government to control the governed; and in the next place oblige it to control itself.” Here, the DOJ is tying itself to the mast to prevent further erosions of the rule of law. No doubt, this process will be met with resistance from within, as bureaucrats tend to protect their ossified levers of power. An energetic executive, however, can clear out what McGahn referred to as “regulatory sediment.” As it stands now, this policy applies only to the Department of Justice. It could be expanded to reach the entire executive branch, under the auspices of the little-known but powerful Office of Information and Regulatory Affairs. Neomi Rao, who heads OIRA, suggested during the Federalist Society convention that such a review could be implemented for independent agencies as well. (Christopher DeMuth wrote about this proposal in the Wall Street Journal.) Though the Supreme Court has held that the president lacks the power to remove the heads of these commissions, there is an open question about the extent to which the president can control their regulatory agenda. Courts Should Stop Rubber-Stamping Regulations That Lack the Force of Law There is one final but imperative aspect of the Trumpian Constitution: the judiciary. During the 2016 campaign, then-candidate Trump released a list of possible nominees to fill Justice Scalia’s seat. At the time, I wrote on NRO, “I have expressed my serious doubts about Mr. Trump’s vision of constitutional law, but so long as he sticks with this list, I remain cautiously optimistic.” Stick with the list he did, and then some. In addition to his nomination of Neil Gorsuch to the Supreme Court, the Trump administration has set a modern-day record for the number of district- and circuit-court judges confirmed in the first year. More important, the White House is not taking any chances with these picks. McGahn noted that “they all have paper trails, they are sitting judges, there’s nothing unknown about them. What you see is what you get.” And there has been a pervading philosophical consistency to these nominees. McGahn stated it bluntly: “We are committed to nominating and appointing judges that are committed originalists and textualists.” In a not-too-subtle jab at Chief Justice Roberts, McGahn noted, that his office is seeking judges who “possess the fortitude to enforce the rule of law without fear of public pressure,” for “judicial courage is as important as judicial independence.” Trump is looking for “strong and smart judges.” (In 2015, Randy Barnett and I offered similar guidance to improve the judicial selection process). These criteria will, by necessity, exclude the sort of judges who would rubber-stamp vague delegations of authority enforced by guidance documents that lack the force of law. “The greatest threat to the rule of law in our modern society,” the White House counsel argued, “is the ever-expanding regulatory state and the most effective bulwark against that threat is a strong judiciary.” To McGahn, “the Court should view agencies’ claims of sweeping authority with skepticism, not nonchalance in the first step to preserving individual liberty in the face of the burgeoning federal Leviathan.” Recruiting judges who share these beliefs will no doubt promote a more active judiciary, quite the opposite of the longstanding — and vapid — mantra of judicial “restraint.” Indeed, three decades ago, the Reagan administration championed the so-called Chevron doctrine, whereby judges will uphold the executive branch’s reading of an ambiguous law so long as that reading is “reasonable” (that is, not arbitrary). The Trump administration has now called for ending the Chevron doctrine and eliminating this judicial abdication. By making such strong nominations, the president has taken proactive steps not only to limit its own power, but also to institutionalize restraints on future presidents who may see things very differently. Look no further than Justice Gorsuch. In his address to 2,000-plus members of the Federalist Society packed into Union Station, the junior justice celebrated that “originalism has regained its place and textualism has triumphed.” The 50-year-old declared, “neither is going anywhere on my watch.” Providing a roadmap for the years and decades ahead, Gorsuch recalled that the courts have “managed to reenter the field of regulating interstate commerce,” an area long thought to be beyond the judicial competence. “Why can’t they reenter the field of delegation?” Gorsuch asked. “Our founders did not approve of lawmaking by bureaucrats by fiat,” he noted. There is a danger, Gorsuch warned, when courts “combined delegation and deference.” He’s right. Deference only works when Congress — and not the executive branch — is in charge of the lawmaking process. I still harbor deep concerns about the rule of law in America today. As reflected solely by President Trump’s Twitter feed, I worry about his inappropriate attacks on the judiciary, calls for the prosecution of his political opponents, taunts of foreign dictators, delegitimization of the press, and failure to address sexual and other improprieties in his own party, to say nothing of our stark policy differences. With respect to the separation of powers, however, if the Trump administration actually follows through on its promises concerning delegation, due process, and deference, there will be a sea change in how the administrative state functions. Indeed, each of these actions will, ironically enough, weaken the executive and restore the separation of powers in the long run. That alone would be a remarkable disruption of the status quo. Josh Blackman is a constitutional-law professor at the South Texas College of Law in Houston, an adjunct scholar at the Cato Institute, and the author of Unraveled: Obamacare, Religious Liberty, and Executive Power.
  • The Daily Hell of Life in the Soviet Bloc    (James Bovard, 2017-11-20)
    By: James Bovard This month is the 100th anniversary of the Communist Party’s seizure of power in Petrograd, Russia. British Guardian columnist Paul Mason recent declared that the Soviet revolution provided “a beacon to the rest of humanity, no matter how short lived.” The New York Times has exalted the Soviet takeover in a series of articles on the “Red Century” – even asserting that “women had better sex under communism” (based largely on a single dubious orgasm count comparison of East and West German women.)Professor Hunt Tooley’s November 1 Mises article on “The Bolshevik Great Experiment: 100 Years Later” vividly captured the stunning death tolls communism produced in Russia and elsewhere. Stalin reputedly said that one death is a tragedy, a million deaths is a statistic.Communism’s mortality toll does not capture its full horror – the daily degradation that its victims suffered. In the mid-1980s, there were plenty of Soviet apologists writing in the western media. Practically any Soviet Bloc reform was touted as the turning of the corner to sustained economic progress. I was mystified why people living in freedom would idealize a system of state slavery.In 1986 and 1987, I slipped behind the Iron Curtain a half dozen times to study economic perversity and political slavery, writing articles for The New York Times, Wall Street Journal Europe, Freeman, Journal of Economic Growth, and other publications. My final trip - in November 1987 – began in Budapest, Hungary, before heading on to the most repressive regime in Europe.The train from Budapest to Bucharest, Romania was called the Orient Express. The original 1880s Orient Express connected Paris to Constantinople. The menu on the train’s first run included oysters, soup with Italian pasta, turbot with green sauce, chicken ‘à la chasseur’, fillet of beef with ‘château’ potatoes, ‘chaud-froid’ of Game animals, chocolate pudding, and a buffet of desserts. In the communist rendition of the Orient Express, there was no food on the train in Romania, though a few morsels may have been available in Hungary.I had a cabin to myself as the train rolled southeast from Budapest. I had been told that if border guards found a map of Romania or any other dubious papers, I would be arrested or denied entry. Late at night, nearing the Romanian border, I studied documents one more time, drilling into my head the things that I should be looking for, and then tore them up and threw them out the train window, piece by piece.Shortly after midnight, the train lumbered to a stop in Transylvania, at the Hungary-Romania border. The scene had all the ambience of the original 1931 Dracula movie. I didn’t hear wolves howling but the mountain terrain, low-hanging fog and military guards with German shepherds endlessly circling the train sufficed.My cabin was searched four times, with each team outdoing their predecessors. The mattresses on the bunk beds were jostled and practically every cubic inch of space was poked or prodded.The final inspection was supervised by a cute (by communist standards) military officer. Perhaps the authorities thought I would confess my perfidy to a different gender. Nope: I was just another tourist heading to the "Paris of East Europe," as Bucharest preened itself in pre-communist times. Except that there were almost zero tourists in a land renamed "the Ethiopia of Europe." I entered Romania illegally, relying on an easily-acquired tourist visa instead of going through the hassle of getting a journalist visa (which would have also assured more harassment).After the final search, guards bolted my cabin shut from the outside. The pseudo-luxury train had officially been transformed into a traveling jail. My American passport had earned me special treatment again. I leaned back and counted my blessings. In Western Europe, they charged double for a private cabin.The Orient Express was no longer an express after it entered Romania, taking 13 hours to rumble 400 miles and running far behind schedule.Everywhere were signs of a government increasingly fearful of its people. Throughout Transylvania, radio towers were surrounded by military guards and barbed wire. The train stopped at Brasov - a medieval-era city that had been briefly renamed Stalin City - until relations with Moscow chilled. Shortly before I passed through, thousands of workers responded to wage cuts by ransacking communist party offices and killing two government militia men.There were horse-drawn wagons next to spewing factories and huge apartment complexes. Many people had abandoned their slipshod cars after government sporadically banned the sale of gasoline for private vehicles.Around 9 the next morning, there was a rapping on my cabin door - like someone sending a secret message.I heard someone struggling with that bolted lock and then the door popped open and half a dozen ill-clad Romanian factory workers rushed in. They had heard there was a foreigner confined on the train. They stared at me like I was E.T. from outer space. Two workers leaned over and pawed my leather boots, eyes wide in amazement. Leather boots had apparently become the same luxury there that full-length mink coats were in America. Yet, in the pre-communist era, leather boots were probably commonplace for factory and farm workers. We communicated with simple gestures since I did not speak Romanian and they spoke no English. They seemed to be full of good will, but vanished after a few minutes - perhaps fearful of being caught with a foreigner.The workers were likely no fans of communist dictator Nicole Ceausescu, who seemed determined to starve the people into submission. Though Romania had been one of the world’s top grain exporters before World War One, food had become as rare as honest economist statistics.Children could not get milk without a doctor's prescription. It was forbidden for foreigners to send food to Romanians. The government responded to food shortages with a publicity campaign on the danger of overeating. The government also revved up advertising in western nations touting Romania’s "world famous" weight-loss clinics. Food shortages became so bad that the lion in the Bucharest Zoo was converted into an involuntary vegetarian and lost his teeth as a result.The communists destroyed hundreds of square miles of prime farmland to erect factories and open pit mines. Hundreds of villages were razed and the residents corralled into cities and conscripted to work in factories. The government put almost all investments into heavy industry — the ultimate source of bragging rights for communist leaders. But roughly half of Romania’s output was so shoddy that it was ready for the junk heap moments after it rolled off the assembly line. Romanian industry was also extremely inefficient, consuming up to five times as much energy per unit of output as western factories. The government compensated by cutting off electricity to people’s homes for up to six hours during the winter, and permitting only one 25-watt light bulb per room.The health system was collapsing, and the infant mortality rate was so high the government refused to register children as being born until they survived their first month. The government also routinely cut off power to hospitals, causing a thousand deaths the previous winter.Yet, some western experts hailed Ceausescu as a path-breaking visionary. A 1979 World Bank report, the "Importance of Centralized Economic Control," praised the Romanian regime for pursuing "policies to make better use of the population as a factor of production" [italics added] by "stimulating an increase in birth rates."And how did the benevolent ruler do this? By prohibiting distribution of contraceptives and banning abortions. Because the Plan called for higher birth rates, every female forfeited the right to control her body or life. Ceausescu proclaimed in 1985: "The fetus is the socialist property of the whole society... Those who refuse to have children are deserters." The government forced all women between the age of 18 and 40 to have a monthly gynecological exam to assure that no one robbed the State by having a secret abortion. These policies turned Romania into the World Capital of abandoned babies.Finally arriving in Bucharest, I learned that the Hotel Intercontinental was the only place westerners were allowed to stay. After I checked in, a beefy 30ish woman with bad eye makeup came flat-footing up. She asked in a gravely, three-pack-a-day voice: "Would you like to have some company?""Do what?""Would you like some company - in your room?" She smiled and pointed upstairs."Uh... no, I’m doing fine.""Why are you here in Bucharest?" She cooed gutturally."I’m a tourist.""But it is so cold outside. Let’s stay inside. Aren’t you lonely?"There were several reasons I demurred, including my strict rule to never tussle with any woman who had a better mustache than I did.The Romanian government was known for using intelligence agents as prostitutes. Instead of a simple honest hooker, she was probably a spook-hooker. Seeing how badly everything else in that country functioned, I had no itch to learn the Romanian standard for "good enough for government bawdy work."I checked into my room, which looked custom-designed for surveillance. There was "dead space" and unmarked doors between each guest room. I flipped on the TV and saw choruses of peasants and workers in overalls listlessly waving flags and singing praises to Ceausescu, the self-proclaimed "Genius of the Carpathians," as the camera zoomed in for close-ups of the great man’s face.Fascinating stuff, but the plot line was thin, so I sought entertainment elsewhere.When I visit a new city, I love to spend hours walking around and getting a feel for the turf. I stopped and asked the concierge for a street map of downtown Bucharest. I figured he might have a guide to the Greatest Triumphs of Ceausescu-ism within an eight block radius of Communist Party headquarters.The concierge grimaced even before I got to my verb. This gray-skinned, beady-eyed guy was hired for this job because he naturally exuded hatred of mankind."For what do you need a map?""Because I want to see the city’s landmarks.""We have no maps. If there is some place you want to go, you tell me what it is and I will tell you how to get there.""Where is the old part of the city?" I asked, knowing that most of it had been leveled to make room for the ugliest "socialist realism" monoliths outside of Pyongyang.The concierge scowled and muttered something - perhaps a Romanian slur for vexatious foreigners. My hunch was this guy didn’t make a living from tips.On the street, many people darted their eyes away - as if looking at foreigners caused leprosy. I had heard that it was a crime for Romanians to talk to strangers. But a few people summoned up a hodgepodge of English phrases to plead for a pack of Kent cigarettes to bribe doctors to treat their sick children. Because the Romanian currency was practically worthless, packs of Kents circulated as a black market currency. I had bought a couple cartons of Kents before going to Romania, and I gave packs to a few people who spoke to me.I stepped into the largest department store in Bucharest; it was dark, dank and miserable. Sales clerks were sitting on piles of new clothing heaped on the floor. While workers in Hungary had lazed around, Romanian workers seemed stupefied. One of the store’s main attractions were incredibly rickety baby carriages - the kind to use when you want to kill your kid and sue the pants off somebody. Except that this government never had any liability to its victims, no matter how many perished from its products or policies.I passed by the boarded-up front door of an ancient church, standing forsaken amidst construction projects that had obliterated surrounding edifices. Many Romanians fretfully crossed themselves as they passed it by.Outside the U.S. embassy, Romanian guards with machine guns stood to dissuade locals from seeking asylum. My hunch was that stopping there would be far more hassle than it was worth. (I had been targeted by Czech police after visiting the U.S. embassy in Prague earlier that year.)Like other communist regimes, Romania was an economic theocracy. The government used its iron fist to make sure everything happened according to Plan. For instance, according to the 1986-90 five year plan, Romanian scientists would make 4015 discoveries, of which 2,423 would result in new products by Romanian businesses. The Plan did not specify how insufficiently creative scientists would be scourged.Romania was one of the World Bank’s favorite regimes, receiving more than $2 billion between 1974 and 1982. The World Bank predicted in 1979 that Romania would "continue to enjoy one of the highest growth rates among developing countries over the next decade... and become an industrialized economy by 1990." But much of Romania’s apparent economic growth was the result of World Bank aid. The more handouts the World Bank gives a country, the easier it becomes to portray the nation as a success story. World Bank president Robert McNamara cited Romania to vindicate his "faith in the financial morality of socialist countries."The World Bank also praised the Romanian regime for its ability to "mobilize the resources" required to boost economic growth. In reality, the government was brutalizing its subjects to squeeze out "surpluses" to lavish funds on World Bank-approved industrial enterprises - the same tactic Stalin used to finance his Five-Year Plans.The Romanian regime also "mobilized resources" by pawning its ethnic German and Jewish inhabitants. West Germany paid roughly $20,000 for each German exported, and Israel paid a similar amount for each Romanian Jew released. There were international agreements banning slave trading in the nineteenth century, but selling human beings in the twentieth century was acceptable if the receipts went for progressive purposes. (Eighty percent of Romanian children resettled in West Germany were judged to be severely malnourished.)The World Bank never cut Ceausescu off; instead, he ceased borrowing after he became convinced that western debt was a curse on his country. Championing Ceausescu did not prevent McNamara from being appointed to the Board of Directors of the Washington Post or from being canonized as a benevolent saint by the American media when he kicked the bucket in 2009.As I knocked around Bucharest, I assumed I was being followed. Roughly 1 in 15 Romanians was working as a government informant. Since I knew that pulling out a notebook would set off alarm bells, I instead jotted notes on the palm of my hand. Such behavior was seen as merely weird, not menacing. I could use single words as pegs to later pull up a strand of facts and thoughts.When I arrived at Bucharest’s main airport to exit to Frankfurt, I noticed that most of the travelers ahead of me were openly giving a pack of Kents to each dreg at the multiple security checkpoints. I was soon passing out cigarette packs to guards like an old widow tossing candy to kids on Halloween.I saw one or two German businessmen yanked aside for more punitive searches, and their clothes were scattered far and wide across the guards’ tables. As I passed the last checkpoint, I counted my blessings that I had avoided such depredations.That Lufthansa jet on the tarmac was the prettiest thing I had seen since the Orient Express crossed the Romanian border. There was one past-his-prime soldier standing listlessly about 20 yards from the plane. I held up my passport and he waved me on.I’d almost reached the plane’s gangway when I heard: HALT!I turned and saw the guard running towards me, his submachine gun bouncing off his ample belly.Puffing a bit, he caught up to me - grabbed my left arm, yanked it back, and, pointing at my palm, demanded to know: "WHAT IS THIS?!!!?"I looked at my hand, then I looked at the guard."It’s ink."He paused, squinted, nodded his head knowingly, and then waved me on to the plane.As soon as the Lufthansa jet cleared Romanian air space, I retrieved my small notebook from the usual hiding place - inside my underwear - and began extracting my palm notes.The following month, the New York Times printed my "Eastern Europe, the New Third World" which declared that "Eastern Europe is much closer to economic collapse than most westerners realize. After hundreds of so-called market-oriented reforms, there are still no market economies in Eastern Europe." The Readers Digest piece on the same topic appeared in ten foreign language editions. I was trying to help East Bloc regimes get the credit rating they deserved.Throughout the Soviet Bloc, governments tried to reform economies while retaining government ownership and pervasive control of prices and production even for non-socialist activities. It was impossible to repair East Bloc economies without stripping communist parties of their power.Unfortunately, as decades have passed since the fall of the Soviet Union, romanticism is deep-sixing the bitter facts of the lives people in communist regimes were forced to live. But any economic system that forces lions to go vegan should never be forgiven.
  • Endless War Is No Honor to America's Veterans    (Doug Bandow, 2017-11-19)
    Doug Bandow Veterans Day has passed. The annual ritual never changes. Politicians who didn’t serve in the armed services start unnecessary wars, killing military personnel whose sacrifices are then lauded. Officials say these heroes died defending our freedom. That is almost always a lie. Sometimes Washington must go to war. Not often, however. Despite the endless claims that we live in a dangerous world, America is amazingly safe. No other power could defeat, let alone conquer, the United States. Only Russia has a comparable nuclear arsenal, but it would be destroyed if Moscow targeted America. China and Russia trail U.S. conventional military strength and are more or less strategically isolated. In contrast, Washington is allied with every other major industrialized state. Despite their bluster, the so-called rogue states, most notably North Korea and Iran, are not planning to attack the United States. Instead, they are desperate to ward off American attack. Since Washington routinely employs regime change against governments on America’s “naughty” list, Kim Jong-un looks rational, not suicidal, in seeking to create a deterrent to preserve his rule. Washington’s most pressing security challenge is terrorism. But while targeting civilians is a moral outrage, terrorism does not pose an existential threat to America. Indeed, European and Latin American nations have confronted and survived more virulent attacks. Israel, Sri Lanka and Turkey also have suffered prolific terrorist bombings. So, too, Iraq, after Washington invaded that country and triggered sectarian war. Moreover, interventions, invasions and occupations are no answer to terrorism. On the contrary, terrorism is a poor man’s weapons against stronger powers. It is politics by other means when the other side has a preponderance of traditional military power. To understand terrorism is not to justify it. But it long has been a political tool: two Russian czars, an Austro-Hungarian archduke (heir apparent), two former Indian prime ministers and countless other foreign officials have been assassinated by terrorists. Before Iraq, the most prolific suicide bombers on earth did their killing in Sri Lanka. Countries like Russia are not targeted because they are so liberal; Turkey, Jordan and Kuwait are not attacked for being infidels. U.S. servicemen and women perform extraordinary tasks in difficult circumstances. But their commitment and courage are being misused by politicians who have seemingly forgotten that America is a republic, not an empire. Washington should kill or incapacitate those already determined to kill Americans, but also stop making so many enemies. In Yemen, for instance, the United States is helping the repressive, licentious Saudi royals slaughter people who have never done anything against America. Washington is involved in a civil war in which Riyadh intervened to reinstall a pliant regime. The Yemenis know who is providing the bombs to Saudi Arabia, offering targeting assistance to the Saudi air force and refueling Saudi planes. It should surprise no one if someday a Yemeni commits terrorism against the United States and its people. Yet the United States is constantly at war, and in far more nations than most Americans realize. Combat in Afghanistan is entering its seventeenth year. U.S. personnel are back in Iraq. They are fighting in Syria, the Philippines and across Africa, including Niger, where four American servicemen recently died. Drone campaigns and special operations forces have been particularly active in Pakistan, Somalia and Yemen. As noted earlier, the United States is also underwriting Saudi Arabia’s aggressive war against Yemen. Worse, Washington is prepared to battle China, Russia and North Korea to defend prosperous and populous allies, which could defend themselves. Perhaps most striking is how few of America’s “big wars” are justifiable. Most were conflicts of choice undermining rather than sustaining American liberties. The revolution created the nation. But while Washington was justified in defending itself from Great Britain in the War of 1812, the most serious casus belli, an attack on an American warship, took place years before. In 1812, war fever mostly reflected the desire to annex Britain’s Canadian possessions. The Mexican-American War was an imperialistic bonanza, in which Washington used a dubious territorial claim as an excuse to seize half of its neighbor. Some U.S. officials desired to take the whole nation. The Spanish-American War was equally misguided: Spain brutalized its colony of Cuba, but no worse than Americans treated their native population. Moreover, Washington seized the Philippines as well, even though it had nothing to do with the initial dispute. The United States suppressed an indigenous independence movement with enormous brutality; some two hundred thousand Filipinos died in the process. World War I was a foolish, unnecessary war. Washington joined with the so-called Entente, which included the anti-Semitic despotism of the Russian Empire, and defended Serbia, whose murderous rulers triggered the conflict by engaging in an act of state terrorism. Aiding them did nothing to “make the world safe for democracy.” Rather, President Woodrow Wilson imagined himself anointed from on high to remake the globe. Alas, World War II was the inevitable result of Wilson’s folly, the unfinished business from the so-called Great War. World War II is usually considered the “good war,” with clear and evil enemies. But it likely would not have occurred had the United States not previously unbalanced the European balance of power and promoted an unsustainable “settlement,” which broke down almost immediately. In the Korean War, Washington had little choice but to intervene, having helped set up the conflict; the Cold War context made the heretofore irrelevant peninsula important to U.S. security. But not Vietnam. Washington took over from the French colonial empire and fought an extended war in an area of no great geopolitical significance to America. The conflict’s end demonstrated that the battle was unnecessary. The dominoes ultimately fell, but stopped with Laos and Cambodia. A decade later, Vietnam was seeking to improve relations with America as a counterweight to China, with which it fought a short war. Ronald Reagan used the military sparingly. His intervention in Lebanon’s civil war was folly, which he recognized after the attacks on the U.S. embassy and Marine Corps barracks. Grenada provided attractive visuals of American medical students arriving home, but mattered little for U.S. security. Most of Washington’s “little wars” after the Cold War did not make America safer. Ousting Panama’s Manuel Noriega, forcing out the Haitian military junta, intervening in the Bosnian civil war, dismantling Serbia and tracking down warlords in Somalia were essentially international social work. At least the first Gulf War was limited in scope and effect, though Washington’s previous support for Saddam Hussein’s dictatorship, most notably his war of aggression against Iran, likely confused him about America’s intentions. George W. Bush’s invasion of Iraq [3] was catastrophically foolhardy, spreading sectarian war, victimizing religious minorities, expanding Iran’s influence and setting loose vicious Islamist forces, which morphed into the Islamic State. Presidents Bush, Obama [4] and Trump [5] each took a mission [6] that started as destroying the terrorist group that attacked Americans at home and turned it into an interminable nation-building mission that has become a black hole for U.S. lives and resources. President Obama initiated his own war in Libya, which he refused to call by that name. The resulting violent overflow inflamed conflict in neighboring countries such as Chad and Niger. Why this enthusiasm, even addiction to war? The dominance of U.S. foreign policy by elites ever ready to sacrifice their countrymen’s lives is one factor. Indeed, the bipartisan commitment to intervene survived President Trump, who had criticized Hillary Clinton’s proclivity for war, said the United States should not have invaded Iraq, blasted subsidies for wealthy allies, called Afghanistan “a total and complete disaster” and more. In practice, little has changed. More troops have gone to Afghanistan, Iraq and Syria on this president’s watch. The blank check for Saudi Arabia has gotten bigger. He is threatening war against North Korea. Congress’s de facto abandonment of its power to declare war is another factor. America’s founders consciously sought to ensure that no one man could let slip the dogs of war. But legislators prefer not to take on the responsibility. Let presidents do the dirty work, and members of Congress can applaud or carp, depending on the result. There is little popular accountability for presidents, at least until body bags start coming home. Even then, attempts to hold executive officials accountable for their bad decisions are drowned out by demands to “support the troops,” which really means insulating warmongering politicians from responsibility. U.S. military power makes intervention easy. No country, especially the small, Third World states that usually end up in Washington’s crosshairs, can resist America’s armed forces. For a president able to unilaterally deploy the military, the world is a target-rich environment. As then Secretary of State Madeleine Albright said to Joint Chiefs of Staff chairman Colin Powell: “What’s the use of this great military you keep talking about if we never use it?” Policymakers are increasingly unlikely to have served in the military or have family members or friends who do so. The problem is not the volunteer military, but an armed forces that is relatively small compared to the population. Inevitably, fewer people will serve in the military. Even with conscription, few children of elites would be forced into the service, and an even smaller proportion would serve in combat arms. Politicians disconnected from the realities of war are more likely to view the military as the answer to just about every geopolitical problem. Extraordinary hubris, born of America’s unique founding and present dominance, encourages Washington policymakers to engage in international social engineering. With sufficient military power, they believe, they can overcome differences in history, religion, geography, ethnicity, culture, politics and more, and remold the world to their liking. Every failure merely causes them to overreach more next time. Also important is the recent affection of supposedly limited-government conservatives for international social engineering. Once skeptical of participation in foreign wars, the conservative movement shifted because of the Cold War. After the collapse of the Soviet Union, some on the right reverted to their historic commitment to a foreign policy fit for a republic. But the majority seemed to glory in the prospect of an American-style empire, in which the very federal politicians they reviled at home would spread capitalism, liberty and democracy abroad. Costs to others are simply ignored, and maybe not even noticed. A few hundred thousand dead Iraqis? Well, one must break eggs to make an omelet. Sen. Lindsey Graham has been surprisingly blunt in advocating war against North Korea since, he explained, it would not occur “over here.” So what if South Korea would be turned into a battleground? Offloading the costs on others makes it easier for Washington to conduct wars. Most important may be the fact that the United States is so secure. Republican presidential candidates last year acted as if America was a small, beleaguered, Third World country threatened by such global behemoths as Iran and North Korea. However, Washington is a colossus. It can waste lives and money with wild abandon with few ill effects at home, other than on the service members who are killed or injured. The ill impact is mostly on others: hapless Libyans, Iraqis, Syrians and Yemenis, for instance, who suffer through devastation, chaos and hardship created by Washington’s blundering. America always has been unique, even exceptional. But the nation’s founders didn’t view that as a reason to join the old imperial powers in sacrificing their people’s welfare in pursuit of international glory. Today Washington seems most exceptional to the degree to which it relies on military power to advance often peripheral interests-and the lack of accountability for those who misuse that power so badly and promiscuously. U.S. servicemen and women perform extraordinary tasks in difficult circumstances. But their commitment and courage are being misused by politicians who have seemingly forgotten that America is a republic, not an empire. And their responsibility is to defend America, not the rest of the world. Veterans Day should be considered commemoration of tragedy, not celebration of victory. President Trump should spend the coming year ending old wars, not starting new ones. Doug Bandow is a Senior Fellow at the Cato Institute. A former special assistant to President Ronald Reagan, he is the author of several books, including Foreign Follies: America’s New Global Empire.
