Rothbard on Self-Defense and War

back of a security guardMises Daily Tuesday by David Gordon:

Contrary to the claims of many advocates for expanding the already-huge war apparatus of the United States, Libertarians in general — and Murray Rothbard in particular — are not pacifists, but reject the killing of innocents and other unjustified forms of military aggression.

How Much Is Obama’s War on ISIS Going to Cost?

rsz_3040508093_a66a92cc59_o_1Mises Daily Tuesday by Daniel McAdams:

How much is Obama’s war on ISIS Going to Cost you? You don’t want to know.

Christopher Columbus, The New World, and Private Property

With the exception of a few ethnic Italian activists, no American appears to actually celebrate Columbus Day anymore (assuming it was ever “celebrated” in any meaningful sense). And unless you work for a bank or a government agency, you may not even notice it’s a “holiday” at all. Indeed, it’s quite possible that Columbus Day would be all but ignored, if it were not for a perennially enraged group of activists who take Columbus’s many acts of thievery and murder in the New World and use them to indict people born nearly 500 years after Columbus drew his last breath.

Even in his own day, Columbus was accused of inexcusable brutality, and even his friends had to admit he suffered from extreme vanity, ambition, and a lust to rule over other people. A politician par excellence, he continually lobbied for more and more political power, riches, and favors from the Spanish crown. His record was not impressive, and King Ferdinand refused to grant him the governorship of the West Indies which Columbus so longed for.

1280px-Emanuel_Gottlieb_Leutze_-_Columbus_Before_the_Queen

His own contemporaries noted with contempt that Columbus presided over the mass murder of the natives, and contrary to the current narrative among anti-Columbus crusaders today, it was hardly European gospel that the natives be treated as unpersons without property rights. Indeed, the natives were regarded by many as having the same rights as all human beings. Being non-European certainly did not bring with it sub-human status, and a papal envoy sent to Peking in the 14th century was  not sent to inform the Chinese that they were to surrender all their property.

In fact, this pro-property position was established clearly, at least among the Catholic countries, by 1537 when Pope Paul III issued the papal bull “Sublimus Dei” which stated that the American natives are rational beings while concluding:

…the said Indians and all other people who may later be discovered by Christians, are by no means to be deprived of their liberty or the possession of their property, even though they be outside the faith of Jesus Christ; and that they may and should, freely and legitimately, enjoy their liberty and the possession of their property; nor should they be in any way enslaved; should the contrary happen, it shall be null and have no effect.

Of course, people listened to the Pope back then about as much as they do now, so much of the New World nonetheless continued along the path of Might Make Right. The fact that the natives always retained their property rights (in the moral sense) did little to prevent them from losing their property in the face of vastly superior numbers and firepower.

Read More→

Bizarro-World Kirzner Awarded the 2014 Nobel Prize in Economics

KONICA MINOLTA DIGITAL CAMERAHere’s a real shocker:  The 2014 Nobel Prize in Economics was not awarded to Israel Kirzner, as many Austrians fervently hoped.  Instead the prize was given to Jean Tirole, a French engineer, mathematician and economist for advancing “The Science of Taming Powerful Firms,”  Tirole for all his technical proficiency and inventiveness is a garden variety neoclassical economist whose views on competition, efficiency and economic welfare are worlds apart from Kirzner’s.

Plus ça change, plus c’est la même chose.

Tirole won the prize for his work in devising new methods to improve regulation of industries dominated by a few large firms with “market power.”  Tirole uncritically accepts the long entrenched neoclassical view that “oligopolistic” firms commit the unpardonable sin against economic efficiency of being able to “influence the prices, volume and quality” of products in the markets in which they operate while planning production on the basis of expectations of each other’s decisions.   In other words they do not operate according to the assumptions of perfect competition under which each firm is infinitesimally small and unable to vary the price or quality dimensions of its product one iota from that of its equally teeeny-weeny competitors, whose actions it does not take account of in its own production decisions.

