Scottish Referendum Gives Reasons to be Hopeful

cat_flagMises Daily Tuesday by Ron Paul:

Devolving government into smaller units promotes economic growth. The smaller the size of government, the less power it has to hobble free enterprise with taxes and regulations.

Just because people do not wish to live under the same government does not mean they are unwilling or unable to engage in mutually beneficial trade. By eliminating political conflicts, secession could actually make people more interested in trading with each other. Decentralizing government power would thus promote true free trade as opposed to “managed trade” controlled by bureaucrats, politicians, and special interests.

Economic Isolationism in The Walking Dead

Back To The DeadMises Daily Tuesday by Mark Tovey:

When dealing with people in a potentially hostile environment (such as a zombie apocalypse) how do we decide if we should trade with strangers or kill them? It turns out time preference and the division of labor have a lot to do with it.


Does ‘Neoliberalism’ Make Psychopaths Rise to the Top?

220px-Phrenologie1-157kWhenever you see someone use the word “neoliberalism” you are probably dealing with someone who spends most of his or her time in a left-wing echochamber where people believe they are being oppressed by “free markets” and that things will be set right only when the kind, calming hand of government is able to tame the vile “free for all” that is people enjoying personal freedom.

So, one can hardly be surprised by the conclusions found in a recent article by Belgian psychology professor Paul Verhaeghe in which he declares that “neoliberalism” is “an economic system that rewards psychopathic personality traits has changed our ethics and our personalities.”

The economic system he refers to, by the way, isn’t the modern system of state-subsidized and controlled corporatism that actually prevails in the world today. No, he means that basically every voluntary economic transaction rewards psychopathic behavior. With that in mind, we can turn to Predrag Rajšić who points out:

The thesis of his article is that neoliberalism[1] has brought out the worst in people, that it rewards psychopathic personality traits and thus brings people with such traits to the top of the social structure.

Dr. Verhaeghe is, according to most criteria, a successful academic, close to the top of the academic achievement scale and pretty high in the general social structure. To avoid ad hominem criticism, I will assume that Dr. Verhaeghe is an outlier, that he climbed to the top despite the goodness of his heart, and not because of some psychopathic personality traits on his part.

Having this out of the way, I can critique the logic of his argument on its own merit. Dr. Verhaeghe claims that

A highly skilled individual who puts parenting before their career comes in for criticism. A person with a good job who turns down a promotion to invest more time in other things is seen as crazy – unless those other things ensure success.

From this, he concludes that this system rewards career and penalizes one’s love for his family. There are at least two problems with this conclusion. First, we don’t know how other social systems perform in this regard. Did feudalism favour “success” to a lesser extent than the system Dr. Verhaeghe is critiquing? How about communism? Were there fewer psychopaths at the top of the social structures in the communist/socialist Yugoslavia or the USSR than in the current system?

I don’t have quantitative answers to these questions, but neither did Dr. Verhaeghe offer any. I do know however, that the Yugoslav dictator Tito sent about 16 thousand political prisoners to something that looked more like a concentration camp than a prison. No one of the top Yugoslavian political or economic officials complained strongly enough to change this system. Did they exhibit more or less psychopathic tendencies than the people at the top of today’s social structures in neoliberal societies?

Second, Dr. Verhaeghe’s conclusion assumes that rewards and punishments are objectively determined outside of our minds. This is problematic because, from what we know about the logic of choice, human choice is based on subjective valuations. This means that the definition of success and failure is subjective. Each individual defines her own success. For me, for example, choosing a promotion over spending enough time with my family would be a failure, not success. I value time spent with my family more than a promotion if that promotion implies less family time.

Read the whole thing.

More European “Growth” Shenanigans

10530873-european-union-logoEurope got some good news in early June as the EU changed its statistical guidelines on how to compute GDP. Among other changes, expenditures on prostitution and illicit drugs (hookers and blow, colloquially) will now be included.

Of course, some countries have been including these items for years. Back in 2006, the Greek government was able to increase its reported GDP by 25% overnight by including these items! The reason the Greek government made the change back then was to have more flattering debt and deficit to GDP figures than otherwise. We now know how that story ended.

