The Savings and Loan Debacle: Twenty-Five Years Later

fslic2Mises Daily Monday by Dale Steinreich:

The Savings and Loan Crisis is now twenty-five years old, and while it now seems like ancient history to many, many more still blame “deregulation” for the financial disaster that was caused by an intricate web of federal laws and regulations.

Mark Thornton on Economists and the Drug War

Just for the record, here’s a mention of Mark Thornton’s research from earlier this year, which I had missed. From The NYT online:

Economists are often skeptical of drug laws, favoring alternatives like legalization, decriminalization, or a combination of legalization and high taxation, to discourage use. (In an essay titled “Prohibition vs. Legalization: Do Economists Reach a Conclusion on Drug Policy?” Mark Thornton, a senior fellow at the Ludwig von Mises Institute, chronicles economists’ views of the war on drugs.) Drugs could be treated as more of a public health problem than a criminal matter.

Projecting Projection: Paul Krugman

749px-Paul_Krugman_BBF_2010_Shankbone-300x239Paul Krugman, an official ranter at a blog hosted at the New York Times, recently wrote a hilarious column on (what he calls) libertarians. As usual, it is not very clear what Krugman is actually talking about, but some of the statements are spot on. At least if we take a step back to look at what Krugman seems to really be saying. It is quite insightful.

The column at first appears to be about some kind of surge in libertarianism within the republican party. But it is really a critique of blind political rants. Writes Krugman:

Libertarians … tend to engage in projection. They don’t want to believe that there are problems whose solution requires government action, so they tend to assume that others similarly engage in motivated reasoning to serve their political agenda — that anyone who worries about, say, environmental issues is engaged in scare tactics to further a big-government agenda.

He then goes on to talk about Paul Ryan, which makes the use of the label libertarian quite confusing, but the general point that people involved in the bickering of political parties tend to project opinions onto their opponents is made quite persuasively. Krugman also writes:

libertarians deal with the problem of market failure both by pretending that it doesn’t happen and by imagining government as much worse than it really is

All we need to do is replace “libertarian” with any label that Krugman uses and “government” with “the market” (and vice versa) to see that there is fundamental truth in these words: “Keynesians/progressives/[whatever] like Krugman deal with the problem of government failure both by pretending that it doesn’t happen and by imagining the market as much worse than it really is.”

But perhaps this is unfair? Well, maybe not: “Keynesians/progressives/[whatever] like Krugman tend to engage in projection.” Of course, my stating this is but a scare tactic.

Malaysian Airlines Opts for (Complete) State Ownership

300px-Malaysia_Airlines_Svg_Logo.svgBeleaguered Malaysian Airlines is opting for a government buyout in the wake of recent disasters. The company is already 69% state-owned, but a new deal will allow the Malaysian government to acquire the remaining shares, completing the nationalization. The airline has been in a downward financial spiral for years, plagued with union difficulties and loss-making state-management decisions, and the blows suffered in the last five months have only compounded its troubles.

Malaysia’s state investment company claims the goal of the buyout is to “revive our national airline to be profitable as a commercial entity and to serve its function as a critical national development entity.” The reality is that Malaysian Airlines is unable to compete in the airline industry—which is already a poster child for corporate welfare across the world—and is surrendering any of its remaining burden of market entrepreneurship.

Bluntly, the buyout looks like textbook rent-seeking and political entrepreneurship. At about eight cents per share, the buying price for the minority stake in the company is 29% higher that its average share price over the last three months, and higher than the share price prior to the disappearance of Flight 370 in March. The inflated value will act as a subsidy to the shareholders, who will make out far better than they would in a market that genuinely reflected the airlines’ inability to allocate resources effectively.

Of course, the transfer of the remaining ownership to government will not save the struggling firm, and if anything we should expect its fortunes to decline even further. More state ownership will only complete Malaysian Airlines’ insulation from anything resembling genuine markets, and eliminate any entrepreneurial drive toward satisfying consumers.

Pioneers in Free-Market Literary Criticism

6832Mises Daily Weekend by Jo Ann Cavallo:

The field of literary criticism has been dominated by Marxists and other anti-capitalists for decades. But thanks to Henry Hazlitt, Paul Cantor and others, a body of work by free-market literary critics is now beginning to emerge.

Mises Weekends: David Gordon and Jeff Deist Discuss The Life and Times of Murray Rothbard

Jeff Deist and David Gordon discuss Murray N. Rothbard’s life from an insider’s perspective, touching on Rothbard’s experience founding the Cato Institute, his relationship with Mises and the areas where they disagreed, his time with Ayn Rand and her Objectivist followers, and more.

