# Explaining the Economic Calculation Problem in a Principles Class

## Explaining the Economic Calculation Problem in a Principles Class

03/14/2018Jim Cox

A microeconomics principles class presents professors with the opportunity to at least briefly explain the economic calculation problem. Almost every text spends a page or two on the production function — the relationship between inputs and outputs by a firm.

Here is the relevant data and graphs from one such text.

The professor can ask the students, “at what output should the firm produce?”— which is a central issue in microeconomics. Looking at the figures and the graphs the students will likely answer, “at the peak of Total Product”, or “at the highest Marginal Product”, or “at the highest Average Product”.

None of these responses is correct, as there is no rational way to answer based on the limited information given. There is no rational way to answer because the data only include quantities of inputs and quantities of outputs. There is no value in the form of prices attached to either the inputs or the outputs. Until the prices of these are included there is no answer.

Here’s an example to illustrate this point:

If the outputs are valued by consumers in the market at a price of \$1.00 while each input costs the firm \$100.00 it is obvious that to produce any of these outputs would be a financial disaster for the firm in the way of major losses (and thus the firm will be destroying value in the world). Conversely, if the consumers in the market value the outputs at a price of \$50 each and the input costs are \$2 for each, the firm can make major profits (and thus the firm can be adding value in the world).

Socialists had proposed abolishing both money and prices leaving them in the same position as our students in trying to determine which output quantity would be best. Pointing this out allows the professor to recount Ludwig von Mises’s highlighting this problem in his 1920 article, "Economic Calculation in the Socialist Commonwealth" and the resulting debate over the issue in the 1920s through the 1930s.

While Mises — and Hayek who also participated in this debate — maintained their views, the socialist critics retired from the debate self-satisfied that they had answered the challenge by claiming that the socialist authorities could direct the managers to adjust production by simulating markets, that is non-existent markets! They would just be “playing market”.

As Mises pointed out, even the best intentioned socialist manager would be lost in trying to discover just what the best output would be.

I also like to make the point in my classes that playing market with assets one does not own is far removed from risking personal assets one does own! When one owns the assets, such decisions will have a major impact on the owner’s personal financial well-being.

(By the way, I have never in my many years of teaching principles classes seen a text that raises the economic calculation issue at all.)

## Piketty Urges Higher Taxes in Response to French Tax Revolt

Less than 10 years ago, many European nations suffered fiscal crises because of a combination of excessive spendingpunitive taxes, and crippling debt.

The crises have since abated, largely because of direct and indirect bailouts. But the underlying policy mistakes haven’t been fixed.

Indeed, the burden of government spending has increased in Europe and debt levels today are much higher than they were when the previous crisis began.

Unsurprisingly, these large fiscal burdens have resulted in anemic economic performance, which helps to explain why middle-class French taxpayers launched nationwide protests in response to a big increase in fuel taxes.

The French President, Emmanuel Macron, capitulated.

But some have suggested that Macron’s problem is that he wasn’t sufficiently bold.

I’m not joking. Led by Thomas Piketty, a few dozen European leftists have issued a Manifesto for bigger government.

We, European citizens, from different backgrounds and countries, are today launching this appeal for the in-depth transformation of the European institutions and policies. This Manifesto contains concrete proposals, in particular a project for a Democratization Treaty and a Budget Project… Our proposals are based on the creation of a Budget for democratization which would be debated and voted by a sovereign European Assembly. …This Budget, if the European Assembly so desires, will be financed by four major European taxes, the tangible markers of this European solidarity. These will apply to the profits of major firms, the top incomes (over 200,000 Euros per annum), the highest wealth owners (over 1 million Euros) and the carbon emissions (with a minimum price of 30 Euros per tonne).

Here are the taxes they propose as part of their plan to expand the burden of government spending.

I’m surprised they didn’t include a tax on financial transactions.

And here’s a video (in French, but with English subtitles) explaining their scheme.

To put it mildly, this plan is absurd. It would impose another layer of governmentand another layer of tax on a continent that already is suffocating because the public sector is too large.

I’m not the only one with concerns.

In a column for Bloomberg, Leonid Bershidsky points out why he is underwhelmed by Piketty’s proposal.