  • Lyndon Johnson's Terrible Legacy    (Patrick Barron, 2017-11-18)
    By: Patrick Barron Recently my wife and I spent a morning at the Lyndon Baines Johnson Presidential Library in Austin, Texas. The damage done by this big bully is incalculable. His library reminds us of the start of the blizzard of government expansion during Johnson's presidential term, which lasted from the Kennedy assassination in October 1963 to his decision not to run for a full second term in 1968, which usually is attributed to his failure to end the war in Vietnam.Johnson was an admirer of FDR and was determined to revive and complete what he believed should have been integral parts to FDR's New Deal. Johnson called his program The Great Society. As if ignorance of the consequences of this socialist expansion of domestic control by government was not enough, LBJ expanded the war in Vietnam, promising America both Guns and Butter. Even today we live with this expansion of government domestic programs and seemingly never-ending wars as the modern Welfare/Warfare state.The Johnson TreatmentI called Johnson a big bully in the paragraph above. I believe my assessment is justified by what actually is celebrated at his presidential library. The displays proudly explain and document "the Johnson touch" in print, photograph, and actual recorded telephone interviews. Johnson was a big man who towered over most people. He had a habit of getting very close to someone, leaning over at the waist, and forcing his partner in conversation to bend over backwards to avoid an uncomfortable encounter with LBJ's face. There is a large picture of Johnson giving Supreme Court Associate Justice Abe Fortas this "Johnson Treatment", literally face-to-face. Fortas, who was a long time LBJ supporter, appears to be taking the "Treatment" in good humor, but it is easy to see how it would be almost impossible to keep one's dignity with the president of the United States performing this obviously uncomfortable act.Surprisingly the JBJ Library celebrates the Johnson Treatment with recorded phone conversations. One conversation was with powerful US Senator Richard Russell, a long time LBJ colleague. Johnson wanted Russell as his personal eyes and ears on the Warren Commission, tasked with investigating the Kennedy assassination. In the recorded phone conversation we hear Russell politely tell LBJ that he is honored but that he has no respect for Supreme Court Justice Earl Warren and must decline the offer. LBJ then badgers and bullies Russell into accepting the position. He says that he wants Russell to ensure that the commission does not investigate whether the Russians or Cubans had any role in the assassination. Russell's vociferous objection in writing to the Warren Commission's "single bullet" theory seemed to justify his opinion of Warren and the commission. The commission's staffers jumped through rhetorical hoops to claim that the report had the unanimous approval of all members.That Which Is Seen and That Which Is UnseenThe library is full of typical memorabilia. The entrance has a huge display of pens with which Johnson signed hundreds of pieces of mostly domestic legislation. For example, Johnson authored and signed sixty pieces of legislation that effectively federalized education. Of course, the library is full of specious statistics that attempt to "prove" that all this legislation was effective, citing, for example, that the poverty rate decreased and that the percentage of Americans with college degrees increased. Even if one accepts such "facts" at face value, an Austrian economist would point out that all such so-called advances came at the cost of diverting resources from other, more highly sought preferences. Education is an economic good, as is healthcare, retirement savings, food, etc. If Americans valued higher education so much, they would have applied more of their limited resources to this end. The LBJ library ignores the cost, including the social cost, of all these programs and gives the impression that government supplied goods and services could be provided without any change in the nation's production of other goods and services. Thus, the famous "Guns and Butter" claim that we can have it all...a claim that survives to this day.Perhaps the most enduring legacy of the LBJ years is that his Guns and Butter policies put the US on a path that ended the gold exchange standard, agreed upon at Bretton Woods in 1944, by which the US pledged to honor central bank dollar convertibility to gold at thirty-five dollars per ounce. In the 1950's Eisenhower's budget deficits were very modest and he actually balanced the budget for a short time. But Johnson's Guns and Butter policy caused huge deficits and prompted unprecedented money printing by the Fed. The Austrian economists in Charles de Gaulle's France understood the consequences--that the US did not actually have enough gold to honor central bank redemptions at thirty-five dollars per ounce--and began a run on the US gold supply that eventually drove the US off the gold standard in 1971. (Let me make it clear...the French did NOT cause the run on the US gold supply. The Fed caused the run by printing dollars to pay for LBJ's Guns and Butter policy.)Vietnam Exposed the Limits of the Johnson TouchThe LBJ library openly shows us that Johnson never had a method for winning the war in Vietnam or extricating the US from what became known as a quagmire. In another telephone recording from early in his administration library visitors hear LBJ tell a partisan that he doesn't know how to win or how to bring the troops home honorably. That is a very bitter revelation to someone who had comrades in arms who died in Vietnam and others who endured captivity in the infamous "Hanoi Hilton". Repeatedly Johnson tried to get the North Vietnamese to a peace conference. This is pure LBJ hubris, convinced that everything is negotiable and that he can use the famous Johnson Touch on Ho Chi Minh. His pathetic bombing pauses to signal our desire to negotiate merely convinced the North Vietnamese that American involvement eventually would end.What Have We Learned?Apparently, not much. Today Johnson's Guns and Butter policy is alive and well. Few, if any, Great Society programs have been repealed. The federal government continues to wage war in faraway places and promises ever more goods and services, funded by fiat money set free from any semblance of a gold standard. There is no talk of eliminating any domestic programs or ending any of our wars. On the contrary our government seems determined to provoke new wars in Korea and possibly with Iran and even Russia. The legacy debt for all the federal government's programs--i.e., the unfunded obligations emanating from the government's entitlement programs — has been calculated to be well over a hundred trillion dollars. It is clear that it can be paid only nominally and not with money of even today's reduced purchasing power. So, was LBJ's presidency a success? Unfortunately for America, LBJ would say yes!
  • We're Living in the Age of Capital Consumption    (Ronald-Peter Stöferle, 2017-11-18)
    By: Ronald-Peter Stöferle When capital is mentioned in the present-day political debate, the term is usually subject to a rather one-dimensional interpretation: Whether capital saved by citizens, the question of capital reserves held by pension funds, the start-up capital of young entrepreneurs or capital gains taxes on investments are discussed – in all these cases capital is equivalent to “money.” Yet capital is distinct from money, it is a largely irreversible, definite structure, composed of heterogeneous elements which can be (loosely) described as goods, knowledge, context, human beings, talents and experience. Money is “only” the simplifying aid that enables us to record the incredibly complex heterogeneous capital structure in a uniform manner. It serves as a basis for assessing the value of these diverse forms of capital.Modern economics textbooks usually refer to capital with the letter “C”. This conceptual approach blurs the important fact that capital is not merely a single magnitude, an economic variable representing a magically self-replicating homogenous blob but a heterogeneous structure. Among the various economic schools of thought it is first and foremost the Austrian School of Economics, which stresses the heterogeneity of capital. Furthermore, Austrians have correctly recognized, that capital does not automatically grow or perpetuate itself. Capital must be actively created and maintained, through production, saving, and sensible investment.Moreover, Austrians emphasize that one has to differentiate between two types of goods in the production process: consumer goods and capital goods. Consumer goods are used in immediate consumption – such as food. Consumer goods are a means to achieve an end directly. Thus, food helps to directly achieve the end of satisfying the basic need for nutrition. Capital goods differ from consumer goods in that they are way-stations toward the production of consumer goods which can be used to achieve ultimate ends. Capital goods therefore are means to achieve ends indirectly. A commercial oven (used for commercial purposes) is a capital good, which enables the baker to produce bread for consumers. Through capital formation, one creates the potential means to boost productivity. The logical precondition for this is that the production of consumer goods must be temporarily decreased or even stopped, as scarce resources are redeployed toward the production of capital goods. If current production processes generate only fewer or no consumer goods, it follows that consumption will have to be reduced by the quantity of consumer goods no longer produced. Every deepening of the production structure therefore involves taking detours.Capital formation is therefore always an attempt to generate larger returns in the long term by adopting more roundabout methods of production. Such higher returns are by no means guaranteed though, as the roundabout methods chosen may turn out to be misguided. In the best case only those roundabout methods will ultimately be continued, which do result in greater productivity. It is therefore fair to assume that a more capital-intensive production structure will generate more output than a less capital-intensive one. The more prosperous an economic region, the more capital-intensive its production structure is. The fact that the generations currently living in our society are able to enjoy such a high standard of living is the result of decades or even centuries of both cultural and economic capital accumulation by our forebears.Once a stock of capital has been accumulated, it is not destined to be eternal. Capital is thoroughly transitory, it wears out, it is used up in the production process, or becomes entirely obsolete. Existing capital requires regularly recurring reinvestment, which can usually be funded directly out of the return capital generates. If reinvestment is neglected because the entire output or more is consumed, the result is capital consumption.It is not only the dwindling understanding of the nature of capital that leads us to consume it without being aware of it. It is also the framework of the real economy which unwittingly drives us to do so. In 1971 money was finally cut loose entirely from the gold anchor and we entered the “paper money era.” In retrospect, it has to be stated that cutting the last tie to gold was a fatal mistake. Among other things, it has triggered unprecedented instability in interest rates. While interest rates displayed relatively little volatility as long as money was still tied to gold, they surged dramatically after 1971, reaching a peak of approximately 16 percent in 1981 (10-year treasury yield), before beginning a nosedive that continues until today. This massive decline in interest rates over the past 35 years has gradually eroded the capital stock.An immediately obvious effect is the decline in so-called “yield purchasing power”. The concept describes what the income from savings, or more precisely the interest return on savings, will purchase in terms of goods. The opportunity to generate interest income from savings has of course decreased quite drastically. Once zero or even negative interest rate territory is reached, the return on saved capital is obviously no longer large enough to enable one to live from it, let alone finance a reasonable standard of living. Consequently, saved capital has to be consumed in order to secure one's survival. Capital consumption is glaringly obvious in this case.It is beyond question that massive capital consumption is taking place nowadays, yet not all people are affected by it to the same extent. On the one hand, the policy of artificially reducing the interest as orchestrated by the central banks does negatively influence the entrepreneurs’ tasks. Investments, especially capital-intensive investments seem to be more profitable as compared to a realistic, i. e. non-interventionist level, profits are thus higher and reserves lower. These and other inflation-induced errors promote capital consumption.On the other hand, counteracting capital consumption are technological progress and the rapid expansion of our areas of economic activity into Eastern Europe and Asia in recent decades, due to the collapse of communism and the fact that many countries belatedly caught up with the monetary and industrial revolution in its wake. Without this catching-up process it would have been necessary to restrict consumption in Western countries a long time ago already.At the same time, the all-encompassing redistributive welfare state, which either directly through taxes or indirectly through the monetary system continually shifts and reallocates large amounts of capital, manages to paper over the effects of capital consumption to some extent. It remains to be seen how much longer this can continue. Once the stock of capital is depleted, the awakening will be rude. We are certain, that gold is an essential part of any portfolio in this stage of the economic cycle.
  • Chris Calton: The March to America's Civil War    (Chris Calton, Jeff Deist, 2017-11-17)
    By: Chris Calton, Jeff Deist Chris Calton, host of the Mises Institute's Historical Controversies podcast, is back with a second season. If you enjoyed his revisionist view of America's drug war during the first season, you'll love his take on U.S. history during the latter 1800s. This episode, titled "The March to America's Civil War", is a fascinating account of the antebellum era.Tune in and find out why this podcast series is creating one of Stitcher's fastest growing audiences.Historical Controversies is available online at Mises.org/HCPod, via RSS, and on Stitcher, iTunes, Google Play, and Soundcloud.
  • Is Behavioral Economics Good Economics?    (Frank Shostak, 2017-11-17)
    By: Frank Shostak Recently, a relatively new economics called Behavioral Economics (BE) has started to gain popularity. Its practitioners such as Daniel Kahneman, Vernon Smith and Richard Thaler were awarded Nobel prizes for their contribution in the field of BE.The BE framework emerged on account of dissatisfaction with the neo-classical theory regarding consumer choices. A major problem with the neo-classical theory that people presented as if a scale of preferences is hard-wired in their heads. Regardless of anything else, this scale remains the same all the time.The practitioners of BE hold that this is a very unrealistic case. Hence, to make the mainstream framework more realistic they suggested introducing psychology into economics.It is held that people’s emotional state is going to influence their decision-making process. Thus, if consumers are becoming more optimistic regarding the future then this is going to be an important message to businesses regarding their investment decisions.According to BE researchers whether consumers are generally patient or impatient determines whether or not they are inclined to spend or save today. If they are more patient and save more, then this can generate funds for entrepreneurs’ new investment projects.Behavioral economists emphasize the importance of personality. An emphatic person is regarded more likely to make altruistic choices. Impulsive people are more likely to be impatient and not so good at saving up for their retirement. Venturesome people are more likely to take risks — they will be more likely to gamble (see Michelle Baddeley's Behavioural Economics. A Very Short Introduction).While the BE criticism of mainstream economics is valid, the question arises whether BE solves the issue of unchanged consumer preferences and presents consumers as real people and not as human machines.The key here is the definition of what human beings are all about. According to BE, people are not rational in a sense that they are using reason in various decisions. According to BE practitioners, the key driver for consumer choices are emotions. For instance, the Nobel Laureate Vernon Smith holds,People like to believe that good decision making is a consequence of the use of reason, and that any influence that the emotions might have is antithetical to good decisions. What is not appreciated by Mises and others who similarly rely on the primacy of reason in the theory of choice is the constructive role that the emotions play in human action.1Obviously once the importance of reason is dismissed, what is then left is treating human beings like objects. According to this way of thinking, human action is not navigated by reason but by outside factors that act upon men. By means of a given stimulus, one can then observe various human reactions and draw all sorts of conclusions regarding the world of economics. According to Mises however,It is impossible to describe any human action if one does not refer to the meaning the actor sees in the stimulus as well as in the end his response is aiming at.2By rejecting the importance of the human reason, behavioral and experimental economists treat man as another animal. In fact, some of the experimental economists are conducting various experiments on pigeons and rats in order to verify various propositions of mainstream economics.3Why the introduction of psychology in economics will not make economics more realisticPsychology is an important element in behavioral and experimental economics on the ground that human action and psychology are inter-related disciplines. However, there is a distinct difference between economics and psychology. Psychology deals with the content of ends and values. Economics, however, starts with the premise that people are pursuing purposeful conduct. It does not deal with the particular content of various ends.According to Rothbard,A man's ends may be "egoistic" or "altruistic", "refined" or "vulgar". They may emphasize the enjoyment of "material goods" and comforts, or they may stress the ascetic life. Economics is not concerned with their content, and its laws apply regardless of the nature of these ends.4Whereas,Psychology and ethics deal with the content of human ends; they ask, why does the man choose such and such ends, or what ends should men value?5Therefore, economics deals with any given end and with the formal implications of the fact that men have ends and utilise means to attain these ends. Consequently, economics is a separate discipline from psychology.By introducing psychology into economics, one obliterates the generality of the theory. This is precisely what psychologist Daniel Kahneman, the Nobel laureate in economics, and his followers are doing.Through various tests that he has conducted, Kahneman has concluded that people are not always behaving rationally, i.e., in accordance with the premises of mainstream economics. What Kahneman has discovered, however, has nothing to do with whether people are rational or not. It has to do with the flawed premise of popular economics — i.e., that peoples preferences are constant. In short, the proposition that people are like machines that never change their minds.Contrary to mainstream thinking, the Austrian School of thinking always held that valuations do not exist by themselves regardless of the things to be valued. On this Rothbard wrote, “There can be no valuation without things to be valued.”6In other words, valuation is the outcome of the mind valuing things. It is a relation between the mind and things.Now, if preferences are constant then it is possible to compress these preferences into a mathematical formulation, i.e., one can capture people's wishes by means of a formula, so it is held. This is labeled by mainstream economics as a utility function. Curiously, the assumption of constancy is labeled as an important characteristic of rationality by popular economics.Obviously, people do change their minds, so it is not surprising that Kahneman has "discovered" that real people's behavior systematically deviates from the one of the human machine as depicted by the mainstream economics.7Rather than dismissing the assumption of constant preferences, Kahneman has retained this assumption and has only modified the mathematical formulation of consumer’s preferences, i.e. the utility function, in order to bring supposedly more realism into the model of mainstream economics. In his highly praised work, Kahneman wrote,Hence, the derived value (utility) function of an individual does not always reflect "pure" attitudes to money, since it could be affected by additional consequences associated with specific amounts. Such perturbations can readily produce convex regions in the value function for gains and concave regions in the value function for losses. The latter case may be more common since large losses often necessitate changes in lifestyle.8The Misesian framework of consumer choices Following the Mises’s framework of thinking, we can ascertain the distinguishing characteristic and the meaning of human action. For instance, one can observe that people are engaged in a variety of activities. For instance, they may be performing manual work, driving cars, walking on the street or dining in restaurants. The distinguishing characteristic of these activities is that they are all purposeful.Furthermore, we can establish the meaning of these activities. Thus, manual work may be a means for some people to earn money, which in turn enables them to achieve various goals like buying food or clothing. Dining in a restaurant can be a means for establishing business relationships. Driving a car may be a means for reaching a particular destination.In other words, people operate within a framework of ends and means; they use various means to secure ends. We can also, establish from the above that actions are conscious and purposeful.The knowledge that human action is conscious and purposeful is certain and not tentative. Anyone who tries to object to this in fact contradicts himself for he is engaged in a purposeful and conscious action to argue that human actions are not conscious and purposeful. Various conclusions that derived from this knowledge of conscious and purposeful action are valid as well, implying that there is no need to subject them to various laboratory tests as is done in the experimental economics. For something that is certain knowledge, there is no requirement for any empirical testing.Behavioral and experimental economists such as Nobel Laureate Vernon Smith, however, reject the view that human actions are conscious and purposeful. Thus Smith wrote,He (Mises) wants to claim that human action is consciously purposeful. But this is not a necessary condition for his system. Markets are out there doing their thing whether or not the mainspring of human action involves self-aware deliberative choice. He vastly understates the operation of unconscious mental processes. Most of what we know we do not remember learning, nor is the learning process accessible to our conscious experience—the mind………Even important decision problems we face are processed by the brain below conscious accessibility.9Means-Ends and Consumer ChoicesPurposeful action implies that people assess or evaluate various means at their disposal against their ends. Individual ends set the standard for human valuations and, thus, choices. By choosing a particular end an individual also sets a standard of evaluating various means.For instance, if my end is to provide a good education for my child, then I will explore various educational institutions and will grade them in accordance with my information regarding the quality of education that these institutions are providing. Observe that my standard for grading these institutions is my end, which is to provide my child with a good education.Or, for instance, if my intention is to buy a car, there are all sorts of cars available in the market, and as such I have to specify to myself the specific ends that the car will help me to achieve. For instance, a factor I may need to consider is whether I plan to drive long distances or just a short distance from my home to the train station and then catch the train. My final end will dictate how I will evaluate various cars. Perhaps, I will conclude that for a short distance a second hand car will do the trick. Since an individual's ends determine his valuations of means and thus his choices, it follows that the same good will be valued differently by the individual as a result of changes in his ends.At any point in time, people have an abundance of ends that they would like to achieve. What limits the attainment of various ends is the scarcity of means. Hence, once more means become available, a greater number of ends, or goals, can be accommodated — and people's living standards will increase.Another limitation on attaining various goals is the availability of suitable means. Thus, to quell my thirst in the desert, I require water. Diamonds in my possession will be of no help in this regard.Observe that the means-end framework is the essence of any human action whether the action is in accordance with what is regarded as rational conduct, or not.Furthermore, once it is accepted that human actions are conscious and purposeful it will not make much sense to extract preferences in a laboratory, or by means of questionnaires, since only something that is constant can be extracted. Hence, the various results obtained from laboratory tests, or from questionnaires do not advance our understanding of human action as far as economics is concerned, but on the contrary prevents us acquiring any meaningful knowledge.ConclusionsBy casting doubt on the notion that reason is the main faculty that navigates human actions behavioral economics emphasizes the importance of emotions as the key driving factor of human actions.By means of psychological analysis, the practitioners of behavioral economics have supposedly demonstrated that people’s conduct is irrational.Consequently, the practitioners of behavioral economics may have unintentionally laid the foundations for the introduction of government controls to "protect" individuals from their own irrational behavior.For instance, wide fluctuations in financial markets can be attributed to irrational behavior, which can damage the economy. Hence, it will make a lot of sense to restrain this irrationality by a dosage of restraining regulations.Note that behavioral economics, while criticizing the mainstream economics for not being realistic regarding human choices, treats human beings as automatons. 1. Vernon L. Smith “ Reflections on Human Action after 50 years.” Cato Journal, 19, No.2 (Fall 1999), p200. 2. Ludwig Von Mises The Ultimate Foundation of Economic Science. Chapter 2 Mises Institute website. 3. Frances K. McSweeney and Samantha Swindell, “Behavioral Economics and Within-Session Changes in Responding,” Journal of the Experimental Analysis of Behavior 72, No.3 (November,1999): 355-71 4. Murray N. Rothbard, Man, Economy and State, (Los Angeles: Nash Publishing) p63. 5. Ibid.,p63 6. Murray N. Rothbard, Towards a Reconstruction of Utility and Welfare Economics. 7. Daniel Kahneman and Amos Tversky, “Prospect Theory: An analysis of decision under risk.” Econometrica 47, No.2 March, 1979 8. Ibid 9. Vernon L. Smith “ Reflections on Human Action after 50 years.” Cato Journal, 19, No.2 (Fall 1999), p200.
  • Don't Start Rejoicing over Mugabe's Fall Just Yet    (Marian L. Tupy, 2017-11-17)
    Marian L. Tupy Robert Mugabe, the cartoonish dictator of Zimbabwe, wasn’t corrupted by 37 years in power. Contrary to the myth his admirers created in the 1980s, he never was a selfless revolutionary devoted to the welfare of his people. From his political emergence in the 1960s to his ousting in a coup this week, Mugabe remained what he always was: a hard-core Marxist willing to do anything to gain and hold onto absolute power. His time in office was marked by violence and economic illiteracy — a fatal combination that broke the once-prosperous country. As befits the fate of a tyrant, Mugabe finally found himself at the mercy of his erstwhile henchmen. And as he exits the political arena, he leaves Zimbabwe in the hands of a man who is, arguably, even more brutal than Mugabe himself. Zimbabwe is a long way from gaining political freedom or returning to economic growth. Mugabe, a carpenter’s son born in 1924 in Southern Rhodesia’s Kutama Mission, was inculcated with a deep hatred of the British Empire by an Irish Jesuit who ran a mission. Bookish and intelligent, Mugabe won a scholarship to study at a South African university, where he got his first taste of Marxism. In 1960, he joined Joshua Nkomo’s Zimbabwe African People’s Union, a black liberation movement committed to ending colonial rule in Rhodesia. After falling out with Nkomo, Mugabe helped to establish the Zimbabwe African National Union. The two movements — ZAPU, supported by the Soviets, and ZANU, backed by the Red Chinese — were soon at loggerheads and, following an outbreak of violence, both Nkomo and Mugabe were imprisoned by the Rhodesian authorities. Upon his release in 1974, Mugabe left the country for safe haven in Mozambique from where ZANU launched a guerrilla war against his former captors. Unsuited for combat, Mugabe outsourced the actual fighting to one of his deputies, Josiah Tongogara. The mounting costs of war, international pressure and economic sanctions forced the Rhodesian government to the negotiating table and set the country on a path to the fateful 1980 election. Preparing for the election, Mugabe appeared to have disposed of Tongogara, a possible rival, in what the US Embassy in Lusaka described as a “non-accidental” car crash. Mugabe’s guerrillas also intimidated defenseless villagers into casting their votes for ZANU. Much to everyone’s surprise, Mugabe won 57 out of the 100 seats in Parliament. In the early 1980s, Mugabe’s North Korea-trained troops descended on Nkomo’s stronghold in the Matabeleland, killing 20,000 people and forcing Nkomo into exile. The man entrusted with the grisly task of genocide, Emmerson Mnangagwa, would become Mugabe’s right-hand man — for a time. During the 1980s, government corruption metastasized while Mugabe’s socialist policies slowly suffocated the country’s economy. Burgeoning debt and deficits necessitated an IMF bailout and a promise of economic reforms in the 1990s. As socialism collapsed in Europe, the aging revolutionary reinvented himself as the enemy of all things Western and determined to wipe out the last vestiges of the British colonial legacy in Zimbabwe. These were the white farmers, who constituted the backbone of Zimbabwe’s economy. Using the pretext of the farmers’ meddling in politics, Mugabe started expropriating commercial farmland in 2000, which occasioned a spectacular economic meltdown. In 2008, the country’s output fell to the 1979 level and GDP per capita to levels last seen in the 1950s. Zimbabwe saw the second-highest hyperinflation in recorded history, an annualized rate of 90 sextillion percent. Unemployment rocketed to 90 percent and government departments — with the expectation of the military and police — effectively ceased to function. Yet Mugabe, propped up by South Africa’s President Thabo Mbeki, survived and limped along with Zimbabwe for another decade. Now, aged 94, the increasingly fragile and senile Mugabe made a grave error by dismissing his vice president to clear the way for his second wife, the 52-year-old Grace, to ascend to the presidency. Mnangagwa responded by apparently staging a coup and placing Mugabe under house arrest. Latest reports suggest that Mugabe will be permitted to go into exile unmolested, leaving a broken country at the mercy of a murderous maniac. If so, Zimbabwe is a long way from gaining political freedom or returning to economic growth. The international community will doubtless try to keep up pressure on ZANU and its new leadership, but, in the end, it’s up to Zimbabweans to avoid another Mugabe. Marian L. Tupy is a senior policy analyst at Cato Institute’s Center for Global Liberty and Prosperity.