As Tim Harford recently brought to light about Britain´s Office of National Statistics´ (ONS) attempts to include some of these less savory expenditures into its GDP calculation:

The ONS has made valiant assumptions in estimating that 60,879 sex workers are each employed 1,300 times a year at an average rate of £67.16. If true, that is an industry big enough to allow every man in the country between the age of 15 and 64 to visit a sex worker every three months.

For government officials putting stock in GDP figures when drafting new policies, maybe it´s time to come to the realization that these numbers obscure more than they expose.

(Cross posted at Mises Canada.)

The Radicalism of Mises

On Mises’s Birthday:

We live in a time in which many people claim to be libertarians or at least hint that they are. This includes many obviously unlibertarian people such as Bill Maher, Paul Ryan, and Michelle Bachmann. It’s arguably a good thing when people who have no real interest in your ideas claim to be part of your movement, although having people identify your ideology with the likes of Paul Ryan and Bachmann certainly has its downside.

The antics of ersatz libertarians offers us a reminder that there was once a time when virtually no one was a libertarian, and even fewer admitted to being one.  Ludwig von Mises lived through that time, and he was one of a tiny group of Western intellectuals who carried the torch for the ideology of laissez-faire from the dark times of the 1940s, 1950s, and 1960s into today.

Those unfamiliar with the intellectual zeitgeist of the mid-20th century might be unaware of just how radical Mises’s views were at the time, but it’s perhaps safe to say that Mises’s philosophy of laissez-faire was beyond heretical in those days. The “third option” of actually free markets, as opposed to debating how exactly the state should intervene, simply was not an option. In the introduction to The Essential von Mises, Murray Rothbard explained:

In the world of politics and ideology, we are often presented with but two alternatives, and then are exhorted to make our choice within that loaded framework. In the 1930s, we were told by the Left that we must choose between Communism and Fascism: that these were the only alternatives open to us. Now in the world of contemporary American economics, we are supposed to choose between the “free market” Monetarists and Keynesians; and we are supposed to attribute great importance to the precise amount that the federal government should expand the money supply or to the exact level of the federal deficit.

Virtually forgotten is a third path, far above the petty squabbles over the monetary/fiscal “mix” of government policy. For almost no one considers a third alternative: the eradication of any government influence or control whatsoever over the supply of money, or indeed over any and all parts of the economic system. Here is the neglected path of the genuine free market: a path that has been blazed and fought for all his life by one lone, embattled, distinguished, and dazzlingly creative economist: Ludwig von Mises. It is no exaggeration to say that if the world is ever to get out of its miasma of statism or, indeed, if the economics profession is ever to return to a sound and correct development of economic analysis, both will have to abandon their contemporary bog and move to that high ground that Ludwig von Mises has developed for us.


Image credit.


“Why Managers Still Matter”

BxrnIo-CQAA8lk7Some Austrians and libertarians think that managerial hierarchies, even within fully private companies, are inherently inefficient (or, worse, the indirect result of government intervention). I think this view is mistaken, for a variety of reasons (see these links for some discussion). There is nothing inherently inefficient (or illegitimate) about managerial authority. Decentralized forms of organization offer many advantages — effective use of Hayekian “tacit knowledge,” strong performance incentives, the development of esprit de corps — but there are drawbacks too. Under certain conditions, the appropriate use of managerial authority fosters better coordination, more timely responses, stronger incentive alignment, and better use of shared resources. (I need hardly mention that there is nothing “coercive” about voluntary agreements between employers and employees.)

Nicolai Foss and I have an article in the current edition of the MIT Sloan Management Review, “Why Managers Still Matter,” arguing that managerial authority still plays an important and valuable role, even in our knowledge-based, networked, Wikipedia-style, peer-to-peer economy. (The piece is firewalled but you can read it with free registration.) We write:

“Wikifying” the modern business has become a call to arms for some management scholars and pundits. As Tim Kastelle, a leading scholar on innovation management at the University of Queensland Business School in Australia, wrote: “It’s time to start reimagining management. Making everyone a chief is a good place to start.”

Companies, some of which operate in very traditional market sectors, have been crowing for years about their systems for “managing without managers” and how market forces and well-designed incentives can help decentralize management and motivate employees to take the initiative. . . .