The reforms proposed by Piketty and a group of intellectuals and politicians — notably Pablo Iglesias, leader of Spain’s leftist Podemos party — include the creation of a European Assembly. It would have the power to shape a common budget and impose common taxes…Piketty advocates four measures that would collect a total equivalent to 4 percent of Europe’s GDP… What is being proposed is essentially a return to the fiscal policies of the 1970s, which provoked Astrid Lindgren to write her satirical essay “Pomperipossa in Monismania.” In 1976, the children’s author was confronted with a tax bill of 102 percent of her income. …Hit them with new taxes and watch them flee to the U.S. and Asia. They won’t stay like patriotic Lindgren, whose essay helped to topple the Swedish government in 1976. And no amount of government funding…will repair the damage that envy-based taxation can wreak on economies already finding it hard to innovate.

Let’s not forget, by the way, the many thousands of French households who also have suffered 100 percent-plus tax rates.

But let’s not digress.

Writing for CapX, John Ashmore explains why Piketty’s plan will make Europe’s problems even worse.

…a group of politicians, academics and policy wonks spearheaded by…French economist Thomas Piketty…have put their names to a new Manifesto for the Democratisation of Europe. …For the most part, the manifesto reads like a souped up version of the kind of policies we’ve heard time and again from leftwing politicians. …The details of today’s ‘manifesto’ make Labour’s Marxist Shadow Chancellor John McDonnell look like a moderate centrist. Where Labour advocate putting corporation tax back up to 26 per cent, Piketty and co want it hiked to 37 per cent. And while we Brits spent plenty of the Coalition years discussing whether income tax should be 45p or 50p in the pound, the Manifesto goes all guns blazing for a 65 per cent top rate… these measures are projected to raise 800bn euros, equivalent to four times the current EU budget. …that would be a huge transfer of power, not from the rich from the poor, but from taxpayers to politicians.

A 65-percent top tax rate? At the risk of understatement, that’s a recipe for less entrepreneurship and less innovation.

Moreover, based on America’s experience during the Reagan years, it’s safe to say that actual tax receipts would fall far, far short of the projection.

But the higher spending would be real, as would the inevitable increase in red ink. And it’s worth noting that the Manifesto proposes to subsidize the debt of bankrupt welfare states. Very much akin to the eurobond scheme, which I pointed out would be like cosigning a loan for an unemployed alcoholic with a gambling addiction.

P.S. During my recent trip to London, I repeatedly warned people that a real Brexit was the only sensible choice because the European Union at some point will fully morph into a transfer union (i.e., a European budget financed by European taxes). It was nice of Piketty to issue a Manifesto that confirms my concerns. Simply stated, the United Kingdom will be much better off in the long run if it escapes.

P.P.S. Let’s not forget that Piketty’s core argument for class warfare has been thoroughly and repeatedly debunked. Indeed, only 3 percent of economists agree with his theory.

## Vox Continues to Sell the "Benefits" of Socialism

12/13/2018James Bovard

Vox is whooping up the wacky notion that “sex was better under socialism.” Tell that to Romanian women forced to undergo monthly gyno exams to outlaw abortions because the government proclaimed in 1985 that “the fetus is the socialist property of the whole society… Those who refuse to have children are deserters.” Women’s reproductive lives were part of centralized economic planning, especially “policies to make better use of the population as a factor of production” by “stimulating an increase in birth rates.”

This policy was endorsed and subsidized by the World Bank, which is currently touting itself as the friend of women.

## PayPal Censorship Is Not Limited to Online Provocateurs

There is a debate among libertarians about the business practices of big tech companies like PayPal, Google, Facebook and Twitter. Is it legitimate for these companies to block user profiles for political, ideological, personal or any other reasons?

The libertarian purist's answer is: "Yes, these companies can take such action without explanation! It’s their right." The justification is relatively simple: in a libertarian private law society, no company should be forced to serve customers it does not want to serve. Both the purchase and sale of goods and services are voluntary. Accordingly, from a libertarian point of view, there is nothing to be said against the user profiles of Milo Yiannopoulos, Alex Jones, Rihanna or Clint Eastwood being temporarily or even permanently blocked.

However, the discussion should not end here. Just because someone has the right to do something, you don't have to approve of it. You can criticize the business practices of companies at a different level, even if they do not violate any rights. This criticism is even of the utmost importance.

Just as Twitter can block an account, Twitter customers can decide to stop using the service if they don't like the business practices. Public criticism of these companies therefore has two important effects. Firstly, they inform users about how these companies really operate, because hardly anyone actually reads the general terms and conditions. On the other hand, they give companies an indication of what actual and potential customers think of their practices. If a critical mass of people openly disapproves of these practices, the companies will be forced to change their business policy if they want to maintain or increase their market share. This is exactly how a market economy works.

So, it is important to be critical. It draws users' attention to certain dangers and, in the best-case scenario, can remove the latter if companies react adequately and customer-oriented. And they must, if they want to remain or become top dogs (abstracting from certain crony interventions into the market place).