  • "Economic Development" Is a Corporate Welfare Scheme    (Nathan Keeble, 2017-11-17)
    By: Nathan Keeble The Beacon Center, a libertarian think tank based in Nashville, has released a new film highlighting and describing the impact of corporate welfare in Tennessee. Starring University of Tennessee professor Glenn Reynolds, Rigged tells the story of small business owners in Memphis who were harmed by the massive tax breaks which the Shelby County government bestowed upon the furniture giant Ikea for opening a location in the Memphis area. The film has sparked a renewed focus on cronyism across the state.Just recently, the four largest media firms in the state published the results of a ten month investigation into Tennessee’s subsidy and incentive programs. They found that the volunteer state’s corporate welfare programs amount to $2.5 billion annually. The Times Free Press reports that the Department of Economic and Community Development, whose raison d'être is to dole out state privileges, has increased its spending by 80 percent since Bill Haslam became Governor.The investigation also lamented the lack of oversight and accountability. The Times Free Press concludes that it is impossible to conclude if these corporate welfare programs have succeeded even on their own metric, creating jobs. Some officials didn’t even have records of the size of their handouts. However, one does not need to have numbers to prove that cronyism is inherently detrimental to an economy.Why Cronyism is a Fool’s ErrandThe main benefit touted by supporters of corporate welfare programs is its ability to create jobs. Proponents maintain that businesses who receive subsidies, tax credits, and other privileges would not be able to profitably locate themselves within their community. The establishment of these business means more and potentially better jobs for workers in their area. These jobs provide incomes for workers and therefore raise their living standards as well. Without corporate welfare programs, proponents maintain that they would likely face unemployment and economic hardship.The first flaw in this reasoning is the idea that jobs would not be created in the absence of corporate welfare policies. While it is true that businesses may be lured to different areas through these policies, focusing on these immediate and visible results is to ignore the full effects of the policy.RELATED: "Chamber of Corporatism" by Ryan McMakenCorporate welfare advocates fail to see the jobs which would have existed in the absence of their programs. The resources which were redirected by the state to these new businesses by subsidies and other privileges would have been used by other businesses to produce other goods. In simpler terms, consumers would have used their money to demand goods that most effectively meet their needs, and entrepreneurs would have used the resources in these communities, including labor, to produce them. After all, one must deny human nature to think that entrepreneurs would not undertake profitable business opportunities.The above paragraph touches on perhaps the most fundamental flaw in these policies. The benefits of corporate welfare are not determined by consumer choice, but by the political decisions of legislatures and bureaucrats. In a free market where consumers are allowed to freely exchange, profit and loss are naturally determined by how well a business predicts and satisfies consumer needs. Through this crucial mechanism, consumers ensure that resources are being used in the most effective and efficient manner, as nonproductive firms are consumed by losses and productive ones are lavishly rewarded with profit.In fact, the only reason a business would need a subsidy or tax credit to exist is if it is not capable of adequately meeting consumer needs. Through corporate welfare, government forces resources into inefficient lines of production, allowing failing firms to exist at the expense of consumers. The economy’s production structure becomes distorted, and no longer reflects the real demands of the people. The misallocation of resources cause by the state’s crony policies means that less real wealth is being created than would be in their absence, consumer needs are poorly met, and wealth goes into the hands of those who have not properly earned it.Once one recognizes this misallocation of resources, any jobs which are supported by corporate welfare are of a temporary nature. Barring any significant changes in economic data, these firms are only sustainable so long as the corporate welfare programs themselves are sustained. As soon as they stop or become otherwise insufficient, the business will fail, and the workers they employed will again find themselves in a period of unemployment. The severity of this transitional period is likely to increase as workers become increasingly specialized in these privileged fields, making it more difficult for them to fit into other industries.1While undoubtedly a short term pain for those involved, the liquidation of these firms should be viewed as a major long term positive. With the state’s interference gone, resources would once again directed by profit and loss into production structures which more accurately reflect consumer preferences. With corporate welfare gone, less resources would be wasted, and more consumer needs would be met.A Better Way to Promote GrowthCorporate welfare must come to an end if we want an economy which best fulfills its purpose, improving the lives of the most amount of people. The truth is that good businesses simply do not need the state’s handouts. Only bad ones do. If legislators truly wish to see their community grow and develop, they would be wise to pursue other reforms.The best path for a legislature to take is to get themselves out of the private sector’s way. Economic growth is slowed, halted, or even reversed when the state taxes, regulates, or otherwise violates private property rights. Removing licensing laws, lowering taxes, and repealing burdensome regulations would all be great choices to accelerate economic development and promote the welfare of local communities. Crucially, these reforms should be as generally applicable as possible to avoid the same harmful and distorting effects of the current corporate welfare programs. 1. I am indebted to the always insightful Bernardo Ferrero for this last point.
  • Virtue Signaling on Tax Cuts    (Gary Galles, 2017-11-17)
    By: Gary Galles As happens every time any sort of tax change that can be demonized as “tax cuts for the rich” is proposed, the Trump administration’s framework for tax reform has been met with “tax me more” virtue signaling. The latest installment I have seen was “I’m a billionaire. Tax me more,” in the October 6 Los Angeles Times. There billionaire Tom Steyer wrote, “As a billionaire, I would profit substantially from the tax cuts proposed…But I am strongly oppose to even one more penny in cuts for rich people and corporations,” because it would “defund the critical public programs on which American families depend.”Unfortunately, such a signal of virtue is actually a signal of vice. Higher income earners already pay a vastly disproportionate share of the taxes used to fund government programs. Since those far higher taxes aren’t paying for greater benefits, Steyer’s position is essentially once of coerced charity--higher income people should be forced to pay more so that the government can give more to others, who didn’t earn it—and if other rich people don’t volunteer for higher taxes like I do, it is only because they are selfish (though one wonders why those who want something for nothing aren’t considered more selfish).Because individual rich tax volunteers would pay only a small fraction of the actual cost of the programs they favor, forcing others to pick up almost all the tab, they provide just one more example of how the immense payoffs to taking others’ property through government lead people to torture logic to justify why others deserve your money more than you do, with government merely the necessary mechanism to achieve the required charity. However, the coercive charity logic is faulty. Few have made that clearer than F.A. Harper. In Liberty: A Path to Its Recovery, over a half-century ago, he decimated the “charity” excuse for violating liberty.The right to the product of one’s own labor…is not in conflict with compassion and charity. Leaving these matters to voluntary action, rather than to apply compulsion, is in harmony rather than in conflict with Christian ethics… assistance given voluntarily…is truly charity; that taken from another by force…is not charity at all, in spite of its use for avowed “charitable purposes.” The virtue of compassion and charity cannot be sired by the vice of thievery.“Political charity” violates the essentials of charity…taken by force from the pockets of others…All told, the process of “political charity” is about as complete a violation of the requisites of charity as can be conceived.Those who contend that the rights of liberty are in conflict with charity falsely assume that persons generally have a total disregard for the welfare of others… The right to have income and private property means the right to control its disposition and use; it does not mean that the person must consume it all himself.Nor is compassion so cheap a virtue as to be practiced by the mere distributing of grants of aid taken from the pockets of others…buying groceries and things for certain persons by using other people's money.When a taxpayer is forced to contribute to “charity” in spite of his judgment of need, he will increasingly shun the sense of responsibility which is requisite to a spirit of compassion…as he more and more accepts the viewpoint: “That is the government’s business!”Advocacy of these rights of liberty is sometimes called “selfishness.” “Self,” if used in this sense, means…anything which this person considers worthy of help from his income or savings.If “selfishness” is to be charged against the one who demands the right to that which he has produced, selfishness of a far less virtuous order should also be charged against any non-producer who takes the income and wealth from another against his will.If control of the disposition and use of income and wealth is to be called “selfishness,” then it is unavoidable that someone act selfishly…The question then becomes: Who should have the right to be selfish, the one who produced it or some other person? Is it selfishness to control the disposition of that which you have produced, but unselfish to control the disposition of that which you have taken?Review carefully [the] starting assumption that justice and charity and selflessness can best be attained through giving legal or moral sanction to the taking by one person of the product of another’s labor by force.Liberty is not in conflict with charity. More accurately, charity is possible and can reach large proportions only under liberty; and under liberty, the “need” for it would probably be greatly reduced.Tom Steyer and other “rich tax volunteers” are no doubt well-intended. However, the virtue they thereby put on public display decoys attention from the necessary vice of violating others’ liberty it involves. While few today recognize it, F.A. Harper saw that gaping hole in arguments for why charity justifies government coercion of others. He demonstrated that government coercion both undermines charity and creates more “need.” Further, involuntary “generosity” threatens liberty:Liberty…demands acceptance of separate domains within which a person is allowed to make his mistakes, if he does so with what is his…it becomes a prime moral right of a person “to do what I will with mine own” instead of to do what I will with your own.
  • Leftist Billionaires Virtue Signal on Tax Cuts    (Gary Galles, 2017-11-17)
    By: Gary Galles As happens every time any sort of tax change that can be demonized as “tax cuts for the rich” is proposed, the Trump administration’s framework for tax reform has been met with “tax me more” virtue signaling. The latest installment I have seen was “I’m a billionaire. Tax me more,” in the October 6 Los Angeles Times. There billionaire Tom Steyer wrote, “As a billionaire, I would profit substantially from the tax cuts proposed…But I am strongly oppose to even one more penny in cuts for rich people and corporations,” because it would “defund the critical public programs on which American families depend.”Unfortunately, such a signal of virtue is actually a signal of vice. Higher income earners already pay a vastly disproportionate share of the taxes used to fund government programs. Since those far higher taxes aren’t paying for greater benefits, Steyer’s position is essentially once of coerced charity--higher income people should be forced to pay more so that the government can give more to others, who didn’t earn it—and if other rich people don’t volunteer for higher taxes like I do, it is only because they are selfish (though one wonders why those who want something for nothing aren’t considered more selfish).Because individual rich tax volunteers would pay only a small fraction of the actual cost of the programs they favor, forcing others to pick up almost all the tab, they provide just one more example of how the immense payoffs to taking others’ property through government lead people to torture logic to justify why others deserve your money more than you do, with government merely the necessary mechanism to achieve the required charity. However, the coercive charity logic is faulty. Few have made that clearer than F.A. Harper. In Liberty: A Path to Its Recovery, over a half-century ago, he decimated the “charity” excuse for violating liberty.The right to the product of one’s own labor…is not in conflict with compassion and charity. Leaving these matters to voluntary action, rather than to apply compulsion, is in harmony rather than in conflict with Christian ethics… assistance given voluntarily…is truly charity; that taken from another by force…is not charity at all, in spite of its use for avowed “charitable purposes.” The virtue of compassion and charity cannot be sired by the vice of thievery.“Political charity” violates the essentials of charity…taken by force from the pockets of others…All told, the process of “political charity” is about as complete a violation of the requisites of charity as can be conceived.Those who contend that the rights of liberty are in conflict with charity falsely assume that persons generally have a total disregard for the welfare of others… The right to have income and private property means the right to control its disposition and use; it does not mean that the person must consume it all himself.Nor is compassion so cheap a virtue as to be practiced by the mere distributing of grants of aid taken from the pockets of others…buying groceries and things for certain persons by using other people's money.When a taxpayer is forced to contribute to “charity” in spite of his judgment of need, he will increasingly shun the sense of responsibility which is requisite to a spirit of compassion…as he more and more accepts the viewpoint: “That is the government’s business!”Advocacy of these rights of liberty is sometimes called “selfishness.” “Self,” if used in this sense, means…anything which this person considers worthy of help from his income or savings.If “selfishness” is to be charged against the one who demands the right to that which he has produced, selfishness of a far less virtuous order should also be charged against any non-producer who takes the income and wealth from another against his will.If control of the disposition and use of income and wealth is to be called “selfishness,” then it is unavoidable that someone act selfishly…The question then becomes: Who should have the right to be selfish, the one who produced it or some other person? Is it selfishness to control the disposition of that which you have produced, but unselfish to control the disposition of that which you have taken?Review carefully [the] starting assumption that justice and charity and selflessness can best be attained through giving legal or moral sanction to the taking by one person of the product of another’s labor by force.Liberty is not in conflict with charity. More accurately, charity is possible and can reach large proportions only under liberty; and under liberty, the “need” for it would probably be greatly reduced.Tom Steyer and other “rich tax volunteers” are no doubt well-intended. However, the virtue they thereby put on public display decoys attention from the necessary vice of violating others’ liberty it involves. While few today recognize it, F.A. Harper saw that gaping hole in arguments for why charity justifies government coercion of others. He demonstrated that government coercion both undermines charity and creates more “need.” Further, involuntary “generosity” threatens liberty:Liberty…demands acceptance of separate domains within which a person is allowed to make his mistakes, if he does so with what is his…it becomes a prime moral right of a person “to do what I will with mine own” instead of to do what I will with your own.
  • Is Behavior Economics Good Economics?    (Frank Shostak, 2017-11-17)
    By: Frank Shostak Recently, a relatively new economics called Behavioral Economics (BE) has started to gain popularity. Its practitioners such as Daniel Kahneman, Vernon Smith and Richard Thaler were awarded Nobel prizes for their contribution in the field of BE.The BE framework emerged on account of dissatisfaction with the neo-classical theory regarding consumer choices. A major problem with the neo-classical theory that people presented as if a scale of preferences is hard-wired in their heads. Regardless of anything else, this scale remains the same all the time.The practitioners of BE hold that this is a very unrealistic case. Hence, to make the mainstream framework more realistic they suggested introducing psychology into economics.It is held that people’s emotional state is going to influence their decision-making process. Thus, if consumers are becoming more optimistic regarding the future then this is going to be an important message to businesses regarding their investment decisions.According to BE researchers whether consumers are generally patient or impatient determines whether or not they are inclined to spend or save today. If they are more patient and save more, then this can generate funds for entrepreneurs’ new investment projects.Behavioral economists emphasize the importance of personality. An emphatic person is regarded more likely to make altruistic choices. Impulsive people are more likely to be impatient and not so good at saving up for their retirement. Venturesome people are more likely to take risks — they will be more likely to gamble (see Michelle Baddeley's Behavioural Economics. A Very Short Introduction).While the BE criticism of mainstream economics is valid, the question arises whether BE solves the issue of unchanged consumer preferences and presents consumers as real people and not as human machines.The key here is the definition of what human beings are all about. According to BE, people are not rational in a sense that they are using reason in various decisions. According to BE practitioners, the key driver for consumer choices are emotions. For instance, the Nobel Laureate Vernon Smith holds,People like to believe that good decision making is a consequence of the use of reason, and that any influence that the emotions might have is antithetical to good decisions. What is not appreciated by Mises and others who similarly rely on the primacy of reason in the theory of choice is the constructive role that the emotions play in human action.1Obviously once the importance of reason is dismissed, what is then left is treating human beings like objects. According to this way of thinking, human action is not navigated by reason but by outside factors that act upon men. By means of a given stimulus, one can then observe various human reactions and draw all sorts of conclusions regarding the world of economics. According to Mises however,It is impossible to describe any human action if one does not refer to the meaning the actor sees in the stimulus as well as in the end his response is aiming at.2By rejecting the importance of the human reason, behavioral and experimental economists treat man as another animal. In fact, some of the experimental economists are conducting various experiments on pigeons and rats in order to verify various propositions of mainstream economics.3Why the introduction of psychology in economics will not make economics more realisticPsychology is an important element in behavioral and experimental economics on the ground that human action and psychology are inter-related disciplines. However, there is a distinct difference between economics and psychology. Psychology deals with the content of ends and values. Economics, however, starts with the premise that people are pursuing purposeful conduct. It does not deal with the particular content of various ends.According to Rothbard,A man's ends may be "egoistic" or "altruistic", "refined" or "vulgar". They may emphasize the enjoyment of "material goods" and comforts, or they may stress the ascetic life. Economics is not concerned with their content, and its laws apply regardless of the nature of these ends.4Whereas,Psychology and ethics deal with the content of human ends; they ask, why does the man choose such and such ends, or what ends should men value?5Therefore, economics deals with any given end and with the formal implications of the fact that men have ends and utilise means to attain these ends. Consequently, economics is a separate discipline from psychology.By introducing psychology into economics, one obliterates the generality of the theory. This is precisely what psychologist Daniel Kahneman, the Nobel laureate in economics, and his followers are doing.Through various tests that he has conducted, Kahneman has concluded that people are not always behaving rationally, i.e., in accordance with the premises of mainstream economics. What Kahneman has discovered, however, has nothing to do with whether people are rational or not. It has to do with the flawed premise of popular economics — i.e., that peoples preferences are constant. In short, the proposition that people are like machines that never change their minds.Contrary to mainstream thinking, the Austrian School of thinking always held that valuations do not exist by themselves regardless of the things to be valued. On this Rothbard wrote, “There can be no valuation without things to be valued.”6In other words, valuation is the outcome of the mind valuing things. It is a relation between the mind and things.Now, if preferences are constant then it is possible to compress these preferences into a mathematical formulation, i.e., one can capture people's wishes by means of a formula, so it is held. This is labeled by mainstream economics as a utility function. Curiously, the assumption of constancy is labeled as an important characteristic of rationality by popular economics.Obviously, people do change their minds, so it is not surprising that Kahneman has "discovered" that real people's behavior systematically deviates from the one of the human machine as depicted by the mainstream economics.7Rather than dismissing the assumption of constant preferences, Kahneman has retained this assumption and has only modified the mathematical formulation of consumer’s preferences, i.e. the utility function, in order to bring supposedly more realism into the model of mainstream economics. In his highly praised work, Kahneman wrote,Hence, the derived value (utility) function of an individual does not always reflect "pure" attitudes to money, since it could be affected by additional consequences associated with specific amounts. Such perturbations can readily produce convex regions in the value function for gains and concave regions in the value function for losses. The latter case may be more common since large losses often necessitate changes in lifestyle.8The Misesian framework of consumer choices Following the Mises’s framework of thinking, we can ascertain the distinguishing characteristic and the meaning of human action. For instance, one can observe that people are engaged in a variety of activities. For instance, they may be performing manual work, driving cars, walking on the street or dining in restaurants. The distinguishing characteristic of these activities is that they are all purposeful.Furthermore, we can establish the meaning of these activities. Thus, manual work may be a means for some people to earn money, which in turn enables them to achieve various goals like buying food or clothing. Dining in a restaurant can be a means for establishing business relationships. Driving a car may be a means for reaching a particular destination.In other words, people operate within a framework of ends and means; they use various means to secure ends. We can also, establish from the above that actions are conscious and purposeful.The knowledge that human action is conscious and purposeful is certain and not tentative. Anyone who tries to object to this in fact contradicts himself for he is engaged in a purposeful and conscious action to argue that human actions are not conscious and purposeful. Various conclusions that derived from this knowledge of conscious and purposeful action are valid as well, implying that there is no need to subject them to various laboratory tests as is done in the experimental economics. For something that is certain knowledge, there is no requirement for any empirical testing.Behavioral and experimental economists such as Nobel Laureate Vernon Smith, however, reject the view that human actions are conscious and purposeful. Thus Smith wrote,He (Mises) wants to claim that human action is consciously purposeful. But this is not a necessary condition for his system. Markets are out there doing their thing whether or not the mainspring of human action involves self-aware deliberative choice. He vastly understates the operation of unconscious mental processes. Most of what we know we do not remember learning, nor is the learning process accessible to our conscious experience—the mind………Even important decision problems we face are processed by the brain below conscious accessibility.9Means-Ends and Consumer ChoicesPurposeful action implies that people assess or evaluate various means at their disposal against their ends. Individual ends set the standard for human valuations and, thus, choices. By choosing a particular end an individual also sets a standard of evaluating various means.For instance, if my end is to provide a good education for my child, then I will explore various educational institutions and will grade them in accordance with my information regarding the quality of education that these institutions are providing. Observe that my standard for grading these institutions is my end, which is to provide my child with a good education.Or, for instance, if my intention is to buy a car, there are all sorts of cars available in the market, and as such I have to specify to myself the specific ends that the car will help me to achieve. For instance, a factor I may need to consider is whether I plan to drive long distances or just a short distance from my home to the train station and then catch the train. My final end will dictate how I will evaluate various cars. Perhaps, I will conclude that for a short distance a second hand car will do the trick. Since an individual's ends determine his valuations of means and thus his choices, it follows that the same good will be valued differently by the individual as a result of changes in his ends.At any point in time, people have an abundance of ends that they would like to achieve. What limits the attainment of various ends is the scarcity of means. Hence, once more means become available, a greater number of ends, or goals, can be accommodated — and people's living standards will increase.Another limitation on attaining various goals is the availability of suitable means. Thus, to quell my thirst in the desert, I require water. Diamonds in my possession will be of no help in this regard.Observe that the means-end framework is the essence of any human action whether the action is in accordance with what is regarded as rational conduct, or not.Furthermore, once it is accepted that human actions are conscious and purposeful it will not make much sense to extract preferences in a laboratory, or by means of questionnaires, since only something that is constant can be extracted. Hence, the various results obtained from laboratory tests, or from questionnaires do not advance our understanding of human action as far as economics is concerned, but on the contrary prevents us acquiring any meaningful knowledge.ConclusionsBy casting doubt on the notion that reason is the main faculty that navigates human actions behavioral economics emphasizes the importance of emotions as the key driving factor of human actions.By means of psychological analysis, the practitioners of behavioral economics have supposedly demonstrated that people’s conduct is irrational.Consequently, the practitioners of behavioral economics may have unintentionally laid the foundations for the introduction of government controls to "protect" individuals from their own irrational behavior.For instance, wide fluctuations in financial markets can be attributed to irrational behavior, which can damage the economy. Hence, it will make a lot of sense to restrain this irrationality by a dosage of restraining regulations.Note that behavioral economics, while criticizing the mainstream economics for not being realistic regarding human choices, treats human beings as automatons. 1. Vernon L. Smith “ Reflections on Human Action after 50 years.” Cato Journal, 19, No.2 (Fall 1999), p200. 2. Ludwig Von Mises The Ultimate Foundation of Economic Science. Chapter 2 Mises Institute website. 3. Frances K. McSweeney and Samantha Swindell, “Behavioral Economics and Within-Session Changes in Responding,” Journal of the Experimental Analysis of Behavior 72, No.3 (November,1999): 355-71 4. Murray N. Rothbard, Man, Economy and State, (Los Angeles: Nash Publishing) p63. 5. Ibid.,p63 6. Murray N. Rothbard, Towards a Reconstruction of Utility and Welfare Economics. 7. Daniel Kahneman and Amos Tversky, “Prospect Theory: An analysis of decision under risk.” Econometrica 47, No.2 March, 1979 8. Ibid 9. Vernon L. Smith “ Reflections on Human Action after 50 years.” Cato Journal, 19, No.2 (Fall 1999), p200.
  • Let's Talk about Respect: Chicago Police Officers Continue to Fail the Communities They Are Sworn to Serve    (Jonathan Blanks, 2017-11-16)
    Jonathan Blanks When police departments face criticism for high-profile officer-involved shootings or more general calls for reform, some talking heads tend to fall back on crime statistics, particularly violent crime statistics in majority black neighborhoods, saying that crime is the underlying problem of those areas, not the police who work there. The “what about black-on-black crime?” canard deflects criticism of police and their often-abusive practices in communities of color. The argumentative sleight of hand shifts responsibility from the police back onto the community that lodges the complaint of police abuse, as if the existence of high crime neighborhoods negates complaints of police abuse. Police accountability is not an ancillary issue that should take a back seat to crime fighting. Accountable police officers are paramount to public safety and security. The increase in violence on the streets of Chicago particularly has become the go-to shibboleth of the “tough on crime” set. U.S. Attorney General Jeff Sessions has decried Chicago “lawlessness” and underscored that the “most critical factor to our success is the strength, training, and morale of the Chicago Police Department.” The Manhattan Institute’s Heather Mac Donald explicitly blamed Chicago’s murder spike on what she called the “Ferguson effect”: chilled by the public outcry following Ferguson officer Darren Wilson’s killing of teen Michael Brown, line officers retreated from proactive policing and, consequently, a spike of violent crime followed. This causal relationship was not backed by data—though “de-policing” has shown to have correlative effects in other cities like Baltimore—but Chicago continues to be a buzzwordfor those who believe police are not getting the respect they deserve and that lack of respect is enabling violent crime. Police accountability is not an ancillary issue that should take a back seat to crime fighting. OK. Let’s talk about respect and the Chicago Police Department (CPD). For almost 20 years, Chicago Police Commander Jon Burge tortured men—primarily black men—to elicit confessions to murders and other crimes. Many men spent decades in prisons after these torture sessions, often for crimes they didn’t commit. When he was finally fired, the statute of limitations had expired for his most barbaric acts. He was eventually convicted of lying in a civil case about the torture he inflicted and sentenced to four-and-a-half years in prison. Burge still receives a $4,000 per month pension, despite the City setting up a multi-million dollar reparations fund to compensate his many victims. More recently, Officer Dante Servin was charged for fatally shooting Rekia Boyd, 22, from his car in 2012. Servin claimed he was trying to shoot a man who had reached into his waistband and pointed a gun at him, but shot into a crowd of unarmed young black people ordered to disperse, killing Boyd and injuring another man. The gun Servin claimed he saw was a cell phone. Servin was charged with involuntary manslaughter, but the judge dismissed the case in 2016, saying that Servin was mischarged because the facts supported first degree murder. Servin quit before he could be terminated for killing Boyd so, like Burge, he too kept his pension. The City paid Boyd’s family $4.5 million for her wrongful death. But CPD’s problems go well beyond one or two bad cops. In 2015, The Guardian published a massive, multi-part investigative reportabout a secret interrogation site in Chicago known as Homan Square. The Guardian had to sue to get much of the official information about Homan Square, which held more than 7,000 individuals functionally incommunicado from friends, family, and legal counsel. An estimated 82 percent of the individuals held at the black box site were African American, and fewer than 100 had documented visits from legal counsel. People detained there reported being shackled for hours and held for days at a time without outside contact. At least 14 reported being subjected to “punches, knee strikes, elbow strikes, slaps, wrist twists, baton blows and Tasers” that were not performed in the course of a lawful arrest and at least two individuals died while held at Homan Square. One man alleged he was sexually abused in an effort to coerce his cooperation in a drug case. The most famous misconduct case to come out of Chicago in recent years was the fatal shooting of Laquan McDonald by CPD officer Jason Van Dyke in 2014. The shooting itself was troubling on a number of levels—Van Dyke emptied his magazine into the black teen’s body well after he suffered a head shot that left him motionless on the ground—but the aftermath and the video evidence point to even larger, systemic problems within the CPD. The delay in releasing the dash cam video of the incident—forced by an investigative journalist’s Freedom of Information Act request and subsequent lawsuit—raised questions of politics, specifically that the release was delayed, in part, to protect the reelection prospects of Mayor Rahm Emanuel. When the footage was released, none of the dash cams had operating microphones to capture audio of the incident. An internal CPD review showed that 80 percent of CPD dashcams had dysfunctional audio due “to operator error or in some cases intentional destruction” by officers, strongly suggesting widespread tampering with potential criminal evidence. The manager of a Burger King near the scene reportedly told a grand jury that police destroyed 86 minutes of surveillance footage he turned over to them that corresponded with the time of the killing. Ten officers were recommended to be fired and four officers and a sergeant were brought up on administrative charges for covering-up the shooting by filing false reports about the incident. Van Dyke was indicted for the killing and only three other CPD officers were indicted on misconduct and obstruction charges for the cover-up. (The Chicago Tribunecompiled an ongoing timeline of the case here.) The stories above are just a few of the many cases of misconduct known within and outside of Chicago.The CPD continues to operate in an environment that protects officers from accountability for many years, even in the most egregious cases of misconduct. Those who point to Chicago to decry the lawlessness in the communities there would do well to examine the police who patrol those streets and why they continue to fail the people they are sworn to serve. Jonathan Blanks is a Research Associate in Cato’s Project on Criminal Justice and a Writer in Residence at Harvard University’s Fair Punishment Project.