Compounding the ”market failure” of oligopoly is the fact that dominant  firms know more about the product that they are selling than the regulatory authority.   This is  a species of the  problem of “asymmetric information” in which each entrepreneur is, heaven forfend, more intimately familiar with the attributes of the product he is producing and selling than consumers of his product.

In any case, using game and contract theories, Tirole was able to contrive “a clever set of production contracts” between the regulator and dominant firms that solve the problem of asymmetric information while giving the firms an incentive to produce and cut costs while draining away “excessive profits—a bad thing for society. “

So, Tirole was awarded the Nobel prize for concocting complex technical solutions to what Austrians have long known and taught to be pseudo-problems for a dynamic market economy driven by rivalrous competition among entrepreneurs eager to earn profits by anticipating and serving ever-changing consumer demands.

Regarding oligopoly, Murray Rothbard in 1962 incisively clarified the phenomenon and showed that it was tractable to general economic analysis, which oligopoly theorists had long denied.  Furthermore, Rothbard demonstrated that game theory was inapplicable to oligopoly, at a time when game theory was still an arcane discipline in its infancy and a plaything of a handful of mathematical economists.  Thus Rothbard (pp. 725-26)  argued:

The relevant consideration is not the fewness of the firms or the state of hostility or friendship existing among firms. Those writers who discuss oligopoly in terms applicable to games of poker or to military warfare are entirely in error. The fundamental business of production is service to the consumers for monetary gain, and not some sort of “game” or “warfare” or any other sort of struggle between producers.  The jockeying and raising and lowering of prices that takes place in“oligopolistic” industries is not some mysterious form of warfare,but the visible process of attempting to find market equilibrium. . . . The same process, indeed, takes place in any market, such as the “nonoligopolistic” wheat or strawberry markets. In the latter markets the process seems to the viewer more “impersonal,” because the actions of any one individual or firm are not as important or as strikingly visible as in the more. “oligopolistic” industries. . . . And, in oligopoly situations, the rivalries, the feelings of one producer toward his competitors, may be historically dramatic, but they are unimportant for economic analysis.

As for “asymmetric information,” Ludwig von Mises and F.A. Hayek showed long ago that, far from a “market failure,” this phenomenon is one of the fundamental conditions for the very existence of markets.  The Mises-Hayek point was emphatically and eloquently expressed in  a recent article by Tom DiLorenzo (p. 252)

 Consider these questions: Who knows more about home building—home builders or home buyers? Who knows more about supplying grocery stores with fresh meat—ranchers and farmers, or average consumers? Who knows more about manufacturing automobiles—automotive engineers employed by automobile manufacturers, or car purchasers? Who knows more about producing and marketing articles of clothing—clothing manufacturers and distributors or clothing shoppers?

The point . . . is that all information about all products and services is asymmetrical in successful, capitalist economies because of the division of knowledge (and labor) in society. If we all had symmetrical information about all of the above tasks, none of the above-mentioned businesses and occupations would exist. It is neither desirable nor possible for everyone to have symmetrical information.  To paraphrase Mises, what distinguishes man from animals is the insight into the advantages that can be derived from cooperation under the existence of asymmetric information and the division of knowledge in society. . . . Indeed, differences in information—and different interpretations of the meaning and importance of information to each individual—is the sole cause of trade and exchange.

Austrian Calls Central Bankers Incredible

Michael Pollaro writes in Forbes.com that the all-time high credibility that central bankers currently enjoy is about to change.

Central bank credibility is at all-time highs. As a consequence, we suggest, equities are near all-time highs too while gold is scraping multi-year lows. A change though may be in the offing with all three. Not today, nor tomorrow. But perhaps sooner than most think.

Here’s how we see it…

Pollaro shows that the monetary policy approach pursued by Keynesian central bankers is both wrong and dangerous.