In the case of the online payment service PayPal, I myself have become the victim of what I consider to be a questionable business practice. After only a few transactions, all of them very small in size, my account was limited so that further payments could neither come in nor go out. Shortly afterwards, the business relationship was terminated unilaterally. An unacceptable risk emanated from my account, and activities were noticed that violated the terms of use. My balance will be withheld for 180 days before I can recover it by submitting identification documents.

The customer service representative on the telephone assured me that PayPal had decided not to work with me anymore. When asked what exactly I was guilty of, he told me that he could not give any information about it. Even after several written inquiries, I didn't get any information on the case.

On my PayPal account money flowed from three different sources and was held there in Euro and US Dollar. As far as I can remember, I used part of the money to book a hotel room and a train ticket. Then the account was blocked.

From my point of view, it would be important for PayPal to communicate which of the activities exactly violated the terms of use, so that I and other users know how to behave in the future. The whole thing is not a unique case either. The blocking of user accounts is based on automated algorithms that no customer service employee can see through. So, the individual employee doesn't even know what the problem was and, even if he wanted to, can't offer a solution.

Those responsible at PayPal should ask themselves whether such business practices are sustainable. In recent years, modern crypto currencies have increased competition, especially for international transactions. If user accounts with PayPal can be blocked just like that, without visible reason and without explanation, one should abstain from using PayPal in particular for business purposes. I can only advise against it.

This example also shows how important it is to prevent a monopolization of the market. This does not mean that companies should be prevented from growing beyond a certain size. If you offer a good product, you should also reap the rewards and grow. Rather, it is a question of ensuring that the up-and-coming competitors, such as crypto companies, who offer alternative products, do not get stones thrown in their way through state interference.

## Too Much Partisanship in Washington? No, Too Much Bipartisanship!

12/10/2018Ron Paul

Washington is once again gripped by the specter of a government shutdown, as Congress and President Trump negotiate an end-of-year spending deal. A main issue of contention is funding for President Trump’s border wall. Sadly, but not surprisingly, neither Congress nor the administration is fighting to cut, or at least not increase, spending.

Federal spending has increased from 3.6 trillion dollars to 4.4 trillion dollars since Republicans gained control over both chambers of Congress in 2014. Some may try to defend congressional Republicans by pointing out that for two years the Republican Congress had to negotiate spending deals with President Obama. But federal spending has increased by 7.5 percent, or over 300 billion dollars, since Donald Trump become President.

A big beneficiary of the Republican spending spree is the military-industrial complex. Republicans have increased the “defense” budget by eight percent in the past two years. President Trump and congressional Republicans claim the increases are necessary because sequestration “decimated” the military. But Congress, with the Obama administration’s full cooperation and support, suspended sequestration every year but one, so the planned cuts never went into full effect. Congress and Obama also “supplemented” the official military budget with generous appropriations for the Pentagon’s off-budget Overseas Contingency Operations fund. Spending on militarism increased by as much as 600 billion dollars over the amounts allowed for under sequestration.

President Trump has proposed reducing the projected military budget for fiscal year 2020 to 700 billion dollars. This would be a mere two percent cut, yet the usual voices are already crying that this tiny reduction would endanger our security. If history is any guide, the military-industrial complex’s congressional allies and high-priced lobbyists will be able to defeat the president’s proposed reductions and convince President Trump to further increase the military budget.

This huge military budget has little or nothing to do with America’s legitimate security needs. In fact, as candidate Trump recognized, America’s military interventions in the Middle East have endangered our security by empowering terrorist groups like ISIS and al-Qaeda.

While the warfare state has been a big beneficiary of the Republican spending spree, the GOP has hardly neglected the welfare state. Domestic spending has increased seven percent since 2016. Except for a half-hearted attempt to repeal Obamacare and some food stamp reforms that were included in and then dropped from this year’s farm bill, Republicans have not made any effort to roll back or even reform the welfare state.

The farm bill, which Congress is expected to pass this week, will spend as much as 900 billion dollars over the next ten years. Much of that spending will be on taxpayer subsidies for wealthy farmers and even “farmers in name only.”

Trump’s budget deals have been supported by the majority of Democrats. Even those who have called for the president’s impeachment are more than happy to vote with him when it comes to increasing spending and debt. These Democrats are the mirror image of 1990s Republicans who made a big spending deal with President Clinton while simultaneously trying to impeach him.