The Dating Market: Anarchy in Action

6833Mises Daily Friday by Julian Adorney

Dating someone can come with a very high opportunity cost and can lead to great emotional distress and more. So why doesn’t the government regulate dating? If it is too “personal” to regulate, then why are equally personal things like medical care and employment fair game for regulation?

The State’s Worst Atrocity

6831Mises Daily Thursday by Lew Rockwell:

Just about everyone makes the perfunctory nod to the tragedy of war, that war is a last resort only, and that everyone regrets having to go to war. But war has been at the heart of much pro-government ideology, and remains so today.

Video: Mises Institute Review and Judge Napolitano Interview

Kal Molinet and Matt Battaglioli [Mises U alum, '13 and '14] bring you the News From Underground covering the Ludwig von Mises Institute experience for aspiring Austrian economists. Also included is a bonus interview with Judge Napolitano on the validity of the constitution as a contract, the insecurity of social security, and common misconceptions about police obligations.

The Ethanol Industry: An Engine of Economic Destruction

2350617176_2c11c1cb08_bIn his recent Mises Daily, Dave Albin admirably elucidates the tangle of unseen, long-run consequences that has resulted from uncoordinated government subsidies to the sugar, corn and ethanol industries.   But if we narrow our focus to the ethanol industry itself, there is a more fundamental  point to be made.  For the ethanol industry  is a “fiat” industry created not by consumer demand but by the Federal Renewable Fuel Standard (RFS) program established by the Energy Policy Act of 2005 and expanded by the Energy Independence and Security Act of 2007.  The RFS mandates that all transportation fuel sold in the U.S. (gasoline, diesel fuel) contains a certain minimum percentage–currently 10%–of renewable fuels like ethanol.  This program is nothing but a massive scam run for the benefit of corn growers including gigantic agribusiness firms like Monsanto.  As one writer summed up the RFS program:

Federal crop subsidies and ethanol mandates shower tax and household dollars on corn growers and ethanol refiners to produce a product we are forced to purchase, that increases fuel prices, provides less energy for our money, adds water to our gas tanks, raises food prices, and degrades the environment.

The extent of economic distortion and wealth destruction that is caused by the very existence of the ethanol industry is substantial.  Indeed, the Renewable Fuels Association, the lobbying group for the ethanol industry, quantifies and publicizes the destructive and impoverishing effects of the ethanol industry as if they were benefits to the U.S. economy.  Here are some of the “Ethanol Facts” proudly touted by the organization:

  1. In 2013 there were 86,504 workers employed directly  in renewable fuel production and agriculture in the U.S. Another 300,277 people were employed in jobs indirectly related to ethanol production.  On a market free of government mandates, everyone of these workers would have been employed in alternative industries producing a variety of  goods  to meet the voluntary demands of consumers.  Thus, the 13,3 billion gallons of ethanol  that these workers in conjunction with capital goods produced in 2013  represented  a sheer waste of scarce resources.
  2. In 2013, the U.S. ethanol industry (allegedly)  added $44 billion to the nation’s Gross Domestic Product (GDP) and  helped raise  household income by $30.7 billion.  This is nonsense on stilts.  Since the production of  ethanol was utter waste from the point of view of consumers, the industry did not add a single dollar to GDP.  In fact the $36.1 billion that the industry spent on raw materials, other inputs, and goods and services (it paid $8 billion in taxes)  should not be added to   GDP because those resources were diverted from uses of much greater value  (than zero) to consumers. Furthermore, the supposed increase in household income of $30.7 derived from the ethanol industry  was not the result of productive activities but of  the redistribution of income from  genuinely productive households, which were forced to pay higher prices for fuel and food.  In fact a strong case can be made that the total expenditures on ethanol and the household incomes of those involved in the production of this waste product should not only not be added to but rather deducted from the levels of aggregate output and income generated by the private sector of the economy.  The reason is that beneficiaries of the increased household incomes from ethanol were capitalists, workers, and government bureaucrats who squandered resources and produced nothing of value.  In subsequently spending their incomes. these unproductive households imposed  a  second burden on the private economy by siphoning  off valuable goods and services and leaving even less product remaining for productive entrepreneurs and workers to purchase thus further diminishing their real incomes.
  3. In 2013, 46% of the workers in the ethanol industry reported earning salaries of more than $75,000 per year, and another 45%  reported salaries between $40,000 and $74,999.  96% of respondents had health insurance and 92% had retirement plans.  But the  salaries and benefits of those employed in the ethanol industry  do not reflect the value to consumers of the goods and services actually produced by these employees, as they do in private industries; instead they  reveal their “opportunity costs,” that is, the value of other goods and services actually demanded by consumers that would have been produced had these workers not been enticed away from productive employment by the government-mandated  ethanol industry.