We reject this unwavering belief in central banks and their policies, outright. As the Austrians teach, easy monetary policies sow the seeds of their own demise. Flooding the economy and financial markets with money (and credit) created out of thin air – thereby distorting interest rates and price signals and, in so doing, creating malinvestments – is no way to create sustainable, economic growth and ever rising equity prices. Sure, at first glance, the malinvestments and attendant booming equity prices look like genuine growth and wealth creation. But they are not. As we explored here, they are instead unsustainable bubbles that turn to bust when the growth in those money supply (and credit) footings decelerate; i.e., when the easy money abates.

Today we posit some questions we think every equity investor needs to answer. What if the Austrians are right? What if unconventional, all-in easy money policies do not produce sustainable, economic growth? Contrary to the expectations of nearly everyone, what if the next big event is in fact a bust? What will that mean to the equity markets going forward? And then, what will that say about the credibility of central banks?

Well, if the Austrians are right, as we wrote here, given the size of this monetary experiment, one can expect a pretty big swoon in equity prices if not an ugly crash. More important though is the very real possibility that a bust could put a dagger in central bank credibility, severely damaging if not destroying the belief that unconventional, all-in easy money policies can goose the economy and equity markets anywhere near as effectively as in the past. Maybe, in real terms, not at all. Truly a problematic situation the next time central banks step in to “save” us. This we think is especially true if a bust occurs right here in America. Consider this: The former Federal Reserve Chairperson Ben Bernanke (and world renowned expert on the Great Depression) and his closest adviser current Chairperson Janet Yellen birthed the largest, most heralded, monetary support apparatus in world history and it was found unable to produce sustainable, economic growth, unable to float equity prices ever higher. Instead, it did the exact opposite. How many investors/speculators will then put their unswerving faith in any central bank, at least for the foreseeable future? We’re thinking a lot, lot less than today.

Pollaro suggests that as events play out that central bankers will lose their credibility and will be considered “incredible” in the proper sense of the word.

Jean Tirole Wins Nobel Prize

JEAN TIROLEThe Nobel committee has chosen Jean Tirole, a leader in game-theoretic industrial organization analysis, for the 2014 economics prize. As I discuss in more detail here, Tirole’s approach to IO is probably an improvement over the old structure-conduct-performance literature of the 1950s, but it still rests on the naive concepts of “monopoly” and “competition” that the Austrians have attacked since the 1940s. Monopoly is defined as “market power,” i.e., the ability to set price over marginal cost, and it taken for granted that the government’s job is to reduce market power to “maximize social welfare.” The Austrian notion of competition as process of dynamic rivalry over time does not figure prominently in this style of analysis, and government regulators are treated as benevolent, fully competent (if not always perfectly informed) agents who run around correcting for market failures.

Many of my Austrian friends are disappointed that Israel Kirzner did not win but, as I noted last week, he never really stood a chance. Game theory has become the dominant language not only for IO but also for public-sector economics, corporate finance, and other fields and it was inevitable that the Nobel committee pick Tirole or someone like him. My guess is that Oliver Williamson will be the last Austrian-friendly Nobel laureate, at least for a while.

Scientific Progress Needs Entrepreneurial Progress

2593426985_21eb9aa4eb_oIn our age of technological marvels, it’s easy to be in awe of science, and even to believe that science in and of itself is responsible for the high living standards enjoyed in some nations. Likewise, it’s all too easy to see poverty and economic stagnation as stemming from a lack of scientific progress, and conclude that to make the world a better place, all we need are more breakthroughs and inventions.

However, the recent explosion of interest in “science” tends to overlook what is maybe the most important fact about human progress: it doesn’t happen without entrepreneurial progress. In other words, scientific breakthroughs don’t actually increase most people’s welfare until entrepreneurs figure out how to make them do something practical, at prices consumers find reasonable. As Peter Klein points out, such was the case of the internet, which had little value until it was integrated into the market economy.

Given the popularity of celebrity scientists like Neil deGrasse Tyson, or of pages like “I f@&%ing love science,” it’s vital to stress the common-sense economics of scientific research. It’s when science enters our lives through the market that it bestows the greatest benefits on humanity. Whether it’s a basic invention or the most advanced physical science, entrepreneurs make the wonders of the scientific world into commonplace conditions of everyday life.