  • House Tax Plan: Good for Affordable Housing    (Vanessa Brown Calder, 2017-11-16)
    Vanessa Brown Calder The U.S. House of Representatives and Senate’s tax reform plans dropped this month, and affordable-housing advocates described the former as the “worst-case scenario” and “devastating for affordable housing.” But unless you’ve been following federal affordable housing policy closely, it may be hard to understand why. Affordable-housing advocates are mainly concerned about the House’s proposal to eliminate private activity bonds. These bonds are frequently paired with low-income housing tax credits to provide equity for qualifying housing projects. Without the bonds, developers will not be able to utilize one version of the low-income housing tax credit. As a result, advocates have decided the affordable housing sky is falling. But there is reason to be more upbeat. For one thing, the LIHTC program isn’t what supporters make it out to be. The program is arguably one of the least-efficient housing subsidy programs overseen by the federal government. Affordable-housing advocates are concerned about the House’s proposal to eliminate private activity bonds. Research suggests a majority of LIHTC benefits go to developers and intermediaries, rather than low-income tenants. In one study, Economist Gregory Burge found evidencethat only one-third of the value of LIHTC benefits low-income tenants. That leaves two-thirds of the benefit for developers, lawyers, accountants and financiers involved in the process. There are other issues, too. For example, LIHTC housing seems to displace private-market housing that would be been built without taxpayers’ help. A 2010 study indicates “nearly 100 percent of LIHTC development is offset by a reduction in the number of newly built unsubsidized rental units.” That is a problem because it means taxpayers are paying for something that would exist even in the absence of a subsidy. The LIHTC program also has abysmal oversight, described in two different reports as “minimal” by the Government Accountability Office, a federal watchdog agency. In a Senate hearing earlier this year, the GAO auditor said the “IRS and no one else in the federal government really has an idea of what’s going on.” The IRS has audited only 13 percent of the local groups administering the program. This lack of oversight leads to corruption and fraud. For example, NPR detailed a string of LIHTC corruption cases in Florida earlier this year that included a major LIHTC developer stealing $34 million from 14 different projects before getting caught. It would be nice if this were an anomaly. Yet the Assistant U.S. Attorney investigating the cases told NPR he “know[s] that this fraud doesn’t just reside in South Florida. There’s too much money involved, and based upon other information that we’ve looked at, this fraud exists in other jurisdictions.” But there is an even more important reason to approve of a reduction in the scope of the LIHTC program: LIHTC serves as a distraction from the crux of the housing affordability problem. In most states, zoning and land-use planning drive up housing costs. For example, I find that increasing land-use regulation is associated with increasing home prices in 44 states in my recent report “Zoning, Land-Use Planning, and Housing Affordability.” But don’t take my word for it. Economists Edward Glaeser and Joseph Gyuorko have estimated the cost of housing is 30 percent to 50 percent higher in certain major cities as a result of the regulatory tax associated with zoning regulation. And restrictive zoning and land-use regulation is associated with fewer multifamily housing developments in U.S. cities. Because inefficient programs like the LIHTC exist, policymakers, lobbyists and housing advocates can go on pretending that spending more money on housing subsidies will resolve housing affordability problems for once and for all. Local policymakers won’t be able to continue living under such an illusion if Congress eliminates private activity bonds and reduces the LIHTC as a consequence. With fewer inefficient subsidies to point at, citizens and policymakers will have to get serious about reforming costly regulation. Eliminating private activity bonds is the first step, and we may have the House tax plan to thank for it. Vanessa Brown Calder is a policy analyst at the Cato Institute.
  • It's the Last Stop on the Light-Rail Gravy Train    (2017-11-16)
    By Randal O’Toole; When it comes to mass transit, politicians never learn. Last month, Nashville Mayor Megan Berry announced a $5.2 billion proposal that involves building 26 miles of light rail and digging...
  • Hayek on Good and Bad Unemployment Policies    (Friedrich A. Hayek, 2017-11-16)
    By: Friedrich A. Hayek In 1944 Professor Hayek emphasised that sustainable employment de pends on an appropriate distribution of labour among the different lines of production. This distribution must change as circumstances change. Sustain able employment thus depends on appropriate changes in relative real wage-rates. If established producers—both unions and capitalists—prevent such relative changes from becoming effective, there follows an unnecessary rise in unemployment. Sustainable employment now depends on successfully tackling these established labour and capital monopolies. - Sudha R. ShenoyOne of the obstacles to a successful employment policy is, paradoxically enough, that it is so comparatively easy quickly to reduce unemployment, or even almost to extinguish it, for the time being. There is always ready at hand a way of rapidly bringing large numbers of people back to the kind of employment they are used to, at no greater immediate cost than the printing and spending of a few extra millions. In countries with a disturbed monetary history this has long been known, but it has not made the remedy much more popular. In England the recent discovery of this drug has produced a somewhat intoxicating effect; and the present tendency to place exclusive reliance on its use is not without danger.Though monetary expansion can afford quick relief, it can produce a lasting cure only to a limited extent. Few people will deny that monetary policy can successfully counteract the deflationary spiral into which every minor decline of activity tends to degenerate. This does not mean, however, that it is desirable that we should normally strain the instrument of monetary expansion to create the maximum amount of employment which it can produce in the short run. The trouble with such a policy is that it would be almost certain to aggravate the more fundamental or structural causes of unemployment and leave us in the end in a position worse than that from which we started.MaladjustmentsThe main cause of this kind of unemployment is undoubtedly the disproportion between the distribution of labour among the different industries and the rates at which the output of these industries could be continuously absorbed. At the end of this war we shall, of course, be faced with a particularly diffi cult problem of this character. In the past the best known disproportion of this kind and, because of its connection with periodical slumps the most important, was the chronic over-development of all the industries making equipment for use in further production.It is more than likely that these industries, because of the intermittent way in which they operated, have always had a larger labour force than they could continuously employ. And while it is not diffi cult to create by means of monetary expansion in those industries another burst of feverish activity which will create temporarily conditions of ‘full employment’, and even draw still more people into those industries, we are thereby making more diffi cult the task of maintaining even employment. A monetary policy aiming at a stable long-run position would indeed deliberately have to stop expansion before ‘full employment’ in those industries had been reached, in order to avoid a new maldirection of resources.Though this is the most important single instance of structural maladjustments responsible for unemployment, the recurrent depression constitutes only part of our problem. The hard core of persistent unemployment is an even greater menace and is due largely to maldistributions of a different kind which monetary policy can do even less to cure. We must here face the fact that the problem of unemployment is in the last resort a wage problem—a fact which used to be well understood but which a conspiracy of silence has recently relegated into oblivion.Wages and MobilityDemand shifts constantly to new articles and industries, and the more rapidly we advance the more frequent such changes become. Though the increased speed of change will necessarily swell the numbers temporarily out of work while looking for a new job, it need not cause an increase of lasting unemployment, or a reduction in the demand for labour as a whole. If movement into the advancing industries were free, they should readily absorb those laid off elsewhere. The new development which more and more prevents this, and which has become the most serious cause of protracted unemployment, is the tendency of those established in the progres sing industries to exclude newcomers. If the increase in demand in those industries leads, not to an increase of employment and output, but merely to an increase of the wages and profits of those already established, there will indeed be no new demand for labour to offset the decrease. If every gain of an industry is treated as the preserve of a closed group, to be taken out almost entirely in higher wages and profi ts, every shift of demand must add to the lasting unemployment.The very special and almost unique experience of this country in the years after the pound was artificially raised to its former gold value has produced a fallacious preoccupation with the general wage level. Where such an artificial increase of the national wage level is the cause of unemployment, monetary manipulation is indeed the simplest way to cure it. Such a situation, however, is altogether exceptional and not likely to occur, except in consequence of currency fluctuations.In normal times employment depends much more on the relation between wages in the different industries—or, rather, on the degree of mobility which the wage structure allows. There is little that monetary policy can positively achieve in this connection. Indeed, if Lord Keynes is right in emphasising that workers attach more importance to the nominal figure of their money wages than to real wages, any attempt to meet the problems of wage rigidity by monetary expansion can only increase the immobility which is the real trouble: if money wages are maintained in declining industries the workers will become even more hesitant to leave them in order to break the protective walls sheltering the privileged groups in the advancing industries.The struggle against unemployment is in the last resort the same as the struggle against monopoly. Need it be added that on this fundamental issue we are not moving in the right direction? Or that it would be a poor service to the community to pretend that there is an easy way out which makes it unnecessary to face the basic difficulties?Dangers AheadIt is easy to see how much more serious our problems must become if the present fashion should prevail and if it should become the accepted doctrine that it is the task of monetary policy to make good any harm done by monopolistic wage policies. Even apart from the effect on those responsible for wage policy, who are thus excused the responsibility for the effect of their action on employment, the one-sided emphasis on monetary policy may not only deprive our efforts of full results, but also produce effects as unlooked for as they are undesirable.While it is true that an intelligent monetary policy is a sine qua non of the prevention of large-scale unemployment, it is equally certain that it is not enough. Short of universal compulsion we shall never lastingly conquer unemployment until we succeed in breaking the rigidities of our economic system which we have allowed the monopolies of capitalists and labour to create. To forget this and to trust solely to monetary policy is the more dangerous as it may succeed long enough to make it impossible to try anything else: the more we are induced to delay the more difficult adjustments, because for the time being we seem to be able to keep things going, the greater the sector of our economic system will grow which can be kept going only by the artificial stimulus of credit expansion and ever-increasing Government investment.It is a path which would force us into progressively increasing Government control of all economic life, and eventually into the totalitarian state.Excerpt from A Tiger by the Tail 
  • Duties Imposed Against Chinese "Dumping" Hurt American Consumers    (Andrew Moran, 2017-11-16)
    By: Andrew Moran For years, special interests have called on the U.S. government to “level the playing field” in the form of duties, levies, and other antiquated measures. Democrats and Republicans alike have aired their grievances over the trade deficit, grumbling about exporters hurting American workers by flooding the market with cheap goods. These complaints are deeply misguided.Over the last decade, China has been accused of tilting international trade in its favor. Is this true? No, it is demonstrably false, as Beijing’s subsidized exports greatly benefit American consumers far more than the Chinese population.You can’t tell that to the U.S. government, though.In late October, the Department of Commerce announced that China dumped aluminum foil on the U.S. market, selling the goods at “unfairly low prices.” Trade policy under Trump hasn’t been dramatically different from his predecessors, though. Who who monitor trade deals have forgotten about President Barack Obama’s 35% tax on Chinese tires and President George W. Bush’s 20% tax on imported steel. US Imposes Anti-Dumping DutiesBefore Trump’s stop in Beijing as part of his 12-day Asian tour, the U.S. government imposed duties ranging between 96.81% and 162.24% on Chinese aluminum foil. The preliminary report determined that China dumped nearly $400 million worth of aluminum foil imports on the U.S. market in 2016 at very low prices.In August, the U.S. instituted preliminary duties of up to 80.97% on Chinese aluminum foil. The Commerce Department averred that state subsidies placed American products at a disadvantage.China is not pleased by the move, describing it as “mistaken methods.” The Chinese Ministry of Commerce confirmed that it would “take necessary actions” to protect its domestic industries by filing a dispute under World Trade Organization (WTO) protocols.Wang Hejun, an official with the ministry, said the U.S. is not only harming Chinese companies, but it is violating multilateral trade rules. He said in a statement:“We urge the United States to earnestly fulfill its international obligations, and take real action to correct its mistaken methods.”It looks like the U.S. will not relent. As part of the Trump administration’s mandate to shrink the trade deficit and boost exports, the Commerce Department has launched 77 anti-dumping and countervailing duty probes, up 61% from 2016, since January 20.That said, Hejun should have taken it one step further: he should have mentioned that the U.S. is hurting American consumers.American Consumers Will Pay the DutiesWhenever a protectionist takes a modern-day approach to mercantilism by slapping a foreign industry with duties and taxes, the media usually report that the adversary will be the victim of these levies. Incorrect. It is typically the population under the protectionist ruler that suffers.Let’s take China’s aluminum foil, which is primarily used for culinary endeavors and industrial applications like heating and insulation, as an example.The Chinese government likely subsidized the manufacturing of aluminum foil, causing it to be a lot cheaper in the U.S. marketplace. Unfortunately, now that the U.S. has placed an exorbitant duty on aluminum foil, it will no longer be affordable, putting a tax on American customers.Moreover, Chinese businesses will not be the only ones to pay the duties. As happens when taxes are raised on any business, the customers will have to pay higher prices.  In May, Liberty Nation reported that the Trump administration would apply a 20% tariff on Canadian softwood lumber imports. The media continually said that Canadian lumber makers would suffer, but the president added a 20% tariff on the American people. Housing prices would jump, homebuilding would slow down, and thousands of construction workers would lose their jobs.Duties, tariffs, and other taxes are paid largely by importing shoppers, not just by exporting firms.China Subsidies Help American ConsumersLet’s be honest: Beijing subsidizes its exports, whether it’s through tax policy or currency manipulation. On the surface, you could have cause for concern. Once you dig a bit deeper, however, you realize that impoverished and middle-class Americans are much better off for this.The goal in trade is to get more for your money. If you achieve this aim, then you’re better off.This is precisely what is occurring in the U.S. today. Due to market interventions by China, millions of Americans are buying more with their greenback, raising their real incomes. The people who are paying for this are Chinese citizens, who are required to endure the taxation to subsidize industry and, as economist Don Boudreaux recently noted, “exert more sweat and to sacrifice more resources than necessary to acquire imports.”When Trump was commemorating Made in America week this past summer, Senator Rand Paul (R-KY) made an excellent point:“You know, I think all of us have this goal to buy American, but we have to think this thing through.It used to be a shirt, just a regular button-up shirt, might be $20, $25, and still might be in places. And at Wal-Mart, it’s $7. And so that savings, though, allows working-class people to have savings to get a television set, to go on vacation, to buy gas for their truck. So trade is really a good thing.”China is providing so many in the U.S. with a form of economic relief.Stop Caring About Trade Deficits In the first nine months of 2017, the U.S.-China trade deficit sits at $405.2 billion, compared to $370.7 billion during the same time a year ago. The trade gap has been coming down since April — it widened just to under $43 billion in September.But why do we care so much about trade deficits?Economist Murray Rothbard suggested that “deficit” has a negative connotation (budget deficit). When someone is watching CNN, and they are being told that the U.S. had a $50 billion trade deficit with Vietnam, they will be irked by this development. A $405 billion trade deficit is far different from a $405 billion budget deficit.Another idea is that the media and politicians present the argument as China trades with U.S. — and vice versa. Outside of cronyist trade agreements, it is people and business that trade with each other, not governments. It doesn’t matter if it has a “Made in Mexico” or “Made in Canada” tag: you’re buying from a Mexican or Canadian company.If the U.S. is buying $400 billion more in goods from China than China is buying from the U.S., then somebody has to hold that 400 billion worth of dollars. This is being kept by foreign investors and corporations, which lifts the greenback and gives Americans more purchasing power on the international market.In the end, we shouldn’t worry too much about the trade deficit. Think of it this way: you own a hardware store, and you frequent the grocery vendor across the street four times a month. Meanwhile, the grocery store owner only shops at your hardware store four times a year. There is a trade deficit: you’re spending more at the supermarket than the supermarket is spending at your hardware store.Is this a bad thing? No.Democrats and Republicans need to get over this mercantilist obsession over an imbalance of trade. Not only are Americans benefiting from subsidized cheap products, it is also a free and voluntary exchange between buyer and producer. Whenever a donkey or an elephant shrieks for leveling the playing field, you know that they want the playing field tilted in their favor and no one else’s.
  • Austrian Student Scholars Conference, Feb. 16-17, 2018    (Jeffrey M. Herbener, 2017-11-16)
    By: Jeffrey M. Herbener Grove City College will host the fourteenth annual Austrian Student Scholars Conference, February 16-17, 2018. Open to undergraduates and graduate students in any academic discipline, the ASSC will bring together students from colleges and universities across the country and around the world to present their own research papers written in the tradition of the great Austrian School intellectuals such as Ludwig von Mises, F.A. Hayek, Murray Rothbard, and Hans Sennholz. Accepted papers will be presented in a regular conference format to an audience of students and faculty.Keynote lectures will be delivered by Drs. Guido Hülsmann and G.P. Manish.Cash prizes of $1,500, $1,000, and $500 will be awarded for the top three papers, respectively, as judged by a select panel of Grove City College faculty. Hotel accommodation will be provided to students who travel to the conference and limited stipends are available to cover travel expenses. Students should submit their proposals to present a paper to the director of the conference (jmherbener@gcc.edu) by January 15. To be eligible for the cash prizes, finished papers should be submitted to the director by February 1.
  • The New Progressives    (David Gordon, 2017-11-16)
    By: David Gordon The Captured Economy: How the Powerful Enrich Themselves, Slow Economic Growth, and Increase Inequality. By Brink Lindsey and Steven M. Teles. Oxford University Press, 2017. Viii + 221 pages.During the late nineteenth and early twentieth centuries, the Progressives claimed that the American political system was corrupt. Large financial and business interests dominated the government. What should be done to end their noxious influence and to promote the public good? Guidance from intellectuals, not wheeling and dealing by corrupt politicians, should set the political agenda. Nonpartisan scientific experts should take over much of the day-to-day work of government.In his definitive Roots of the Modern State: The Progressive Era, Murray Rothbard had little use for these would be intellectual autocrats: Behind the Progressive program were “newly burgeoning groups of intellectuals, technocrats, and professionals: economists, writers, engineers, planners, physicians, etc., anxious for power and lucrative employment at the hands of the State.”Brink Lindsey self-identifies as a libertarian; and Steven Teles is a modern liberal. They have together devised a new “liberaltarian” outlook. (The word combines elements of “libertarian” and “egalitarian”) It is a new name for an old way of thinking, and students of the Progressives will find little to surprise them.Experts, the authors tell us, must be in charge: “Making Congress more deliberative, and less subject to undue influence, is a matter of making it smarter and more independent of the interests trying to bend it to their will. The way to do that. . .is to finally bring the civil service system to Congress. . .The first best option would be to reconstruct committee staff on the model of the Congressional Budget office and the Government Accountability office, which provide stable long-term employment to highly trained policy experts in a context of strict non-partisanship.” The Federal Trade Commission should extend its expert guidance to the states: “If an anti-rent organization in a state can generate enough energy to request the FTC to issue an advisory opinion, it can introduce a very powerful, authoritative counterweight into a normally insulated decision-making process. The FTC could be doing even more in this area by providing more resources to pay for research and participate in state deliberations.” (The authors usually mean by ‘rent” an artificially created scarcity.)The authors worry that these suggestions do not go far enough. Perhaps the power of Congress should be reduced and that of the president, of course guided by expert intellectuals, increased: “We should at least consider the possibility that Congress, and legislatures in general, is unavoidably tilted toward upward redistribution. . .[William] Howell and [Terry] Moe suggest that the best way to counter Congress’s rent-friendly provincialism is to require Congress to give an up-or-down vote to legislation proposed by the president. . .This admittedly dramatic procedural reform would give presidents much more power to shape the policy alternatives considered by Congress. Contrary to what I have claimed, though, are the Progressives and our self-styled liberaltarians really that similar? Libertarianism, in however an attenuated form, and Progressivism are after all two very different ideas. But finding the difference in this instance proves elusive.The influence of special interest groups on legislation, highlighted by the authors, is indeed a serious problem; and the natural libertarian response would call for the power of the state to be curtailed, if not done away with altogether. “Conservatives and libertarian have failed by insisting that the baby be thrown out with the bath water  Once government  assumes any responsibility to regulate in a given area, they argue, it is inevitable that rent-seeking  will corrupt policy-making. Accordingly, the only way to solve the problem is to dramatically shrink the scope of the state. . .This is a dead end. The modern regulatory and welfare state isn’t going anywhere, and the reason is simple: the vast majority of Americans, conservatives and liberals alike, think it’s a good idea. Although one of us wishes it were otherwise, there is no significant political support for a dramatic rollback of government’s functions.” (p.10). Lindsey is the one who “wishes it were otherwise,” but he too supports to welfare state. Here the authors ally with the Progressives, not libertarians. They do not propose to reduce the scope of the state.The authors rightly decry government programs that bring about “upward redistribution” of money to well-off special interests. But so did the Progressives; there is nothing distinctively libertarian about it. The libertarian objection is to redistribution, not just “upward” redistribution; libertarians do not object to inequality in itself. Lindsey and Teles clearly position themselves in the egalitarian camp; you will find nothing in the book opposing downward redistribution. They begin by bemoaning “the rise of income and wealth inequality, driven especially by rapid gains at the top.” In doing so, they accept without question the dubious statistics of Thomas Piketty. They do not so much as mention any of the criticisms of Piketty by Philip Magness, Robert Murphy, and others. Our liberaltarian authors would do well to acquaint themselves with the compilation Anti-Piketty.To their credit, though, they reject Piketty’ s claim that “there is a fundamental tendency in capitalism toward ever-greater concentration of wealth.”They do not wish to replace capitalism but rather to curtail government programs that benefit the well-off. Here they make a real contribution, and the individual chapters on the programs they question are far better than the overall framework of the book.  They note, for example, that “the government’s efforts to reduce the harm caused when financial firms fail ends up subsidizing the heavy reliance on debt that makes firm failure more likely. . .It is no surprise, then, that the creation of a formal safety net for banks led to a higher level of indebtedness. In addition to these explicit subsidies, an implicit subsidy created by a string of ad hoc bailouts has further incentivized financial  institutions to ramp up their leverage.” They next turn to intellectual property and find little good in it. “Notwithstanding the flimsy evidence that intellectual property laws actually fulfill their constitutional mandate ‘to promote progress in science and the useful arts,’ these laws have steadily expanded their scope and reach over the years, with explosive growth occurring during the past few decades. The combined effect of those recent expansions has been to throw sand in the wheels of the sectors of the economy with the greatest potential for growth and innovation.”In their discussion of this topic, they fall prey to a common error, though this fortunately leaves their analysis unscathed. After their discussion of the deleterious consequences of IP, they say, “intellectual property protection is not justified solely on utilitarian grounds, any more than freedom of religion or speech are. The expansion of intellectual property protection has been justified because, like these other rights, its advocates could make a moral claim on its behalf.” The contrast between “utilitarian” and “moral” is spurious; good and bad consequences are part of morality, if not, as many believe, the whole of it.Occupational licensing, the authors point out, hurts the poor. “Licensing has well-hidden negative impacts on the economically less advantaged, increasing the prices they pay for services, closing them out entirely from whole sectors of the economy, and increasing the costs they pay to move up economically.”Zoning fares no better in their eyes. “The overriding purpose of land-use regulation has been to protect homeowners’ property values at the expense of housing for everybody else. In other words, zoning exists to transfer wealth from new buyers to existing owners.”The book on the whole is written clearly, but disaster has struck between pages 132 and 140.  Solecisms abound on these pages: the authors misuse the words “enervated,” “disinterest” and “reticent.”The Captured Economy contains valuable accounts of a number of harmful government programs. The attempt to construct a watered-down libertarianism that will attract the left, though, fails completely.