Is Your Checking Account a Deposit Contract?

The blogger Bionic Mosquito has a post relating to today’s Mises Daily article on fractional reserve.  Mosquito makes that point that modern deposit contracts are not bailments, with the depositor retaining ownership. Instead, the individual depositor in effect enters into a short term credit agreement with the bank.


Of course most depositors certainly do view their bank accounts as a form of bailment.  Hence they say “I’m going to the bank to get my money.”  There is still a widespread view of banks as safe holders of money deposits.  The average Joe doesn’t deposit his paycheck and think, “OK, I just entered into a short term credit arrangement.  I can call the loan at any time though.”

Hans-Hermann Hoppe makes this point in Chapter 6 of The Economics and Ethics of Private Property:

First off, as a matter of historical fact fractional reserve banks never informed their depositors that some or all of their deposits would actually be loaned out and hence could not possibly be ready for redemption at any time. (Even if the bank were to pay interest on deposit accounts, and hence it should have been clear that the bank must loan out deposits, this does not imply that any of the depositors actually understand this fact. Indeed, it is safe to say that few if any do, even among those who are not economic illiterates.) Nor did fractional reserve banks inform their borrowers that some or all of the credit granted to them had been created out of thin air and was subject to being recalled at any time.

Regardless of one’s view of fractional reserve, Hoppe’s observation is correct: banks don’t exactly advertise this fundamental aspect of how they do business.

The real problem is not fraud or fractional reserve banking per se. Eliminate cartelized money (the Fed) and the false security blanket (FDIC) and the market would sort through issues surrounding deposit banks and lending banks.

Chambers of Commerce Try to Purge Non-Cronies (Again)

[This is not an endorsement of any of the members discussed below.]

VP Cheney: Photo Op and Remarks to the Cincinnati USA Regional Chamber.

Dick Cheney hosted by the Cincinnati Chamber.

Congressman Justin Amash just beat his primary opponent in a race that would not have happened had it not been for campaign money poured into the anti-Amash camp by the US Chamber of Commerce, the Grand Rapids Chamber, and the Michigan Chamber. Amash, who, as a politician has committed his fair share of political crimes, at least has had the decency to oppose a variety of cronyist measures and refused to fund several bailouts and bills designed as special favors for business interests.  So, naturally, while claiming to be “pro-free-market,” the US Chamber of Commerce has gone after him for not spending enough government money. This is not surprising. Business groups like Chambers of Commerce are not free-market organizations at all, but are just rent-seeking lobbying groups looking for government favors.

There’s nothing new here. When Ron Paul was in Congress, the US Chamber ranked him as one of the worst members, giving him the lowest score of any Republican. In Chamber-speak, being “free-market” means voting for things like TARP and various bailouts and No Child Left Behind. Given the Chamber’s crusade against Amash (and this Chamber-funded political ad), being pro-business also apparently means being in favor of NSA spying.

Amash was just one of the Chamber’s targets in recent years. The Daily Caller notes:

Business won an under-the-radar victory in May when the Georgia Chamber of Commerce and companies such as Delta Airlines, Georgia Power, and AT&T suddenly set up a Georgia Coalition for Job Growth and managed to defeat a Republican legislator, Rep. Charles Gregory, who was just too libertarian for them.

Gregory, a big fan of former presidential candidate Ron Paul, wasn’t trying to legalize drugs or bring the troops home from Afghanistan. No, the ads and the special website that the Georgia Coalition set up accused him of voting against education spending and against an intrusive measure to require drug testing for food stamp applicants.

The real issue was probably that he wouldn’t go along with pork-barrel projects that benefit business, such as taxpayer funding to help the Atlanta Braves move to Cobb County.

One lobbyist involved in the business effort told the Atlanta Journal-Constitution, “We’re not going to let liberty Republicans throw business out of the Republican Party.”

It seems unlikely that a free-marketer like Gregory wanted to “throw business out.” But he did want to persuade the GOP to stop supporting subsidies and sweetheart deals for $700 million businesses like the Braves.