From our perspective, the view that executive authority is increasingly passé is wrong. Indeed, we have found that it is essential in situations where (1) decisions are time-sensitive; (2) key knowledge is concentrated within the management team; and (3) there is need for internal coordination. . . . Such conditions are hallmarks of our networked, knowledge-intensive and hypercompetitive economy.

The article builds on earlier writings such as Nicolai’s “Misesian Ownership and Coasian Authority in Hayekian Settings” (QJAE, 2001), my Capitalist and the Entrepreneur (2010, e.g., pp. 20-21), and our “Original and Derived Judgment” (Organization Studies, 2007). As we point out, all forms of organization have benefits and costs, and most firms feature a blend of “market” and “hierarchy,” the exact mix varying with firm and market conditions. A vigorous embrace of free-market principles within the economy does not imply that private organizations must always be as decentralized, or “market-like,” as possible.

The Incremental Adoption of Electronic Currencies

Bitcoin-coinsElectronic currencies are typically viewed as “disruptive” innovations that will upset the existing structure of the banking industry (and even the economy and society at large), rather than “sustaining” innovations that generate incremental changes within the existing structure (here I’m borrowing Clayton Christensen’s famous terms). But people sometimes forget that technologies such as Bitcoin are both currencies and payments systems, and in the latter capacity they are integrated into the existing network of payment providers. As Charlotte Bowyer puts it, “the ‘Bitcoin revolution’ (if it is to happen at all) could be less explosive, more incremental, and far more reliant on existing processes than many might believe.” Bowyer argues that existing financial institutions and payments systems and Bitcoin are at least partly complements, not substitutes.

It . . . looks like Bitcoin’s success will be increasingly related to its integration with established payment, merchant and finance companies such as PayPal, Amazon, Apple and Visa. Bitcoin is a disruptive technology with the capacity to bring about huge changes, even within the confines of today’s regulated industries. However, these changes look likely to come with the help and blessing of today’s commercial giants, rather than by a process of immediate disintermediation.

For instance, Bitcoin is much more than the new PayPal, for it’s simultaneously both a currency and a payment processor. Despite this, Bitcoin’s price rallied significantly after a long period  of decline following the PayPal announcement. Whilst the Bitcoin protocol has absolutely no need for an Apple Pay or a debit card to transmit it (in fact Bitcoin was developed to render such third parties obsolete), there’s no denying that it would also work wonders for user adoption. As the Bitcoin ecosystem grows and seeks increasing legitimacy, integration with established companies is a very realistic route to long-term success. In addition these companies have much to gain from embracing Bitcoin early, rather than risk competing with it later.

Government “Security” Dictated by Prank-Calling Sadist in Walmart Shooting

3810394260_77e20bf59a_oThe shooting death of John Crawford in an Ohio Walmart store well illustrates the difference between private security and monopoly government security which is the final judge of its own actions, and which enjoys essentially limitless access to cash via the taxpayer.

The basic facts are these: Crawford picked up a BB gun (which is not in any way a “firearm”).  The BB “gun” is store merchandise and is sold in the store by Walmart. Crawford walked around the store holding the non-firearm in a non-threatening manner while talking to the mother of  his children on the phone. In response to a phone call from another shopper, police stormed the store, guns drawn, and shot Crawford dead on sight with no warning. Another woman, a 37-year old mother Angela Williams, also died of a heart attack in the ensuing police-caused chaos.

We  now know that the person who called the police, Ronald Ritchie, lied to the 911 operator when he said that Crawford was pointing the toy BB “gun” at people and that he was trying to load bullets into it. Ritchie lied when he said that Crawford was pointing the gun at children. And just as an illustration of Ritchie’s reliability, we also know that Ritchie lied about being “an ex-marine.” Nonetheless, police officers and dispatchers unquestioningly deferred to Ritchie, and based their response on Ritchie’s claims.

So, we apparently live under a system of public-sector policing in which a phone call from a single “witness” can trigger an aggressive police response based on no evidence, no intelligence gathering, and no regard whatsoever for whether or not the person calling into 911 is to be regarded as a credible source or just a lying man-child.

This isn’t the first example of this sort of thing, of course. We know that police engage in SWAT raids and other forms of police violence based on nothing more than a single phone call from a single witness with not even the most cursory investigation into whether or not the “tip” is based any anything other than boredom, spite, racism, or simply sadism . If anyone has an enemy, he need only call the police and report that the target of one’s ire is selling drugs out of one’s home or that he’s some sort of “terrorist.” Police with then descend on the “perp” with assault weapons drawn and smash up the person’s home. In fact,  a violent police response is so reliable, that the “game” of calling police with the intent of calling out military-style police raids on innocent victims in called “swatting.”