We suffer from too much bipartisanship when it comes to the welfare-warfare state. This bipartisanship has resulted in a national debt that is rapidly approaching 30 trillion dollars. This will inevitably lead to a major economic crisis. The way to avoid this crisis is to replace the bipartisan welfare-warfare consensus with a new consensus in favor of limited government, peace, free markets in all areas including currency, and auditing then ending the Fed.

Reprinted with permission.

## In the Eyes of the State, We are All Russian (Bots) Now

Last September a very informative paper was published by the neoconservative Atlantic Council. In connection with this institution are such important public figures as Collin Powell, Condoleezza Rice and Henry Kissinger. The paper, written by John T. Watts, summarizes the main conclusions drawn at this year's Sovereign Challenges Conference in Washington, DC. The text allows for a deep look into some of the minds of the American elite and their allies. Its reading is therefore highly recommended. The inclined reader, however, should sometimes overlook empty phrases and distracting rhetoric to get to the heart of the matter.

At its core, it's about maintaining power. According to Watts, the big problem is “disinformation”, which is disseminated through new and alternative media. It destabilizes public institutions and in the worst case undermines the sovereignty of the state. This must be prevented.

Neoconservatives are fully aware that any state system ultimately depends on the trust of its citizens. Trust is the basis for the functioning of state institutions. New communication technologies, however, have increasingly enabled “extremist ideological” currents to spread their toxic messages and deprive people of confidence in existing institutions. It is precisely this loss of trust on the part of citizens that endangers the sovereignty of the state.1

The flood of information in the Internet age plays a decisive role because it makes targeted “disinformation” by small but well-organized groups possible in the first place. It leads to exaggeration, isolation and one-sidedness within one's own “echo chamber”. According to Watts, the sudden availability of large amounts of information can overburden a society. Too much useless and qualitatively inferior information can lead to isolation and polarization. People specifically select their sources of information and limit themselves in the process. They even have to do so in view of the many alternatives available to them. But in doing so, they tend to rely on those sources that confirm and reinforce their own prejudices.

In order to underline the potential seriousness of the situation, Watts refers to Nate Silver's book The Signal and the Noise, in which a parallel is drawn between the invention of the printing press and the advent of the Internet. This analogy was also taken up by the Scottish historian Niall Ferguson in his recent book The Square and the Tower.2 Both authors recall that the invention of printing not only made Luther's Reformation of the Christian Church possible, but also provided a powerful means of communication for many populist and, from today's point of view, deterrent movements. Here, for example, one can refer to the witch hunts of the early modern period. After Luther's Reformation, Europe was also plunged into centuries of religious wars. Is something similar threatening us today in the age of the Internet? It is clear that also today existing hierarchies and power structures are questioned and start to falter. This usually leads to the old elites giving their all in order to maintain their privileged position.

But first it has to be clarified who is really behind the specter of “disinformation”. Watts refers not only to all sorts of “conspiracy theorists” like “truthers,” “chemtrailers” or “anti-vaxxers”, whose political and social impact can really be doubted, but also to Islamic terror groups or the Russian secret service, which is said to have influenced the outcome of the American presidential elections through such powerful social networks as Facebook.

At this point, however, we should pause for a moment. Is interference in the political affairs of other countries an exclusively Russian phenomenon? No. This has always been the case everywhere, especially on the part of the USA in recent history. So, if the Russian secret service is behind targeted disinformation, can the American establishment really free itself from it? Here, too, a clear no. Think, for example, of the deliberate manipulation of public opinion before various military interventions in the Middle East.

For Watts it is simply about which narrative dominates and determines public opinion. Truth is an elastic term, he claims. The question is merely: "Whose truth?” So, it is nothing but a power struggle. From this point of view disinformation is merely a truth deviating from one's own truth and must be fought against. One's own truth becomes the disinformation of the opponent. Therefore, according to Watts, new gatekeepers are needed in the modern flow of information. The prevailing opinion must be brought back on track.

The good thing, however, is that Watts is wrong. Truth is not subjective. It is, if at all, very limited in elasticity. And if it turns out that the hitherto so dominant narrative of the American establishment has overstretched the truth at one point or another, it is a blessing that modern communication technology makes it possible to point this out critically and effectively. We can only hope that technology will always stay one step ahead of regulators and gatekeepers – and that citizens will ultimately trust the narrative that is closest to the truth.

• 1. The loss of trust is reflected, for example, in this year's Edelman Trust Barometer: Global Report. Interestingly, India, for example, has a higher trust index than the USA.
• 2. The interested reader is referred to Dr. David Gordon’s review of Ferguson’s book.