  • The Tuskegee Experiment at 45: Have Public-Health Programs Been Vindicated?    (Dale Steinreich, 2017-11-16)
    By: Dale Steinreich November 16, 2017 marks the forty-fifth anniversary of the federal memorandum that ended the Tuskegee syphilis experiment. In 1932, the U.S. Public Health Service (USPHS) enrolled 600 indigent black-male sharecroppers in the study who were residents of Macon County, Alabama. The study subjects were promised, among other services, free treatments for "bad blood" (a term that included the symptoms of anemia and lethargy as well as syphilis), treatments for other minor illnesses, and free burial if they agreed to an autopsy after their deaths. Of the 600 subjects, 399 were found to be infected with syphilis, while 201 were not.The main controversy surrounds the arrival of penicillin in 1947. As a cure for syphilis, the Tuskegee researchers not only ignored it, they allegedly kept their subjects in the dark about it and prevented them, where possible, from being treated with it in other public-health programs in Macon County.The Counter-narrativeSome political moderates and progressives are bitter about the mainstream account of Tuskegee because it has to some degree fostered suspicion of public-health programs, which they enthusiastically support. While there has been a counter-narrative about Tuskegee since its end, a renewed one has gained strength since Benedek and Erlen (1999).Counter-narrative proponents point out that the study's title (Tuskegee Study of Untreated Syphilis in the Negro Male) reinforces in part that the study was an examination of men with late-stage dormant syphilis who were not contagious and who had the infection for five or more years. A 1950 report from the study itself documents that of 410 infected subjects selected from 1931-32 and 1932-33, 178 were in fact given the standard treatment of the time, neoarsphenamine.The standard treatments of the day, arsenical compounds, were toxic (and as such had many adverse side effects), required a regimen that could consume about a year's time, and were of little reliability in terms of a cure. With such high costs and few benefits, patient non-compliance rates hovered about 80-90 percent. Add to this the fact that most syphilis patients who made it past the early stages of the disease without treatment experienced no further symptoms. In other words, it was anything but clear that subjecting a patient to a possible year-long regimen of arsenic poisoning was an obvious superior alternative to doing nothing.As for penicillin, it was not standardized and widely available until about 1955 at the earliest, not 1947. By 1955, study subjects who were still alive had been infected for two decades or longer, thus their infections had either died off or been neutralized. For subjects with latent syphilis for another 17 years until the end of Tuskegee, penicillin would have done little if anything for their comfort or life expectancy.Does the Counter-narrative Vindicate the Public-Health Model?No doubt this counter-narrative, written with the help of physicians, seems to be a formidable critique of the mainstream account. Heart-valve damage from syphilis would have occurred before the arrival of penicillin and the antibiotic would not have repaired it. However, penicillin would have cured inflammation and some subjects would have benefited from this. That the study subjects still had roughly comparable life expectancies to men who were never infected does not address the issue that the subjects were not fully informed about their new treatment options. Second, though downplayed, deception was definitely part of the study: for example, spinal taps were administered to some subjects. These painful tests were advertised as therapeutic, when they were nothing of the sort. Even if one accepts all of the alternate account of Tuskegee, its proponents could not be more in error if they assume that such an acceptance should allay all concerns about public-health programs and their dangerous alliance between medicine and state. Two further programs should suffice to illustrate this.The Guatemala Experiment (1946-1948)While it is a myth that the Tuskegee subjects were deliberately injected with syphilis, this was not the case in the U.S. experiments in Guatemala that tested penicillin and the arsenical compound orvus-mapharsen.USPHS gained access to Guatemalan clinics, hospitals, mental hospitals, and orphanages where, with no consent given, about 1,300 Guatemalan prisoners, soldiers, prostitutes, mental patients, and orphan children at least ten years of age were deliberately infected with syphilis, gonorrhea, or chancroid. Both prisoners and soldiers were encouraged to have sex with prostitutes that they did not know were infected, and at least this part of the program was funded by the U.S. National Institutes of Health. Psychiatric patients were injected with syphilis below the back of their skulls and injected with gonorrhea through their urethras or eyes. Although a treatment program was implemented, only about 650 of the 1,300 who were deliberately infected received treatment.Forced Sterilization (1907-1945)While Briton Francis Galton provided the blueprints, American progressives were the first to initiate a eugenics movement, beginning in Indiana, which passed the first sterilization law in 1907. About 30 more states followed suit, with California being the most enthusiastic. By the movement's end, about 65,000 Americans deemed "morons" or "unfit" for procreation had been forcibly sterilized, with California having sterilized about 2,500 of its citizens.Canada, France, and Sweden followed the U.S., but of course the most notorious imitator was Germany where the Law for the Prevention of Hereditarily Diseased Offspring was approved in 1933. This Nazi law was based on a model drafted by American progressive Harry H. Laughlin, an enthusiastic supporter of not only eugenics but "racial integrity" laws and the establishment of a global government. The 1933 Nazi law established genetic courts that decided whether particular Germans were fit for procreation. By the end of the Nazi era in 1945, about 200 genetic courts had ordered the forced sterilization of about 400,000 Germans.
  • The Fed's Bubblenomics    (Murray Sabrin, 2017-11-15)
    By: Murray Sabrin [The Following is adapted from a preface to a new report by Murray Sabrin, featured in his November 15 presentation, "Bubblenomics" at Ramapo College.] If you Google “dot com bubble,” you will get nearly 1.2 million hits, and 3.3 million hits if you Google “tech bubble.” A Google search of “housing bubble” will return nearly 11 million hits. (The searches were conducted on March 29, 2017). And if you search Amazon books for financial crisis 2008 you will get more than 1200 hits.Given all the books, monographs, essays, articles, and editorials that have been written about back-to-back bubbles that occurred within two decades, one would think there would be nothing else to write about. The purpose of this book is to present to the general public, my fellow academicians and policymakers with an brief account and review of one of the most turbulent periods in United States history without the usual jargon academics are noted for. As the two quotes from the Federal Reserve’s website above reveal, the Fed has been given the responsibility by the Congress of the United States to essentially promote sustainable prosperity, stabilize prices and maximize employment. During the past 100 years of the Federal Reserve’s operations, the economy has grown substantially (see Figure 1 for data since 1929), but the path to higher living standards have been interrupted by depressions/ recessions, a few bouts with double-digit price inflation and occasionally widespread unemployment. Although the Congress has expected the Federal Reserve to be a wise and prescient “helmsman,” navigating the economy from becoming overheated or plunging into a recession or worse, the Fed’s track record belies its mandates.Figure 1The Federal Reserve's primary tool, open market operations, the buying and selling of US government securities with money created out of thin air, is supposed to provide sufficient "liquidity" to grease the wheels of commerce so the US economy reaches its optimal output of goods and services and maximizes employment. Thus, the Federal Reserve has what every American wishes it had, an unlimited checking account. The US Congress created the Federal Reserve in 1913 to stabilize the economy after the Panic of 1907, and was “sold” to the American people as a measure to rein in the banks for their reckless behavior and enormous power over the economy. The fact that bankers and their allies helped draft the Federal Reserve Act seems to have been downplayed by most economists and financial historians. Others have taken a less sanguine view of central banking.1Critics of the Federal Reserve have put the blame squarely on the shoulders of former Federal Reserve chairmen, Alan Greenspan and Ben Bernanke, and their colleagues at the Federal Open Market Committee (FOMC) for voting to inflate the supply of money and credit in order to “stimulate” the economy to maintain "aggregate demand." Both Greenspan and Bernanke defended their decisions to keep interest rates low during the second half of the 1990s and the run-up to the housing bubble of the 2000s. Although numerous observers of the Federal Reserve's monetary policies were warning of the incipient dot com bubble of the 1990s, Greenspan and his colleagues at the Federal Reserve brushed off their warnings, even though the former Fed Chairman himself did warn of “irrational exuberance” of stock prices in a December 1996 speech. Nevertheless, after the bubble burst in 2000 and the economy entered a mild recession, the Fed did what it always has done to "combat" an economic downturn--lower interest rates to boost output and employment.As the federal funds rate  — the rate banks borrow from each other for overnight loans — fell to 1 percent in 2003 and was kept there for a year, critics assert that the Fed helped ignite a housing bubble that led to the greatest financial crisis since the Great Depression (see Figure 2). In fact, some analysts pointed out that the housing boom actually began in the 1990s and accelerated after the relatively mild 2001 recession to its bubble peak in 2006. The 30- year mortgage rate also declined precipitously, making housing more attractive for many new homebuyers. (See Figure 3) We will discuss interest rates and the housing market in chapter 1. Figure 2Figure 3So why another book on financial bubbles? The goal here is to integrate several fundamental economic and financial issues such as money, prices, interest rates, financial markets, banking, entrepreneurship, economic cycles and, of course, central banking (in chapter 1) in order to review how both policymakers and economists have assessed the US economy. In other words, if policymakers maintain that a market economy is inherently unstable and they believe they have the tools to guide employment and output on the correct path, then why did the US economy experience so much financial and economic turmoil during the past two decades? And for that matter for the past 100 years since the Federal Reserve was created in 1913? In addition, what were Federal Reserve policymakers thinking and saying as the dot com bubble and housing bubble were unfolding? Moreover, what were economists from various schools of thought writing in real time about the boom and bust of the late 1990s and of the first decade of the 21st century? We will review their major writings and speeches in chapters 2 through 7.In chapter 2 Alan Greenspan's speeches, testimony to Congress and other public statements during the 1990s and early 2000 will be reviewed and analyzed. Chapter 3 will focus on Ben Bernanke’s views as the housing bubble was unfolding after he became Fed chairman in January 2006. In chapter 4 the analyses and forecasts of other Fed officials such as Janet Yellin and former Dallas Fed Pres. Richard Fisher will be examined. In addition, a review of several research papers by Fed economists during the booms and busts will also be scrutinized.Chapter 5 will highlight the views of prominent Keynesian economists while chapter 6 will focus on the analyses of well-known monetarists and supply siders. In chapter 7, the essays and other public presentations-- both written and media – of economists writing in the Austrian school tradition will be scrutinized as well.The bottom line is what lessons have been learned by policymakers, economists, financial analysts and others who are interested in understanding how the Federal Reserve conducts its policies "to promote optimal macroeconomic performance." If the Federal Reserve's critics are correct, that the Fed’s "groupthink" ignored the warnings of individuals during the 1990s and early 2000's, then the public and members of Congress should call for a reassessment of the central bank’s mission and policies—and its very existence. If Federal Reserve officials are "blameless" for the economy’s booms and busts, then how can the average American small business owner, employee, corporate executive and retiree manage their economic and financial affairs knowing that they will have to live through more painful economic cycles in the years and decades ahead? In other words, if a market economy is always susceptible to booms and busts, then how can the Federal Reserve better “manage” the U.S. economy to avoid a painful episode like the Great Recession of 2008 – 09 in the future?But based on the evidence compiled during the research phase of this study, the Federal Reserve cannot achieve its goals. If it could, the US economy would not have had financial bubbles in the 1990s and early 2000s. That’s why the incontrovertible fact is that the Federal Reserve is a counterproductive institution, because it is the engine of inflation, creates bubbles that causes pain among a substantial percentage of the population when the bubble bursts and increases inequality by enriching the 1 percent, who realize that the Fed is their best ally in DC, because it enormously inflates the nominal value of their assets. In short, to use the contemporary vernacular, the Federal Reserve really sucks.  1. Thomas J. DiLorenzo,  “A Note on the Machiavellian Origins of Central Banking in America." The Quarterly Journal of Austrian Economics, Vol 14, No. 1 (Spring 2011): 78–87, for a review of attempts by bankers to create central banking in the early decades of the Republic.  This essay can be viewed online, https://mises.org/library/note-machiavellian-origins-central-banking-america.  Also see Murray Rothbard, The Origins of the Federal Reserve, Ludwig von Mises Institute, Auburn, AL, 2009, which can be accessed here, https://mises.org/system/tdf/The%20Origins%20of%20the%20Federal%20Reserve_2.pdf?file=1&type=document.  This monograph contains selections from Rothbard’s A History Of Money And Banking In The United States: The Colonial Era To World War II, https://mises.org/library/history-money-and-banking-united-states-colonial-era-world-war-ii 
  • Nationalized Slavery: The Fugitive Slave Law    (Chris Calton, 2017-11-15)
    By: Chris Calton In this episode, Chris Calton looks at the horrors of fugitive slave laws, the ways government incentivized the kidnapping of free blacks, and the rise of private defense groups to fight off slavers.
  • "The People vs..." — Why the State Claims To Be a Victim of Crime    (Chris Calton, 2017-11-15)
    By: Chris Calton Our criminal justice system offers an interesting paradox. If a criminal commits a violent action against a peaceful person — say, a mugging or a murder — then for justice to be done, the police have to arrest the criminal and try him in a court of law. If convicted, the criminal will be imprisoned where his livelihood is provided by tax dollars, and those taxes will be paid, in part, by the very person he committed the crime against in the first place.In short, victims of crime — on the rare occasion that state justice is carried out — are victimized twice: once by the private criminal, and a second time by the tax-extracting government.Most people never question this system. It’s just the way it is and has always been. But once this paradox is recognized, it is easy to see that the root of the problem rests in the fact that in our modern court system, the State itself plays the role of the victim. The criminal owes a “debt to society” – and society, of course, is always represented by society’s government. The State is the universal victim of all crime.This was not always the case. In Anglo-Saxon law, prior to the Crown’s encroachment into the legal system — which was a gradual, centuries-long process — the private victims of crimes were the ones responsible for bringing suit, and any debt owed by a criminal was to be paid to the person whose rights were actually violated. In any system of customary or spontaneous law, this appears to be the model that develops.In English law, there were various courts that served each of the several respective needs of a legal system. After the Norman Conquest, the English monarch began to insert itself into the legal system as a means of raising revenue. Bruce Benson traces this history. “Beginning with Henry I, authoritarian legislation became increasingly important.”1 Traditional common laws were codified, and the fines for statute offenses were formally stipulated with designation as to who gets paid what amount for any given offense.Customary law was still maintained in the legal system, and the royal courts only applied where the Crown claimed jurisdiction. These were offenses that violated “the King’s Peace.” The problem was, with a monetary incentive for the Crown, what constituted “the King’s Peace” was open to interpretation. Bryce Lyon elaborates:In the growth of this list [of violations of statute law] we may be certain that although the king’s concern for law and order was a cause, another interest was need of money; to increase his income the king only needed to use his prerogative and throw his jurisdiction over another offense.2To expand jurisdiction, the king began allowing appeals to be made to the royal courts. To do this, the appellor had to claim that the appellee was not only violating his personal rights, but that the “King’s peace” was also being violated. Thus, the Crown shared victim status with the individual bringing suit.Lyon offers more commentary: “By creating this fiction, practically any offense could be interpreted as a breach of the king’s peace and so brought before the royal court.”3Following this, the notion of a “felony” was introduced to English law. Originally, this referred to any betrayal or crime by a vassal against a feudal lord. Now the feudal lord was the sole victim of felony offenses, and this concept was open to expansion as well. “Again,” Lyon tells us,royal greed seems to be the best explanation for the expansion of the concept of felony. Any crime called a felony meant that if the appellee was found guilty his possessions escheated to the king. The more crimes called felonies, the greater the income, and so the list of felonies continued to grow throughout the twelfth century.4In a previous article, I discussed how the evolution of royal law led to the creation of our modern prison system. The introduction of prisons and the expansion of felony claims occurred concomitantly as the crown sought more sources of revenue. Under Henry II, royal courts expanded through the introduction of itinerant judges who traveled from shire to shire to adjudicated disputes under the growing body of felony law, which required the holding of prisoners.Additionally, the concept of a “frankpledge” was introduced, which obligated citizens to help enforce the royal law by carrying out police duties (not unlike the infamous obligation imposed on northern US citizens under the Fugitive Slave Act of 1850). Citizens who were found in violation of their frankpledge could also face a fine for simply failing “to pursue criminals or report all crimes through inquest juries.”5 The frankpledges — which at times were levied against entire communities — demonstrate the growing view that the Crown was the victim; in this case, it was the victim of a violation of a “contract” imposed on the citizenry as part of a supposedly reciprocal agreement that the State will uphold justice as its end of the bargain.Along with other legal innovations, such as the development of new kinds of writs — which compelled defendants to appear before a royal court — and juries — which were originally used to make accusations and provide information to the king’s judges (a different function than the modern jury), the king established the office of “Sheriff” to seek and arrest felons in order to create more disputes that could be brought to the royal courts. More disputes meant more revenue. But now, like our modern justice system, the writs, juries, and sheriffs were being used to find conflicts even in cases in which no victim cared to bring suit. Unlike the early appeals to the royal court, the State became the sole “victim” in a case, rather than merely sharing victim status in the case that a true criminal offense also violated the King’s Peace.A significant development that grew out of this by the end of Henry II’s reign was the distinction between “criminal” and “civil” offenses. Civil offenses were those covered by traditional customary law, in which the victim of an offense brought a tort against the person accused and was due restitution. Criminal cases were those that generated revenue for the king. Instead of paying restitution to the victim, criminal violations made the Crown the victim of offenses that may or may not have a private victim.As Anglo-Saxon law continued to involve, criminal offenses became more and more the norm. As Benson writes, “By the middle of the thirteenth century, the King’s high courts were moving toward the institutional structure that would last into the late nineteenth century. The Court of the King’s Bench, the Court of Common Please, and the Court of the Exchequer became identifiable entities with identifiable jurisdictions.”6 As the law grew, the State officially established itself as the universal victim. 1. Bruce L. Benson, The Enterprise of Law: Justice Without the State (Oakland, CA: The Independent Institute, 2011), 49. 2. Bruce Lyon, A Constitutional and Legal History of Medieval England (New York: W.W. Norton and Co., 1980), 189. 3. Ibid., 190. 4. Ibid. 5. Benson, Enterprise of Law, 52. 6. Ibid., 57,
  • One Step Forward, but Many More to Go for Telemedicine    (Shirley Svorny, 2017-11-15)
    Shirley Svorny The Centers for Medicare and Medicaid Services recently released its final rule for the 2018 Medicare Physician Fee Schedule, including an increase in Medicare coverage for select telehealth services. CMS indicates that its aim is to transform “access to Medicare telehealth services by paying for more services and making it easier for providers to bill for these services.” This is good for Medicare beneficiaries, and a promising step for the burgeoning practice of telemedicine. But a major obstacle remains: state physician licensing laws restrict the practice of interstate telemedicine. According to existing state laws, to treat an out-of-state patient, a doctor has to be licensed in that state. To be available to patients in 50 states, the telemedicine doctor needs 50 state licenses. Some doctors already do this, but securing and maintaining multiple licenses is an expensive and time-consuming process. Distinct state-specific requirements for continuing medical education and questionable variations across states in medical practice standards add to the cost of compliance. The benefit of eliminating state licensing barriers to interstate practice has never been greater. Don’t take it from me: When the American Telemedicine Association surveyed health care executives in March 2017, they asked, “What are the key challenges you see with telehealth in the next three years?” Fifty-three percent of those surveyed picked “licensure/privileges” as a key challenge. A 2012 survey of telestroke programs funded by the U.S. Health Resources & Services Administration found “inability to obtain physician licensing/credentialing” as one of the most important barriers to the expansion of stroke-related telemedicine programs. MedLicense.com, which helps physicians get state licenses, offers a discount for physicians who apply in more than 20 states at one time. Michael Brooks, MedLicense.com’s managing member, says annual license renewal fees discourage many physicians from seeking additional state licenses. Although state licensing requirements were first identified as a barrier to interstate telemedicine in the late 1990s, only one state has considered revising its law. In 2016, Florida lawmakers failed to pass a bill that would have allowed out-of-state telemedicine providers to offer services in the state. Such a law would have facilitated continuity of care for the approximately one million seasonal residents who visit Florida each year. Congress could solve the problem. Currently, the location of the patient determines the location of the practice of medicine. If lawmakers were to change the definition from the location of the patient to that of the doctor, doctors would only need one license to practice in multiple states. It has always been legal for a patient to travel to seek care from a physician in another state; this change would allow the same visit to occur remotely. Legal scholars suggest that the Commerce Clause of the U.S. Constitution would support congressional action on this front. The current system not only results in problems with access to care but complicates matters for state medical boards. When a complaint is filed against a physician with a multi-state practice, the various state medical boards that license that physician must cooperate—a herculean task. In contrast, moving to a system that allows physicians to practice across states on the basis of their home-state license would be less complicated, with the physician’s home-state board receiving all complaints. The benefits of opening state markets to out-of-state providers can be substantial. For example, care from out-of-state cancer specialists would no longer be reserved for patients with the financial wherewithal (and physical stamina) to travel. As for direct-to-consumer telemedicine, which offers patients care from their home, office, or mobile device, it is reasonable to expect the same increase in efficiency that followed the national expansion of retail chain stores and the end of regulatory barriers to interstate banking and trucking. The time is ripe for reform. With the CMS moving to expand reimbursement of telehealth services under Medicare and the National Business Group on Health predicting near universal adoption of telemedicine by large employers by 2019, the benefit of eliminating state licensing barriers to interstate practice has never been greater. Shirley Svorny is a professor of economics at California State University, Northridge, an adjunct scholar at the Cato Institute and author of the forthcoming study, “Liberating Telemedicine: Options to Eliminate the State-Licensing Roadblock.”
  • Here Is How America Can Bring Peace to Ukraine    (Doug Bandow, 2017-11-15)
    Doug Bandow The Trump administration reportedly plans to propose a peacekeeping force for Ukraine. The initiative would have a greater chance of success if Washington offered a package that made Ukraine a neutral country, backed by a promise not to further expand NATO. Washington policymakers just can’t seem to imagine life without an enemy. However, the supposed Russian menace falls short. Vladimir Putin is an unpleasant autocrat, but his kingdom is freer than that of American allies such as Egypt, Saudi Arabia and Turkey. On them Washington lavishes attention, money and weapons. Moscow’s election interference, which appears to have had a minor impact at most, was obnoxious, but Washington has little room to complain. By one count the U.S. has interfered in elections in eighty-one countries. Indeed, the Clinton administration did its best to ensure Boris Yeltsin’s 1996 reelection, which, ironically, ultimately resulted in the Putin presidency. The United States and its allies should indicate that they have no intention to further expand the NATO alliance. The Russian Federation is not an ideological competitor. Putinism has little appeal to anyone other than Vladimir Putin and his cronies. While Putin demonstrated his authoritarian tendencies early, he was no Communist ideologue. Rather, he bridled at the West’s treatment of Russia. In fact, he was not otherwise anti-American, and looks like a traditional czar, demanding respect and emphasizing security for Russia. Which explains Russian foreign policy. For instance, Putin believes Moscow’s interest should be taken into account in Syria, which is far closer geographically to Russia than America and has been a military ally of Moscow for years. More important, Russia is determined to prevent Georgia and Ukraine from entering NATO. It should surprise no one that Moscow opposes expansion of a historically hostile alliance up to its border, incorporating territories once integral to its predecessor states, both Soviet Union and Russian Empire. That is unfortunate for Georgia and Ukraine, but Washington rarely allows “fairness” to get in the way of pursuing its security interests. Despite extensive wailing and gnashing of teeth in Europe over Moscow’s behavior, there is no evidence that Putin is contemplating aggression-what could he hope to gain even if he did not face almost certain defeat? Rather, he has perfected the art of unsettling nations determined to leave most hard military work to the United States. Only a Europe that has become hopelessly dependent on America could seem so vulnerable to a declining power like Russia. Collectively Europe has some twelve times the economic strength, three times the population and two times the military outlays of Russia. The latter lost its superpower status a quarter century ago: today it is a serious regional military power with weak economic and uncertain political foundations. The possession of nuclear weapons alone gives Putin serious international heft, but America has them in abundance and even Europe possesses a couple small arsenals. Washington and its allies continue to impose sanctions for no practical purpose. Russia isn’t going to disgorge Crimea short of war. By encouraging continued turmoil in eastern Ukraine Moscow ensures that Kiev won’t enter NATO. Congress believes it can use American economic clout to remold the rest of world, but sanctions rarely cause nationalistic governments to abandon perceived vital interests. That should come as no surprise to Americans, who would not likely give in to Russia (or anyone else) if the situation was reversed. Improving relations with Moscow should be a top U.S. objective. Western policymakers look forward to Putin’s departure, but he represents larger political forces in Russia. He almost certainly will not be succeeded by anyone liberal in a Western sense. Certainly not from the circle around him. Nor even from the opposition. Those who know Alexey Navalny, the leading opposition activist, warn that he may be no less authoritarian and nationalist than Putin. Waiting for change means waiting for something that may never come. Yet everyone would benefit if conflict in the Donbas ended and perceived threats against Europe dissipated. Russia also can help or hinder Western objectives elsewhere, including in the Middle East, particularly Syria, and Asia, most notably North Korea. Other important issues include Afghanistan and the Arctic. If U.S.-Russia relations improved, Moscow would still pursue its independent interests but might be more willing to accommodate allied concerns. Most important may be pulling Moscow away from the People’s Republic of China (PRC). Richard Nixon’s geopolitical masterstroke was opening a relationship with the PRC to balance against the Soviet Union. Presidents Bill Clinton, George W. Bush, and especially Barack Obama reversed course, pushing Moscow and Beijing together. In fact, one of the only interests which binds the two governments is the determination to prevent U.S. hegemony. Yet if America faces a future military threat, it is far more likely to come from China than Russia. The administration’s policy toward Moscow has been hindered by charges of electoral collusion against the Trump campaign. Although little evidence appears to back the claim, Congress dominated relations with Russia by intensifying sanctions, making positive change less likely. The 2015 Minsk accord over Ukraine remains unfulfilled, but Kiev shares the blame, having failed to make promised constitutional changes. The administration reportedly plans to propose a 20,000-man peacekeeping force for the Donbas, where some 10,000 have died in fighting since 2014. The ultimate objective is remove Russian forces, disarm separatists and reintegrate the region into Ukraine with greater autonomy. Moscow’s agreement would be more likely if Washington offered to address Russia’s larger security concerns. NATO still is formally committed to including Ukraine and Georgia. The United States and its allies should indicate that they have no intention to further expand the alliance. While they would go to war to defend present members in the unlikely event of Russian aggression, they will not drive Western commitments, troops, and arms into what once was the heart of the Soviet Union. Taking NATO membership off the table would remove Moscow’s incentive to keep the Ukrainian conflict alive. A peaceful Ukraine would no longer pose a paradoxical military threat to Russia. Moscow could rid itself of a costly conflict which has consumed resources and lives for no good purpose. Ukraine could develop economically and politically as it wished. Sanctions could end, encouraging economic integration from Europe through Ukraine into Russia.   Doug Bandow is a Senior Fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author of several books, including Foreign Follies: America’s New Global Empire.