Would private police respond in a similar way? Would one phone call from an anonymous caller precipitate a private police agency to send out an armored vehicle filled with para-military assault-rifled soldiers pointing weapons at innocent bystanders? When government police point loaded weapons at innocent women out walking their dogs, they regard it as their prerogative to do so and make no apologies. As we know in the case of Crawford, even when an innocent person is gunned down, we’re told it’s “policy” and can’t be avoided.

Read More→

In Mises’s Birthday: Rothbard on Mises’s Contribution to Understanding Business Cycles

mises2Mises Daily Monday: Rothbard explains how Mises laid the foundation for Austrian Business Cycle Theory:

In The Theory of Money and Credit, Mises provided the basics for the long-sought explanation for that mysterious and troubling economic phenomenon — the business cycle.


Happy Birthday, Mises! Save 20% in the Mises Store

Save 20% in the Mises Store, today only. Use coupon code MISES133 at checkout. 


The Japanese Deflation Myth and the Yen’s Slump

yen2Mises Daily Monday by Brendan Brown

The Japanese government claims it’s still fighting deflation, although there are no signs of it in Japan. Through a mixture of chance, habit, and economic sclerosis, prices have been stable in Japan, but Abenomics makes the future of the yen anyone’s guess.


Academics and Social Media

8539048913_3328e8545c_bAt this week’s Strategic Management Conference in Madrid I participated in an interesting session on Media Innovations, along with Will Mitchell and Wiley’s Caroline McCarley. My remarks focused on academics and their use of social media. How (if at all) can professors use blogs, videos, wikis, and other social media products to disseminate their research, to improve their teaching, and even to discover new ideas? Are social media and “serious” activities like research and class preparation substitutes or complements? Should untenured faculty avoid such distractions?

I began my remarks — where else? — with Kim Kardashian. Biologist Neil Hall made a bit of a splash a few months back by introducing the Kardashian Index, basically the ratio of an academic researcher’s Twitter followers to citations in peer-reviewed journals. (For a rough approximation, just divide Twitter followers by Google Scholar cites.) Someone with a very high K-index, the story goes, has a large popular following, but hasn’t made any important scientific contributions — in other words, like Kim, famous for being famous.

Science published a rejoinder suggesting that the K-index gets it wrong by implying, incorrectly, that popular and scholarly influence are inversely related. Indeed, among the top 20 natural scientists, by Twitter followers, are some scientific lightweights like Neil deGrasse Tyson (2.4 million Twitter followers and 151 citations), but also serious thinkers like Tim Berners-Lee (179,000 followers and 51,204 cites) and Steven Pinker (142,000 and 49,933). I haven’t run the numbers for economists and management scholars but I think you’ll find the same general pattern. E.g., among the biggies on the LDRLB Top Professors on Twitter list you find a mix of practitioner-oriented writers with modest academic influence (Bill George, Richard Florida, Stew Friedman, Gary Hamel) and scholars with huge citation counts (Mike Porter, Clay Christensen, Adam Grant).

I went on to emphasize (as usual) that, for the most part, these issues are nothing new. Scholars and thinkers throughout history have used whatever media are available to disseminate their ideas to wider audiences. In the 17th-19th centuries there were pamphlets, handbills, newspapers, and lecture halls; in the 20th century radio, magazines, TV, and other outlets. Classical economists like John Stuart Mill published anti-slavery tracts; the Verein für Socialpolitik took positions on important social issues of the day; the American Economic Association was founded to combat lassiez-faire; Mises and Hayek advised governments and wrote popular books; C. S. Lewis gave his famous wartime radio lectures; Paul Samuelson and Milton Friedman dueled in the pages of Newsweek, and Friedman took to the airwaves for the PBS series “Free to Choose”; Rothbard wrote countless newspaper, magazine, and newsletter articles, and popular books, and spoke to lay and professional audiences. So academic bloggers, Tweeters, Facebookers, YouTubers, LinkedInners, and Instagrammers are following in a grand tradition. Of course, what’s new today is the scale; without a contract for a newspaper column or TV show, any of us can set up shop, and have the potential to reach a very wide audience. Read More→