## The Corporate Debt Market: Is It Teetering on the Edge?

Jeff Peshut answers the question that has been widely discussed in the media lately: Is There Really A Corporate Debt Bubble That’s Ready To Burst?

To unravel the mystery, Peshut compares movements in the Rothbard-Salerno TMS monetary aggregate with movements in corporate business debt from 1978 through 2017.  At the end of 2017 corporate business debt stood at \$29.1 billion or about \$10 trillion above its post-crisis trough at the end of 2009.  TMS reached its cyclical trough of \$5.1 trillion at the end of 2006 and increased to \$13.1 trillion, a breath-taking increase of 156.9%, by the end of 2017.  For the sake of comparison, during the housing bubble TMS increased by “only” 70%, from \$3.0 trillion to \$5.1 trillion from 2000 to 2006. The year-over-year (YOY) rate of growth of TMS has precipitously fallen from over 7% in 2016 to less than 4% at the end of 2017. The huge increase in the money supply from 2009 onward would certainly lead us to suspect that there is a systemic overvaluation of asset markets that will sooner or later come to a bad end.  But the trillion dollar question is, of course: When?

With respect to the corporate debt market, Peshut gives us a cogent ad informed forecast.  He finds that in the last three complete credit cycles, from 1994 through 2009, the trough in the YOY growth rate of TMS has preceded the trough in the YOY growth rate of corporate business debt by about three years in each case.  Given this three-year lag, even if TMS has already reached its trough, Peshut concludes that claims that the corporate debt bubble is about to pop are premature and the more likely scenario is that the bubble bursts in 2021 or 2022.

## Austrians Should Pay Attention to the "Replication Crisis" in Scientific Research

Austrian economists should take an interest in the so-called “replication crisis” in science, which is affecting primarily the field of psychology, but is likely under-recognized in other social sciences—and in economics in particular.

Over the last several, an increasing number of reports have highlighted the fact that scientists are frequently unable to replicate the results of prior experiments in psychology, even when those experimental or correlational studies were conducted and analyzed according to commonly accepted methods. The magnitude of the problem was made concrete in a 2015 Science paper by lead author Brian Nosek. Replication rates, in terms of statistical significance or effect size, were only between 25-50% (depending on the particular field of psychological study).

The doubts raised by Nosek and his collaborators are metastasizing to other human sciences, including medicine. Reports of poor research reproducibility are now appearing routinely in scientific journals. Interestingly , in the context of such a replication study pertaining to the social sciences and published this past August, it was discovered that scientists are able to predict a priori with a high degree of accuracy which particular result will be replicated and which will not!

A perhaps even more startling study was just published last month. Nosek submitted a very rich data set, taken from the 2012-2013 soccer season, to 29 different teams of statisticians for analysis. The question to be answered by the statisticians was whether a darker skin tone increased the likelihood that a player would receive a red card. The variability in the methods chosen and in the results obtained was astounding, especially since, at one point in the process, the teams of analysts were encouraged to compare notes and give each other feedback.

We interviewed Nosek on our podcast about his work. It was a fascinating conversation. As an empiricist, he remains hopeful that, perhaps through greater transparency, sharing of data, and collaboration among scientists, the replication crisis will resolve itself. And he expects that the resolution will occur while preserving the standard theoretical assumptions of empiricism.

I’m not so “optimistic,” and I suspect that the crisis will be protracted. But I am hopeful that, over time, social scientists will come to recognize and accept that certain types of knowledge can only be obtained by human judgment, rather than by measurement—provided that the judgment and reasoning proceed logically from a basis of reasonable assumptions. This is a good opportunity for Austrians to showcase their methodological alternative to the scientific world

## Trump is the Rare Honest Politician about US Debt

12/06/2018Tho Bishop

Once again Donald Trump’s presidency has done a great job of highlighting the hypocrisy and delusion of the beltway bubble.

A recent story from the Daily Beast reports that Trump is frustrating advisers with his apathy towards the current trillion dollar deficits coming out of Washington.

Since the 2016 presidential campaign, Donald Trump’s aides and advisers have tried to convince him of the importance of tackling the national debt.

Sources close to the president say he has repeatedly shrugged it off, implying that he doesn’t have to worry about the money owed to America’s creditors—currently about \$21 trillion—because he won’t be around to shoulder the blame when it becomes even more untenable.

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the national debt in the not-too-distant future. In response, Trump noted that the data suggested the debt would reach a critical mass only after his possible second term in office.

“Yeah, but I won’t be here,” the president bluntly said, according to a source who was in the room when Trump made this comment during discussions on the debt.