What science needs then is a guiding hand (hint: an invisible one), a means to assess the social worth of new knowledge and inventions. And that’s exactly what the market provides through the indispensable tool of economic calculation. Because their mission is to improve the lives of consumers, entrepreneurs are the standard-bearers of scientific progress, looking constantly to the frontiers of knowledge for new ways to increase human well-being.

China Overtakes US

The IMF announced that the GDP of China has now exceeded the GDP of the USA. In this interview I explain some of the “back story” on this topic and also alert listeners of the implications of the current world currency war and looming economic crisis.

“In the US, the GDP growth has been driven largely through a process of large government deficits and the burgeoning national debt,” he said.

“An unprecedented radical monetary policy of keeping interest rates very low” also contributed to an unsustainable economic growth, Thornton told Press TV on Wednesday.

The American economist said China’s growth policies are also questionable and will not be sustainable in the future.

“They (China) have a lot of planned investment in infrastructure, housing, office space and the building of giant skyscrapers and they have a lot of inventory of all those products and under utilization of infrastructure investment,” he noted.

China remains the biggest foreign holder of US government debt, holding an estimated $1.27 trillion in US Treasury bonds.

The United States accuses China of lowering the price of its exports by manipulating its currency.

“Growth is a good thing, but in the case of China and the US, we have to question whether it’s natural, sustainable,” Thornton said.

First Trickle Through the Dam

The United Kingdom has announced that it will be the first government outside of China to issue bonds denominated in the Chinese currency, the Renminbi. Forbes reports that the bond sale will be tiny. For the UK it represents another attempt to become the eminent world financial center. For the US it represent another small blow to the status of the Dollar and US financial markets. The US Dollar has already lost its near monopoly position as a reserve currency and medium of international trade. The competitive position of the Chinese Renminbi continues to improve in small ways. The question is whether this will be a multiple decade competition between the Dollar and the Renminbi, or whether the “dam will break” like it did in WWI when the eminent currency status changed from the British Pound to the US Dollar.

A Sensible Central Banker?

1280px-Ottawa_-_ON_-_Bank_of_CanadaWith all the lunacy coming from the world’s central bankers since, well, ever, it’s refreshing to hear something (anything!) sensible coming from one of them finally. Bank of Canada Governor Stephen Poloz’s recent announcement that the BoC would stop using forward guidance included all sorts of encouraging tidbits.

Canada’s central bank needs to communicate with “full transparency” the risks that it is weighing because, according to Poloz, this “causes the market to assess new information more or less the way as the central bank does.” In effect, he wants the BoC to stop trying to trick investors to get them to do things they otherwise wouldn’t.

Poloz is also concerned not just with the risks lurking around the dark corners of the economy, but the uncertainties no will see coming.

As economists and policy makers, we know that uncertainty is everywhere and that it has worsened in the aftermath of the global financial crisis…. I believe that the sort of uncertainty we are dealing with today is more profound than that which is typically subjected to rigorous analysis – that it simply does not lend itself as easily to either mathematical or empirical analysis, or any real sort of formalization.

Of course, the BoC leaves unchanged its commitment to low interest rates, but it’s heartening to see some recognition of the risks involved with this policy.

(Cross posted at Mises Canada.)

The Obama Climate Policies That Will Hurt the Poor

ShellMartinez-refiShawn Ritenour writes in The Patriot-News of Harrisburg, Pennsylvania:

In anticipation of this week’s United Nations Climate Summit, tens of thousands of activists stormed Manhattan in what organizers dubbed “The Peoples Climate March.”

Organized by environmentalist, labor, and self-styled social justice groups, marchers demanded “climate justice now,” even observing a minute of silence to recognize those most affected by climate change.

They should have taken a moment to pray for the world’s poor, too. Because the policies they demand would devastate hundreds of millions of lives worldwide.