Business operatives ran into trouble early on in Kentucky, where they lobbied hard though unsuccessfully to persuade the head of the Northern Kentucky Chamber of Commerce to run against Rep. Thomas Massie, a frequent ally of Amash. Massie, a businessman himself, is a strong fiscal conservative, but some local business leaders don’t like what they see as his stand-off approach.

And in California’s June primary Rep. Tom McClintock, a crusader against earmarks, turned back a challenge from Washington business consultant Art Moore, who “thinks representatives should deliver for folks back home,” in the words of a local reporter.

Actual advocates for free markets have long known that being for free markets does not mean being for big business. Perhaps the confusion arose from Ayn Rand’s laughable assertion that big business is a “persecuted minority” but the connection has stuck, and for whatever reason, many seem to think that free-market advocates are fine with subsidies and government favors as long as they go to big corporations.

Confusing Capitalism with Fractional Reserve Banking

vault2Mises Daily Wednesday by Frank Hollenbeck:

Low interest rates combined with high-risk fractional reserve banking creates a powder keg on which we’re sitting today. It’s a government- and central bank-created problem, but capitalism gets the blame.


Mercantilism Never Went Away

2POUND1994The debate over the Export-Import Bank continues, with the bank’s friends in Congress and other high places claiming that the Bank serves an indispensable function in the American economy. Larry Summers, for instance, defends the bank on the grounds that foreign authoritarian and “mercantilist” countries subsidize trade more aggressively than does the United States, therefore the bank is necessary.   Summers also seems to be under the impression that the US and the West practice something called “open market capitalism.” This exchange exhibits a way of thinking among some mainstream economists in which The US economy is capitalist while “mercantilism” is something that foreigners or people of ages past engaged in.

In this article, however, political scientist Dani Rodrik at  Harvard states what we have long already known: “mercantilism never really went away,” and perhaps inspired by people like Summers, he observes that “Today, mercantilism is typically dismissed as an archaic and blatantly erroneous set of ideas about economic policy.”  Rodrik is no enemy of mercantilism, though, and then goes on to sing the praises of mercantilism, which he regards as under-appreciated. It is no doubt true that many scholars (either honestly or dishonestly) claim mercantilism to be dead and buried in the West, but many who are familiar with the details of economic history will be forced to find mercantilism all around him. We can engage in semantic debates over whether or not modern “third way” economies are mercantilist, strictly speaking, but if these modern economic systems — that happily employ central banks, state corporations, and trade policies designed to benefit a certain group of people — are not mercantilist, then it’s hard to see what else they could be. Michael Heilperin defines mercantilism as a subspecies of “economic nationalism,” but we might also say this is a distinction without a difference. John Cochran, for example, has explained how the debate between libertarians and interventionists is essentially just a continuation of the historical debate between mercantilists and classical liberals.

Apparently unknown to Rodrik, mercantilism has received plenty of good press before. Writing in 1963, Rothbard discussed the ongoing non-death of mercantilism. Prior to World War II, mercantilism was disparaged often by the free-marketeers, but following the rise of Keynesian orthodoxy, people began to discover that there were many similarities between their own system and the mercantilists:

Mercantilism has had a “good press” in recent decades, in contrast to 19th-century opinion. In the days of Adam Smith and the classical economists, mercantilism was properly regarded as a blend of economic fallacy and state creation of special privilege. But in our century, the general view of mercantilism has changed drastically.

Keynesians hail mercantilists as prefiguring their own economic insights; Marxists, constitutionally unable to distinguish between free enterprise and special privilege, hail mercantilism as a “progressive” step in the historical development of capitalism; socialists and interventionists salute mercantilism as anticipating modern state building and central planning.

Keynes himself likely saw the connections, although he avoided using the term “mercantilist” to describe the core of his agenda. In a speech titled “The End of Laissez-Faire” Keynes was explicitly advocating for more mercantilism in the form of “public corporations” and “separate autonomies”:

I propose a return, it may be said, towards medieval conceptions of separate autonomies. But, in England at any rate, corporations are a mode of government which has never ceased to be important and is sympathetic to our institutions. It is easy to give examples, from what already exists, of separate autonomies which have attained or are approaching the mode I designate – the universities, the Bank of England, the Port of London Authority, even perhaps the railway companies. In Germany there are doubtless analogous instances.

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Orwellian Language: Peace Abroad; War at Home

CaptureGovernments often misuse language to build emotional and patriotic support for their policies. This Orwellian use of language is clearly evident in the way that US government policy uses the words “war” and “peace.”