Trump’s lack of concern for the debt should hardly be surprising. As a candidate, he boasted about his desire to preserve various entitlement programs while simultaneously promising significant increases in military spending – a promise he has delivered on. Left unsaid in the report is that the goal of at least some of Trump’s advisors was undoubtedly to encourage the president to embrace some form of tax increase. We know, for example, that Treasury Secretary Steve Mnuchin has encouraged Trump to embrace a VAT tax in the past, a policy that would be particularly damaging to America’s low and middle class.

What’s all the more comical, however, is the resulting jeering from DC pundits and political enemies acting as if Trump’s view on the debt is some radical new threat to American stability. On the contrast, all Trump is doing is being honest about the views held by almost everyone that has served in Washington the past several decades. While politicians from both parties love to give lip service to “fiscal responsibility”, the closest thing we’ve come to meaningful action on budgetary restraint was the budget sequestration of 2013. Of course those cuts to future spending increases (not to be confused with actual spending cuts) came into place simply because of the inaction of federal legislators and faced instant bipartisan condemnation.

This isn’t the first time that Trump’s truth telling over the debt has thrown opposing politicians and pundits into a tizzy. On the campaign trail, Trump was accused of threatening financial Armageddon when he suggested that America could default on its debt. What should be obvious to anyone who has paid even passive attention to American politics is that US default is inevitable. The only question is what form will it take.

One of the greatest myths in DC is that America has never defaulted on its debt, something repeated not long ago by Fed Chair Jerome Powell in a Congressional hearing. Of course this is simply absurd.

As James Grant and other financial historians have explained, the federal government has defaulted numerous times in its history, the most recent of which occurred when Richard Nixon closed the gold window.  In that case, the out of control spending, led by the Vietnam war and LBJ’s Great Society, led the US to default on its obligations to foreign governments, repaying their loans with dollars valued at far less than the \$35 per ounce they were promised.

This form of monetary default may be the future of the dollar, an outcome that Ron Paul has long warned us about

Another option, one that Murray Rothbard advlocated, is simple debt repudiation. As he wrote in 1992, when US debt was a quaint \$4 trillion:

I propose, then, a seemingly drastic but actually far less destructive way of paying off the public debt at a single blow: outright debt repudiation. Consider this question: why should the poor, battered citizens of Russia or Poland or the other ex-Communist countries be bound by the debts contracted by their former Communist masters? In the Communist situation, the injustice is clear: that citizens struggling for freedom and for a free-market economy should be taxed to pay for debts contracted by the monstrous former ruling class. But this injustice only differs by degree from "normal" public debt. For, conversely, why should the Communist government of the Soviet Union have been bound by debts contracted by the Czarist government they hated and overthrew? And why should we, struggling American citizens of today, be bound by debts created by a past ruling elite who contracted these debts at our expense? One of the cogent arguments against paying blacks "reparations" for past slavery is that we, the living, were not slaveholders. Similarly, we the living did not contract for either the past or the present debts incurred by the politicians and bureaucrats in Washington.

Rothbard goes on to suggest that a more traditional debt restructuring – similar to what Trump touched on during his campaign  –  could also be an option if outright repudiation was considered to be “too draconian.”

The government is an organization, so why not liquidate the assets of that organization and pay the creditors (the government bondholders) a pro-rata share of those assets? This solution would cost the taxpayer nothing....The United States government should be forced to disgorge its assets, sell them at auction, and then pay off the creditors accordingly....This combination of repudiation and privatization would go a long way to reducing the tax burden, establishing fiscal soundness, and desocializing the United States.

Peter Klein has also written on the absurd hyperventilating in the beltway when such an idea is ever suggested:

[T]he idea that the US can never restructure or even repudiate the national debt — that US Treasuries must always be treated as a unique and magical “risk-free” investment — is wildly speculative at best, preposterous at worst. Every other borrowing entity — individuals, business firms, and governments — has the option of renegotiating interest payments and even defaulting on loans. It is hardly an extraordinary event, even for sovereign borrowing — that’s why lenders charge a risk premium beyond the return they require to compensate for time preference.

There is lots of evidence on private, corporate, and sovereign defaults, and the results are hardly catastrophic. Depending on the circumstances, the benefits of reducing debt can exceed the costs of harming the borrower’s reputation and thus increasing the costs of future borrowing. Anyone who has been through a personal or corporate bankruptcy knows this.