That’s the conclusion of a new report published by the Cornwall Alliance, A Call to Truth, and co-signed by 150 evangelical leaders, pastors, economists, scientists, and others, including myself.

We analyzed how environmental legislation and regulations—like the ones called for by President Obama at the U.N.—reduce the standard of living for hundreds of millions of the world’s poorest citizens.

Mandatory reductions in carbon dioxide emissions are among the most common demands of climate activists.

By cutting these emissions across the board, the argument goes, it will reduce greenhouse gas emissions and lower global temperatures. This supposedly will save the earth by healing her atmosphere and calming her seas.

What this argument does not include, however, is the effect such draconian cuts will have on electricity prices.

By effectively prohibiting the cheapest and most abundant sources of energy—i.e., fossil fuels—government-imposed cuts to carbon dioxide emissions necessarily cause electricity bills to skyrocket. Forcing millions of people who can’t even afford food for dinner to pay more for electricity is far from social “justice.”

Read the whole article. 

 

Mises Weekends: Claudio Grass Explains The Upcoming Swiss Gold Referendum

Jeff Deist and Claudio Grass discuss the uniquely Swiss mindset behind the upcoming Swiss gold referendum, and how decentralization of political power is part of Swiss DNA; the tremendous geopolitical aftershocks that would occur if the referendum passes — including the physical repatriation of gold to Switzerland; and how the Swiss people may be waking up to the sellout of their country by the Swiss National Bank and the IMF.

How Saving Grows the Economy

comic2Mises Daily Friday by Dan Sanchez:

Dan Sanchez examines Irwin Schiff’s timeless comic book on how savings, innovation, and risk are the building blocks of productivity, progress, and wealth.

Be Careful When you Wish for a Weak Dollar

12531001294_cdcbab77cd_bA little over a year ago, Canadians were alarmed by the surging loonie. As the argument went, foreigners (and Americans in particular) couldn’t afford to buy Canadian-made goods. Since the country couldn’t compete, better get the Bank of Canada on the job and inflate so as to depreciate the dollar.

One year on and people got what they wished for. The loonie has lost about 7% of its value against the Greenback, and nearly 15% since 2012. This should be a great stimulus for the economy, right?

Wrong. Not only has manufacturing not rebounded from the depreciation, but now Canadians are getting hit hard on everything they import into the country, which for the average Canadian is one out of every three dollars they spend.

The Globe and Mail (which less than a year ago was one of the main promoters of the “prosperity through depreciation” argument) has changed its tune.

A money-saving suggestion for Canadians with a taste for travel in the United States: Skip the trip.

The Canadian dollar’s descent to five-year lows in early October reminds us that a weak currency has its price. Everything we import from the United States costs more, although intense competition among retailers may limit the impact for a while at least. A more immediate impact is the cost of buying U.S. dollars and paying credit card bills for U.S. purchases.

The cheapest vacation of them all is the staycation, where you do all the fun stuff you don’t normally have time for in your hometown. But there’s a certain satisfaction you get from visiting different places that staycations can’t match.

Be careful what you wish for. Just like in other economic matters, depreciating one’s currency is not a panacea. At least Canadians will have lots of time to think about this as they sit at home this coming holiday season.

(Cross posted at Mises Canada.)

The Politics of Secession, Regional Net Taxpayers, and Net Tax Receivers

The discussion over Scotland’s possible secession has often touched on the issue of regional net tax payments as a decisive issue in secession decisions. That is, if a region is a net tax-receiving region, then there is little incentive to secede, whereas, a net tax-payer region has significant incentive to secede. In the case of Venetian secession, for example, it has clearly been an issue for many decades as northern Italy (including Veneto) is well aware of its status as a the wealthier region of Italy that subsidizes the poorer south.

This also appears to be the case with Catalonia, where the region generally pays more in tax revenues than it receives.