  • How to Deal with Newly Empowered Xi Jinping    (Doug Bandow, 2017-11-15)
    Doug Bandow The long-suffering American hope that economic liberalization would yield intellectual and political freedom in China is officially dead after President Xi Jinping’s coronation at the recent party congress. He emphasized party control, strengthened personal power, and stifled intellectual dissent. He used the meeting to cement his dominance and demonstrate his intention to rule beyond a second five-year term. Xi appears to be the most powerful Chinese leader since Deng Xiaoping if not Mao Zedong. Xi’s thoughts even have been included in the Chinese Communist Party’s charter, just like Mao’s. At the congress Xi outlined his vision for the future: The People’s Republic of China is to develop into a “fully modern economy” and become “a global leader of composite national strength and international influence.” The PRC already is arguably close to achieving both objectives. Although the country faces significant economic and political challenges, so far it has confounded the doomsayers. Even if China suffers setbacks in coming years, it almost certainly will become a great power with broader global reach. Beijing is likely to pose a substantial challenge to U.S. interests and values. That doesn’t make conflict inevitable or even likely, but to effectively respond policymakers should better prioritize Washington’s objectives. The Trump administration must demonstrate maturity and sophistication if Washington is going to respond effectively. Indeed, America’s leaders, if they deserve to be called that, should start by rescuing the U.S. political system from laughing-stock status. Compare presidents and America loses. By all appearances, President Xi is serious, determined, and competent; he knows both privilege and hardship; he even lived in America, now his country’s chief adversary. Today he dominates one of the world’s most formidable political systems. Even Chinese inclined toward democracy have trouble defending the American system these days. The operation of Congress, too, fails to live up to what the world’s most powerful nation requires. The democratically elected U.S. body should easily outdistance China’s rubber-stamp National People’s Congress, but the inability of American legislators of both parties to work effectively with each other also seems to discredit America’s democratic experiment. Moreover, Washington needs to restore its economic self-confidence. The Trump administration has multiplied trade complaints against the PRC. The U.S. should emphasize opening Chinese commercial and investment markets, not closing the American economy, as President Trump would prefer. Low cost foreign goods benefit both consumers and producers. In fact, many imports are intermediate goods, destined for use in exports. The U.S. economy needs to become more competitive and efficient. The administration also should press President Xi to live up to his past emphasis on market reforms, which would benefit American businesses and Chinese consumers. Not incidentally, doing so would help counteract the Xi regime’s ongoing expansion of state control over the economy. Indeed, achieving further liberalization would be worth concessions—including forbearance on the president’s counter-productive threats of a trade war. Politically, Washington should treat the PRC as a serious competitor. Depending on the issue, China may be adversary or ally. The U.S. should emphasize areas where the two nations’ interests coincide and look for compromises where interests diverge. Perhaps most important, American officials must recognize that Washington cannot dictate: negotiation over contested issues is inevitable. North Korea may be the most important current controversy between the U.S. and Beijing. Washington obviously wants to prevent Pyongyang from acquiring an ability to target the homeland with nuclear weapons. However, the PRC desires neither a failed state on its border—consider how Americans view Mexico—nor a reunited Korea allied with America hosting U.S. troops. The Trump administration should offer concessions, such as pledge to remove American forces from a reunited peninsula. Overall, Washington must channel the two nations’ rivalry away from military confrontation. Despite real geopolitical differences, the U.S. and the PRC must not come to military blows. China would be a formidable opponent even now. It would not win a global war with America, but has demonstrated no interest in matching the U.S. around the world. Rather, China hopes to deter Washington from intervening against the PRC in its own neighborhood. While the Pentagon has developed tactics to counteract China’s anti-access/area denial strategy, deterrence is much cheaper than power projection. A few missiles or torpedoes are far less expensive than the aircraft carrier they might sink. Moreover, even victory for the U.S. would not mean the end of conflict. A resentful, still growing PRC would be an even more formidable foe in the future. The American people aren’t likely to fund endless conflict far from the U.S. when their own defense is not directly at stake. Washington might prefer to limit Beijing’s influence in its own neighborhood. But that objective is not worth catastrophic conflict. However, Americans in and out of government should do what they can to expand the free information flow to Chinese citizens. Unfortunately, President Trump’s soft spot for authoritarian leaders seeming reaches Beijing, even though he freely attacked the PRC before taking office. But the administration should not launch an official propaganda campaign—they rarely turn out well. Younger, well-educated Chinese, in particular, are highly nationalistic. Telling them what to believe would be counter-productive. But they resent their government’s internet controls. Widening their access to information while allowing them to draw their own conclusions would be a better approach. Washington should cooperate with private organizations to blow holes in the Great Firewall. Washington also could use the access of Chinese media to the U.S. as a bargaining chip to address Beijing’s restrictions on American journalists. President Xi is likely to lead China for many more years. Although the PRC’s climb to greatness is not assured, it is likely to pose an ever more serious challenge to the U.S. The Trump administration must demonstrate maturity and sophistication if Washington is going to respond effectively. Doug Bandow is a Senior Fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author of several books, including Foreign Follies: America’s New Global Empire.
  • The New York Times and the "Lost Cause" of Bolshevism    (William L. Anderson, 2017-11-15)
    By: William L. Anderson A century ago this week, the Bolshevik Revolution in Russia ushered in a century of mass murder, starvation, summary execution of millions of people, destruction of ancient social institutions, wars, a vast network of death camps, and the evisceration of liberty, at one time, of a third of the planet.According to the New York Times, we should be mourning the passage of this era and all of its promises of a better life for all.You read that correctly.For the past few months, leading up to the centennial of when the followers of Lenin and Trotsky overthrew the Provision Government of Russia and established “all power to the Soviets,” the Times has run a series of op-ed articles by people mostly mourning the “Lost Cause” of communism and all of its promise. We have learned that Bolsheviks were wonderful parents, that women under communism had great sex, Mao liberated women(when he wasn’t murdering them), that Bolshevism promoted a pristine, clean environment and we should all be communists if we want environmental purity (except that the communist bloc had much worse pollution problems than the so-called polluted capitalist West), and that the revolutionary fervor of communism can lead to a glorious socialist future.As one reads these articles, it becomes clear that to the NYT, the end of communism as we knew it – except for a few backwaters like North Korea and Cuba – really was the end of hope for a better life, the end of hope of liberation from the slavery of capitalism, and the end of hope that the state could forcibly destroy human institutions from marriage to religion and replace them with peace, love, and brotherhood. If only.Should there be a common theme in these odes to the glories of Bolshevism, one senses that the world missed the opportunity to install paradise because those great Keepers of the Secret continued to die before they could share their great knowledge with the rest of humanity. Oh, if only reactionary Germans had not killed Rosa Luxemborg in 1919, for she knew how to make socialism work. If only Trotsky had triumphed instead of Stalin in the 1920s. If only Lenin hadn’t died prematurely from complications from a stroke. If only Mao had not contracted ALS and died. And so on.Given the near-uncritical support that the NYT historically has given communist dictators, from its deliberate cover-up of the infamous Ukraine famine in the 1930s, its whitewashing of the Moscow Show Trials of that same decade, and its near-worship of Mao in China and Castro in Cuba, one comes to understand that the editors of that paper now regard communism as a great “lost cause,” a chance for humanity to better its sorry condition that disappeared all because the Great Unwashed wanted cellphones, fast cars, good food, and, yes, liberty instead of embracing the intellectual and spiritual liberation that communism offered.American journalists are not afraid to attack the “lost cause” interpretation of the American Civil War and Southern secession. The South depended heavily upon black chattel slavery, it sought secession in order to continue that doomed institution, and all of its fighters were traitors, or at least that is how modern journalists interpret that war. That the horrors of Jim Crow and its accompanying violence came about only after Southern politicians embraced the Northern secular religion known as Progressivism is stuffed down the same Orwellian Memory Hole into which the NYT and its supporters in academe and the media have deposited the unprecedented orgy of murder and slavery that was Bolshevism and its aftermath.We should not forget that the NYT has endorsed nearly every totalitarian movement save Nazism, and no respectable person wants to endorse Adolph Hitler, anyway. As for socialism, what socialistic or communist regime has the NYT and its gaggle of academic and journalistic allies not endorsed, at least at the beginning? It stood with Hugo Chavez in Venezuela, Daniel Ortega in Nicaragua, and, for a while, even Pol Pot in Cambodia. As always, they declared the very idea of socialism to be rooted in justice, so even if the actual communist experiment failed, nonetheless, the love of justice required that right-minded people support it, anyway.In comparing the nostalgia the NYT has toward fallen communist regimes with the old “lost cause” view of the Civil War, there is a huge difference between the two. Regarding the former, the NYT and its like-minded allies would not hesitate to claim that at least some violence is necessary in order to achieve Utopia, or, to quote the NYT’s correspondent in Moscow during the Stalin years, Walter Duranty, “One cannot make an omelet without breaking eggs.”For that matter, the political allies of the NYT in Great Britain, the Labour Party, not only refuses to condemn the century of violence and bloodshed that was communism, but has leaders that openly celebrate the Bolshevik Revolution in all its gore and mayhem. But for all of the “lost cause” talk regarding secession and the South, no one today that defends the South also defends slavery. To the contrary, most people who would defend secession also would say that slavery not only was immoral, but also was not a viable economic system and would have ended soon enough.One cannot say that about today’s defenders of socialism. At best, they can claim that the violence that has accompanied the implementation of revolutionary socialism simply is an unnecessary mistake, as though a regime can seize property, shut down churches, confiscate one’s goods, and do it all non-violently with a happy face. However, as the late Tibor Machan noted more than three decades ago, implementing Marx requires a Stalin.Today, we see the Smiley-Faced Socialism in the persona of Bernie Sanders, who claims to simply want a nice socialism in which there is no poverty – and no police state. Sanders, however, has spent most of his formative political years as a self-described Trotskyite, and if one identifies with Leon Trotsky, one must also identify with the methods the man implemented.Likewise, the editorial writers for the New York Times do not have the luxury of pining for the supposed pure ideals of communism, but then turning up its nose at the bodies of the millions of the dead communist leaders left behind. If implementation of an organizing principle results in mass starvation, vast prison camps, and death and destruction, it probably is safe to say that the original organizing principle itself is morally bankrupt. That is something I doubt the NYT and its groupies ever will understand.Originally published at LewRockwell.com. 
  • Capitalism and Competition    (Richard M. Ebeling, 2017-11-14)
    By: Richard M. Ebeling Market competition is at the heart of the capitalist system. It serves as the driving force for creative innovation, the mechanism by which market supplies and demands are brought into coordinated balance for multitudes of goods, and an institutional setting for individuals to freely find their own place to best earn a living in society.Yet, listening to the critics of capitalism, competition is made out to be a cruel and dehumanizing process that feeds unnecessary wants and desires, or has a tendency to evolve into anti-competitive market-based monopolies contrary to the “public interest.” Competition fosters a “selfish” disregard for the “common good” and misdirects resources from their most important “socially valuable” uses.Competition Through Political MeansAs long as resources are scarce and social positions are too limited to satisfy everyone’s desire to have a certain status in society, competition will exist. The crucial questions concern: how will it be decided what gets produced and for whom, and how shall social positions in society be determined and filled? For almost all of human history these questions were determined by conquest and coercion. Those with greater physical strength or manipulative guile used these superior abilities and skills to gain the goods they wanted and the status they desired over others.In a competition between the physically “strong” and the “weak,” it was often the case that “might made right.” Pillage and plunder enabled some to seize the goods they wanted that others possessed and to then subjugate and enslave those they conquered to work for them and accept their conquerors as their legitimate masters.Most, if not all, forms of competition were battles for political power and position. Closeness to the throne and having favor with the king or prince gave one control over land and people, and therefore possession of material wealth in the forms in which they existed in those earlier times. The mythologies of the aristocratic nobility — the lords of the manor — asserted that they were the repository of grace, charm and culture, the carriers of civilized manners and the benefactors of civilization. This hid from view that their appearance of leisure time for and attention to the “higher things” of life were only made possible — to the extent that any of them were actually concerned with anything other they their personal pleasures and pastimes –due to their success in having the legitimized authority to live off the productions of others.Commerce and trade is as old as recorded history. Anyone who peruses, for instance, Marco Polo’s (1254–1324) famous account of his journeys and experiences traveling to the China from Europe and back in the late 1200s finds descriptions of merchants and traders, businessmen and manufactures, and exporters and importers everywhere that went around the Mediterranean, the Middle East, Central Asia, and eastern and southern Asia. But all these market activities operated under various forms of government regulations, controls, restrictions and prohibitions, given the reach of and the methods of control by the political rulers of the time in different parts of the world.Entry into professions, occupations and crafts, for example, were all controlled by trade guilds in the Europe of the Middle Ages. The guilds limited competitive entry into various lines of employments and they restricted the methods of production that sellers could use in manufacturing goods to those approved by the, respective, town and city guild associations. In the countryside, the peasants were tied to the land owned by the nobility, and bound within the tradition-based techniques of farming and craftsmanship to meet the needs of those living on the properties of the lords of the manor.Market Competition Liberated People and Provided OpportunitiesThe slow liberation of men and production from these restraints and the opening of both labor and manufacturing to greater market-based competition freed a growing number of people from a life of oppression and wretched poverty. Competition meant that a man could leave behind the legal tethers that had tied him to the land and obligatory work for the aristocracy; an individual could now more freely find work more to his own liking where it might be offered in towns and cities far away from where he had been born, and earn a far greater income than he ever had in the rural areas, however modest those incomes may seem by today’s standards.Competition meant that a resourceful individual with a willingness to bear risk and self-employed responsibility could found his own business, make a product of his own choice, and market it to those with whom he increasingly freely negotiated and contracted. He could experiment with new manufacturing methods and techniques, he could hire whom he wanted on mutually agreed upon terms of work and wages, and he could retain the profits he may have earned to not only live better himself, but to plow a good part of those profits back into his business to expand production in new and better ways.Production no longer was focused on meeting the wants and whims of the privileged few around the king and the landed aristocracy. Market-based competition now was directed to serving the growing wants of the wider and general population who were increasingly participating in the manufacturing processes of the emerging and intensifying industrial revolution. The “revolutionary” character of the new industrial era of the late eighteenth and then nineteenth centuries was due to the fact that men were freer in mind and body to try, to experiment, to do, and to voluntarily associate with others in ways radically different than had been the case for ages before.Capitalism and Philosophy of Individual Rights“Capitalism,” as this new economic arrangement of society has come to be called, had as its hallmark in the new philosophy of human liberty based on the revolutionary idea that individuals have inherent and inviolable rights to their respective life, liberty and honestly acquired property. They own themselves; they are not and may not be the owned property of another. They have liberty to live for themselves guided by their own conception of the good, meaningful and valued life; they may not be coerced into the role of sacrificed servant to the wants and desires of others.The ethical principle behind capitalist competition is moral and legal prohibition on coercion in all of human relationships. If you want what others have, if you would like to have the material means to achieve the ends and goals that will offer you happiness (as you define it), if you desire the association and companionship of others to advance purposes that you consider worthwhile, your only means to them are mutual agreement and voluntary consent with your fellow human beings.Capitalism as a System of Cooperative CompetitionIn Ludwig on Mises’s (1881–1973) famous treatise on economics, Human Action (1966), he explains:Competing in cooperation and cooperating in competition all people are instrumental in bringing about the result, viz., the price structure of the market [for consumer goods and the factors of production], the allocation of the factors of production into the various lines of want-satisfaction [consumer demand], and the determination of the share of each individual [the relative incomes earned in the market].If we step back and look at competition as a wider social process at work, Mises’s words help to explain the logic and the humanity of the capitalist economy. Peaceful and voluntary cooperation is the hallmark of the market economy. Sellers compete in offering their goods to the potentially buying public, and buyers’ existing or possible demands attract sellers to produce and market what they decide to manufacture. All cooperate in this competitive process by following the “rules” of the market game that excludes violence and fraud. Everyone must attempt to get what they want by focusing their mental and physical efforts on devising ways to offer to others what they want and are willingly to take in agreed upon trade.Each must apply his abilities, talents and skills to offer better products, new products, and less expensive products to their possible trading associates, since each knows that every one of those potential exchange partners is at liberty to accept the offer of some rival who is also keen on getting their business. The interaction of these competing buyers and sellers brings about the resulting structure of relative prices for all the goods and services offered on the market and determines how much of each one is bought and sold in a way that tends to bring about a coordinated balance between what is demanded and what is supplied.At the same time, virtually all that is bought and sold first must be produced. This means the existing resources in society must be directed and applied to produce those goods that all of us as demanders desire to purchase and use for various purposes. Those in the social system of division of labor who undertake the role and task of entrepreneur — the designer, coordinator, and director of the activities of a private enterprise — must marshal the land, labor and capital judged to be most economically effective and efficient in bringing a final, finished good to market.These enterprising entrepreneurs must compete amongst each other for the hire of the requisite workers, resources and raw materials, and the capital goods (machinery, tools, and equipment), through the coordinated use of which over time the potentially consumer demanded good might be placed on the market. Entrepreneurial competition determines the appraised estimate of what each of those various factors of production is judged to be worth in assisting in one line of production as opposed to some other.In turn, the owners of those factors of production — the workers looking for employment, the owners of rentable or saleable land and resources, and lenders of savings who are looking for interested borrowers — offer their services or products to those competing entrepreneurs. The cooperative outcome, again, of this two-sided competition determines the allocation of those scarce means of production based upon the appraisements and judgments of their most highly valued use in producing alternative goods and services. This, also, determines the earned remuneration of each of those factors of production, including the wages of different types of labor, upon which each of those factor owners may, then, reenter the market as income-earning consumers to demand the very products that, combined and cumulatively, their productive activities have assisted in bringing to market.Entrepreneurs as the “Driving Force” of the MarketAs Ludwig von Mises summarized the nature of the competitive process:The market economy is the social system of the division of labor under private ownership of the means of production. Everybody acts on his own behalf; but everybody’s actions aim at the satisfaction of other people’s needs as well as the satisfaction of his own. Everybody in acting serves his fellow men ...This system is steered by the market. The market directs the individual’s activities into those channels in which he best serves the wants of his fellow men. There is in the operation of the market no compulsion or coercion. The state ... protects the individual’s life, health and property against the violent or fraudulent aggression on the part of domestic gangsters and external foes ...Each man is free; nobody is subject to a despot. Of his own accord the individual integrates himself into the cooperative system. The market directs him and reveals to him in what way he can best promote his own welfare as well as that of other people. The market is supreme. The market alone puts the whole social system in order and provides it with sense and meaning.The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor.The entrepreneurs who imagine, coordinate and direct those production activities through time are what Ludwig von Mises referred to as the “driving force” of the entire market process. While it is consumer demand that ultimately directs all the activities of the market, it is the entrepreneurs — the decision-making enterprisers and businessmen — who decide what shall be produced, how, where, and by whom. All production takes time, whether this is a day, a week, a month or even years. Thus, decisions must be made “today” concerning production processes to be set in motion looking to the days and months ahead so a finished product can be offered on the market at some more distant “tomorrow.”Thus, entrepreneurs have the task in the system of division of labor to anticipate the future consumer demands of others in society, to decide what at what prices those desired products might sell for in that future, and which ways of producing them would minimize their production costs so as to (hopefully) earn a profit — that is, revenues greater than incurred expenditures. While all others participating the processes of production normally do so for contractually agreed upon remuneration — wages, input prices, rent, interest — the entrepreneur bears the uncertainty of whether or not he will, in fact, gain a profit from the enterprise that he directs and oversees.  This means that he also runs the possibility of suffering losses rather than earning profits, and that burden of uncertainty resides with him alone.Profit and Loss and the Spirit of EntrepreneurshipEntrepreneurial competition, therefore, is ultimately a rivalry over alternative visions of the shape of market things to come in the minds of these decision-makers, which they competitively put into play but with the determination of the final outcome in the hands of the consumers who may or may not buy their products, and who may or may not pay prices for the quantities they purchase such that revenues earned cover or exceed the expenditures incurred.Unsuccessful entrepreneurs who suffer losses and who are unable to repair their faulty pre-visions of what’s ahead in the market finally go out of business, with their properties and assets passing into the hands of other existing or new enterprising entrepreneurs who are confident that they can more effectively manage their use to serve the consuming public. Successful entrepreneurs are able to use all or a part of the profits they have earned to expand their businesses to better fulfill the demands of consumers.Thus, the competitive processes of the market through the profit and loss mechanism is always tending to put business decision-making and allocational discretion over the scarce means of production into the hands of those who more successfully demonstrate their competency in this chosen entrepreneurial role in the social system of division of labor within the capitalist economy.  But as Mises also emphasized in his essay on “Profit and Loss” (1952), entrepreneurial success is ultimately based on the creative imaginings of the human mind, the capacity of seeing the possibilities and potentials of the future better than others and bringing production to fruition, which is, then, tested by the choices of consumers in the market:In the capitalist system of society’s economic organization the entrepreneurs determine the course of production. In the performance of this function they are unconditionally and totally subject to the sovereignty of the buying public, the consumers.If they fail to produce in the cheapest and best possible way those commodities which the consumers are asking for most urgently, they suffer losses and are finally eliminated from their entrepreneurial position. Other men who know better how to serve the consumers replace them ...It is the entrepreneurial decision that creates profit or loss. It is mental acts, the mind of the entrepreneur, from which profits ultimately originate. Profit is a product of the mind, of success in anticipating the future state of the market. It is a spiritual and intellectual phenomenon.Competition as a Discovery ProcedureTo this may be added Friedrich A. Hayek’s (1899–1992) focus on “Competition as a Discovery Procedure” (1969). Competition is useful and, indeed, essential to the creative processes of the market. As Hayek pointed out, if in, say, a foot race we already knew ahead of time who would come in first, second, third, etc., along with each runner’s relative times, what would be to point of running the race? It is only through competition that we can find out how a race will end. Only through the competitive process can we discover the abilities of each individual relative to the others. It is also true that each individual cannot know for sure what he or she are, themselves, capable of in a particular setting unless they try to find out what they can accomplish by challenging and pushing themselves.What is it that consumers may want in the future in terms of existing or new goods and services; who can effectively devise the most cost-efficient way of bringing a good or service to market; which competitor can do so better than his supply-side rivals; what applications of factors of production will reflect their most highly valued uses among the alternatives? There is no way of really knowing the answers to any and all such questions independent of a open competitive market in which the opportunities and incentives for earning profits and incomes exist and individuals have the motives to try.All of these characteristics and qualities to a competitive market economy are only possible and available due to the institutional prerequisites of a capitalist system that were mentioned closer to the beginning of this article. It is the liberating of individuals from political restrictions and restraints, the freeing of market interaction and exchange from governmental regulations and prohibitions, and the recognition that every market participant must be presumed to possess and have protected his rights to his life, liberty and honestly acquired property that enables competition to fully come into play. And from which liberty and prosperity are made possible for mankind.But what about the critic’s criticisms that left to itself, competition may degenerate in to socially harmful and detrimental monopoly, or that competition serves misdirected and wasteful consumer demands? We will turn to these issues in the next part of this series.This article appeared at The Future of Freedom Foundation.
  • Why America Can't Afford to Continue Waging a War in Afghanistan    (Sahar Khan, A. Trevor Thrall, 2017-11-14)
    Sahar Khan and A. Trevor Thrall NATO’s Secretary General Jens Stoltenberg announced yesterday that the alliance will send three thousand more troops to Afghanistan in support of Donald Trump’s new strategy to confront the Taliban. NATO’s decision emphasizes the importance of making sure that the United States and its allies have good reason to keep going after such a long, costly and ineffective occupation. As Trump mulled over what he admitted was the difficult decision to remain in Afghanistan, two new arguments for staying the course emerged. Both arguments, unfortunately, are dangerously flawed. The first argument is that Afghanistan should not be seen as a nation-building exercise but rather as a strategic asset—an “eastern flank in the broader fight against extremism and terrorism.” Regardless of whether the United States commits itself to helping rebuild Afghanistan, the claim that Afghanistan should be seen as a strategic asset is troubling. Most dangerous is the assumption that the United States needs bases in Afghanistan to counter violent extremism. Evidence from the past sixteen years makes it clear that a military approach is not the most effective means to combat terrorism or extremism. In fact, in the nations where the United States has intervened since 9/11, terrorism and extremism have dramatically increased. While the Middle East’s volatility is largely attributed to the Arab Spring of 2011 and South Asia’s instability is linked with India and Pakistan’s nuclear weapons, political, economic and social conditions in both regions have been aggravated since the Global War on Terror began in 2001. Research, moreover, confirms that military defeat only rarely spells the end for terrorist groups. Given this and the historical evidence to date, there is little reason to believe that an extended American presence will provide any strategic benefits. The second new justification is that even if the United States never defeats the Taliban, an American presence in Afghanistan will help prevent Pakistan’s collapse. To be sure, the consequences from a disintegrating Pakistan would be severe and would go well beyond South Asia. State failure could result in Pakistan’s nuclear weapons falling into the hands of ISIS and other terrorist groups whose aims include attacking the U.S. homeland. State collapse would also result in an unprecedented refugee crisis, putting pressure on a region that is already grappling with overpopulation and mass displacement. Thus, for some, U.S. forces in Afghanistan serve as an insurance premium for regional stability and are a cost worth paying. To make sense this argument depends on believing that Pakistan would be in danger if the United States pulled out of Afghanistan. Pakistan’s disintegration, however, is neither imminent nor likely. Though Pakistan does grapple with domestic terrorism, the military establishment maintains that it has been successful in eradicating safe havens and militancy in general. And more generally, the link between Afghanistan’s stability and Pakistan’s security is weak at best. In fact, Pakistan’s long-held policy of “ strategic depth”—no secret to anyone in the region—is based on Afghanistan’s political and economic weakness continuing indefinitely. Furthermore, Pakistan’s approach does not depend much on who controls Kabul—Pakistan supportedthe Taliban since its founding, after all, and has strong incentives to work with Afghanistan. The bigger question is whether the United States feels comfortable with Pakistan having influence over Afghanistan. Further, the idea that the United States is contributing to Afghanistan’s stability is also a dangerous misperception. The Taliban’s growing strength is largely inresponse to U.S. forces in Afghanistan. The United States is a foreign, occupying power. And the longer U.S. troops stay there, the longer they will serve as a rationale for militant insurgency—and also become targets for attacks. Trump’s reservations about the United States’ military presence in the country were well founded; there is little evidence to indicate the U.S. presence is keeping Afghanistan’s National Unity Government from collapsing. The source of the government’s weakness is corruption, abuse of power, political infighting and crime—none of which the U.S. military can, or should, control. There are no good reasons left for an American military presence in Afghanistan. The only viable option left is to design a roadmap for negotiating a diplomatic settlement with key actors within Afghanistan, which must include the Taliban. Though such an approach will not deliver the clear victory President Trump promised, putting an end to a costly and failed policy is the best outcome available. If the United States does not pursue a diplomatic solution, then the only certain outcomes in Afghanistan are more American casualties, billions more wasted dollars, and growing resentment by many in the region of continued American interventionism. Sahar Khan is a visiting research fellow at the Cato Institute. A. Trevor Thrall is a senior fellow at the Cato Institute’s Defense and Foreign Policy Department and associate professor at George Mason University’s Schar School of Policy and Government.