At the end of the day Trump’s views on dismissal of US debt illustrate is another example of short-sighted economic thinking. It’s absurd, however, to treat this as some radical change from his more “dignified” and “respectable” predecessors. Instead, just like his views on tariffsmonetary policy, and defense spending, Trump’s real sin is simply being a continuation of the status quo on these issues

The difference is that Trump says out loud the part politicians are supposed to keep quiet.

## We Need Unilateral Free Trade with Post-Brexit Britain

12/06/2018Ryan McMaken

Listen to Ryan McMaken's commentary on the Radio Rothbard podcast.

In order to whip up opposition to Brexit, pro-EU activists have long relied on generating fear by suggesting that without EU membership, British trade will suffer, and export totals will collapse.

This, however, has always been an unconvincing argument because EU membership tends to restrict participation in global trade more than it enhances it.

Even the EU admits that "growth in global demand is coming from outside Europe, noting that 90% of global economic growth in the next 10–15 years is expected to be generated outside Europe, a third of it in China alone."

Moreover, the importance of the EU as an export market for the EU has been declining in recent decades. 15 years ago, the EU accounted for over 50 percent of all UK exports. By 2015, the number had fallen to 44 percent, reflecting the shift toward markets outside of the EU.

Even the EU's core members like Germany know the real future of global trade lies outside the EU. As Alasdair MacLeod noted last year,

[W]ith respect to trade, Fortress Europe’s trade policies are increasingly disadvantageous to her. Germany now exports more to China than to any individual European country... [Germany] sees on her Eastern flank ...  a pan-Asian phoenix arising in the form of the Shanghai Cooperation Organisation (SCO), led by Russia and China. And it is growing.

...India and Pakistan also became full SCO members, taking the rapidly-industrialising membership to nearly half the world’s population. The Silk Road is sending goods to Europe, and will transport Mercedes, BMWs, and VWs the other way. Asian demand for German engineering and capital equipment is likely to become the largest market by far for the foreseeable future.

Really, by staying in the EU — which is obsessed with tightly regulating and controlling trade with countries outside the bloc — the UK is limiting its own ability to be flexible with the rest of the world.

These facts, however, are not readily apparent to the general public in the UK or elsewhere, and the idea that the UK will be somehow "isolated" without the EU continues to turn heads.

But how to help illustrate that Brexit really means more openness in trade?

There is an easy way to help with this, of course, and it would be the right thing to do with or without Brexit: The US should immediately adopt a position of unilateral free trade with the United Kingdom.

The US, of course, should adopt unilateral free trade with everyone right now, but failing that, the UK is certainly an acceptable place to start.

I suggest the UK as a starting point because open trade with Britain is an easy sell, politically.

After all, opening up unfettered free trade with the UK would be an easy choice strategically. It would make the US an indispensable partner all the more, and solidify the UK as an important part of the North American economy.

Moreover, any claims that unilateral free trade with the UK is "enriching our enemies" would be laughable. The UK and the US have been at peace for more than 200 years. Unilateral free trade doesn't lead to "exploitation" of the US in any case, but even if it did, this would not be an issue of military importance.

From an economic standpoint, of course, unilateral free trade is always to the benefit of the country which adopts it. It would mean lower production costs and less expensive consumer goods for countless Americans and American entrepreneurs. Even if the UK maintained tariffs on American goods, the end result would only mean more inexpensive goods for Americans, and more investment in the US by British companies who reap the rewards of selling more goods to Americans.

Claims that the US would be flooded with "cheap goods made by slave labor" — as some anti-China protectionists like to claim — would be obviously non-sensical. British labor laws are similar to those in North America, and the cost of British labor is similar as well.

Moreover, when it comes to trading with the British, it is harder for protectionists and xenophobes to capitalize on nationalist impulses to push their agendas. Are we really to believe that we ought to fear exploitation by English-speaking high-income foreigners who, by the way, have an extensive history of investment in American industries?

#### Trump's Mishandling of the Brexit Situation

Unfortunately, for all his big talk about building strategic advantages for the US government, Trump has badly mismanaged the Brexit situation and will probably botch the opportunity to draw the UK further into a greater partnership with the US.

Instead of using Brexit as a means to build a better relationship with the UK, at the expense of the EU's quasi-socialist bureaucrats, Trump has instead attempted to isolate the UK further in order to force UK acquiescence to Trump's economically-illiterate campaign against free trade.

This hurts American consumers and producers while also potentially helping politicians in both China and the EU. As Thomas Wright at Politico notes:

A post-Brexit Britain needs close relations with other major countries, and if the United States is difficult to deal with, [the UK] will find itself increasingly tempted into a closer economic partnership with China, one that will surely have political consequences. Trump’s antagonistic approach also plays into the hands the leftist leader of the opposition, Jeremy Corbyn, a persistent critic of a close U.S.-UK alliance who would likely leap at the chance to weaken the special relationship.