Damon Linker’s “terrible, horrible, no good, very bad idea”

Damon Linker, the writer who believes that the State is the Measure of All Things Great, has declared that the concept of what F.A. Hayek called the “spontaneous order,” is a “terrible, horrible, no good, very bad idea.” This is how Linker describes the concept:

Simply stated, the idea holds that when groups of individuals are left alone, without government oversight or regulation, they will spontaneously form a social and economic order that is superior in organization, efficiency, and the conveyance of information than an order arranged from the top down through centralized planning.

This view, declares Linker, is ” utter fiction. A fairy tale.”

So, what is the proof that Hayek and others were wrong?

President Obama got a lot of flack during his 2012 campaign for re-election for saying that wealthy business owners “didn’t build that” all by themselves, but his point was indisputable. The president mentioned the internet, roads and bridges, firefighting, and other public works that make it possible for the market economy to function and thrive. He could have said far more. How about the culture of general law-abidingness that we call the rule of law? The Federal Reserve’s regulation of the money supply? An independent judiciary for the settlement of civil disputes? Law enforcement at local, state, and federal levels that fights violent crime, fraud, corruption, monopolistic business practices, and a host of other behaviors that would otherwise scuttle the working of markets? And on and on and on.

Please understand that Linker does not elaborate on any of these points, just that he accepts his statements as pure and unvarnished truth and that they are self-evident. The only problem is that none of what he says is self-evident, and there is plenty of proof on the other side to show that these things he cites as being the true creator of social order are not what they say they are.

North Korea has all of the things Linker claims are the real source of prosperity, yet the country is dirt poor. For that matter, we can look at Venezuela, where the social order is falling apart. On the home front, I bet the citizens of Ferguson, Missouri, do not see the police as holding a society together, and anyone who has been involved in the American court systems on local and federal levels can attest to a corrupt and unjust system.


North Korea: A well-ordered society?

And the Fed being a source of stability? When the Fed has touched off speculative bubbles and has steered the U.S. economy into numerous boom-and-bust cycles? Or that the government “protects” markets? How does government do that? Instead, it promotes Crony Capitalism which undermines the free market system and steers resources away from higher-valued uses toward uses that promote the interests of the political classes.

Unfortunately, Linker does not stop with giving bad examples of government as the Source of Prosperity and Freedom. He then presents some examples of what supposedly were “spontaneous orders,” those being Iraq and Libya.

But there is one situation where it’s possible to see genuine spontaneity in action: when an established political order is overthrown. Now it just so happens that within the past decade or so the United States has, in effect, run two experiments — one in Iraq, the other in Libya — to test whether the theory of spontaneous order works out as the libertarian tradition would predict.

In both cases, spontaneity brought the opposite of order. It produced anarchy and civil war, mass death and human suffering.

How does one begin here? In both cases, the governments of these countries were overthrown by U.S. armed forces or groups supported and funded by the U.S. Government. Furthermore, after using violent means to kill indiscriminately, destroy property, and sever links of established communication and trade between individuals, no libertarian or anyone else with even a cursory knowledge of political economy, would not expect a happy, prosperous order to emerge from a vicious military invasion and subsequent occupation.

By claiming that the destruction of Iraq and Libya actually were done in the name of a Hayekian “spontaneous order,” Linker demonstrates his own ignorance of Hayek and of political economy in general. And by insisting that state control (the more the better, I suppose) is the real source of freedom and prosperity, then how does he explain North Korea? And should he and his statist followers claim that North Korea is irrelevant to the discussion, then I think we can add that Iraq and Libya would fall into that irrelevant category, too.

Thornton: The ‘Irrational Policy’ That Is Cannabis Prohibition

5997920696_ecb224068e_bOriginally published at
The Case Against Repealing Marijuana Prohibition?

by Mark Thornton

The recent victories in favor of legalizing recreational marijuana consumption in Colorado and the state of Washington have given hope for the eventual repeal of national marijuana prohibition. Many states have reformed their marijuana laws, including provisions for legal medical marijuana consumption in more than 20 states.