  • Cradles of Capitalism: the City-States of Greece and Italy    (Marcia Christoff-Kurapovna, 2017-11-14)
    By: Marcia Christoff-Kurapovna There long has been a persistent academic debate as to whether an "ancient economy,” referring mainly to Greece, even existed at all. In a field dominated by Marx, Marxists, the 19th century sociologist Max Weber, and such scholars of renown as Sir Moses Finley, the lingering image of the economic world of the Greek polis is that of something very static. We imagine a leisure class lounging at the sandaled foot of an orator while slaves tended to the fields, flogging cows harnessed to ploughs stuck in the mud. It is the notion of a "primitive" economy: money made for status, not investment; credit extended for the purchase of slaves, war waged for the capture of booty, elites in control of craft guilds and tyrant-kings keeping the peace by randomly doling out the goods.Then there is ancient epic itself, with the noble Odysseus disdaining seafaring for profit (though he did take all the pay-offs he could collect) and the great Achilles pondering a discovery of precious treasure only so far as it might estimate his aristocratic worth. From this rudimentary foundation, an entire field of Socialist-Keynesian views on the Greek economy has prevailed, with occasional libertarian scholars such as Murray Rothbard and Jesús Huerta de Soto getting a word in edgewise. In recent time, however, academia has found much more evidence of technological advances and market-driven considerations on the part of the classical polis than previously thought.Keeping in mind that in both ancient Greece (and Renaissance Italy) that democracy was not incompatible with aristocracy, and that oligarchies and tyrants were not necessarily illiberal, several points may be made in defense of the economic model of the city-state: 1) that the stronger the city-state, the greater the industrial and economic expansion; 2) that private property was considered a fundamental economic principle; 3) that banking standards were relatively conservative; 4) that the wealthiest city-states were of the most socially dynamic; 5) that city-state competition spearheaded the modern entrepreneurial Europe; and 6) that the visionary tyrant was almost always business-first in his rule.When the Greek polis was its Strongest, Industrial, Technological and Monetary Revolution FollowedThe first great industrial revolution of ancient Greece took place around 500 BC, the result of political power shifting into regional democratic clusters individually known as the polis. The great poleis — Athens, Corinth, Thebes, and the colonized areas of Hellenic Asia — began to specialize their industrial production within four areas: agriculture, food processing, mining, and pottery, the sources of wealth and expansion. It was a time of technological revolution as well: the iron tools made in Greece beginning in the 6th century were so advanced that they were used later to equip Rome and Ptolemaic Egypt. The strengthening of the independent polis also meant the beginning of investment in industry by wealthier classes, an activity previously frowned upon. Then came the introduction of coinage, the result of the new emphasis on local economies, then starting to expand. Now that wealth was becoming more widespread, a decline in aristocratic patronage took place, later replaced by economic-civic relationships. An explosion in inter-regional trade ties between city-states followed.Even Aristotle Defended Private PropertyIn contrast to other ancient societies of the time, most of ancient Greece rested on a society of private property. Philosophers such as Democritus (460–370 BC) and Aristotle (384 0150322 BC) strongly defended property as a right and a necessity. Having witnessed the difference between the private property economy of Athens and the strict collectivism of Sparta, both thinkers concluded that the former was a superior form of economic organization. Aristotle defended it on several grounds: first, that only private property furnished men with the opportunity to act morally — to practice, as he put it, "benevolence and philanthropy"; second, he argued that it was more highly productive than communal property; third, that while "the Good" may be the same for all men, pleasure varies, and only "exclusive ownership" may grant that to a man; fourth, that private property had always existed and with good reason; and fifth, that in comparison to communally-owned property, private property gave more incentive for care, "toil and diligence." Ownership did not, the great thinker maintained, allow the rich to be above the law, however. Where privately-held property was most prominent — in the polis of Athens — the democratic legal organization of that city-state did not allow judgments to be based on ownership. A private-property based hierarchy was undermined in favor of democratic equality.Ancient Greece (and Rome) Maintained High Banking StandardsReligious temples, such as that of Apollo at Delphi, Artemis at Ephesus, and Hera at Samos were the “original banks” as they were considered inviolable and therefore a relatively safe refuge for money; they even had their own militias to defend them. From today's standpoint, however, the most secure thing about these banks was the fact that Greek bankers sought to maintain a 100 percent reserve-ratio on demand deposits, as the libertarian historian Huerta de Soto has researched in depth. Banks were not even considered sources of credit and interest was not allowed. Clients made deposits for reasons of safety and expected bankers to provide custody and safekeeping — not unlike the contemporary private bankers of Switzerland today. Needless to say, there was fraudulent activity, but when the public lost trust in those banks, these went bankrupt and no "state" intervened to save them. "In short" wrote Huerta de Soto, "banking was based on depositors' trust, bankers' honesty, on the fact that bankers should always keep available to depositors money placed in demand deposits, and on the fact that money loaned to bankers should be used as prudently and sensibly as possible." Nor were Roman banks considered free to use deposits as they pleased, but obliged to diligently safeguard those deposits, which did not pay interest and were not to be lent. The Renaissance City-state Rewarded Talent and the EntrepreneurThere was a surprisingly socially mobile make-up to the elite of the Italian city-state and nobility was not limited to birth. Social status was determined by talent, and the famous Swiss historian Jacob Burckhardt hailed this peculiar Renaissance social phenomenon as "the birth of the Individual."Furthermore, the great Renaissance humanists approved of commerce and the private pursuit of wealth, rejecting the Franciscan and Stoic ideal of poverty — indeed, the first generation of civic humanists, such as Leonardo Bruni and Francesco Barbaro praised wealth as preconditions for "active civic virtue." For the first time in history and exclusively within the context of the Renaissance city-state, the "Economic Man" — such as Francesco Datini, the true rags-to-riches paradigm of the Florentine-Tuscan merchant-noble —-had arrived.The Renaissance City-state Encouraged Competition and Industrial ProductionThe struggle between ascending city-states spurred so much competition between them that overseas exports began to far exceed imports due to economic battles between these states to outdo each other. It was no accident, for example, that Florence achieved the most economic and political hegemony in Tuscany, as that city-state was most susceptible of being cut off from critical lines of trade and food supplies by regional rivals. Tyrants tended to be economic visionaries: they encouraged this competition — as Viscontis, de Medicis, or Sforzas. In more republican states such as Florence, anti-tyrannical and anti-imperial Tuscan city leagues were founded that also became free-trade zones between one another.The wool trade, salt, silks, olive oil, all flourished during this time and the phenomenon of the modern-day entrepreneur came on the scene, emerging out the guild-run craft economies of the Middle Ages. Where city-states flourished, the modernization of the general economy followed: the mobility of labor improved, jurisdictional sovereignty was codified in law, transportation systems were founded, and the division of labor expanded. Close to 500 years later, a newly unified Italy would be without leadership once more and the country would only begin to industrialize at the turn of the 20th century.Small Was Beautiful — and ProductiveThe city-state of Lucca was an unusually successful example of the age, holding its own as an economic powerhouse in the silk industry. The city-state's leader, Paolo Guinigi, a descendant of one of the most acclaimed families of Lucca, promoted the trade of Carrera marble, the manufacture of silk products, and he modernized the banking system, while appeasing the powerful Viscontis in Milan. Nor was democracy entirely lacking: there was openness of access to office and positions of influence. Lucca's parlomento of 1430, for example, consisted of 97 citizens ranging from a merchant elite to doctors of law to weavers, leather workers, and butchers. The population all across class lines was made up of independent land-holders. One must always be careful when reasoning backwards from a modern economic perspective to quite a different set of conditions in ancient or medieval times. But the stunning historic continuity of the human belief in the imperative of private property; in earned rewards for ingenuity and entrepreneurship, and in the role of honor in banking and commerce remain lessons to return to again and again — in the hope that such beliefs never merely remain interesting anecdotes of the past.
  • We Need More Tax Breaks for Education    (Ron Paul, 2017-11-14)
    By: Ron Paul Shutting down the Department of Education and returning control of the education dollar to the American people is the key to improving education. The best way to put the people in charge of education is by shutting down all unconstitutional bureaucracies, repealing the Sixteenth Amendment, and ending the Federal Reserve’s money monopoly.Since Congress is unlikely to restore constitutional, limited government in the near future, supporters of quality education must advance policies aimed at giving Americans control over the education dollar so they can seek alternatives to the federally-controlled system. This is why I have always supported education tax credits and deductions.When I was in Congress, I introduced legislation providing tax credits for contributions to education scholarship funds. These funds provide K-12 scholarships to low-income-family students whose parents cannot afford private schools. These scholarship funds allow these children to escape government schools that have been ruined by federal “reforms” like No Child Left Behind and Common Core, as well as mandates such as the ones dictating what can be served in school cafeterias.Including education scholarship tax credits in the tax reform bill currently before Congress would be a major step toward creating a free market in education. In a free market, parents could select the type of education that best suits the unique needs of their children, instead of the demands of politicians and bureaucrats. Schools could compete on the basis of academics, extracurricular activities, and even lunch menus. Those with unique and innovative education ideas would be free to establish schools and prove their models’ superiority.Moving to a free-market education system would increase the amount of money spent on educating children. This is because in a free market resources would not be siphoned away from the classroom to support a bloated federal bureaucracy and schools would not be force to waste valuable resources proving they are complying with federal regulations.By increasing competition, education scholarship tax credits encourage government-run schools to improve. The threat of losing more students may even cause local school boards and state boards of education to resist federal mandates. Thus, education scholarship tax credits can improve the education of all children.Some libertarians oppose education scholarship tax credits on the grounds that they are a form of government “subsidy.” Since education tax credits allow people to use their own money to support education, this claim only makes sense if one believes that all income is owned by the government, so any income not taxed away is a gift from government. This is a strange position for a libertarian to take!Other critics say that tax breaks for education (or any other item) distort the market. They also claim that these tax breaks cause income taxes to be higher than they would be without these credits. These critics may have a point, but the answer is to force Congress to cut spending and reduce or eliminate all taxes, not to take away existing tax breaks.Almost all Americans agree that education should be generously funded. The only question is who should control the education dollar — the federal government or the people. Anyone looking for the answer need only consider how American education has declined as the federal government’s role has increased. Education scholarship tax credits are an important step toward restoring control of education to the American people and providing a quality education to children from low-income families. Congress should help American children and include education scholarship tax credits in the tax reform bill.Reprinted with permission. 
  • Can Marijuana Help Addicts Kick Opioids?    (Jeffrey A. Singer, 2017-11-14)
    Jeffrey A. Singer Late last month Donald Trump’s administration declared the rising death rate from opioid overdoses a national public health emergency. Thirty-three thousand lives were lost to this scourge in 2015, and early reports from the Centers for Disease Control and Prevention paint an even bleaker picture for 2016. Policymakers working for the president are doubling down on a policy aimed at restricting opioids. But this policy isn’t working. In fact, it might even be contributing to abusers’ switch to more potent drugs such as heroin in recent years.Yet there is an approach that can truly curb the rising rate of overdose deaths that is staring them right in the face: legalizing marijuana. According to research published earlier this month in the American Journal of Public Health, Colorado’s legalization of recreational marijuana in 2014 coincided with a 6.5 percent reduction in opioid overdose deaths. The researchers studied the opioid overdose rate in the state from 2000 to 2015, and found that after 14 years of a steady rise in opioid overdose deaths, the rate decreased by an average of 0.7 deaths per month. Research shows this once maligned ‘gateway’ drug could be an off-ramp. This is not the first study to find that marijuana is associated with a drop in the use and abuse of opioids and other dangerous drugs. A 2014 study examined states where marijuana was available for medical use between 1999 and 2010 and found, on average, a 25 percent reduction in annual opioid overdose mortality compared to states in which marijuana was illegal. Researchers at the RAND Corporation found similar results in 2015. And in June of this year, a study of chronic pain patients by the University of California at Berkeley found that 97 percent of patients decreased opioid consumption as a result of using medical marijuana, and 81 percent found marijuana alone was more effective than using both marijuana and opioids. Clearly some patients require fewer opioids to treat their pain when they have access to marijuana. But Colorado’s encouraging data reflects the impact of recreational marijuana access—not medicinal. These new findings suggest the possibility that people seeking to get “high” on mind-altering drugs, when given the opportunity, tend to choose the safer option—when it’s legal and available from sources other than black market drug dealers. There might even be a pharmacological basis to these findings. Research published in 2013 in the journal Addiction Biology suggests cannabis “interferes with brain reward mechanisms responsible for the expression of the acute rewarding properties of opioids…” And a 2017 article by researchers at Mt. Sinai School of Medicine points to animal models that suggest cannabidiol, found in cannabis, might reduce withdrawal symptoms as well as opioid-seeking behavior. This is an area that needs further investigation, but one thing is clear: marijuana availability is associated with a decrease in opioid use, abuse, and overdose. Opponents of marijuana legalization have claimed for years that marijuana is a dangerous “gateway drug” that leads users to more treacherous and addictive drugs, like heroin. These claims are premised on the fact that most users of heroin, cocaine, and other dangerous drugs also report that they use marijuana. But they also report the use of tobacco and alcohol. Critics of the gateway theory are quick to point out that correlation is not the same as causation. Now there’s evidence of a negative correlation between marijuana and harder drugs. More marijuana correlates with less opioids. Even proponents of opioid restriction agree that Medication-Assisted Treatment is a useful tool for dealing with opioid addiction. This employs medications such as methadone, suboxone, and naltrexone to wean addicts away from opioids. Marijuana’s potential for medicinal use has been recognized by healthcare professionals—and realized by patients—for many years. Now, it offers the potential for averting and treating opioid abuse. Rather than a gateway, marijuana may be an off-ramp to opioid abuse. Opponents of marijuana legalization should keep that in mind before they try to close this ramp off. Jeffrey A. Singer practices general surgery in Phoenix, is a visiting fellow at the Goldwater Institute, and a Senior Fellow at the Cato Institute.
  • Should Passive Funds Be Active?    (Ike Brannon, 2017-11-14)
    Ike Brannon Investment companies that run index funds—which merely seek to replicate the ups and downs of a broader market index and that entail no investment strategy by any managers—are becoming ever more popular, with a greater proportion of our retirement savings are going into them. Forty percent of all stock is currently held in such passively managed funds, and three large investment companies with popular index funds—Vanguard, BlackRock and State Street—together hold nearly $13 trillion in assets. Index funds can be great investments for the middle class, since management fees are low that means net returns are higher, and in the long run they tend to outperform nearly every actively-managed stock market fund offered. The SEC recognizes the benefits they deliver and it has simpler filing requirements for investors that do not seek to exert an active control over a company. However, these behemoths do manage to exert their influence over the companies they invest in via their proxies. Given their size, ​they each control​ a significant percentage of each company in the S&P 500, which means they have the potential to tip the scales on contentious proxy proposals by voting together on shareholder proposals to change corporate governance. Once people come to see that some of their money is being spent on activities that have nothing to do with performance we may engender some genuine competition between index funds. In the last decade they have begun to exert their growing, collective influence in an attempt to improve corporate behavior and procedures companies, with some success: The ten-year poison pill is nearing extinction, there are many fewer classified boards these days, and nearly 90 percent of companies in the S&P 500 have majority voting requirements. However, of late these funds have been increasingly using their proxies to vote for proposals that are tangential to corporate governance, and some these hold the potential to hurt the bottom line of the companies being targeted. First and foremost of these, of course, is the increasing predilection for activists to introduce proposals to force the company to do more about climate change than would be prudent if they were to follow their fiduciary duty. For instance, earlier this year, Vanguard CEO F. William McNabb III released a letter to public companies outlining the priorities of its investment stewardship group, with specific reference to climate change. With index funds increasingly likely to support such proposals it is likely that we will see more of these in the coming years, the result of which will do nothing to reduce climate change but will increase the cost of doing business for companies large and small. Another increasingly common proposal has been to force companies to review their charitable giving, with an eye towards potential human rights issues—defined broadly—that might be affected through such giving. The increasing support that index funds have been giving proxy proposals peripheral to a company’s bottom line (and potentially deleterious to its stock price) may be a manifestation of the greater indexation of the U.S. stock market. A point that Bloomberg’s Matt Levine has made in myriad ways in his always-informative daily column Moneystuff is that if fund managers are paid largely based on performance relative to their peers, then the sole motivation for index fund “managers” is to reduce their fees. What happens to any individual stock is of no consequence to them, since it impacts their index fund peers equally. As a consequence it is easy to conceive of them agreeing to pursue strategies that might not be best for their clients whose money they “manage” but that give them some sort of nonpecuniary satisfaction—like the admiration of their friends or laudatory coverage in the press for their prescience or “courage.” Fixing this potential moral hazard is tricky: Most people would probably agree that, presently, the benefits of indexation currently outweigh its potential drawbacks, so outlawing index funds doesn’t make sense for the foreseeable future and is probably impossible to boot. But one thing we could potentially do would be to request that these funds provide more information to their millions of passive investors informing them of the extent and cost of the activities they undertake with regards to proxy voting. We might consider allowing investors with money in these funds to ask why they vote the way they do, or why they choose to vote at all on these peripheral proxies. Once people come to see that some of their money is being spent on activities that have nothing to do with performance we may engender some genuine competition between index funds. Ike Brannon is a visiting fellow at the Cato Institute.
  • Britain's Economic Success Is Not Reliant on EU Membership    (Ryan Bourne, 2017-11-14)
    Ryan Bourne How far has EU membership benefited the UK economy since 1973? A pro-EU colleague emailed me last week: “we’re the fifth largest economy in the world, but in the 1970s, before we joined the EU, we were the sick man of Europe — strike-bound, socialist, ungovernable, poor and getting poor.” The not-so-subtle implication of the tone (though my colleague is too intelligent to explicitly conflate correlation with causation) is that Britain’s improved performance has been “a result of” EU membership. Yet many Brexiteers believe that Britain’s economic progress has occurred “despite” membership. Indeed, these counterfactual histories explain a lot about the pro-Brexit and anti-Brexit tribes today, and highlight a discrepancy in the anti-Brexit argument. Britain did see a significant relative decline in the period prior to becoming an EEC member. In the 40 years after joining, GDP per capita here grew faster, such that Britain became more prosperous than the average of Germany, France and Italy in 2013 for the first time since 1965. Whether Brexit is a success or failure in the long term will ultimately depend on the policies adopted through the domestic political process. An increasing openness to trade and investment at an EU-level, the gradual liberalisation of markets across the EU, and restrictions on state-aid and government favouritism could all have contributed to this. The mere fact though that one event precedes another does not tell us anything about whether the event caused the change in direction. It doesn’t take much time to realise that there is a rather large confounding factor. During that same period, Britain underwent a paradigm shift in domestic economic policy, following Margaret Thatcher’s election in 1979. State-owned industries were privatised. Marginal tax rates were lowered. The growth of government spending was suppressed. Product and (later) labour markets were liberalised, including the curbing of trade union power. All of these, we’d imagine, would increase productivity. Cumulatively, they represented a significant supply-side reform package. If it were the EU, rather than Britain’s domestic policy agenda, that generated the improvement in performance, why did some EU economies that did not reform really struggle? Some might blame the euro more recently, but it’s becoming increasingly clear that the euro crisis merely exposed bad domestic policies in economies such as Greece, Portugal and Spain. The latter in particular has began to grow robustly following significant domestic labour market reforms. It therefore should not surprise us that those who were most optimistic about Brexit are often those who were part — or are modern-day disciples — of the Thatcher revolution. For us, while the EU has on net played a liberalising role across Europe, it is domestic policy that matters far more for success. We do not think Britain will abandon the “good bits” of EU law, and in many areas, such as tariffs, regulatory policy and agricultural protectionism, Brexit presents opportunities to move in a more pro-market direction. Indeed, the history we see is an EU that since the 1990s has sought to entrench more rights, regulations, environmental standards and financial regulations on Britain, preventing us from fulfilling the next stage of the economic liberal revolution. One might disagree with this outlook. The rise of Jeremy Corbyn has been a bracing reminder that few battles in politics are final victories. But the counterfactual historical interpretations above do highlight a major discrepancy in the Remainer arguments. When Brexiteers bemoan the erosion of sovereignty owing to EU centralisation, Remainers are quick to point out how much consequential economic policy still remains within our own hands. Yet this does not square with their belief that we are necessarily doomed to fail economically outside. Even if one thinks our trading conditions might be worsened as a result of leaving the Single Market, there are plenty of other supply-side levers to pull, as the 1980s showed us. This is the key reason why I believe much of the economics profession has been so misguided on the long term consequences of Brexit. Whether Brexit is a success or failure in the long term will ultimately depend on the policies adopted through the domestic political process. Economists have no specialist knowledge on this, just as they had no idea of the neoliberal revolution that would have occurred from the late 1970s. Of course, even now economists disagree on the virtues of lots of the policies implemented in the Thatcher-Blair eta. Some debates will never be settled. Just as its disputed whether Britain’s relative success from 1973 onwards was due to EU membership or the Thatcher revolution, so Britain’s future success or failure will be judged “as a result of” or “despite” Brexit. Ryan Bourne occupies the R Evan Scharf Chair in the Public Understanding of Economics at the Cato Institute in Washington DC.
  • Don't Mix Politics and Climate Science    (Agnieszka I. Płonka, 2017-11-14)
    By: Agnieszka I. Płonka The widely understood libertarian environment has lately published a multitude of very eloquent articles about how to approach the global warming issue, what to think about "established science," and whether or not to be "agnostic." Those materials, however well written, fail to see the core of the scientific method — which is again understandable since their authors have been immersed in a different kind of science — that is, social science. The word "agnostic" does not fit in here, however. One can be an "agnostic" only towards what is untestable. But we can test the temperature in which water freezes, we can test how poisons affect human body, and we can test how certain layers of the atmosphere affect solar radiation. Those results are necessarily verified by nature itself. They leave no place for even the subtlest "polishing" of the results so that they fit the assumption — and if what climatologists say seem to leave a different impression, it is either due to the imperfections of human language or due to the fact that, sadly, they already tend to incorporate political agendas into their scientific commentaries. Let us note here however, that the carbon isotope 12C is way too primitive a structure to be plotting for worldwide socialism. (The ratio between 12C and 13C in the atmosphere serves as a geochemical argument for anthropogenic global warming).Unfortunately, since global warming serves the government as justification for their plans for greater control of society, we are doomed to mix politics and science where it should never be mixed. This may be one of the symptoms of the declining level of public discussion. Again unfortunately, the reaction in which we rebel against our preconceived ideas is perfectly natural. Here it is linked, however, with the difficulty of distinguishing between scientific information and political beliefs. The question "what is going on?" is different than "what should be done?" If I provide a geochemical argument for manmade global warming, it does not automatically mean that I am an interventionist. After all, a lot of basic research underlying modern atmospheric physics is as old as 200 years — but the physics is not accused of bias, since back then no government was plotting to use it as a pretext for public policy.  The magnitude of emotions linked with this issue is unsurprising given that it may affect all humanity in a relatively short time. I do have an impression though that those emotions stem from the fact that the whole discussion is politicized, not because of a genuine care for human life.A Classical Case of "What Is Seen and What Is Unseen"The laissez faire position in environmental problems suffer from a serious and rather impossible to deal with image defect — it does not give easy answers and well calculated recipes. A statist will provide a detailed and nuanced answer with a graph, an emmission-reduction calculation, and a firm loud prescription for government intervention. The non-interventionist will not. We will say that we trust to the same innovation that has continually improved human living standards for centuries. That we trust that the human mind can break through a number of Mathusian traps is born from historical experience, and experience suggests we can — with accordingly big investments — create the technology level we need to adapt. In contrast, no such experience speaks to any success for global schemes of controlling the global economy.In this light, interventionism is not only unethical, but also inefficient. In a public discussion this stance would loose, since we can only repeat after Hayek that we do not know what to do - and it is impossible for any individual to know:It is through the mutually adjusted efforts of many people that more knowledge is utilized than any one individual possesses or than it is possible to synthesize intellectually; and it is through such utilization of dispersed knowledge that achievements are made possible, greater than any single mind can foresee. It is be­cause freedom means the renunciation of direct control of individual efforts that a free society can make use of so much more knowledge than the mind of the wisest ruler could comprehend.For an average listener of such a debate, it would be a choice between "I don't know" and "I calculated all, I know what the government should do, and I even have a photo of a sad seal to invoke your feelings." It's no wonder that freedom loses the advertising battle.And yet, what sounds unconvincing in front of a TV, works much better in real life. What we need is technological progress in the energy sector and in the methods of waste storage and reduction. Would that progress be possible in a rich or in a poor country? How to cook up new technologies most efficiently, and then make them widely affordable and accessible?That is why the answer to what the desirable role of the government with respect to global warming should be is the stuff of yet another classic Bastiat's essay. I am certain that the control of carbon dioxide emissions would be the last chapter of "That what is seen and that what is not seen," had he lived in our times to witness it.Obviously, it is straightforward to calculate the expected temperature change given certain restrictions. It will be beneficial for the environment — short-term, that is what is seen. But how those restrictions would affect the prices of strategic resources, transportation, and, generally speaking, life? Wouldn't they hamper long-term investments in advanced research and development, that is — the only long-term solution to the problem? What if, to give an example, a company that studies cheap nuclear power plants that also extract carbon dioxide from the atmosphere goes bankrupt? What if a number of other similar initiatives do?Will You Say "Yes" to Civilization?Poor societies cannot afford to care about the environment. They cannot afford research and development. The government wants people to believe it is the only means of addressing ecological problems.  But the state can be counted on to just use any new powers as a means of control, and in the long run — to impoverish societies and block the progress of civilization. We are being told we must choose between the freedom of humans and the freedom of polar bears, convincing us that they trade-off with each other, while actually it may not be the case at all. (Here I omit the discussion whether polar bear protection should be subject to law or to ethics).Statists here think in a very close-minded way — failing to see how dynamic our civilization is. Not long ago, we could not imagine having the internet or commercial flights. How are we so certain then, that in the next fifty years we wouldn't come up with a clean, cheap and efficient way of obtaining solar energy, or a routine and inexpensive procedure of reducing carbon dioxide particles to carbon and oxygen? The assumption that this will not happen, and if it will, it will by state coercion, only makes this progress slower. And going deeper into this assumption would eventually lead to creation of a totalitarian monster which controls not only our energy use, but also birth rates or meat consumption. How immoral and terrifying would be the reduction of a human being under such inhumane conditions! And how could we escape a Malthusian trap while being trapped by the state?And if someone, anyone claims that "capitalism destroys the Earth," show them any pollution or ecological-catastrophes map. They speak for themselves.
  • Trump Immigrant Rhetoric Relies on Statistical Outliers    (2017-11-13)
    By Abigail R. Hall, Michael Coon; During a rally in Youngstown, Ohio, President Trump told a gruesome story of immigrant "animals" who "slice and dice" beautiful young girls in the United States. His d...