Everyone is well aware of the US military invasions in Iraq and Afghanistan. Initiated during the Bush administration and continued through the administration of Nobel Peace Prize winner Obama, the US enlisted the assistance of other countries (but both invasions were mainly undertaken by the US military) to bomb those countries, occupy them with ground troops, and overthrow their governments. There was no declaration of war in either case. Those invasions of Iraq and Afghanistan, and the subsequent occupation by American troops, were called peacekeeping operations.

When we bomb other countries, invade them with our troops, and topple their governments, that is what we call peace.

Meanwhile, we refer to many of our domestic policies as wars. We have a war on drugs, a war on poverty, a war on terror, and lesser wars like the war on obesity, the war on smoking, and the war on coal. The list could go on.

In the post-Cold War era, everyone knows the US is the World’s policeman, or the World’s bully, depending on one’s point of view. But when we impose our preferences on people in other countries through the use of military force, we call that peace. In war, one side fights another, and linguistically, our peacekeeping missions are telling people that we are helping them out by destabilizing their governments and killing their countrymen.

At home, the language of war invokes images of a patriotic effort to fight an enemy, whether the enemy is poverty or obesity or coal, and invokes images of treason for those who dare to speak out against the nation’s efforts to fight its enemies. Offering support to the opposition in one of our wars is unpatriotic and treasonous.

By misusing language in this way, words lose precision in their meanings. When bombing people is peace and providing food to poor people is war, those words that are misused for their emotional connotations no longer refer to clear concepts. In both cases, the Orwellian language does serve a clear purpose. It builds support for the state, and facilitates its foreign and domestic policies.

George Reisman’s Monograph on Piketty’s ‘Capital in the Twenty-First Century’

Good News: George Reisman read Piketty’s Capital so you don’t have to. It seems Reisman is one of the few people who has actually read it. More good news: Reisman tells you what you need to know in a short monograph, and not in 700 pages like Piketty. The monograph is available at Amazon and at Reisman’s web site.

Ron Paul on the Latest Anti-Russia Sanctions

WTC-MoscowFrom a free-market perspective, trade sanctions are always immoral and illegitimate because they restrict trade and free choice among individuals. Arguably, they are even worse when instituted for purposes of provoking war, as is the case with the Obama administration and Russia. Ron Paul examines the current controversy:

Why Won’t Obama Just Leave Ukraine Alone?

by Ron Paul

President Obama announced last week that he was imposing yet another round of sanctions on Russia, this time targeting financial, arms, and energy sectors. The European Union, as it has done each time, quickly followed suit.

These sanctions will not produce the results Washington demands, but they will hurt the economies of the US and EU, as well as Russia.

These sanctions are, according to the Obama administration, punishment for what it claims is Russia’s role in the crash of Malaysia Airlines Flight 17, and for what the president claims is Russia’s continued arming of separatists in eastern Ukraine. Neither of these reasons makes much sense because neither case has been proven.

The administration began blaming Russia for the downing of the plane just hours after the crash, before an investigation had even begun. The administration claimed it had evidence of Russia’s involvement but refused to show it. Later, the Obama administration arranged a briefing by “senior intelligence officials” who told the media that “we don’t know a name, we don’t know a rank and we’re not even 100 percent sure of a nationality,” of who brought down the aircraft.

So Obama then claimed Russian culpability because Russia’s “support” for the separatists in east Ukraine “created the conditions” for the shoot-down of the aircraft. That is a dangerous measure of culpability considering US support for separatist groups in Syria and elsewhere.

Similarly, the US government claimed that Russia is providing weapons, including heavy weapons, to the rebels in Ukraine and shooting across the border into Ukrainian territory. It may be true, but again the US refuses to provide any evidence and the Russian government denies the charge. It’s like Iraq’s WMDs all over again.

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Walter Block On Controversies Throughout His Career

(Summary by Luis Rivera III)

Here, Dr. Walter Block reveals what he believes is his most controversial view as well as what has been the harshest response he has ever received. Dr. Block talks about his books Defending The Undefendable I and Defending The Undefendable II. He touches on some of the chapter including prostitution, drug legalization, blackmail, WalMart, child labor and private roads. This and more in this great interview!

For more on why blackmail should be legal and how it distinguishes itself from extortion read Legalize Blackmail (ebook.)

World War One and the End of the Bourgeois Century

6830Mises Daily Tuesday by Ryan McMaken

The First World War began one hundred years ago, and it was a total disaster for Europe. The war destroyed not only the bodies and capital of millions of human beings, but it also destroyed the ideology and economy of the peaceful and prosperous century that had come before.