Despite these positive developments, marijuana remains a Class 1 drug along with heroin and cocaine. There remains widespread misunderstand concerning marijuana consumption, its dangers, and the implications of legalizing marijuana. This lack of understanding is exemplified by a pamphlet published by the prestigious Heritage Foundation, “Legalizing Marijuana: Why Citizens Should Just Say No,” by Charles Stimson (September 13, 2010).

Here are the main “issues” raised by legalizers that the pamphlet tries to debunk:

“Marijuana is safe and non-addictive.” No one should argue that marijuana is completely safe as few things in life are perfectly safe. However, it is relatively safe compared to other recreational drugs. Most of the negative health consequences have been debunked. I examined several lists of “the most addictive drugs” and marijuana was either not on the list or was far down the list.

“Marijuana prohibition makes no more sense than alcohol prohibition did in the early 1900s.” There was no rational justification for marijuana prohibition in the first place, it was simply racially motivated propaganda. The medical community testified against the prohibition, not in support of it. At least supporters of alcohol prohibition could speak to genuine social problems and health concerns about alcohol. Therefore, marijuana prohibition actually makes even less sense than alcohol prohibition.

“The government’s efforts to combat illegal drugs have been a total failure.” Despite enormous fiscal and social costs, the war on drugs has done little to reduce access to drugs or to put a dent in the addiction rate. Meanwhile, crime, corruption, violence and crime associated with the War on Drugs, drug overdoses, and emergency room visits have all skyrocketed.

“The money spent on government efforts to combat the illegal drug trade can be better spent on substance abuse and treatment for the allegedly few marijuana users who abuse the drug.” The problems associated with drug use and addiction can never be solved by law enforcement. These are medical, social, and educational problems and have to be addressed in that manner.

Read More→

When Will the Bubble Burst?

Woolworth BuildingAs I exit Pace University in Lower Manhattan where I teach, I can look across City Hall Park to the west side of Broadway to see the terra-cotta Woolworth Building, an early skyscraper  built in 1913  If I gaze upward, there atop the building I can view the iconic green tower  containing the nine-story penthouse that is now on the market for $110 million.  But that is not the most expensive piece of residential  real estate currently on the booming Manhattan market.  That honor goes to the triplex penthouse condo at 520 Park Avenue on the toney Upper East Side, which is still under construction and lists for $130 million.  The 30 one- and two-floor condos in the same tower list for between $16.2 and $67 million.  And it is not just the very high end of the market that is a-bubbling.  It was reported that in the second quarter, the average amount of time that a property remained on the market was 96 days, down 46% from a year ago, despite the fact that the number of properties on the market was up 18% year over year.  The buyers were largely foreign, especially Chinese.

More evidence that the bubble is expanding can be found in the global art market.  In the year ending July 2014, sales of contemporary art at public auctions reached  $2.046 billion, a 40% increase over the previous year.  China surpassed the U.S. to take in 40% of the total sales proceeds.

Not surprisingly, the number of financial commentators issuing dire warnings of an imminent  collapse of the real estate and stock market bubbles increases every day.  Unfortunately, most are unable to articulate a coherent case for the their forecasts because they are unacquainted with the Austrian theory of the business cycle. A notable exception is  Michael Pollaro, who  bases his forecast  of an increased risk of economic collapse on the sharp deceleration of the TMS monetary aggregate (formulated by  Murray Rothbard and myself).  Pollaro points out that the year-over-year rate of growth of TMS–or what he labels TMS2–was 7.9% in August, which is down  780 basis points or 50%  from its August 2011 high.  According to Pollaro:

The data support what the Austrians teach – monetary inflations create booms which result in deflationary busts once the rate of monetary [growth] turns down in a significant and sustained manner. The 1995 to 1999 monetary surge, then subsequent monetary deceleration gave us the Technology Boom-Bust.  The 2000 to 2006 monetary surge then ensuing monetary deceleration gave us the Housing Boom-Bust turn Credit Bust turn Great Recession.

And what of the latest monetary extravaganza which began in earnest in August/September 2008, the one that has given us new all-time highs in the S&P 500. . . . Well, that monetary surge has in fact rolled over and is clearly heading down.