  • Capital As a Form of Charity    (F.A. Harper, 2017-11-13)
    By: F.A. Harper Tools as a Form of CharityBoth fact and logic seem to me to support the view that savings invested in privately owned economic tools of production amount to an act of charity. And further, I believe it to be — as a type — the greatest economic charity of all.By economic tools of production I mean, of course, things with exchange value — trucks, factories, railroads, stores — which assist human effort in the production of other items of economic worth.Does saving and investment in these tools qualify as charity? Does it meet the three tests of an act of charity?The first test is whether there has been a transfer of privately owned things having economic worth. It is true that when one saves and invests in a tool which he uses in production, although he retains title to the tool, most of the extra production which the tool makes possible passes on to others, as we shall see. For that reason the first requisite of an act of charity seems to be met as a certain consequence of saving and investment in tools. It is this feature of the creation of privately owned capital which is its charitable aspect.The second test of charity is that the transfer of economic benefits shall be voluntary. Did anybody steal anything? Was anybody coerced? So long as the tools are privately owned and their use functions in a free market, the process has to be voluntary for everybody involved. But state ownership or control of tools, as is common in Russia, violates this requirement.The third test of charity is anonymity. The charitable feature of savings and tools arises from the extra production that flows from it as a consequence and which goes in large degree to others than the one who saved and invested in the tool — to others than the owner of the tool. It is anonymous because the beneficiaries do not know its source. Most of them do not even know how they are benefiting from it at all. They do not know this because they have been victimized by a thorough saturation with the surplus value theory. They even think of themselves as being victimized by these capitalists who own the tools they are using.One can easily test from his own experience the anonymity of the charity that flows from savings and investment in tools. If one will list all the economic items he consumes or enjoys in a day, the test is to try in each instance to name specifically all the persons whose savings and investment made the item possible. Most of us, I dare say, could not name even one person responsible for an item we use and enjoy. This illustrates the anonymity of the millions of unknown persons responsible for the things we enjoy.So savings and the tools of production meet all three tests of charity, and thus qualify as charity. How many of the things we commonly call "charities" can equally qualify by these three tests?The Productive Power of ToolsA large part of the high level of economic living we now enjoy in the United States arises from the use of tools.The average person in the United States has available for consumption upwards of ten times that of persons in the less prosperous half of the world. The reason for their poverty is a lack of savings invested in tools of production. In all their history over the ages they have accumulated little beyond the most primitive and simple tools, such as crude plows and hoes.Harder work by us is not the reason why we can enjoy ten times as much economic welfare as they do. Persons in the United States work no harder, if as hard, as do the poorer half of the world's population. Even including mental work along with sheer muscular effort, both of which contribute to output, I doubt if we work any harder — overall.Nor does innate intelligence seem to explain the difference. We probably have no more geniuses per thousand population than they do.Lacking any of our accumulation of tools, our output per worker probably would be even lower than that of the poorer half of the world at the present time; even their production is aided considerably by their simple tools. Comparison of their output with ours suggests that without any tools whatsoever our output would be reduced to perhaps one-twentieth of what it now is. To say it another way, perhaps 95 percent of our present output in the United States is made possible by the presence of our tools. These tools are available because in the past some wise people saved and invested in tools.Who Gets the Output Due to Tools?The next question is, Who gets this great increase in production? Evidence shows that a large part of it goes to others than those who did the saving and who hold the titles of ownership to the tools. It goes mostly to those who use the tools.It has been estimated that only about 15 percent of the national income in the United States goes to the owners of capital as current income.1 This is the amount of dividends, interest, rents, and royalties together with their equivalents in owner-operated businesses. The other 85 percent of the national income is paid currently for work, as distinguished from pay to owners for savings they have invested in tools. This figure for current work includes both wages paid to employees and its equivalent to those self-employed.The question at once arises as to why so small a proportion of the product goes for capital, when capital is so highly productive? If we were to assume that those who save and invest in tools are entitled to the full increase in output that comes from the use of these tools as an aid to manual labor, it would appear from the evidence already given that justice would decree a division about like this: 95 percent for the owners and 5 percent for the users.And so we may summarize: To theTool OwnersTo theTool UsersTotalIf full production increasewere to go to the owners955100Actual division in the UnitedStates at present1585100Division according to Marx'ssurplus value theory0100100Presuming these figures to be accurate, one must conclude that the saver-investor is receiving less than one-sixth of the return which his saving and investing has made possible — 15 received from the 95 produced. The other five-sixths of the increase goes to the users of the tools, enhancing their pay seventeen times — 85 received and 5 produced.A person is lucky if by chance he happens to have been born in the United States where he can share directly in the bounty tools create. By having been born here he is enabled to work with tools that are now available because others have saved in the past. His income from current effort will, by these figures, be enhanced 17 times (85 versus 5) because of these tools. Had he been born where no tools had been accumulated whatsoever but would have to work as hard or even harder than in the United States, he would be getting only 1/17th as much for his labors.This bounty to the users of tools is what I call the greatest economic charity.Surplus-Value Theory ReviewedThese facts are significant in appraising Marx's surplus value theory. Marx said, in effect, that the 15 percent which goes to the owners of the tools is surplus value because the user of the tool — according to Marx — deserves the full 100 percent.It is from the productive power of tools as aids to the manual efforts of man that something which might be called a surplus value arises. This surplus, as has been indicated, has raised US production from a level of 5 to a level of 100. So a counter claim to that of Marx would be that the full increase of 95 (100 minus 5) — the amount of surplus value created by the tools — should go to the one whose savings created the tools. But who really gets this surplus value of 95? The owner gets 15 and the user gets 80. Not a bad deal for the user!Surplus value of a different sort arises in every instance of voluntary exchange in a free market. If one farmer trades a bushel of wheat to a merchant for a shirt, it is because the farmer prefers the shirt to the wheat and the merchant prefers the wheat to the shirt. The trade creates a surplus value for each of the participants, but the amounts of surplus value thus created are not subject to measurement by any device we now know or can contemplate. They are compensating in direction but not necessarily in amount, because the amount is entirely a matter of subjective appraisal. Being unknown in amount by both parties and probably not even thought of in these terms at all, no sense of residual obligation is created. This makes the process closely akin to anonymity. The center of interest of this discussion, however, is surplus value of the type created by tools as an act of economic charity. Therefore the phenomenon of surplus value created by exchange will not be dealt with further here.In a free economy the process of deciding the division of the surplus value created by the use of tools occurs in the free market. We must accept the decree of private ownership and free exchange as having fairly decided the division, whatever the answer. Yet the answer given in the free market reveals that private capitalists — the "selfish owners," as those who save and invest are so often called — are really the greatest charity-givers of all.It is also interesting to note the magnitude of charity arising from private capital in relation to "religious and welfare activities" contributions. About 2 billion dollars are given to religious and welfare activities in the United States each year. This is less than 1 percent of the amount of charity which the users of tools receive in their pay envelopes, according to this concept, in the same length of time.This article is excerpted from On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises (1956). 1. F. A. Harper, The Crisis of the Free Market, 1945, p. 66.
  • Why Populism Isn't Going Away    (Ronald-Peter Stöferle, 2017-11-13)
    By: Ronald-Peter Stöferle The vote for Brexit and the election of Donald Trump has baffled the main stream and the establishment. Most market participants and observers didn't believe ex ante that they were possible, and as a result were completely surprised when the unexpected happened. Ever since the term populism has become socio-politically relevant in modern-day public discourse. Google Trends illustrates that there was a veritable explosion in search queries for the term “populism” last year:Source: GoogleBut, populism — regardless of its political flavor — merely represents a symptom. The generally surprising results were consequences of the economical erosion of the past years Although there are idiosyncrasies in every country that foster the rise of populist movements, the ailing foundation of the economy provides the fertile soil and is the major driver of people's dissatisfaction and the associated voting decisions. To assert that populism is the reason for this process of political change is in our opinion far too simplistic. An analysis of stating that economic erosion is responsible for the rise in populism is supported by by a McKinsey study, which examines the trend in real household incomes in 25 industrialized nations.1 McKinsey arrived at the striking conclusion that real incomes of 65 to 70 percent of households in developed countries either stagnated or even declined between 2005 and 2014. The following chart illustrates the trend in household incomes in selected countries. (The y axis shows the percentage of households with stnating or declining income between 2005 and 2014): Source: McKinsey, Incrementum AG The momentousness of this study becomes obvious when considering that the object under review are 25 industrialized countries with a population of more than 800 million people, generating 50 percent of global GDP.Moreover, numerous studies show that the opportunities and expectations of coming generations to earn more than their parents have worsened significantly. While the probability that members of the baby boomer generation would earn more than their parents was 62%, this probability has declined to 50% for generations born since 1980.2 Income equality has deteriorated dramatically over time as well. The share of national income earned by the bottom 90% of the US population has decreased from 66% in 1980 to 50% today.3 Contrary to the picture painted by numerous macroeconomic statistics, the economic situation is apparently not as bright as it is often portrayed.What cannot be quantified by statistical aggregates is the cause of the economic erosion suffered by the middle class, which can ultimately be traced back to our monetary system. The low interest rate environment orchestrated by central banks has not only failed to solve our economic problems, but is – in keeping with the business cycle theory developed by Mises and Hayek – the very cause of the business cycle.Apart from creating the business cycle, ZIRP and NIRP-policies of central banks also result in an ever more pronounced concentration of incomes and wealth. In this context, it is crucial to understand the so-called Cantillon effect, which we have also discussed comprehensively in our book. As we point out there, when newly created money is introduced, it enters the economy at discrete points, it cannot be distributed evenly across the entire economy. Instead, every expansion of the money supply results in a transfer of wealth: the early receivers of new money can purchase goods at their existing prices and thus gain purchasing power, whereas later receivers of new money can only buy goods at prices that have already increased, and are losing purchasing power as a result. In today's monetary system, it is primarily commercial banks, the government and large corporations with good financial market access that are benefiting as the earliest receivers of newly created money, while all other sectors are losing out – the further removed from the source of money creation they are, the bigger their losses.This concentration effect is inter alia reflected by real estate prices in international financial centers such as London or New York, as well as in large discrepancies between urban and rural areas. Maps showing the distribution of votes in the US election and the Brexit referendum can clearly be interpreted from this perspective as well:Source: Wikimedia Commons, Incrementum AGIt is conspicuous that the Trump election and Brexit met with high approval rates in largely rural areas in the US and Great Britain, while metropolitan areas tended to vote in favor of the status quo (i.e., for Hillary Clinton or Remain).The economic situation in these regions undoubtedly plays a role in this. While large cities have often benefited from the fiat money system due to their proximity to politics and financial markets, many rural areas are drying up economically. These regions were often hit the hardest by deindustrialization.The following chart shows the discrepancy between productivity growth and real household incomes. After World War II income and productivity growth tended to track each other closely, but since the 1980s a growing divergence can be observed:Source: EPI, Bureau of Labor Statistics, Incrementum AGThe same applies to hourly wages as well: between 1973 and 2015 net productivity grew by 73.4%, while the hourly wage of the average US worker rose by a mere 11.1% in inflation-adjusted terms, and thus effectively stagnated. Viewed from this perspective, it is not surprising that voters are increasingly warming up to populist ideas. 1. See “Poorer Than Their Parents? Flat or Falling Incomes in Advanced Economies.”, McKinsey 2. See “The American Dream, Quantified at Last”, New York Times 3. See “Populism is the result of global economic failure”, The Guardian
  • Hey GOP, Want to Cut the Burden of Government? Cut Spending.    (Ryan McMaken, 2017-11-13)
    By: Ryan McMaken Washington, DC is currently in the middle of a the "tax reform" process, which as Jeff Deist, points out, is " a con, and a shell game." Tax reform proposals, Deist continues "always evade and obscure the real issue, which is the total cost — financial, compliance, and human — taxes impose on society."Tax reform is really about which interest groups can modify the current tax code to better suit their own parochial interests. The end result is not a lessened tax burden overall, and thus does nothing to boost real savings, real wealth creation, or real economic growth. It's just yet another government method of rewarding powerful groups while punishing the less powerful ones. Not surprisingly then, the news that's coming out of Washington about tax reform demonstrates that the reforms we're seeing are only shifting around the tax burden without actually lessening it. The central scam at the heart of the matter is that DC politicians are more or less devoted to "revenue neutral" tax reforms. That means if one group sees a tax cut, then another group will lose a deduction, or even see an actual increase in tax rates. This is why many middle class families may be looking at a higher tax bill. David Stockman explains: [O]n the eve of the House Ways and Means committee vote on the tax bill----which will then be barricaded by a no amendments "closed rule" when it goes to the full house-----the smoking gun is already apparent. By 2027 (after the temporary $300 adult tax credit gimmick expires and all provisions of the Brady mark become fully effective), the middle quintile US family ( about 30 million filers between $55,000 and $93,000 of AGI) would find itself in a crap shoot.That is, roughly two-thirds of filers (20 million units) would realize a $1,070 per year tax cut, while another 31% (roughly 9.5 million filers) would experience a $1,150 tax increase!That's a whole lot of rolling dice----depending upon family size, sources of income and previous use of itemized deductions.But here's the thing: For the heart of the middle class as a whole----30 million filers in the aforementioned income brackets---the statistical average tax cut would amount to $6.15 per week.That's right. Two Starbucks cappuccinos and a banana!Even if you're one of the lucky ones, you're looking at a miniscule tax cut, thus demonstrating that the main point of the exercise has been to allow lobbyists and politicians to make deals involving special legislative favors in exchange for "campaign contributions" (i.e., bribes). For a Real Tax Cut, Just Cut Spending Given that tax cuts aren't really tax cuts in the current environment, the real emphasis ought to be on cutting spending for at least two reasons:1. Continued increases in spending drive more deficit spending, which leads to inflationary monetary policy and future taxes necessary to service the debt.2. Government spending itself imposes a burden on taxpayers as government programs distort the economy, create bubbles, and drive up prices. The Easy-Money Tax Deficit spending is not a free ride, and it imposes costs on taxpayers and citizens in a variety of ways. First of all, it imposes taxes on future taxpayers who must pay debt service on the spending that is done today. Secondly, deficit spending increases the issuance of government debt which competes with private-sector debt instruments, and makes it harder for the private sector to raise funds for businesses and capital improvements. (Government debt, of course, if often favored because governments are unlikely to default, thanks to the power of taxation.)Even greater problems arise when — in order to increase demand for government debt, and thus reduce interest rates — the central bank begins to buy government debt. Over the past decade, in fact, the Fed has amassed a balance sheet of 4.5 trillion dollars, with much of that being government debt. Current claims that the Fed is now reducing this stockpile are half-truths at best since this "unwind" involves only tiny portions of the Fed's portfolio. In order to purchase this huge portfolio, of course, the Fed has created trillions of dollars "out of thin air." As this money has entered the economy, it has caused asset inflation — as we now see with real estate, stocks, and other assets. These high prices and low interest rates not only increase housing prices, but they starve middle-income investors of yields from traditionally conservative investments, thus driving them into riskier investments. Moreover, this inflationary policy robs consumers of beneficial deflation in consumer prices, keeping prices flat or slightly increasing, when they should have been decreasing. For people on fixed incomes, and who have meager portfolios, deficit spending thus makes the US a more expensive, economically risky place. Government Spending as a Tax in Itself The second problem with government spending is the spending itself. Government spending is often treated as if it would be nothing but a good thing so long as the spending weren't funded by taxes. The idea is that government spending leads to the creation and manufacture of any number of wonderful amenities such as roads, universities, and aircraft carriers. The only down side is the taxation. This, however, is not how it works. Government spending itself imposes a cost on society by replacing decentralized market-based transactions with government central planning. In Man, Economy, and State, Murray Rothbard explained the error of focusing on taxes while ignoring government spending:There has also been a great amount of useless controversy about which activity of government imposes the burden on the private sector: taxation or government spending. It is actually futile to separate them, since they are both stages in the same process of burden and redistribution...[S]suppose the government taxes the betel-nut industry one million dollars in order to buy paper for government bureaus. One million dollars’ worth of resources are shifted from betel nuts to paper. This is done in two stages, a sort of one-two punch at the free market: first, the betel-nut industry is made poorer by taking away its money; then, the government uses this money to take paper out of the market for its own use, thus extracting resources in the second stage. Both sides of the process are a burden. In a sense, the betel-nut industry is compelled to pay for the extraction of paper from society; at least, it bears the immediate brunt of payment. However, even without yet considering the “partial equilibrium” problem of how or whether such taxes are “shifted” by the betel-nut industry onto other shoulders, we should also note that it is not the only one to pay; the consumers of paper certainly pay by finding paper prices raised to them.What Rothbard is saying here is that every time the government buys something with money looted from the taxpayers, it necessarily drives up the prices of those goods, and prevents those resources from being used by the private sector for private purposes. So, every time the government buys a gun or an airplane, it makes guns and airplanes more expensive for the private sectors, as well as all the factors that go into producing those goods. Needless to say, in addition to driving up prices, the government is also distorting the economy, as well as choosing winners (government employees, contractors, and suppliers) and losers (those not favored by the government). Whole industries — ones that were valued and profitable before the government got involved — can be destroyed in this manner; and the livelihoods of people with them.The Amazon AmendmentOne recent example of this is the so-called "Amazon amendment" currently being considered in Washington. If passed, Amazon corporation would be awarded a massive government contract to oversee government procurement operations. This in effect would give Amazon an enormous advantage in the marketplace, stifling competition, and ultimately making Amazon less sensitive to market prices. After all, if the federal government becomes a key client of Amazon, ordinary customers become much less important. So, even if tax dollars materialized out of thin air at no cost to us, the spending phase of government outlays would still cause bubbles, raise prices, and helps some people and industries at the expense of others. Bob Murphy sums it up:Ironically, there are some commentators who argue that federal-budget deficits are either meaningless (because the government issues US dollars) or even beneficial, because they are the only mechanism through which private Americans can save on net. I have dealt with these specific arguments elsewhere, but let me reiterate why huge and perpetually growing deficits are a problem.Contrary to Keynesians, the problem with government budget deficits is not merely that they (typically) lead to higher interest rates and thus reduce private-sector investment and consumption spending. Because, in this context, the Keynesians only look at economic factors insofar as they work through "aggregate demand," they understandably think that large deficits can't possibly hurt anything when interest rates are practically zero.However, Austrian economists have a much richer model of the capital structure of the economy. In this view, economic health isn't simply a matter of propping up total spending high enough to keep everybody employed. On the contrary, resources need to be deployed in particular combinations in particular sectors of the economy, so that semifinished goods can be transformed step-by-step as they move through the hands of various workers at different businesses and finally onto retail shelves.When the government buys (say) $1 trillion more than it takes in as tax revenues, it diverts real resources out of the jurisdiction of private entrepreneurs and into politically directed channels. Ultimately, it is not deficits per se but total government spending that distorts the economy and starves the private sector of resources. But deficits are insidious because they give the illusion of freebies in the near term, and the reckoning comes with a vengeance down the road.None of this will be helped in any way by the tax reform process going on in Washington. The whole exercise exists to benefit politicians and their most well-heeled supporters while creating the illusion of tax cuts for ordinary taxpayers.If the GOP were really interested in cutting the real burden imposed by government, the GOP would be trying to cut spending. Or at least just freeze spending where it is. This doesn't have to be some radical, pie-in-the-sky 20% cut across the board. It could just be a commitment to keep spending flat. That, of course, isn't going to happen because the largest pieces of the federal budget: Social Security, Medicare, and military spending, are all locked up by powerful voting blocs and special interests who demand their taxpayer-funded checks every month. Thus, instead of any prudence on spending, we be getting the usual fraud which involves "tax reform" coupled with ever-increasing government spending. 
  • Federal Prosecutors Are Running Amok    (William L. Anderson, 2017-11-13)
    By: William L. Anderson It is hard to know where to begin regarding the charges against Paul Manafort, the former campaign director for Donald Trump’s successful presidential bid, but having read the indictments and knowing some background about both the case and the investigation, I cannot say it is exactly a high point of American justice. In fact, when former FBI chief Robert Mueller first was appointed as a special prosecutor to look into the allegations that the Trump campaign conspired with Russia the tilt the election to Trump’s favor, I feared his investigation would turn out to be an assault on the Constitution – and Mueller has done nothing to dispel those fears.I have included a link to the actual indictment, and while federal indictments can be a bit mind-numbing to read, nonetheless I have found nothing in it that relates to the original reason the Mueller probe was created: alleged Russian collusion with the Trump campaign. Instead, it is clear that Mueller engaged in a legal “fishing expedition” against Manafort and found evidence of tax evasion involving income that Manafort made while serving as a lobbyist for the government of Ukraine.The criminal charges themselves clearly don’t match up to the original purpose of the investigation. Writes Judge Andrew Napolitano:Both were accused of working as foreign agents and failing to report that status to the federal government, using shell corporations to launder income and obstruction of justice by lying to the federal government.He adds:The alleged crimes of Manafort and Gates appear to have nothing to do with Trump, nor have they any facial relationship to the Russians. So why were these two indicted by a grand jury hearing evidence about alleged American assistance to Russian interference with the 2016 presidential campaign?One of the worrisome aspects of the indictments, however, has been Mueller’s use of the Foreign Agents Registration Act, as filing criminal charges using that law has been done only six times before, according to George Washington University and legal blogger, Jonathan Turley. Manafort’s violation, notes Turley, was retroactively registering as a foreign agent, something that in almost all cases is treated as a regulatory violation and punished with fines (if it even comes to that). For that matter, prominent Democrat lobbying Tony Podesta, brother of Hillary Clinton’s campaign manager John Podesta, did the same thing and no federal prosecutor cared to make a federal crime out of it.If anything, I believe that in his quest to rid Washington of Donald Trump, Mueller seems to be taking a page from Rudy Giuliani’s infamous Wall Street prosecutions in which he and his staff found ways to criminalize what at most were regulatory violations (which almost are impossible not to violate, given the voluminous numbers of them promulgated by the Securities and Exchange Commission). Yes, there are issues of tax evasion, allegedly hiding income, and depositing money in offshore banks, but none of those relates to anything remotely involving alleged Russian involvement in the U.S. presidential election of 2016.While I have no doubt Manafort will go to federal prison, given the near-unchecked powers of U.S. attorneys, whether or not Mueller and his highly-partisan staff are going to be able to use their probe to remove Trump from office – which clearly is Mueller’s goal – is another matter altogether. What is clear is that Mueller has openly declared war on legal ethics, from his hiring of a prosecutor who has been cited before for skirting the law, to his basing much of the justification for his investigation upon a document secretly funded by the Democratic National Committee and the Hillary Clinton campaign which has seriously been questioned for its truthfulness.Whether or not one approves of Donald Trump’s presidency, when a prosecutor staffs his organization with other known partisans that openly supported Trump’s opponent, he is sending a message that his is a political probe, not a legal one. Furthermore, Mueller’s lead prosecutor, Andrew Weissman, while admired by the New York Times for his lack of legal ethics (the NYT long has openly cheered for prosecutors like Weissman, James Comey, and Rudy Giuliani that regularly have broken the law in their prosecutorial quests), is well-known for scorched-earth prosecutorial tactics that at least one time resulted in a fellow federal prosecutor filing ethics complaints against him.Not surprisingly, George Washington University law professor Jonathan Turley, well-known for his legal moral compass and support of the rights of the accused, has pointed out that Weissman seems to have no legal scruples whatsoever, essentially filing criminal charges wily-nily and then letting the courts sort out whether or not his actions even were legal. Writes Turley:Mueller raised some eyebrows early in his tenure as special counsel by hiring prosecutors with controversial reputations for stretching the criminal conduct to the breaking point. His chief aide, Andrew Weissmann, has been widely criticized for a pattern of “prosecutorial overreach” in cases like Enron. Weissmann’s work against the accounting firm of Arthur Andersen is one such example. The convictions that he secured at any cost in that case were unanimously reversed by the Supreme Court. Likewise, Weissmann secured convictions against four executives with Merrill Lynch by stretching the criminal code beyond recognition The Fifth Circuit reversed them. He also resigned from the Enron task force in the midst of complaints over his tactics.One should recall that the Enron prosecution was characterized by prosecutorial misconduct throughout the case, including subornation of perjury, lying to the judge and jurors (not to mention the public), and withholding exculpatory evidence. That Mueller would reach into that prosecutorial cesspool and pull out the one prosecutor who was deemed even too dishonest for that probe says clearly that Mueller is not going to allow truth to seep into his prosecution.Indeed, Weissman’s dishonesty and Cheka-like tactics could be the entire subject of this article (which would make it a very long piece of writing, indeed) and I am not surprised that the New York Times and the rest of the political establishment is solidly behind him. The newspaper that covered up the horrendous Ukraine famine of the early 1930s – and still proudly displays the Pulitzer Prize it won for its false reporting – long ago abandoned journalistic integrity to use its pages to chase after progressive causes. Those of us that wrote extensively about the infamous Duke Lacrosse Case also remember how the NYT cheered on one of the most corrupt prosecutors in U.S. history. That Mueller would use a known liar like Weissman as his lead prosecutor is deemed acceptable by the NYT because the ultimate goal in the Mueller campaign is to remove Trump from the White House. While the NYT will not use the term “by any means necessary,” it is clear that the newspaper and the ruling class it represents are willing to accept lawbreaking on behalf of the federal government to accomplish Trump’s outster.It was Weissman that orchestrated the infamous Gestapo-like pre-dawn raid on Manafort in his home, holding him and his family at gunpoint (although all of them were unarmed and posed no threat to federal agents). While the political establishment and the left cheered the raid, others that are concerned with police and prosecutorial abuse wonder if government agents should be free to engage in such actions of intimidation against people who are simply under investigation.Mueller himself already has demonstrated his lack of legal ethics, as he once tried to trick the famed civil liberties attorney Harvey Silverglate into suborning perjury. Mueller’s tactic that Silverglate describes was one that if the courts actually were honorable, it would have resulted in Mueller’s being disbarred, but federal prosecutors are not honest people and the system that supports them only enables outright criminal behavior by those shielded from being subject to the law.In his well-referenced book Three Felonies a Day, Silverglate documents how federal prosecutors manage to find crimes where there is no criminal behavior, and certainly no intent even to break the law. He also points out that a favorite tactic of federal prosecutors is to charge a lower-level employee or associate of the person actually being targeted, and then offer that person a deal – provided the accused says what prosecutors want to hear. As Silverglate has said, the idea is to get the accused person to “sing,” but all-too-often, what prosecutors actually do is to get the person to “compose” something that is not true. Judge Napolitano concurs:The ultimate target of Mueller’s investigation is President Trump. It is standard operating procedure when prosecutors have a high-level target to charge those below the target with something just to get them to cooperate. Though the charges against Manafort and Gates need not be related to the Russians or to Trump, they must be real. It’s clear they are, as each is facing more than 20 years in prison. Mueller believes that that prospect is enough to dispatch their lawyers to make deals with him.The danger of such a deal is that Manafort and Gates may offer to tell Mueller what they think he wants to hear — even if it is not truthful — so that they can have their prison exposure lessened. (Emphasis mine)In a recent story, NBC News announced that Mueller is likely to indict Trump’s former National Security Adviser Michael Flynn. No doubt, prosecutors will try to get Flynn to implicate Trump on something – or face what would be a life sentence in prison.Indeed, given that neither Weissman nor Mueller ever have been bound by ethical constraints, I would not be surprised to see prosecutors and the FBI simply create false testimony out of whole cloth. Ordinarily, using such a tactic against a sitting president would be beyond the pale and not even federal prosecutors in ordinary circumstances would consider doing it. However, these hardly are ordinary times, and the American political establishment is united against Trump and the media and the courts are less likely than usual to apply safeguards to accepting the truth of accusations against him. Just as Rudy Giuliani was able to run roughshod over law in order to indict and ultimately force Wall Street investment banker Michael Milken to plead guilty to what essentially were non-crimes, Mueller and Weissman are looking to do to President Donald Trump.Not long ago, I would not even have thought of saying things I have written in this article, but that was before I began several years of research of federal criminal law and how prosecutors apply it. I still believe what I wrote seven years ago:The great English jurist William Blackstone declared that law was to be “a shield for the innocent” and a mechanism to protect people from the predations of others, as well as the predations of the government itself — the very meaning of limited government. This is no longer the case. Ironically, as laws proliferate in Congress, the rule of law is disappearing. The law has become the plaything of federal prosecutors who advance their careers by convicting others.


About

Nobody rated this page (yet).
Be the first one!

Page Contents

Page Attributes

This page has no attributes yet.

Content Rating/Stars Module [toggle]

Star Box

Join us and help contribute to Liberty!

Feel free to Sign Up and join our efforts!

This is a "toolbox" called "Star Box".
After joining in you will be able to manage your own personal archive of your favorite LibertyLion content and contribute with many more actions (depending on your user group).

You can resize (drag the handles), minimize (by clicking on the star) or re-open this box again any time.


Contents