Not all regions are aware of where they fit into the net tax-receiver puzzle however, and there’s a big blind spot on this in the United States. Many have assumed that those areas of the country most associated with supporting government welfare programs, such as the northeast, must be net tax receiver areas. The reality, however, is that the northeast is a net taxpayer region, as are other areas of the country most associated with being “pro-welfare” such as the west coast and Illinois.

On the other hand, the region of the country most associated with being for “free markets” is the American south (not including Texas) which is generally far more of a net tax receiver region than anywhere else in the country. This runs contrary to many political narratives which insist that the so-called blue states are living off the sweat of the red states. The fact remains though, that it’s the left-liberal regions of the country that are paying in the most in taxes, and much of that revenue moves south.

Many left-wing bloggers are quite fond of pointing this out, as in this graphic here:

taxpayers

The blogger is trying to make a political point by including the political party affiliation of each state’s US senators, although that’s of pretty dubious value. The tax numbers appear to check out pretty well, though, and this map is just one example of many that can be found online.

The breakdown here should not be surprising at all, however. The subsidized states on the map, such as Mississippi, Alabama, South Carolina, and others, all tend to have lower income residents, which means lower income-tax rates. Thanks to a progressive income tax, rich people really do pay more income tax, even after taking advantage of all those rich-guy tax shelters. Also, states with older populations, such as Arizona and West Virginia, will certainly have more people on welfare, or as the recipients of such funds like to call it: “Social Security and Medicare.” But also having a proportionally-large number of low-income people in general will mean more Medicaid money coming in, plus regular old TANF-type payments.

Read More→

“Depenalizing” Marijuana Reduces Crime


A recent paper published in the prestigious Journal of Political Economy, “Crime and the Depenalization of Cannabis Possession: Evidence from a Policing Experiment,” reports on experimental policing in the city of London. In the experiment, police depenalized the possession of small quantities of cannabis in the London borough of Lambeth. Researchers found that the offense rate for total non-drug crime in Lambeth fell significantly by 9.4% The offense rate declined in all crime categories. The declines in robbery, burglary, theft and handling, fraud and forgery and criminal damage were statistical significant, but the offense rate for violence, sexual offenses and robbery was not. Researchers found that police reallocated their resources which led to more arrests and “clear ups.”

England’s Private Road Rakes in the Money

tollsA couple of months ago I wrote about Mike Watts, the businessman who built a private toll road to replace a public road destroyed by a landslide. Because local government couldn’t fix the damaged road for almost a year, drivers were obliged to take an extremely inefficient detour, greatly increasing commute times and other transportation costs. In response, Watts and his wife stepped in and risked their life savings to open a toll road alongside the closed public one.

The big question when it opened was whether Watts would be able to recover his expenses, and so far the answer seems to be, yes. Watts just served his 100,000th customer, earning him £200,000 in the process. His total expenses for the project will be about £250,000, so he’s well on his way to breaking even before the public road is scheduled to reopen some time in December.

Naturally, Watts is having trouble with local government, which hates to look bad when entrepreneurial initiative accomplishes what it can’t, and at a fraction of the cost. He’s had to retroactively apply for a planning permit for the road that has already cost £25,000 in surveyor’s fees and ecological assessments. The local council has even spent an additional £660,000 to speed up repairs to the old road, which will now cost £2.66 million to get running again. This kind of desperation only goes to show how threatening it is for public officials when entrepreneurs provide services usually protected by monopoly.

Left and Right Agree: War Is Popular

toys2Mises Daily Thursday by Andrew Syrios

The occasional eruptions of anti-war positions from conservatives and progressives are more a function of what political party controls the White House than of any principled ideological stance. Don’t expect sustained opposition to war to come from either side.

Murray N. Rothbard: The Man and His Work

murrayoct2Mises Daily Thursday:

Lew Rockwell and Tom Woods discuss Muray Rothbard, his life, writings, students, and career.

 

Interesting micro-documentary on ABCT

This documentary takes only about 15 minutes to watch, and presents a good overview of business cycles caused by central banks. Mises and Rothbard feature prominently.