While arguing  that growth of the money supply is   “the foundational starting point to consider when determining the downside of a monetary induced boom-bust cycle,”  Pollaro recognizes that it is not the only factor one needs to consider.  Thus Pollaro concludes

Equally important (and often discussed) are things like the level of debt in the economy, the level of leverage in the financial markets and the amount of government intrusions in the economy and markets, not to mention the amount of as yet unresolved economic malinvestments caused by prior boom-bust cycles.  All of these things serve to increase the fragility of the economy and markets. Unfortunately (or fortunately depending on your bullish/bearish view of the economy and markets), all of these things are arguably worse than in previous two boom-bust cycles.  And that suggests a bust could very well ensue at a higher rate of monetary inflation.

How much higher?  No one really knows, not even the Austrians.

Regulate It First, Learn About It Never

Conference MeetingMises Daily Friday by Gary Galles:

Politicians and regulators usually don’t know what they don’t know about everything from health care to your small business, but that sort of compound ignorance won’t stop them from regulating the minutiae of everyday life and commerce.


Patrick Barron: Currency Wars and the Death of the Euro (mp3)

euro2Jeff Deist and Patrick Barron discuss what’s going on in the EU, how Germany in particular suffers from being yoked to the other Eurozone nations, and what the comeback of the Deutsche Mark might mean for Europe—and for America.

Patrick Barron is a private consultant in the banking industry. He teaches in the Graduate School of Banking at the University of Wisconsin, Madison, and teaches Austrian economics at the University of Iowa.

More New Taxes on the Way

7067732521_aaac69e754_bThe Canadian province of Ontario is a financial basket case. The provincial government pays nearly 10% of its tax revenue on interest to cover the $270bn. debt load (over $20,000 per Ontarian). To put this in perspective, the slow-motion train wreck state of California only pays out a little under 3% of its tax revenue on interest and the average Californian’s share of the state debt is around $3,000.

Never fear. Premier Kathleen Wynne is on the job and has promised to get the deficit under control and Ontario’s finances back on track.

Notwithstanding the fact that her original election platform was based on spending money the province didn’t have. When she realized this problem the solution was to get Ottawa to make cuts so that Ontario would not have to pay taxes to the federal government, and instead use that money for its own in-province expenses. That didn’t work out, so it’s on to plan “B” (or is it “C”?).

Wynne’s new plan to balance the budget is a Hail Mary. In a letter drafted to her Deputy Premier, Wynne charged her second in command to get the budget balanced.

You will…transform and modernize public sector service delivery while protecting vital public services… You will drive efficiencies and reduce costs to achieve our commitment to eliminate the deficit by 2017-18.

Pretty simple. Don’t cut vital services, and create enough new efficiencies to  eliminate a $35bn. deficit (a little more than 5% of the province’s GDP). That’s about $2,600 per Ontarian: man, woman, and child.

Expenditure reductions of this magnitude are almost certainly not going to happen. In fact, since the only two certainties of this world are death and taxes, let’s look at the more likely solution.

Although she doesn’t mention it, one problem is that the province’s economy is slowing down. And this means that taxes are falling. Rather than do what any reasonable individual or business would do when their income falls – cut some expenses – Wynne’s provincial government is responding by hitting people up for more cash. Buried in her budget cuts you might remember this little doozy.

In addition to chopping spending, the government has jacked up income taxes on people making over $150,000 per year.

Wynne ran on promises she can’t keep, and now that she holds the purse strings she’s going after the easier option. Ontario is already a financial disaster. Why not face up to the reality that the province has lived beyond its means for far too long?

(Cross posted at Mises Canada.)

Leonard Read’s Freedom Philosophy

Leonard E ReadLeonard Read is not a household name today.  That is unfortunate, because, according to biographer Mary Sennholtz, he was “one of the most notable social philosophers of our time. His name will forever be associated with the rebirth of the freedom philosophy.” In Gary North’s words, “The libertarian movement…can be traced to Read and Read’s vision.”

Read’s most formative moment came in a 1933 meeting with W.C. Mullendore, who taught Read his “best lesson ever” in liberty.  In response, Read wrote his first book—The Romance of Reality (1937)—to develop and clarify the belief in self-ownership and the solely voluntary arrangements it enabled, which he would hone for over four decades.

Read developed into a pro-freedom crusader, which led him to leave a lucrative career to create an organization promoting freedom in 1946, when its prospects in the world were bleak. The Foundation for Economic Education became “The granddaddy of all libertarian organizations,” according to Gary North, inspiring many others throughout the world.