My personal position is that it is not important or in our best interests to engage in foreign policy posturing with China or any other country. Political neutrality and open commerce is always the best position. However, I do know that Trump and his allies think that playing games with China and the EU are important policy goals. But even by their standards, the administration's anti-UK protectionism is counter-productive.

No doubt Trump's supporters will stick to their little narrative in which Trump is playing 4-D chess and has some grand plan that will both stick it to the EU and massively increase American exports to the UK at the same time.

This is a pipe dream, of course, but some people seem to actually believe it.

Were the Trump administration wiser, it would pursue unilateral free trade not just with the UK, but with the entire Anglosphere of Canada, Australia, and New Zealand. Both the economic and strategic benefits would be substantial.

## Big Tech has Big Problems, but More Regulation Will Only Hurt Consumers

12/06/2018Zachary Yost

Big Tech has long faced calls for more regulation, and as their companies have grown, so has the pressure. Now those demands are coming from within Silicon Valley itself. Apple CEO Tim Cook recently told Axios that, though he supports the free market, it’s only a matter of time before Big Tech is restricted. “We have to admit when the free market is not working. And it hasn’t worked here,” Cook said. “I think it’s inevitable that there will be some level of regulation.” Indeed, a newly released Axios poll found that 55 percent of Americans “fear the federal government won’t do enough to regulate big tech companies.” That figure is up 15 points over last year.

The problem is that, if implemented, such regulations would only entrench existing firms and hurt consumers.

As Axios notes, Big Tech regulation has become “a rare topic uniting Republicans, Democrats and Independents.” In August, Representative Steve King, Republican of Iowa, floated the idea of turning tech giants into public utilities. On the Left, writer Richard Eskow went even further by calling for companies like Amazon and Google to be nationalized. The young right-wing firebrand Charlie Kirk recently advocated that Google be classified as a monopoly and anti-trust law be brought to bear against it.

It’s understandable why so many across the political spectrum have an uneasiness about Big Tech. After all, it has an immense amount of power, especially in regard to stored information.

But increased regulation will only empower Big Tech and leave it less accountable than before. The “revolving door,” through which officials move between government and the private sector, allows businesses to heavily influence regulation. Sometimes they’ll even advocate that regulation be increased as a means of ensuring that the new regulations work to their advantage. When groups like Business for a Fair Minimum Wage, whose members already pay employees “well over the minimum wage,” advocate for an increase in the minimum wage, it’s not out of benevolence toward workers. They want to force their competitors to pay more in the hope of driving them out of business. In economics, this is known as regulatory capture, an idea developed by Nobel laureate George Stigler.

Another tactic is making the regulatory hurdle so high that it ensures new competition and smothers startups in the cradle. A startup in someone’s basement can’t afford an army of lawyers to navigate through reams of regulations like Google and Facebook can.

Historically, Big Tech has been hands-off when it comes to lobbying, but that’s starting to change and the numbers show it. In 2017, Google, Amazon, Facebook, and Apple spent over \$50 million on lobbying, a 32 percent increase for Facebook and a 51 percent increase for Apple. In fairness, that’s much less than other industries spend on lobbying—but as talk of regulation increases, expect to see Big Tech kick up its lobbying even further and for its competition to get squelched.

In a free market, companies only have the power that consumers give them when they make their consumption choices. Google, Facebook, and Amazon are huge and powerful because so many choose to utilize their services. Economist Ludwig von Mises called this “consumer sovereignty,” writing, “The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that.” No matter how large a business is, if it doesn’t give consumers what they want, it will eventually falter. Just look at Nokia. In 2007, the company controlled almost 50 percent of the world’s smartphone market. By 2013, that number had fallen to less than 5 percent. Such a drastic change in fortunes occurred because consumers chose to make it happen—and because other companies innovated more to attract them.

But if Big Tech becomes entrenched and protected from competition through regulation, the consumer’s power over them is diminished. It’s a recipe for decreased innovation and customer service. Big Tech is kept on its toes by the fear of becoming the next Nokia, which is why they spend tens of billions of dollars every year on research and development. There will be far less incentive to do so if they know that they’re safe from potential upstarts supplanting them.

Big Tech has big problems, but increased regulation will only lead to more lobbying, less competition, and less innovation. Consumers have given Big Tech its power, and as long as there are competition and alternatives, they also have the power to take it away. Let’s hang on to that control rather than demanding that the government exercise it for us.