As FEE’s founder and leader, Leonard Read wrote prolifically and traveled widely to advance individual liberty. Bettina Bien Greaves described his core message:

He reasoned that if it is moral to respect the life and property of individuals, then it is immoral to violate their rights to life and property; if it is moral to deal peacefully with others, then it is immoral to use force, fraud, or threat of force to impose one’s wishes on others; if voluntary transactions among private-property owners are moral, then to hinder or prevent voluntary transactions among willing traders is immoral. No one… should take property by force or coercion from one person for the benefit of another.

As Jacob Hornberger put it:

He argued that man’s purpose on earth, whatever it is, requires the widest possible ambit for human growth and maturation. Therefore, he believed, a person should be free to do whatever he wants in life as long as it is peaceful.

On his September 26 birthday, an excellent place to begin understanding Leonard Read’s wisdom is with “The Promotive Effects of a Good Government,” in The Romance of Reality.

[A] good government…is a servant of all the people. It takes no sides.

A government cannot be good when its officers and administrators feel that their interests are different from those of the people, any of the people, they represent.

A good government recognizes that the best interests of the people are served when government keeps itself to the very minimum compatible with actual necessities.

A good government will resist to the utmost the efforts of any groups to use the government as a vehicle to their own ends.

A good government will be a government of laws and not of men. A people must never be subjected to a “Do this. Do that” order, insured in a government of men, impossible in a government of laws.

A good government does not meddle in the legitimate affairs of any or all of its citizens. It merely keeps the arena in good shape for playing the game.

Certainly, no good government…would usurp any powers or prerogatives not specifically delegated to it by its citizens.

Government intervention into the fields of private enterprise would not be so much as entertained.

[In] good government…Everyone would have to engage…in the production and distribution of goods and services. These being the only elements of wealth, everyone would be engaged in producing and distributing wealth.

A good government…engages in no practices that either unjustly absorb or take away from the citizen that which he has earned for himself. Thus… man’s energies are released…

[E]conomic voluntarism, under which so many other factors absolutely essential to economic welfare are nestled, can exist at its fullest only under a good government

The United States, today, is the wealthiest nation all history has ever known, not because government created the wealth but because… several hundred millions of individuals, working competitively and cooperatively, have made contributions to a startling aggregate of wealth. They have left as their heritage to succeeding generations an amazing array of…essential instruments to future welfare.

[American] free spirits, protected against the ravages of criminal individuals and predacious governments, built our national edifice.

“[W]hat plan have you to offer in its stead?”…The answer is, “We do not want nor can the people prosper under any form of governmental planned economy.”…all we want in the way of a plan is…to release to the fullest the potential productive capacities, the energies, the enterprising attributes, the virtues and the genius of the individual.

Politicians today define good government as whatever they want to do. Leonard Read recognized good government as very different, doing only those things that made it “a servant of all the people,” with all else left to “economic voluntarism.” That would “release to the fullest the potential productive capacities, the energies, the enterprising attributes, the virtues and the genius of the individual.” There is no better time than Read’s birthday to adopt his wisdom.

Adapted from Gary Galles, The Apostle of Peace: The Radical Mind of Leonard Read, Laissez Faire Books, 2013

Old Health Insurance Policy Canceled? Your New One May Be Canceled Too.

John Goodman, the top health policy analyst, explains why Obamacare policies are also likely to be canceled. Just because they comply with Obamacare this year doesn’t mean that they will comply next year. The way the law is written  guarantees that many policies will not comply for long. In addition,  if your policy keeps changing, and the doctors you are allowed to see are restricted to that policy, you may have to keep getting a new doctor over and over again. That should be popular.

Here is another way in which the drafters of this bill shot themselves in the foot. When Obamacare was being constructed, it was feared that it would outlaw the high deductible policy. That was what the Democrats at first wanted to do. They didn’t want the consumer to have any control over health expenditures, but instead to depend entirely on government policies.  When this goal proved too expensive,  Obamacare ironically outlawed a no deductible policy, as Goodman also explains.

It is easy to deride the authors of this mad bill. But any such legislation was bound to make a mess. Only consumer choice can rationally organize medical services.

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